X-X01-7-C7792-A HQ0707〈MDOC〉 Printed in Japan AT A GLANCE

CORPORATE DATA FINANCIAL HIGHLIGHTS Energy and Electric Systems Industrial Automation Systems Information and Communication As of March 31, 2007 Years ended March 31 Yen U.S. dollars Systems (millions) (thousands) CORPORATION 2007 2006 2005 2007 868,789 860,111 644,111 , 06 06 06 2-7-3, Marunouchi, 25,296 95,967 20,677 Net sales ¥3,855,745 ¥3,604,185 ¥3,410,685 $32,675,805 Chiyoda-ku, Tokyo 100-8310, Operating income 233,002 157,718 120,642 1,974,593 951,065 956,930 688,004 Japan 07 07 07 49,310 126,227 20,803 Phone: +81 (3) 3218-2111 Net income 123,080 95,692 71,175 1,043,051

ESTABLISHED: Total assets 3,452,231 3,313,742 3,162,472 29,256,195 January 15, 1921 Shareholders’ equity 1,059,209 942,202 720,637 8,976,347 MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Capital expenditure 140,557 134,413 125,657 1,191,161 PAID-IN CAPITAL: Turbine generators, hydraulic turbine Programmable logic controllers, inverters, Wireless communications equipment, ¥175,820 million R&D expenditure 132,722 130,639 130,541 1,124,763 generators, nuclear power plant equipment, servomotors, human-machine interface, mobile handsets, cable communications SHARES ISSUED: motors, transformers, power electronics motors, hoists, magnetic switches, no-fuse systems, satellite communications equipment, circuit breakers, gas insulated circuit breakers, short-circuit breakers, equipment, artificial satellites, radar 2,147,201,551 shares Yen U.S. dollars switches, switch control devices, surveillance- transformers for electricity distribution, equipment, antennas, missile systems, fire- CONSOLIDATED NET SALES: Per-Share Amounts system control and security systems, time and power meters, uninterruptible control systems, broadcasting equipment, ¥3,855,745 million Net income electrical equipment for locomotives and power supply, industrial sewing machines, data transmission devices, information Basic ¥57.34 ¥44.64 ¥33.16 $0.486 CONSOLIDATED TOTAL ASSETS: rolling stock, elevators, escalators, computerized numerical controllers, systems equipment, systems integration, Diluted 57.34 44.63 33.16 0.486 particle beam treatment systems, and electrical-discharge machines, laser and others ¥3,452,231 million Cash dividends declared 10 860.085 others processing machines, industrial robots, EMPLOYEES: See accompanying notes to consolidated financial statements. clutches, car audio equipment, car 102,835 navigation systems, automotive electrical equipment, car electronics, and others

CONTENTS NET SALES BREAKDOWN BY BUSINESS SEGMENT Electronic Devices Home Appliances Others 01 At a Glance 02 To Our Shareholders 03 Corporate Strategy Others 14.5% Energy and Electric 21.9% 170,394 896,437 603,585 Systems 06 06 06 06 Corporate Social Responsibility 13,531 14,958 13,342 08 Research and Development 185,911 921,948 630,510 09 Intellectual Property 07 07 07 Home Appliances 21.3% 12,141 36,644 15,169 10 Review of Operations Industrial Automation 22.1% 10 Energy and Electric Systems Systems 11 Industrial Automation Systems 12 Information and Electronic Devices 4.3% Information and 15.9% MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Communication Systems Communication Systems Power modules, high-frequency devices, Color televisions, projection TVs, display Procurement, logistics, real estate, 13 Electronic Devices optical devices, LCD devices, printed monitors, video projectors, DVDs, room air advertising, finance and other services 14 Home Appliances circuit boards, system LSIs, and others conditioners, package air conditioners, 15 Corporate Governance refrigerators, electric fans, washing 16 Directors and machines, ventilators, solar power Executive Officers generation systems, hot water supply 17 Organization systems, fluorescent lamps, indoor lighting, compressors, chillers, humidifiers, 18 Subsidiaries and Affiliates NET SALES dehumidifiers, air purifiers, showcases, 19 Financial Section OPERATING INCOME 61 Shareholder Information cleaners, microwave ovens, IH cooking heaters, and others (Yen in millions)

1 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 1 TO OUR SHAREHOLDERS CORPORATE STRATEGY: IMPLEMENTING BALANCED MANAGEMENT

Throughout fiscal year 2007, ended March 31, Based on the corporate statement, “Changes for the Better,” the Improving Performance through Balanced Management 2007, the Mitsubishi Electric Group focused its Mitsubishi Electric Group aspires to a brighter future through its com- Under a policy of balanced management, the Mitsubishi Electric balanced management initiatives for business mitment to bring innovations to society, industry and everyday life. Group attained all of its management targets in the fiscal year ended reform on “Growth,” “Profitability and We aim to construct a solid management structure to attain sus- March 31, 2007, including an operating income ratio of 6%, ROE Efficiency” and “Soundness.” Under its strategy of tainable growth by promoting balanced management initiatives that (return on equity) of 12.3% and a ratio of interest-bearing debt to “making strong businesses stronger,” the Group emphasize “Growth,” “Profitability and Efficiency,” and total assets of 18.6%. The Group achieved these targets through actively implemented business-strengthening “Soundness.” We will also continue to actively promote corporate business-reinforcement measures, structural reforms and improve- strategies and structural reforms in response to social responsibility (CSR) initiatives based on our Corporate ments in productivity and financial standing. changing business conditions, with the goal of Mission and our Seven Guiding Principles. The Mitsubishi Electric Moving forward, the Mitsubishi Electric Group has set more chal- increasing and strengthening profitability in each Group is taking thorough measures, particularly in the area of com- lenging targets to lower the ratio of interest-bearing debt to total business segment. At the same time, the Group pliance, to expand its training programs and strengthen its internal assets to 15% or less. We are also pursuing efforts to achieve other continued to strengthen production and sales sys- control systems. management targets on a continuous basis. tems both in domestic and overseas markets by In order to continue to meet the expectations of shareholders, we establishing and reinforcing operating bases. will enact reform measures to evolve into a conglomerate of highly In addition, Mitsubishi Electric carried out competitive, electric-electronic businesses, optimizing synergies to Framework for Balanced Management extensive companywide management improvement further increase corporate value. The Group implements balanced management through two initia- measures including our “Just in Time” initiative, tives: prioritizing front-line operations and focusing on organizing where we were able to reduce inventory and networks. Through prioritization of front-line operations, the Group increase productivity, as well as the continuation of works to bolster “craftsmanship” abilities in the areas of quality, our cost-reducing A-Sigma 21 Program. We also Management Policy costs, manufacturing technologies, new developments and intellectu- strengthened our competitive edge through appro- Accomplishment of al properties, as well as promoting greater competitiveness in mar- priate allocation of human resources (HR) and by “Balanced Corporate Management” keting and services. Through our focus on organizing networks, we optimizing our HR structure. Achieving Stable Results: Steady Growth and Improvement are strengthening our production and sales links and improving syner- As a result, the Mitsubishi Electric Group gies between business segments. We also continue to fortify corporate- recorded increased sales for the third consecutive wide support functions and promote global management through year and increased profits for the fifth consecutive collaborations such as the ties between parent factories in Japan and year. Consolidated net sales totaled ¥3,855.7 bil- Growth overseas facilities, as well as the interface between regional strategies lion, an increase of 7% compared with the previ- and business and product-line strategies. Integrating these two initia- ous fiscal year. Operating income soared by 48% tives into our management framework promotes business-strengthen- to ¥233.0 billion, and net income rose by 29% to ing strategies, efficient management structures, solid growth ¥123.1 billion. Operating income marked a record strategies, substantial environmental management and improvement high for the first time in 17 years, and the operat- of our financial standing. ing income ratio reached 6.0%, which accom- plished our stated management target. The Group Profitability Soundness will further reinforce its reform initiatives to con- Efficiency sistently attain our respective management targets. Management Framework Not being swayed by changing business environ- ments, the Mitsubishi Electric Group will continue to forge a path of steady growth by effectively Two Frameworks Implementing “Establish a robust managerial basis” and “ensure sustainable growth” Balanced refining our integrated “craftsmanship,” which is Management the foundation of our activities as a manufacturer, Increase corporate value Priority on the Promote Business- and by reinforcing our various businesses. We will Strengthening Strategies Front Line make every effort to further improve earnings Strengthening Management results and increase corporate value. Your contin- ued support would be greatly appreciated. Focus on Growth Strategy Three Management Targets to Be Consistently Maintained: Organizing Network Environmental July 2007 Balanced Management Management Operating income ratio: 5% or more Improve Financial Standing President & CEO ROE: 10% or more Interest-bearing debt to total assets: 20% or less ⇒ 15% or less Setsuhiro Shimomura

2 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 3 Promoting Business-Strengthening Strategies Growth Strategies: Promoting the VI Strategy and the AD Strategy The Mitsubishi Electric Group promotes business-strengthening strate- The core theme of the VI Strategy is to make strong businesses gies and ongoing structural reforms in step with an ever-changing busi- stronger. ness climate. Across business segments that include elevators and Examples by segment of Mitsubishi Electric Group’s core busi- escalators, factory automation systems, automotive products and much nesses include: power generation systems and elevators and escala- more, we boost product competitiveness through such means as the tors in the Energy and Electronic Systems segment; factory development of differentiated technologies, thorough cost-reduction automation products and automotive electric and electronic compo- efforts and the development of eco-oriented products. In our goal to nents in the Industrial Automation Systems segment; satellites and continue our global business expansion, we are strengthening our pro- optical communication systems in Information and Communication duction and sales structures by establishing and reinforcing domestic Systems; intelligent power modules in the Electronic Devices seg- and overseas operating bases. In the mobile handset business, for ment; and air conditioners and household equipment in the Home example, collaborative development efforts with other companies also Appliances segment. obtain certain results, permitting more development efficiencies. We will fortify growth strategies for individual businesses within the above-listed strong businesses as we augment support at the corporate level. By combining our diverse technologies and know-how, we will Strengthening Management leverage technological synergies to further reinforce these businesses. The Mitsubishi Electric Group consistently promotes companywide management improvement measures, taking active steps to further solidify its management structure. The goal of our AD Strategy is to expand our business opportunities With the objective of strengthening our integrated “craftsman- by providing our customers with satisfying solutions centered on our ship” as a manufacturer, we continue to reinforce and broaden our strong businesses. “Just In Time” activities, improve productivity and quality through We are making every effort to provide integrated, one-stop solu- stronger communications between parent factories in Japan and tions that fulfill customer needs in environment/energy-saving, infor- overseas facilities, promote rapid commercialization of successful mation and physical security, visual communications, intelligent development efforts and improve material procurement by bolstering transportation systems (ITS) and telematics, and location-based solu- countermeasures against rising material costs. Moreover, we encour- tion services. By combining all of our broad-ranging technologies and preventive measures. We are promoting energy-saving activities as In comparison with a peak interest-bearing debt of ¥1,769.4 bil- age collaboration between business divisions for more effective mar- know-how, and focusing on our competitive products and services, we well as reducing CO2 emissions with a target of a 25% decrease by lion as of March 31, 1998, interest-bearing debt as of March 31, keting and services, work to improve our financial standing through are developing solutions businesses through product synergies. fiscal 2011, compared with fiscal 1991 levels. In addition, we are 2007 was reduced to ¥641.1 billion. This represents an improvement measures including inventory reduction, as well as effectively use our strengthening eco-supply-chain management, particularly with in the ratio of interest-bearing debt to total assets from 40.6% down human resources organization to appropriately allocate our person- regard to the traceability of chemical substances in products. The to 18.6%. We also increased annual dividends from ¥3 for the fiscal nel to “make strong businesses stronger.” Expanding and leveraging business opportunities in worldwide mar- Group is stepping up its eco-logistics activities for greater environ- year ended March 31, 2003 to ¥10 for the fiscal year ended March The Mitsubishi Electric Group will continuously and vigorously kets is one of the most important factors in the growth of the mental awareness in logistics. Through these efforts, our goal is to 31, 2007. promote these initiatives and make every effort to strengthen quality, Mitsubishi Electric Group. improve environmental performance. Moreover, the Group is focused cost structures, production technologies, development capabilities, The Group is promoting global management with several meas- on expanding environmentally beneficial businesses through eco- intellectual property activities, and marketing and services, with the ures: constructing an optimal business structure for the entire Group products and hyper-eco-products such as eco-monitors and other Striving for Constant Improvement on a global basis, strengthening cooperation between parent facto- goal of further boosting profitability. high-efficiency, energy-saving equipment. Based on our balanced corporate management policies, the ries in Japan and overseas facilities, and deepening the links between Mitsubishi Electric Group will steadily implement management regional strategies and business and product-line strategies. Stronger strategies to foster unrivalled competitiveness in individual business- links between global businesses in their manufacturing and sales Growth Strategies Improving Financial Standing es. At the same time, we will continue our reform measures to structures include transportation systems (railway), elevators and The Mitsubishi Electric Group advances growth strategies that The Mitsubishi Electric Group continues to press ahead with efforts become a conglomerate of highly competitive electric-electronic escalators, factory automation equipment, automotive equipment include the following: the VI Strategy, with the goal to make strong to construct a robust financial standing by reforming business struc- businesses incorporating synergies aiming to construct a robust man- and air-conditioning systems. businesses stronger; the AD Strategy, designed to reinforce solutions tures and improving asset turnover. agement structure and to attain sustainable growth. In addition, we are bolstering our global R&D, marketing and finan- centered on strong businesses; and the Global Strategy. We are implementing thorough structural reforms to increase To accomplish these goals, it is increasingly important that we cial support infrastructure. We are also reinforcing our growth strate- The Mitsubishi Electric Group has a variety of products and busi- competitiveness and improve profitability in all businesses. In order strive for constant improvement, which puts into practice the spirit gies in high-potential markets such as China, India, ASEAN nations, nesses that are able to both compete and grow in the global arena. to raise overall profitability, we are also striving to boost competi- that is embodied in the Mitsubishi Electric Group’s corporate state- Central and Eastern Europe, Russia and other nations and areas. To maintain and expand future growth, we will vigorously press tiveness in the areas of quality, costs, production technologies, devel- ment, “Changes for the Better.” There is little value in that which ahead with these strategies and triumph over the competition on a opment capabilities, intellectual property, marketing and services. In does not change. The Mitsubishi Electric Group will continually seek worldwide scale. addition, the Mitsubishi Electric Group is shrinking inventories, pri- to improve, pressing ahead with sincerity and a confidence that our Environmental Management marily through “Just In Time” activities, and expanding its global efforts will lead to greater corporate value. The Mitsubishi Electric Group engages in environmental manage- cash management system in order to improve asset turnover and the ment based on environmental plans that are formulated every three efficiency of funding operations. These initiatives are aimed at con- years. The Group currently operates under its Fifth Environmental sistently generating high levels of cash flow. Plan, which was launched in fiscal 2007. The Mitsubishi Electric By balanced use of cash flow, we will reduce interest-bearing debt, Group is working to fulfill its corporate social responsibilities by provide shareholders with dividend increases and make investments improving environmental management systems and reinforcing in growth fields.

4 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 5 CORPORATE SOCIAL RESPONSIBILITY

The Mitsubishi Electric Group believes that Corporate Social Ethics and Compliance Code of Conduct, taking into account local over 1,000 donations totaling life cycle and promoting design for environment (DFE) activities. Responsibility (CSR) initiatives sustain the foundation for the laws, culture and customs. In addition, compliance meetings are held approximately ¥470 million had Among products being developed as part of DFE activities, those Company’s business endeavors. The Group’s Corporate Mission and in an effort to thoroughly entrench compliance concepts. been made to social welfare facili- products that attain outstanding eco-friendly standards are recog- its Seven Guiding Principles form its basic CSR policies. The ties and other causes. In the fiscal nized as eco-products. Among Mitsubishi Electric’s total of 166 prod- Mitsubishi Electric Group is especially thorough in its measures Risk Management year under review, Mitsubishi uct categories in the fiscal year under review, 79 were developed as part related to corporate ethics and compliance, working to improve edu- Electric provided relief funds, of DFE activities, and 82% of these were designated as eco-products. Risk Management Structure cational programs and strengthen its internal control structure. washers and driers to support vic- The risk management system is constructed so that each executive *The MET perspective is defined as follows. Mitsubishi Electric is undertaking active initiatives in the areas of tims of the earthquake in Japan’s officer possesses responsibility for his assigned duties. M (Material): Efficient use of materials quality management, environmental preservation, philanthropy and Noto Peninsula. E (Energy): Efficient use of energy In addition, important management implementations are discussed Mitsubishi Electric donated a compact car to improved communication with all stakeholders. the Fukuin-ryo children’s advocacy facility in T (Toxicity): Eliminate disposal of substances and decided by all the executive officers in the executive officers’ Setagaya-ku, Tokyo that pose environmental risk meetings. The synergistic effect of all executive officers participating Corporate Mission in management and information creates a multi-dimensional risk • Eco-Products “Eco Cute” The Mitsubishi Electric Group will continually improve its tech- management system. Foundations nologies and services by applying creativity to all aspects of its Winner of the Chairman’s Award at the Founded in 1991, the Mitsubishi 2006 Energy Conservation Awards business. By doing so, we enhance the quality of life in our socie- Promoting Risk Management and Strengthening Internal Electric America Foundation ty. To this end, all members of the Group will pursue the fol- (January 2007). Power consumption is lowing Seven Guiding Principles. Controls (MEAF) serves children and youth approximately one-third that of conven- To fulfill its obligations to stakeholders, Mitsubishi Electric makes with disabilities in the U.S. In Seven Guiding Principles tional heat pump electric water heaters. every effort to minimize business risks and to avert the occurrence of 2000, Mitsubishi Electric was rec- Trust, Quality, Technology, Citizenship, Ethics, Environment incidents in such areas as ethics, compliance, environment, product ognized for its support of the and Growth quality and others that significantly affect society, working to discov- internship program of the Since 1992, the Mitsubishi Electric Thai er risks as early as possible and formulating countermeasures. American Foundation for the Foundation has provided scholarships to sup- Nature Conservation Activities port engineering students facing economic hur- • Launched Training of “Nature Conservation Leaders” Compliance From fiscal 2008, the Financial Instruments and Exchange Law Blind, becoming the first dles at Thailand’s Chulalongkorn University, Kasetsart University and Thammasat From the year ended March 31, will mandate the introduction of an internal control reporting sys- Japanese company to win the University. With the cooperation of the Thai Formulating and Familiarizing Employees with the Corporate tem, requiring enhancement of internal control frameworks. In order prestigious Helen Keller Ministry of Education, the foundation has con- 2007, Mitsubishi Electric began Ethics and Compliance Statement ducted school lunch support programs for training “nature conservation to ensure reliability in Group financial reporting, the Mitsubishi Achievement Award. impoverished elementary school students who Mitsubishi Electric first clarified and formulated its code of corpo- otherwise go without school lunches. The foun- leaders” to promote nature con- Electric Group established an organization in July 2006 to promote The Mitsubishi Electric dation is implementing a number of philan- rate ethics in April 1990. The code has since undergone a series of the construction of an internal control system. This organization Thailand Foundation, also estab- thropic activities. servation education in local revisions to reflect amendments to legislation and changes in the continues to reinforce the Group's internal control structure. lished in 1991, grants scholarship payments to university students areas. In addition to raising social environment. In 2001, we released the Corporate Ethics and and conducts school lunch support programs at elementary schools. environmental awareness among Compliance Statement, which identifies six basic policies: compli- Quality Management Principles and System both employees and their fami- ance with the law, respect for human rights, contribution to society, lies, we aim to foster children’s collaboration and harmonization with the community, consideration The Mitsubishi Electric Group made “Service through Quality” its interest in science through Environmental Activities Nature conservation leaders of environmental issues and awareness of personal integrity. corporate motto in 1952. This spirit has been faithfully passed on hands-on observation of nature. To raise awareness of this statement throughout Mitsubishi and is reflected today in our four basic quality assurance principles. Activities to Prevent Global Warming Electric, we not only display posters but hand out cards for each Based upon these principles, we have established a system for • Reducing CO2 Emissions Emissions Intensity Communication with Stakeholders employee in Japan to carry. We have also distributed to every quality assurance and improvement activities throughout the entire Mitsubishi Electric has set the volun- (%) 100 100 Mitsubishi Electric is expanding communication activities to pro- Mitsubishi Electric Group employee a booklet titled “Corporate Group and formulated quality assurance guidelines. We comply with tary target of reducing its carbon 80 mote understanding of its stance on CSR as seen through its prod- Ethics and Compliance Code of Conduct,” which contains the quality assurance legislation and standards and are working to fur- equivalent energy per net sales unit by 60 44.6 43.6 39.9 37.3 ucts and businesses. As concern about preventing global warming Corporate Ethics and Compliance Statement and specific action poli- ther develop quality improvement activities. 60% or more by fiscal 2010, versus 40 48.3 increases, Mitsubishi Electric is participating in eco-product exhibits cies. The booklet has been revised four times to reflect revisions of Worldwide manufacturing bases take responsibility for the quality fiscal 1991. To achieve this goal, we 20 throughout Japan and in other nations, in addition to promoting its laws and changes in society. The most recent version was issued in assurance of each product and are implementing concrete improve- are aiming to reduce CO2 emissions by 0 1991 20072006200520042003 eco-products through advertising. March 2007. ment measures. 33,000 tons from the year ended Actual Emissions Intensity Index To show the ways in which the Mitsubishi Electric Group’s vast March 31, 2007 to the year ending (Mitsubishi Electric Corporation) array of technologies supports the creation of a better society, we Compliance Structure March 31, 2011 under our Fifth CO2 Emissions (10,000 tons-CO2) exhibited at CEATEC Japan 2006 under the theme of “Mitsubishi Chaired by an executive officer responsible for legal affairs, the Four Basic Quality Assurance Principles Environmental Plan. 80 Electric AVN* Solutions: Linked by Technology from Social Corporate Compliance Committee formulates across-the-board poli- The Company’s CO2 emissions in 59.8 1. Product quality is our top priority. It comes before price and 60 Infrastructure to Home-Use.” We are also running a series of adver- cies and action codes for the employees regarding corporate ethics manufacturing activities during the 43.3 41.6 43.1 44.7 45.9 on-time delivery. 40 tisements around the theme of “amazed with technology.” and compliance activities in the Mitsubishi Electric Group world- fiscal year ended March 31, 2007 wide. Established in 1991, the same year in which Nippon Keidanren 2. Whatever the sacrifice, our commitment to good quality does amounted to 459,000 tons, a reduc- 20 *AVN: Audio Visual Network not waver. 0 created its Corporate Conduct Charter, the Corporate Compliance tion of 63% compared to fiscal 1991 1991 20072006200520042003

in terms of carbon equivalent energy (Mitsubishi Electric Corporation) Committee holds regular meetings two times per year and extraordi- 3. Products must be safe to use, have a long usage life, and have CO2 Emissions nary meetings as needed. consistent performance. per net sales unit. In April 2007, Mitsubishi Electric has further clarified the inextri- 4. Every manager and employee involved in manufacturing a • Action Plan cable link between compliance and business promotion, reinforcing product shares equal responsibility for the product quality. its primary compliance promotion systems in each division and the Measures to reduce CO2 emissions include the introduction of high- organizations that support them. efficiency equipment, our Energy-loss Minimum (EM) Initiatives to In each division and at each operational site, we have established reduce loss through concrete visual data showing energy use in man- ufacturing processes or by equipment, and the promotion of a shift in a compliance promotion committee that determines specific meas- Philanthropic Activities ures regarding compliance in its own department. At the same time, fuel usage. In the fiscal year under review, Mitsubishi Electric 2 at all organization levels in each business division and at each opera- The Mitsubishi Electric Group undertakes philanthropic activities invested a total of ¥2.66 billion on these three initiatives and cut CO Eco-Products Fair 2006 tional site, we have appointed group compliance managers, compli- concentrated in the five areas of social welfare, local contributions, emissions by a total of 10,052 tons. ance managers and compliance leaders. In divisions and at opera- environment preservation, advances in scientific technologies, and tional sites, compliance managers and compliance leaders regularly support of sports and culture. Development of Eco-Products hold compliance coordinating meetings. Based upon its MET* perspective, Mitsubishi Electric is working to “Amazed with technology” assess the environmental impact of its products through their entire advertisement (15th in series): In April 2007, the title of “legal manager” was changed to “com- SOCIO-ROOTS Fund “Water treatment technology” pliance manager” in order to promote compliance in a broader sense Established in 1992, the SOCIO-ROOTS Fund is a matching-gift that includes corporate ethics as well as legal compliance. program in which the Company matches any donation made by an In international operations, Mitsubishi Electric Group companies employee, thus doubling the goodwill of the gift. The fund receives More information about the Mitsubishi Electric Group’s environmental and CSR initiatives is available on our website at the following URL: formulate their own corporate ethics codes based upon the Corporate donations from over 1,000 employees every year. As of March 2007, http://Global.MitsubishiElectric.com/company/csr/index.html

6 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 7 RESEARCH AND DEVELOPMENT INTELLECTUAL PROPERTY

R&D Initiatives R&D Results in Fiscal 2007 The Mitsubishi Electric Group is vigorously promoting intellectu- important factor, we are stepping up our activities to obtain cer- al property (“IP”) activities worldwide in support of global busi- tificated patents for standards, aiming for increasing recognition The Mitsubishi Electric Group’s R&D organizational structure 40Gbps Optical Communication System ness development. of Mitsubishi Electric technologies as international standards. consists of R&D centers that are associated with the Corporate Mitsubishi Electric has developed a high- The Mitsubishi Electric Group recognizes its IP as a vital man- In patents related to MPEG*1, DVD and 3G mobile handset Research and Development Group, including the Advanced speed optical communication system and agement resource for the development of its business and inte- standards, and ARIB*2 digital broadcasting standards, Technology R&D Center, Information Technology R&D Center, key devices for large-volume communica- grates its business and R&D activities with its IP activities. We Mitsubishi Electric has taken the lead in promoting the estab- Industrial Design Center, and laboratories in the United States tions networks between cities. At 40 Gbps, own approximately 36,000 patents and file about 9,000 applica- lishment and management of patent pool organizations such as tions every year in Japan and overseas for a portfolio of competi- and Europe. These are closely linked with research and develop- the system is four times faster than systems MPEG LA, DVD6C, Platform WCDMA and ULDAGE Inc. tive patents around the world. These IP activities are contributing to the improvement and ment departments affiliated with each business group and work currently in use. We also have developed a expansion of business performance. 1 in conjunction to develop new products and innovative new tech- DQPSK* optical transponder that, by Structure of the Intellectual Property Division In response to further business globalization, the acquisition nologies to form the foundation of future businesses. expanding the time lag between signals, is of overseas IP rights is also an important matter. We have The Group is engaged in R&D activities in line with its VI capable of reducing deterioration of signal Our IP promotion activities are managed at our IP division at therefore dispatched to the U.S., Europe and China IP represen- headquarters, directly under the president, and through individual Strategy of making strong businesses stronger and bolstering wave patterns that occurs over long trans- tatives who work to strengthen IP capabilities and to accelerate IP departments at respective facilities and R&D centers. We have competitiveness, including in core businesses such as elevators mission distances. our global IP activities. also established the position of IP executive officer. Preventing infringement on intellectual property rights by and escalators, factory automation equipment, and automotive The headquarters IP division formulates strategies for the other companies is another important aspect of our efforts. We electric and electronic components. Our R&D activities are *1. DQPSK: Differential Quadrature Phase-Shift Keying, a modulation system able to entire company, promotes IP focus issues, and handles interac- change and convey four different optical phases are taking rigorous measures to eradicate counterfeiting by designed to further differentiate Mitsubishi Electric from com- tions with the patent office. IP departments at facilities and working closely with relevant industry associations and govern- petitors and enable us to win in global competition. The Group is R&D centers strive to execute individual IP strategies within the ment agencies. We are also working to reinforce in-house meas- scope of the overall strategies of the entire company. We are also proceeding with development efforts to create new solutions. 2 ures, such as amending company regulations, designed to manage High-Power Solid-State Deep UV Laser* building an IP network and are working to enhance the effective- Under our AD Strategy, designed to reinforce solutions businesses confidential IP material and prevent the leaking of it. Mitsubishi Electric has developed a solid-state laser capable of ness of IP activities. centered on strong businesses, we are working to fuse various tech- the world’s largest output (10W) of deep ultraviolet laser light Link Business, R&D and IP Activities IP Creation Cycle and IP Activities nologies to provide environment and energy-saving solutions, total with a wavelength of 213-nm*3. Use of this laser light enables security solutions, and solutions for a broad range of other areas. microprocessing of transparent quartz materials and electronic Integration IP Network IP Creation To support future business competitiveness, we are pressing circuit boards. IP Strategy Headquarters IP Division (R&D) Product protection ahead with efforts to obtain intellectual property rights linked IP Executive Officer Standard IP with business and development strategies, as well as intellectual IP Licensing Strengthen international IP Business Group property rights that can be licensed and standardized for use on a High-quality nonlinear Business Strategy President Facilities IP Departments optical crystal Business Executive Officers IP Utilization IP Rights global scale. In addition, Mitsubishi Electric is promoting active IR laser (Wavelength: 1064 nm, Affiliates Output power: 300 W) collaboration between industry, academia and government by CLBO Basic unit crystal Development Strategy conducting joint research with leading institutes in Japan and (Cesium R&D Center IPDepartments Lithium Development Executive Officer External Invention Prize abroad, and by participating in national projects in Japan. Borate) We promote the sharing of information so that results of these (In cooperation with Osaka University) IP Strategy 2007 National Commendation for Invention, held by the High-power high-beam- Japan Institute of Invention and Innovation (JIII) R&D initiatives can be used as assets throughout the entire quality diode-pumped Deep UV laser The basic philosophy underlying our IP activities emphasizes (Wavelength: 213 nm, The Prize of the Chairman of HATSUMEI KYOKAI (JIII): solid-state laser Frequency Group, contributing to improved development efficiency. Output power: 10 W) enhancing IP capabilities in response to the environment and fea- Environmentally Friendly Air Conditioners and Replacement conversion part tures of the IP creation cycle. These activities help to further Technology that Enable Use of Existing Pipes This is an explanation of R&D results, and plans for commercialization of these results have not yet been determined. reinforce the competitiveness of Mitsubishi Electric’s businesses. When aging multiple air conditioner (AC) units in buildings are being replaced with units *2. This research was commissioned in part by the New Energy and Industrial Technology that use hydrofluorocarbons (HFCs), a new cooling refrigerant containing no ozone- The IP division and departments promote strategic IP activities destroying components, the technology removes and recovers lubricating oil contained in Development Organization (NEDO). through the designation of IP focus themes for businesses to con- the refrigerant pipes while the new AC unit is operating. Universities, Research Institutes National Projects *3. Nanometer (nm): one-billionth of a meter centrate on and major R&D projects. Previously, the pipes had to be washed or replaced. The new technology enables reuse of existing pipes, reducing installation time, lowering costs, and contributing to conservation With international standardization becoming an increasingly of the environment.

Business Participation SiC Power Device Mitsubishi Electric’s Core Technologies and Patents Academia By testing prototypes of inverters that use silicon carbide (SiC) collaboration SEGMENT FIELD CORE TECHNOLOGIES/PATENTS/PRODUCTS power devices, which reduce power loss and can be operated at Energy and Electric Power Systems Power generation systems, Substation systems, Power distribution systems, Mitsubishi Electric high temperatures, Mitsubishi Electric became the first company Systems Insulation technology, Large-current control systems Transportation Systems Vehicle propulsion systems, Rail traffic control technology, In-car data systems in the world to succeed in operating a 3.7kW motor using such a Elevators/Escalators Machine-room-less elevators, Variable speed elevators, Finger identification device by penetrated light Corporate R&D Business Groups device. Compared with conventional devices that use silicon Supervisory Control Systems Multiple large-screen display technology, Individual authentication technology, Network visual monitoring systems inverters, our inverters cut power loss by over 50%. Developing Industrial Automation Factory Automation Products and Sequencer systems, Computerized numerical controllers, AC servos, Systems Systems Inverters, Electrical discharge machines, High-power laser processing equipment R&D Centers R&D Division such devices, we aim to contribute to enhanced performance, Measurement and Control Systems Energy diagnosis technology, Power meters, EcoMonitor energy efficiency and size reduction of machinery and equipment. Automotive Electric & Electronic Electric power steering, High-efficiency alternators, High-power starters, Products and Car Multimedia Onboard ETC equipment, Car navigation systems Systems Information and Mobile Handsets and Base Stations Encryption algorithms (MISTY®); Video compression, searching, conversion, and Communication distribution technologies (MPEG-2,4,7,21), IP network technology Systems Space, Satellite Satellites, Location Based Service (LBS), Positioning augmentation services (PAS), Participation Communication Systems Posture control technology Antennas and Radar Devices Antennas, Microwave and millimeter wave technology, Tracking and signal processing technology Information Communications Power line communication systems, Home networking technology, Optical access Standardization Activities Network Systems technology, Information security technology Electronic Devices Power Devices Power transistors, Power modules High Frequency and Optical Devices Semiconductor lasers, MMIC*3, Optical transmissions modules LCD modules Display image processing technology, 3-D LCDs Home Appliances Air-Conditioning Systems High-efficiency compressor, High-efficiency heat exchangers Solar Power Generation Systems Solar battery cells, Power conditioners Projection TVs Optical engineering technology, Color management technology, Digital broadcast receiver technology DVD Recorders and Players Disc formatting, Highlight replay technology, Optical disk recording and play technology, MPEG encoding technology

*1 MPEG: Moving Picture Experts Group *2 ARIB: Association of Radio Industries and Businesses

*3 8 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MMIC: Monolithic Microwave Integrated Circuit MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 9 REVIEW OF OPERATIONS

ENERGY AND INDUSTRIAL AUTOMATION ELECTRIC SYSTEMS SYSTEMS

The social infrastructure systems business saw increases in both orders and sales from the previous fiscal year The factory automation systems business saw an increase in both orders and sales from the previous fiscal year owing to domestic and overseas expansion of the power generation and transmission/distribution related busi- owing to strong investments related to flat-panel displays and mounting equipment during the first half of the nesses, as well as the business of electric equipment for rolling stock. fiscal year, as well as strong power distribution business and investments in semiconductor equipment in the sec- The building systems business experienced an increase in both orders and sales from the previous fiscal year ond half of the fiscal year. due to an increase in domestic orders of elevators and escalators for both new, large-scale installation and refit- The automotive equipment business saw an increase in both orders and sales from the previous fiscal year, with ting projects, in addition to orders from the Middle East, Southeast Asia and the United States. increases in alternators, starters and other products for both domestic and overseas automotive manufacturers. As a result, total sales in the Energy and Electric Systems segment increased by 9% from the previous fiscal As a result, total sales for the Industrial Automation Systems segment reached ¥956.9 billion, an increase year to ¥951.1 billion, while operating income jumped by ¥24.0 billion from the previous fiscal year to ¥49.3 of 11% compared to the previous fiscal year. Operating income rose to ¥126.2 billion, an increase of ¥30.3 bil- billion due to the increase in sales and other factors. lion from the previous fiscal year due to the increase in sales and other factors.

■ New Projects ■ New Projects

Train Control Information Diamond Vision Computerized Numerical Circuit Breakers Management System Certified as the world’s largest screen Controllers The World Super series circuit break- As a pioneer in the industry, by Guinness World Records, the The world’s first equipment for effec- ers features protection of transmission Mitsubishi Electric constantly applies Diamond Vision LED has enhanced tive control at the nanometer level, lines and prevention of electrical leak- the most advanced IT in its informa- the experience of horseracing fans at enabling faster and more precise pro- age, enabling a very stable supply of tion management systems and has the Japan Racing Association's Tokyo cessing. They contribute to higher electricity. Designed to both Japanese made significant contributions to the Racecourse since it was installed in productivity in automotive, IT and and international standards for world- development of intelligent rolling the autumn of 2006. other industries. wide applications. stock in recent years.

Shizuoka Cancer Center Proton Power Plants AC Servos Programmable Logic Controllers Therapy System Mitsubishi Electric power plant instal- Delivering the industry’s top-class The MELSEC series of programmable This cutting-edge therapy system uses lations are used by power companies speed and performance to improve logic controllers supports production linear protons and heavy-particle and as in-house power generators in capacity utilization rates and add lines ranging from simple process con- beams for the targeted destruction of various industries. Proven in the field, value to manufacturing facilities. trol to complete machine control. affected areas. Easy on patients, this they are optimal power plants for Used in semiconductor manufactur- Japan’s top brand, they play a key treatment method is expected to help hydroelectric, thermal and nuclear ing, materials handling equipment, role in leading-edge, reliable manu- improve quality of life. applications. industrial machinery and other indus- facturing facilities. tries.

Machine-Room-Less Elevator Face and Fingerprint HDD Car Navigation Systems ETC Equipment for Vehicles AXIEZ Recognition Device User-friendly, touch-panel HDD car Winner of the Good Design Award, The latest standard type elevator This biometric scanning and recogni- navigation system equipped with a this stylish onboard electronic toll col- series AXIEZ features improved space tion device combines the latest face digital TV tuner as standard. lection (ETC) unit suits any car nice- savings, riding comfort, and applica- recognition and fingerprint verifica- Electronic Program Guide (EPG) ly. The unit is equipped with an anten- tion of universal design, as well as tion technologies into one unit. The data display and other intricate fea- na that uses an LED that lights up advanced variable-speed control, combination allows comfortable tures of digital TV broadcasts can be when an ETC card is inserted, remind- which significantly reduces waiting “hands-free” entry and exit by face operated easily using the touch panel. ing drivers to insert their ETC cards. and riding time. recognition, and added security by verifying the base of fingerprint ridges using light that penetrates the skin.

10 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 11 REVIEW OF OPERATIONS

INFORMATION AND ELECTRONIC COMMUNICATION SYSTEMS DEVICES

The telecommunications equipment business saw both orders and sales remain on par with the previous fiscal The semiconductor business saw an increase in both orders and sales from the previous fiscal year due to increases year owing to steady demand for mobile handsets and communications infrastructure equipment. in power modules for industrial use and for consumer use, mainly in air-conditioners, as well as power amplifiers The information systems and services business saw an increase in sales from the previous fiscal year due to for mobile handsets. expansion in the systems integration business. The liquid crystal business saw a decrease in orders and sales from the previous fiscal year. Despite increases Orders in the electronic systems business stayed in line with the figures recorded in the previous fiscal year, in orders for medium-sized products for industrial use, there were decreases in orders for small-sized products for while sales increased year on year due to expansion of the satellite-related business. mobile handsets and other consumer uses. As a result, total sales for the Information and Communication Systems segment showed an increase of 7% As a result, sales for the Electronic Devices segment totaled ¥185.9 billion, an increase of 9% from the previ- from the previous fiscal year, finishing at ¥688.0 billion. Operating income totaled ¥20.8 billion, on par with ous fiscal year. Operating income amounted to ¥12.1 billion, a decline of ¥1.4 billion from the previous fiscal the previous fiscal year. year, reflecting the decrease in sales prices for liquid crystal displays.

■ New Projects ■ New Projects

Information Security Solutions Integrated Control Center DIP-IPM Ultra-Small Package 1200V HVIC for Inverter Built around the world-class MISTY Mitsubishi Electric’s Integrated Version 4 Series Systems encryption technology, our informa- Control Center (ICC) is manned by By using high-heat radiation insulating Mitsubishi Electric-developed HVIC*1 tion security solutions protect sensitive professional engineers round-the- sheets, Mitsubishi Electric has technology drives semiconductor ele- corporate information by encrypting clock, 365 days per year for remote decreased the size of packaging for ments for switching on AC400V outlet and managing content, as well as by operation and monitoring of cus- inverter products to 60% (15A/600V) inverter systems. It boasts the indus- preventing unauthorized export out- tomers’ information network systems. of conventional size, making it possible try’s leading voltage resistance, able side of the company. Our systems also ICC responds rapidly to trouble, pro- to reduce the dimensions of inverter to withstand 1200 volts. Compliant enable the safe sharing of information. viding customers with automated products for home electronics. The with RoHS*2 standards, it can also be (Mitsubishi Electric Information Systems analysis and determination of the packaging is eco-oriented and com- used with products destined for over- Corporation) causes. pletely lead-free. seas markets. (Mitsubishi Electric Information Network *1 HVIC: High Voltage Integrated Circuit Corporation) *2 RoHS: European Union directive on ”restric- tion of the use of six certain hazardous sub- stances in electrical and electronic equipment”

Superbird 7 Communications UHF-Band Radio Frequency Power-Saving Transceiver Compact Switching-Type Power Satellite Identification Device (RFID) Module for XFP MSA 10Gbps Amplifier Module for W-CDMA Employing the Mitsubishi commercial Wireless, non-contact, automated Optical Communications Mobile Handsets satellite platform DS2000, this is the recognition devices that use two-way Mitsubishi Electric developed com- Mitsubishi Electric has developed first commercial communications antennas or readable tags affixed to pact optical transceivers that are power amplifier modules equipped satellite developed in Japan. We are in metal surfaces. Our devices can be compliant with XFP MSA* and fea- with standard power circuits. The charge of the satellite’s design, manu- read from distant points and have a ture power-saving performance that is modules boast the industry’s top-class facture, testing, and launch, as well as wide range of applications, including among the leading in the industry. power-added efficiency, enabling the the construction of satellite control material and logistics management. *XFP MSA: 10Gbps(X) Form-factor Pluggable manufacture of mobile handsets with facilities and the satellite’s in-orbit Multi-Source Agreement (An industry standard for fewer components and contributing to testing. Delivery is planned for 2008. 10 Gbps optical communication transceiver mod- more compact designs. ules). The standard was formulated through the participation of a number of manufacturers in the optical communications industry, with the goal of achieving a common format for transmission standards such as SONET, SHD, Fiber Channel and Ethernet.

Optical Broadband Access Mobile Handsets Super High Bright XGA Color Thin, High-Density Glass Epoxy Systems Mitsubishi Electric creates appealing LCD Modules for Industrial Use Buildup Substrates Mitsubishi Electric’s Passive Optical FOMA*1 handsets to suit customer Mitsubishi Electric developed 15-inch Our ultra-thin, high-density, all-glass Network (PON) systems let communi- needs. Our broad product line XGA thin-film transistor LCD mod- cloth epoxy buildup substrates are cations carriers create economical includes: wide-screen, slim, and slide- ules, which, at 1500 cd/m2, achieve ideal for use in motherboards and access networks that satisfy the grow- open models that are one-seg*2 capa- the industry’s highest brightness modules for the latest mobile devices. ing demand for broadband services. ble; models with dual screens, includ- among modules with edge lighting. They are also used in substrates for As data volume expands with the ing a touch panel for data input with Combined with an industry-leading thin, high-definition semiconductor increasing number of video content several types of panel layout designs 650:1 contrast ratio, the modules packaging. services, PON is helping to support the available based on user preference provide for great visibility even out- creation of a fully networked society. and usage; and ultra-slim, light, flat- doors in strong sunlight. design models. *1 FOMA is a registered trademark of NTT DoCoMo, Inc. *2 One-seg: One-segment broadcasting, a digital interactive broadcasting method for mobile devices 12 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 13 REVIEW OF OPERATIONS CORPORATE GOVERNANCE

Basic Corporate Governance Policy President & CEO acting as the head of the executive officers. Neither the Chairman nor the President is a member of the Mitsubishi Electric strives to pursue continuous growth by enhancing Nomination or Compensation Committee. This clear separation of flexibility in its operations and by promoting management trans- HOME supervisory and executive powers makes our corporate governance parency. At the same time, the Company consistently endeavors to more effective. APPLIANCES reinforce the supervisory functions of management. Our basic policy To maintain compliance and secure management efficiency, each consists of the establishment of an efficient corporate governance executive officer possesses responsibility for their individual scope of structure that is responsive to various expectations from diverse duties, with operating conditions being audited by internal auditors stakeholders (including both customers and shareholders, among (Corporate Auditing Div.). The internal auditors and outside audi- others) and through this, we aim to boost our corporate value. tors report their audit results to the Audit Committee and executive Sales in the home appliances business increased 3% year on year to ¥921.9 billion owing to stronger overseas sales of air conditioners and solar power generation systems, as well as increases in domestic sales of all-electric- Current Status of Implementation of Various officers in charge. powered home products such as hot water supply systems and IH cooking heaters. Operating income climbed by Measures Relating to Corporate Governance ¥21.7 billion from the previous fiscal year to ¥36.6 billion as a result of the increase in sales and other factors. Internal Audit and Inspections by the Audit Committee and Company Organization and Development of Internal Control Independent Auditors Systems The Corporate Auditing Div. conducts its internal audits from a fair In June 2003, Mitsubishi Electric reformed its management struc- and impartial standpoint by having its own dedicated staff, in addi- ture when it changed its corporate structure to a committee system. tion to supporting auditors that represent the special interests of rel- The supervisory and executive powers of management were thus sep- evant departments. arated, with the board of directors handling supervisory decisions The Audit Committee consists of five directors, of which three are and executive officers handling executive decisions. outside directors. In accordance with the policies and assignments The present board is comprised of twelve directors (five of whom ■ New Projects agreed to by the committee, inspections are conducted by competent are outside directors) offering advice and supervision to manage- members into the performance of the directors and executive offi- ment from an objective standpoint. The board of directors has three Uni & Eco Home Appliance cers, as well as affiliated companies. Lineup internal bodies: the Nomination, Audit and Compensation The Audit Committee receives reports from the internal auditors Mitsubishi Electric’s commitment to Committees. Each body has five members, three of which are outside realizing a sustainable society is reflect- (Corporate Auditing Div.) and exchanges information through a directors. The Audit Committee has its own dedicated, independent ed in its “Uni & Eco” products. These series of periodic meetings and discussions on auditing policies. In products are energy- and resource-sav- support staff. ing, incorporate advanced recycling addition, the Audit Committee has the opportunity to discuss policies technologies, and have been designed and methods of audits with independent auditors, and it will receive for ease of use by all. (“Uni” stands for General Shareholders’ universal design and “Eco” stands for Meeting reports on the status and results of the audit, along with the mutual ecology.) exchange of opinions. Report Report Appointment KPMG AZSA & Co. has been retained as the independent auditor. 〈 Execution〉 〈Supervision〉 KPMG AZSA & Co. appoints partners in charge, and the firm has Executive Officers Board of Directors designated Mr. Yoshihiko Nakamura, Mr. Hiroto Kaneko, and Mr. All-Electric-Powered Home Products Ryoji Fujii as the partners in charge of handling the auditing of President & CEO Chairman Working to achieve co-existence with Mitsubishi Electric. Support staff for handling the auditing tasks the environment and adhere to a recy- Appointment/ cling-oriented society, Mitsubishi Dismissal/ will consist of appropriate CPAs and JAs from KPMG AZSA & Co. Executive Vice Supervision Electric strives to create high-quality, President Nomination Directors Mitsubishi Electric will maintain an environment in which fair and long-lasting products for all-electric- Committee Business impartial audits can be conducted, and that includes providing rele- powered home products. Advances Outside Directors (majority) Senior Vice Execution include enhanced safety, convenience President vant management information to KPMG AZSA & Co. and comfort. Authorization Transfer Audit Directors Senior Executive Committee Development of Risk Management System Officer Reporting Outside Directors (majority) The risk management system is constructed so that each executive to officer possesses responsibility for their assigned duties. In addition, Executive Officers Compensation ® Directors important management implementations are discussed and decided Digital AV DLP Display Wall Committee We have created eco-oriented digital Our high-quality image technologies by all the executive officers in the executive officers’ meetings. The Outside Directors (majority) Business/Administration AV products for markets in Japan and deliver exceptionally sharp color synergistic effect of all executive officers participating in management the United States that go beyond the reproduction, with product variations Divisions concept of universal design. developed to suit almost any user and information creates a multi-dimensional risk management system. need. These systems are being utilized in Japan and abroad for large screens that display images, data and A key feature of our management structure is the separation of information. the Chairman and the CEO, with the Chairman acting as head of the

*DLP® is a registered trademark of Texas supervisory functions as a member of the board of directors and the Instruments Incorporated, U.S.A.

14 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 15 DIRECTORS AND EXECUTIVE OFFICERS ORGANIZATION (As of June 28, 2007) (As of June 28, 2007)

Directors

Chairman: Tamotsu Nomakuchi

Directors: Setsuhiro Shimomura Representative Executive Officer; President & CEO Yukihiro Sato Member of the Compensation Committee; Representative Executive Officer; Executive Vice President Masanori Saito Chairman of the Nomination Committee; Chairman of the Compensation Committee; Senior Vice President Akira Sugiyama Member of the Nomination Committee; Senior Executive Officer Kazuo Sawamoto Chairman of the Audit Committee Fumitada Shimana Member of the Audit Committee Hiroyoshi Murayama Member of the Nomination Committee; Member of the Audit Committee; Attorney-at-Law Shunji Yanai Member of the Nomination Committee; Member of the Compensation Committee; Judge, International Tribunal for the Law of the Sea Osamu Shigeta Member of the Audit Committee; Member of the Compensation Committee; Certified Public Accountant Mikio Sasaki Member of the Compensation Committee; Chairman of the Board, Mitsubishi Corporation Shigemitsu Miki Member of the Nomination Committee; Member of the Audit Committee; Chairman, The Bank of Tokyo-Mitsubishi UFJ, Ltd.

Executive Officers

Representative Executive Officer President & CEO: Setsuhiro Shimomura

Representative Executive Officer Executive Vice Presidents: Yukihiro Sato In charge of: Accounting; Finance Takahiko Kondo In charge of: Export Control; Information Systems & Network Service

Senior Vice Presidents: Kenichi Azuma In charge of: Living Environment & Digital Media Equipment Shuichi Sato In charge of: Energy & Industrial Systems Masanori Saito In charge of: General Affairs; Human Resources; Public Relations

Senior Executive Officers: Kunio Tomita In charge of: Purchasing; Advertising Akira Sugiyama In charge of: Strategy; Operations of Associated Companies Mitsuo Muneyuki In charge of: Public Utility Systems Yasuji Nagayama In charge of: Semiconductors & Device Atsushi Ueda In charge of: Automotive Equipment Noboru Kurihara In charge of: Electronic Systems

Executive Officers: Kazuyuki Nakamura In charge of: Living Environment & Digital Media Equipment Ryo Tokunaga In charge of: Auditing; Government & External Relations; Legal Affairs; Export Control; Intellectual Property Kazuo Kyuma In charge of: Research & Development Makoto Kondo In charge of: Building Systems Kenichiro Yamanishi In charge of: Total Productivity Management & Environmental Programs Takashi Sasakawa In charge of: Global Strategic Marketing & Operations Ken Matsumaru In charge of: Domestic Marketing Hideyasu Nonaka In charge of: Factory Automation Systems Motoyuki Nakamura In charge of: Communication Systems

16 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 17 SUBSIDIARIES AND AFFILIATES

Manufacturing Sales/Installation/Services Comprehensive Sales Companies

Energy and Tada Electric Co., Ltd. Mitsubishi Electric Building Techno-Service Co., Ltd. Electric Systems Toyo Electric Corporation Mitsubishi Electric Plant Engineering Corporation Mitsubishi Electric Power Products, Inc. Ryoden Elevator Construction, Ltd. Mitsubishi Elevator Asia Co., Ltd. Mitsubishi Electric Control Software Co. Mitsubishi Elevator Korea Co., Ltd. Toshiba Mitsubishi-Electric Industrial Mitsubishi Elevator Hong Kong Co., Ltd. Systems Corporation Mitsubishi Hitachi Home Elevator Corporation ETA-Melco Elevator Co. L.L.C. Shanghai Mitsubishi Elevator Co., Ltd.

Industrial Meiryo Technica Co., Ltd. Ryowa Corp. Automation DB Seiko Co., Ltd. Meldas System Engineering Corp. Systems Mitsubishi Electric FA Industrial Products Corporation Ryoden Koki Engineering Co., Ltd. Mitsubishi Electric Automotive America, Inc. Mitsubishi Electric Automation (HongKong)Ltd. Mitsubishi Electric Thai Auto-Parts Co., Ltd. Mitsubishi Electric Automation Korea Co., Ltd. Mitsubishi Electric Automation, Inc. Electric Powersteering Components Europe s.r.o. Setsuyo Astec Corporation

Shizuki Electric Co., Inc. Nippon Injector Corp. Shihlin Electric & Engineering Corp.

Information and Mitsubishi Electric TOKKI Systems Corporation Diamond Telecommunication Co., Ltd. Communication Mitsubishi Precision Co., Ltd. Mitsubishi Electric Information Systems Corporation Systems SPC Electronics Corp. Mitsubishi Electric Information Network Corporation Ryoden Shonan Electronics Corporation Mitsubishi Electric Information Technology Corporation Mitsubishi Electric Business Systems Co., Ltd. Chiyoda Mitsubishi Electric Co., Ltd. Miyoshi Electronics Corp. Mitsubishi Space Software Co., Ltd. and other regional comprehensive sales Seiryo Electric Co., Ltd. Mitsubishi Electric Micro-Computer Application Software Ltd. Co., companies (10 companies)

Oi Electric Co., Ltd. Mitsubishi Electric Europe B.V. Itec Hanshin Co., Ltd. Mitsubishi Electric & Electronics USA, Inc.

Mitsubishi Electric (H.K.) Ltd.

Electronic Melco Display Technology Inc. Fukuryo Semiconductor Engineering Corporation Mitsubishi Electric Co., Ltd. Devices Mitsubishi Electric Metecs Co., Ltd. Mitsubishi Electric Australia Pty. Ltd. SORYO Electronic Devices Corporation Mitsubishi Electric Asia Pte. Ltd.

Renesas Technology Corp. Ryoden Trading Co., Ltd. Optrex Corp , Inc. Kanaden Corp. Mansei Corp.

Home Appliances Mitsubishi Electric Home Appliance Co., Ltd. Mitsubishi Electric Living Environment Systems Corporation Nihon Kentetsu Co., Ltd. Mitsubishi Electric Life-Network Co., Ltd. Mitsubishi Electric Lighting Corp. Mitsubishi Electric Osram Ltd. Mitsubishi Digital Electronics America, Inc. Mitsubishi Electric Air Conditioning & Mitsubishi Electric Consumer Products (Thailand) Co., Ltd. Refrigeration Equipment Sales Co., Ltd. Shanghai Mitsubishi Electric & Shangling Mitsubishi Electric Air Conditioning & Air-Conditioner and Electric Appliance Co., Ltd. Refrigeration Systems Co., Ltd. Mitsubishi Electric (Guangzhou) Compressor Co., Ltd. Digitec Industrial Ltd. Siam Compressor Industry Co., Ltd. Mitsubishi Electric Kang Yong Watana Co., Ltd.

Osram Melco Ltd. Kang Yong Electric Public Co., Ltd.

Others Mitsubishi Electric Trading Corporation Mitsubishi Electric Logistics Corp. Mitsubishi Electric Engineering Co., Ltd. Mitsubishi Electric System & Service Co., Ltd. Mitsubishi Electric Life Service Corporation The Kodensha Co., Ltd. iPLANET Inc. Mitsubishi Electric & Electronics (Shanghai) Co., Ltd.

Mitsubishi Electric Credit Corporation. KITA KOUDENSHA Corporation

Notes:1. Comprehensive sales companies include several companies that are responsible for selling products from a number of businesses, and therefore are put into their own separate category rather than separating them by business segment. 2. Companies in shaded areas are consolidated subsidiaries, while those in non-shaded areas are equity-method affiliate companies.

18 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 FINANCIAL SECTION

CONTENTS

20 Five-Year Summary

21 Financial Review

30 Consolidated Balance Sheets

32 Consolidated Statements of Income

33 Consolidated Statements of Shareholders’ Equity

34 Consolidated Statements of Cash Flows

35 Notes to Consolidated Financial Statements

60 Independent Auditors’ Report

MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 19 FIVE-YEAR SUMMARY FINANCIAL REVIEW Mitsubishi Electric Corporation and Subsidiaries

U.S. dollars Yen (millions) (thousands) OVERVIEW Years ended March 31 2007 2006 2005 2004 2003 2007 Summary of Operations Net sales ¥ 3,855,745 ¥ 3,604,185 ¥ 3,410,685 ¥ 3,309,651 ¥ 3,639,071 $32,675,805 The business environment in the fiscal year ended March 31, 2007 saw a general underlying strength in the global economy, supported by a continued recovery in Europe, despite the fact that there were worries about stagnation in the latter half of the Cost of sales 2,831,309 2,694,985 2,559,499 2,508,519 2,782,180 23,994,144 fiscal year. The Japanese economy remained steady, with a recovery in the corporate sector marked by strong capital expendi- Selling, general, administrative ture and overseas demand offsetting lackluster consumer spending. and Other expenses 791,434 751,482 730,544 708,415 793,751 6,707,068 Under these conditions, the Mitsubishi Electric Group has engaged in structural reforms that respond to changing operating Operating costs 3,622,743 3,446,467 3,290,043 3,216,934 3,575,931 30,701,212 circumstances in order to increase and strengthen profitability in each business segment under its “make strong businesses Operating income 233,002 157,718 120,642 92,717 63,140 1,974,593 stronger” strategy. The Group has also continued to strengthen production and sales systems both in domestic and overseas mar- Income before income taxes 184,776 152,326 102,316 84,784 2,475 1,565,898 kets by establishing and reinforcing operating bases, as well as by strengthening its competitive edge through business alliances Net income (loss) ¥ 123,080 ¥ 95,692 ¥ 71,175 ¥ 44,839 ¥ (11,825) $ 1,043,051 and other initiatives. In addition, we have been carrying out extensive companywide improvement activities such as reducing inventory and Financial Ratios increasing productivity through our “Just In Time” activities, as well as continuing the cost-reducing A-Sigma 21 Program. We are also strengthening our competitive edge through the appropriate allocation of human resources (HR) and by optimizing our Return on sales (%) 3.19 2.66 2.09 1.35 (0.32) — HR structure. Return on equity (%) 12.30 11.51 10.77 9.00 (2.53) — As a result, in the fiscal year ended March 31, 2007, the Mitsubishi Electric Group recorded consolidated net sales of ¥3,855.7 Return on assets (%) 3.64 2.96 2.23 1.30 (0.31) — billion, operating income of ¥233.0 billion, income before income taxes of ¥184.8 billion and net income of ¥123.1 billion. Equity ratio (%) 30.68 28.43 22.79 18.65 10.74 — Net Sales Per-Share Amounts Net sales for the fiscal year under review totaled ¥3,855.7 billion, an increase of ¥251.6 billion compared to the previous fiscal year. This was due to sales Net income (loss) increases in all segments, led by Energy and Electric Systems, as well as (yen/U.S. dollars) Net sales/Operating income Industrial Automation Systems. Basic ¥ 57.34 ¥44.64 ¥33.16 ¥20.89 ¥ (5.51) $ 0.486 3.86 233 Cost of Sales, Expenses and Operating Income 3.64 3.60 Diluted 57.34 44.63 33.16 20.74 (5.51) 0.486 3.313.41 Cash dividends declared Though cost of sales rose by ¥136.3 billion year on year to ¥2,831.3 billion, the cost of sales ratio improved 1.3 points to 73.5%. Selling, general and adminis- 158 (yen/U.S. dollars) ¥10 ¥ 8 ¥ 6 ¥ 4 ¥ 3 $ 0.085 trative (SG&A) expenses and research and development (R&D) expenses 121 increased by ¥40.0 billion to ¥791.4 billion, while the ratio of SG&A and R&D 93 Statistical Information expenses to net sales improved by 0.3 points to 20.5%. 63 Current assets ¥ 2,050,500 ¥ 1,886,779 ¥ 1,740,333 ¥ 1,743,381 ¥ 1,937,537 $17,377,119 As a result, operating income surged by ¥75.3 billion year on year to Current liabilities 1,529,838 1,440,133 1,277,662 1,315,739 1,589,322 12,964,729 ¥233.0 billion. Working capital 520,662 446,646 462,671 427,642 348,215 4,412,390 03 04 05 06 07 03 04 05 06 07 Non-Operating Income and Expenses Shareholders’ equity 1,059,209 942,202 720,637 601,532 394,587 8,976,347 Net sales Operating income Financial income, the sum of interest and dividend income less interest expenses, (Yen in trillions) (Yen in billions) Cash dividends paid 19,317 15,000 12,877 6,440 — 163,703 increased by ¥3.1 billion year on year to ¥2.9 billion. This was primarily due to Total assets 3,452,231 3,313,742 3,162,472 3,225,223 3,673,637 29,256,195 the expansion of Group financing and greater efficiency in funds operations. As Capital expenditure 140,557 134,413 125,657 96,253 133,223 1,191,161 a result, financial income outweighed financial expenses for a full fiscal year. Net income (loss)/ R&D expenditure 132,722 130,639 130,541 136,518 179,562 1,124,763 Non-operating income, excluding interest and dividend income, declined by Net income (loss) per share (basic) ¥8.0 billion compared to the previous fiscal year to ¥28.5 billion. However, Depreciation ¥ 130,130 ¥ 126,169 ¥ 105,356 ¥ 109,975 ¥ 208,884 $ 1,102,797 123 57.34 Employees non-operating expenses, excluding interest expenses, increased by ¥37.9 billion year on year to ¥79.6 billion owing primarily to have set a reserve for expenses 96 (at the end of the year) 102,835 99,444 97,661 98,988 110,279 — 44.64 of ¥42.2 billion relating to competition laws. 71 Notes: 1. In order to be consistent with financial reporting practices generally accepted in Japan, operating income is presented as net sales less cost of sales and selling, 33.16 general, administrative and other expenses. Under accounting principles generally accepted in the United States of America, restructuring costs are included as Income before Income Taxes 45 part of operating income. 20.89 2. R&D expenditure includes elements spent on quality improvements, which constitute manufacturing costs. Income before income taxes rose by ¥32.5 billion compared with the previous 3. U.S. dollar amounts are translated from yen at the rate of ¥118=U.S.$1, the approximate rate on the Tokyo Foreign Exchange Market on March 31, 2007. fiscal year to ¥184.8 billion, a ratio of 4.8% of net sales. This was due to the 4. The Company has 148 consolidated subsidiaries and 43 equity-method companies as of March 31, 2007. increase of ¥75.3 billion in operating income, which offset the aforementioned -5.51 -12 increase in non-operating expenses. 03 04 05 06 07 03 04 05 06 07

Net Income Net income (loss) Net income (loss) per Net income for the fiscal year ended March 31, 2007 totaled ¥123.1 billion (Yen in billions) share (Yen) (3.2% of net sales), an increase of ¥27.4 billion compared to the previous fis- cal year. This was primarily due to the aforementioned increase of ¥32.5 billion in income before income taxes.

20 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 21 Business Risks RESULTS BY BUSINESS SEGMENT The Mitsubishi Electric Group engages in the development, manufacture, and sale of products in the Energy and Electric Systems, Industrial Automation Systems, Information and Communication Systems, Electronic Devices, Home Appliances and Net Sales by Business Segment U.S. dollars Other business fields in Japan, North America, Europe, Asia, and other overseas regions. As a result, the Mitsubishi Electric Yen (millions) (thousands) Group’s financial standing and business performance may be affected by a variety of external factors. Years ended March 31 2007 2006 2005 2004 2003 2007 Factors that may affect the financial standing and business performance of the Mitsubishi Electric Group include but are not Energy and Electric Systems ¥ 951,065 ¥ 868,789 ¥ 791,925 ¥ 797,448 ¥ 861,120 $ 8,059,873 limited to the following. As such, additional factors may arise at any given time. Industrial Automation Systems 956,930 860,111 781,867 709,695 639,422 8,109,576 (1) Important trends Information and The Mitsubishi Electric Group’s operations may be affected by trends in the global economy, social conditions, laws, tax Communication Systems 688,004 644,111 614,091 681,757 686,432 5,830,542 codes, and regulations. Electronic Devices 185,911 170,394 164,383 170,442 460,469 1,575,517 (2) Foreign currency exchange rates Home Appliances 921,948 896,437 866,428 782,256 789,149 7,813,119 Fluctuations in foreign currency markets may affect Mitsubishi Electric’s sales of exported products and purchases of Others 630,510 603,585 581,685 508,475 566,199 5,343,305 imported materials that are denominated in U.S. dollars or euros, as well as its Asian production bases’ sales of exported Subtotal 4,334,368 4,043,427 3,800,379 3,650,073 4,002,791 36,731,932 products and purchases of imported materials that are denominated in foreign currencies. Eliminations (478,623) (439,242) (389,694) (340,422) (363,720) (4,056,127) (3) Stock markets Consolidated total ¥ 3,855,745 ¥ 3,604,185 ¥ 3,410,685 ¥ 3,309,651 ¥ 3,639,071 $32,675,805 A fall in stock market prices may cause Mitsubishi Electric to record devaluation losses on marketable securities, or cause an increase in retirement benefit obligations in accordance with a decline in the fair value of pension assets. Operating Income (Loss) by Business Segment U.S. dollars Yen (millions) (thousands) (4) Supply/demand balance for products and procurement conditions for materials and components Years ended March 31 2007 2006 2005 2004 2003 2007 A decline in prices and shipments due to changes in the supply/demand balance may adversely affect mainly Mitsubishi Energy and Electric Systems ¥ 49,310 ¥ 25,296 ¥ 28,150 ¥ 25,912 ¥ 59,406 $ 417,881 Electric’s Information and Communication Systems, Electronic Devices, and Home Appliances segments. In addition, an Industrial Automation Systems 126,227 95,967 72,362 66,413 57,969 1,069,720 increase in material prices due to a worsening of material and component procurement conditions may adversely affect all Information and of Mitsubishi Electric’s operations. Communication Systems 20,803 20,677 238 511 (27,273) 176,297 (5) Fund procurement Electronic Devices 12,141 13,531 6,130 (4,678) (53,078) 102,890 An increase in interest rates, the yen interest rate in particular, would increase Mitsubishi Electric’s interest expense. Home Appliances 36,644 14,958 25,692 19,317 36,195 310,542 (6) Significant patent matters Others 15,169 13,342 10,597 8,266 11,080 128,551 Important patent filings, licensing, copyrights and patent-related disputes may adversely affect related businesses. Subtotal 260,294 183,771 143,169 115,741 84,299 2,205,881 (7) Environmental legislation or environmental issues Eliminations (27,292) (26,053) (22,527) (23,024) (21,159) (231,288) Mitsubishi Electric may incur losses or expenses owing to changes in environmental legislation or the arising of envi- Consolidated total ¥ 233,002 ¥ 157,718 ¥ 120,642 ¥ 92,717 ¥ 63,140 $ 1,974,593 ronmental issues. Such changes in legislation or the arising of environmental issues may also affect the Group’s overall Net sales and Operating income of operations, among others, manufacturing activities. Energy and Electric Systems (8) Flaws or defects in products or services Energy and Electric Systems Mitsubishi Electric may incur losses or expenses related to flaws or defects in products or services. A decrease in the gener- The social infrastructure systems business saw increases in both orders and 951 59 861 869 al assessment of the quality of Group products and services may also impact overall operations. sales from the previous fiscal year owing to domestic and overseas expansion of 797 792 49 (9) Litigation and other legal proceedings the power generation and transmission/distribution related businesses, as well The Mitsubishi Electric Group’s operations may be affected by lawsuits or other legal proceedings against Mitsubishi as the business of electric equipment for rolling stock. 28 Electric, its subsidiaries and/or equity-method affiliated companies. The building systems business experienced an increase in both orders and 26 25 (10) Disruptive changes sales from the previous fiscal year due to an increase in domestic orders of Disruptive changes in technology, development and manufacturing of products using new technology, and timing of market elevators and escalators for both new, large-scale installation and refitting introduction may adversely affect performance, mainly in Mitsubishi Electric’s Information and Communication Systems, projects, in addition to orders from the Middle East, Southeast Asia and the United States. Electronic Devices, and Home Appliances segments. 03 04 05 06 07 03 04 05 06 07 (11) Business restructuring As a result, total sales in the Energy and Electric Systems segment increased by 9% from the previous fiscal year to ¥951.1 billion, while operat- Net sales Operating income The Mitsubishi Electric Group may record losses due to restructuring measures. (Yen in billions) (Yen in billions) ing income jumped by ¥24.0 billion to ¥49.3 billion from the previous fiscal (12) Natural disasters Net sales and Operating income of The Mitsubishi Electric Group’s operations, particularly manufacturing activities, may be affected by the occurrence of year due to the increase in sales and other factors. Industrial Automation Systems

earthquakes, typhoons, tsunami, fires and other large-scale disasters. 957 126 (13) Other significant factors Industrial Automation Systems 860 The factory automation systems business saw an increase in both orders and sales 782 The Mitsubishi Electric Group’s operations may be affected by the outbreak of social or political upheaval due to terrorism, 710 96 war or other factors. from the previous fiscal year owing to strong investments related to flat-panel 639 72 displays and surface mounting equipment during the first half of the fiscal year, 66 58 as well as strong power distribution business and investments in semiconductor equipment in the second half of the fiscal year. The automotive equipment business saw an increase in both orders and sales from the previous fiscal year, with increases in alternators, starters and

other products for both domestic and overseas automotive manufacturers. 03Net 04sales 05 06 07 03Operating 04 05 06income 07 (Yen in billions) (Yen in billions)

22 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 23 As a result, total sales for the Industrial Automation Systems segment Net sales and Operating income (loss) of RESULTS BY GEOGRAPHIC SEGMENT reached ¥956.9 billion, an increase of 11% compared to the previous fiscal Information and Communication Systems year. Operating income rose to ¥126.2 billion, an increase of ¥30.3 billion 686 682 688 644 Net Sales by Geographic Segment from the previous fiscal year due to the increase in sales and other factors. 614 21 21 U.S. dollars Yen (millions) (thousands) Years ended March 31 2007 2006 2005 2004 2003 2007 Information and Communication Systems Japan ¥ 3,346,100 ¥ 3,131,472 ¥ 2,927,605 ¥ 2,842,354 ¥ 3,168,639 $28,356,780 The telecommunications equipment business saw both orders and sales remain 1 0 North America 277,555 251,717 217,369 216,639 301,034 2,352,161 on par with the previous fiscal year owing to steady demand for mobile hand- Asia (excluding Japan) 482,363 430,976 459,363 390,921 384,891 4,087,822 sets and communications infrastructure equipment. Europe 299,401 228,993 235,188 205,507 206,946 2,537,296 The information systems and services business saw an increase in sales from Others 30,819 27,567 23,255 21,498 15,268 261,178 the previous fiscal year due to expansion in the systems integration business. -27 Orders in the electronic systems business stayed in line with the figures 03 04 05 06 07 03 04 05 06 07 Eliminations (580,493) (466,540) (452,095) (367,268) (437,707) (4,919,432) recorded in the previous fiscal year, while sales increased year on year due to Net sales Operating income (loss) Consolidated total ¥ 3,855,745 ¥ 3,604,185 ¥ 3,410,685 ¥ 3,309,651 ¥ 3,639,071 $32,675,805 (Yen in billions) (Yen in billions) expansion of the satellite-related business. As a result, total sales for the Information and Communication Systems Net sales and Operating income (loss) of Operating Income (Loss) by Geographic Segment Electronic Devices U.S. dollars segment showed an increase of 7% from the previous fiscal year, finishing at Yen (millions) (thousands) Years ended March 31 2007 2006 2005 2004 2003 2007 ¥688.0 billion. Operating income totaled ¥20.8 billion, on par with the previous 460 fiscal year. Japan ¥ 191,274 ¥ 123,578 ¥ 93,118 ¥ 55,880 ¥ 42,559 $ 1,620,966 North America 6,345 (4,100) (1,006) 2,918 3,628 53,771 14 12 Asia (excluding Japan) 31,057 29,205 29,277 26,087 23,189 263,195 Electronic Devices 6 The semiconductor business saw an increase in both orders and sales from the Europe 11,041 8,148 2,334 2,710 (9,921) 93,568 186 170 164 170 previous fiscal year due to increases in power modules for industrial use and for -5 Others 1,007 945 767 1,211 471 8,534 consumer use, mainly in air conditioners, as well as power amplifiers for mobile Eliminations (7,722) (58) (3,848) 3,911 3,214 (65,441) handsets. Consolidated total ¥ 233,002 ¥ 157,718 ¥ 120,642 ¥ 92,717 ¥ 63,140 $ 1,974,593 The liquid crystal business saw a decrease in orders and sales from the pre- -53 03 04 05 06 07 03 04 05 06 07 vious fiscal year. Despite increases in orders for medium-sized products for Net sales Operating income (loss) industrial use, there were decreases in orders for small-sized products for (Yen in billions) (Yen in billions) Japan mobile handsets and other consumer uses. Net sales and Operating income of Sales in Japan increased by 7% year on year to ¥3,346.1 billion owing primarily to stronger sales in electric equipment for As a result, sales for the Electronic Devices segment totaled ¥185.9 billion, Home Appliances rolling stock, power generation and transmission/distribution related businesses, elevators and escalators, factory automation an increase of 9% from the previous fiscal year. Operating income amounted to systems, automotive equipment and the satellite-related business. Operating income increased by ¥67.7 billion to ¥191.3 billion. 922 37 ¥12.1 billion, a decline of ¥1.4 billion from the previous fiscal year, reflecting 866 896 36 789 782 the decrease in sales prices for liquid crystal displays. North America 26 Sales in North America climbed 10% year on year to ¥277.6 billion owing primarily to stronger results in the power transmis- Home Appliances 19 sion/distribution and air conditioner businesses. In contrast to the operating loss in the previous fiscal year, improvements in the Sales in the home appliances business increased 3% year on year to ¥921.9 bil- 15 visual equipment business contributed to a total operating profit of ¥6.3 billion in North America, an increase of ¥10.4 billion. lion owing to stronger overseas sales of air conditioners and solar power gener- ation systems, as well as increases in domestic sales of all-electric-powered Asia home products such as hot water supply systems and IH cooking heaters. Sales in Asia increased by 12% to ¥482.4 billion on stronger sales primarily in factory automation systems and air conditioners. Operating income climbed by ¥21.7 billion from the previous fiscal year to 03 04 05 06 07 03 04 05 06 07 Operating income rose by ¥1.9 billion to ¥31.1 billion. ¥36.6 billion as a result of the increase in sales and other factors. Net sales Operating income (Yen in billions) (Yen in billions) Europe Others Net sales and Operating income of Others Sales in Europe jumped 31% to ¥299.4 billion owing primarily to increased sales of factory automation systems, air conditioners Sales rose 4% from the previous fiscal year to ¥630.5 billion, supported main- and solar power generation systems. Operating income climbed by ¥2.9 billion to ¥11.0 billion. 631 15 ly by stronger sales in material procurement, logistics, engineering and other 582 604 566 13 affiliated companies. Operating income rose to ¥15.2 billion, an increase of 508 Others 11 11 ¥1.8 billion from the previous fiscal year. Sales in other regions, including figures for Mitsubishi Electric’s Australian subsidiary, totaled ¥30.8 billion, and operating 8 income was ¥1.0 billion.

03 04 05 06 07 03 04 05 06 07

Net sales Operating income (Yen in billions) (Yen in billions)

24 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 25 RESEARCH AND DEVELOPMENT network cameras; and information systems using Ku-band interferometric synthetic aperture radar for aircraft. R&D expenses in the segment were ¥21.9 billion. In Electronic Devices, Mitsubishi Electric conducts R&D in semiconductor devices and other electronic devices equipment Research and Development U.S. dollars that support all business domains. Major development results include: A Series 1700V IGBT modules equipped with a carrier Yen (billions) (millions) stored trench-gate bipolar transistor (CSTBT); NFM Series high-frequency IGBT modules; compact, switching-type power Years ended March 31 2007 2006 2005 2004 2003 2007 amplifier module for W-CDMA®*4 mobile handsets; power-saving transceiver modules for XFP MSA 10 Gbps/40 km optical Energy and Electric Systems ¥20.5 ¥ 18.9 ¥ 16.4 ¥ 16.6 ¥ 20.7 $ 173.3 communication; Ultrabright Series industrial-use TFT-LCD modules; and laser-processed, full-stack printed wiring boards. R&D Industrial Automation Systems 28.3 30.3 28.2 24.8 20.1 239.7 expenses in the segment were ¥8.8 billion. Information and Communication Systems 21.9 23.2 31.3 43.7 49.2 185.9 In Home Appliances, Mitsubishi Electric is focusing R&D on environmentally conscious products emphasizing energy Electronic Devices 8.8 8.6 9.8 9.8 50.0 74.5 conservation, recycling, and the reduction of environmental impact. At the same time, Mitsubishi Electric is pursuing research in Home Appliances 26.0 23.6 22.4 18.5 18.3 220.0 universal design, barrier-free products, and digital imaging systems. Notable results include: “Wclass” refrigerators equipped with Others 27.3 26.1 22.5 23.0 21.2 231.3 adjustable-height shelves; “JINKAN Move Eye” room air conditioners that detect where people are in a room; “LAQURLI” Consolidated total ¥ 132.7 ¥130.6 ¥130.5 ¥136.5 ¥179.5 $ 1,124.8 vacuum cleaners; a large-output type lead-free solder photovoltaic module for overseas markets; and “REAL” MZ Series LCD Note: Figures for each segment and the consolidated total are rounded to the nearest unit. televisions. R&D expenses in the segment were ¥26.0 billion. In Common and Others, groupwide fundamental research and the development of technologies for the creation of new businesses are undertaken at the Corporate Research and Development Group and the Corporate Total Productivity Management The Mitsubishi Electric Group actively promotes a wide range of research and development (R&D) activities embracing funda- & Environmental Programs Group research centers. Principal areas of R&D are in technologies related to electric power and mental to advanced application research, development for the commercialization of particular technologies, and R&D for manu- machinery, information and communications, and quality assurance, as well as common platform technology, and production facturing technology. Such R&D efforts involve various facilities and sites, including corporate laboratories in Japan, overseas technology. laboratories in the United States and Europe, R&D departments in factories and consolidated subsidiaries. In addition, Major results of R&D initiatives in the segment include: success in the world’s longest (80 km) proof-of-principle experi- Mitsubishi Electric is conducting various advanced R&D activities in cooperation with a wide range of independent scientific ment using a single photon source quantum cryptography system; burst transceiver integrated circuits for 10 Gbps-PON systems institutions, such as universities and laboratories, both in Japan and overseas. for application with next-generation high-speed optical access systems; a virtual private network (VPN) device enabling the In the fiscal year under review, the total consolidated expenditure invested in R&D activities amounted to ¥132.7 billion, world’s fastest transmission and compatible with industry standard (IPsec) cipher communication; deep UV solid-state laser including elements spent on quality improvements, which constitute manufacturing costs. Mitsubishi Electric reports R&D activi- (213-nm wavelength) with the world’s largest output (10W); and cleaning technology free of chemical substances through the ties by purpose, type, result, and development expenditure for each business segment as described below. Fundamental and basic use of micro bubbles. R&D expenses in the segment were ¥27.3 billion. common research that cannot be classified to a specific business segment, however, is reported in Common and Others.

In the Energy and Electric Systems segment, Mitsubishi Electric conducts research to enhance the competitiveness of core *1 IceWall is a registered trademark of Hewlett-Packard Development Company, Ltd. products such as rotating machines for generators, electric motors, and other machinery, as well as switches and transformers *2 DROSY is a registered trademark of Mitsubishi Electric Information Systems Corporation. and other power transmission equipment and systems, distribution and reception equipment and systems, transportation systems, *3 NEKA-ROKU is a registered trademark of Mitsubishi Electric Information Systems Corporation. *4 W-CDMA is a registered trademark of NTT DoCoMo, Inc. and elevators and escalators. Other areas of research and development include IT-application systems such as building manage- ment systems, supervision and control systems, power information systems and others. Mitsubishi Electric has achieved a number of successes in this segment, notably with the following technologies: a high-density ozone generator using narrow-gap discharge technology, which won the Prime Minister’s Prize at the 36th Japan Industrial Technology Awards; a refrigeration system that makes semi-frozen ice; MELNET-RP1000T environmental wear-resistant optical network equipment; AVL-IDT4 large-size visual display system; a 3-tesla superconducting magnet for medical-use MRI; and new earthquake defense functions in elevator control systems. R&D expenses in this segment totaled ¥20.5 billion. In Industrial Automation Systems, Mitsubishi Electric is active in implementing R&D to enhance the competitiveness of motors and related products, mechatronics equipment, FA control equipment and systems, automotive electric and electronic components, electric power steering and related products, car multimedia systems and other related products. Mitsubishi Electric has successfully developed: the CNC C70, a numerical controller for use on pro- R&D expenditures R&D expenditures cessing lines in the automotive industry; DIAX Advance series electrical dis- ratio charge machines; NX Series two-dimensional laser processing machines with 180 4.9 CO2 gas laser oscillator; FR-E700 inverters; and iQ Platform-compatible pro- gram logic controllers. R&D expenses in the segment were ¥28.3 billion. 4.1 137 3.8 In Information and Communication Systems, Mitsubishi Electric conducts 131 131133 3.6

research into the development of mobile handsets, information and communica- 3.4 tions infrastructure and network solutions equipment, and other products. Mitsubishi Electric is also active in the R&D of satellite-related systems. Notable successes include: the D903iTV, D800iDS and D703i mobile handsets; “Manufacturing Industry Standard Application” solutions for supply chain management and enterprise resource planning; the Entrance DS2000V mission- 03 04 05 06 07 03 04 05 06 07 critical server; secure file server coordinated solutions for HP IceWall®*1 QFS R&D expenditures R&D expenditures / ®*2 ®*3 and DROSY ; “NEKA-ROKU 2.0” recording and transmission server for (Yen in billions) Net sales (%)

26 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 27 FINANCIAL POSITION CAPITAL EXPENDITURES

Total assets amounted to ¥3,452.2 billion as of March 31, 2007, an increase Interest-bearing Debt ratio Based upon its balanced management perspective founded upon the three pillars Capital Depreciation of ¥138.5 billion from the previous fiscal year. In addition to an increase of debt of “Growth,” “Profitability and Efficiency” and “Soundness,” the Mitsubishi expenditures ¥38.1 billion in cash and cash equivalents, the Company recorded increases of 1,184 Electric Group made investments to advance and accelerate its “make strong 141 209 133 134 ¥47.0 billion in long-term operating receivables and trade receivables, as well 32.2 businesses stronger” strategy. The Mitsubishi Electric Group carried out capital 126 28.0 as ¥28.3 billion in inventories commensurate with higher orders and sales 905 investments mainly in the areas of escalators and elevators, factory automation 23.9 96 756 volume. Property, plant and equipment increased by ¥15.3 billion owing to a 693 20.9 systems, automotive equipment, power devices and air conditioning equipment. 126 130 641 110 rise in capital expenditures, and prepaid expenses and other current assets rose At the same time, the Mitsubishi Electric Group aims to construct a solid busi- 105 by ¥41.4 billion due primarily to increased loan. In contrast, investments in 18.6 ness platform through careful selection and concentration of investments from securities and others declined by ¥20.0 billion, while other assets declined by the perspective of “Profitability and Efficiency.” ¥26.4 billion. In Energy and Electric Systems, investment was made for streamlining and Under liabilities, the outstanding balance of debt and corporate bonds fell quality improvements. In Industrial Automation, capital expenditures were by ¥52.1 billion year on year to ¥641.1 billion. The ratio of interest-bearing 03 04 05 06 07 03 04 05 06 07 principally for expanding production capacity for factory automation systems 03 04 05 06 07 03 04 05 06 07 debt to total assets was 18.6%, an improvement of 2.3 points from the end of Interest-bearing debt Interest-bearing debt / and automotive equipment. In Information and Communication Systems, funds Capital expenditures Depreciation (Yen in billions) Total assets (%) (Yen in billions) (Yen in billions) the previous fiscal year. Retirement and severance benefits declined by ¥59.6 were appropriated for bolstering research and development capabilities. In billion, while trade payables rose by ¥25.1 billion, and other current liabilities Electronic Devices, Mitsubishi Electric directed investment toward enhance- increased by ¥27.3 billion owing to increases in advances. Other liabilities ment of production capacity in the power devices business. In Home Appliances, Total assets / Shareholders’ increased by ¥41.1 billion as a result of having set a reserve for expenses of investment was primarily for strengthening the production structure of air- Shareholders’ equity equity ratio ¥42.2 billion relating to competition laws. conditioning equipment. And in Common and Others, capital expenditures went 3,674 Shareholders’ equity increased by ¥117.0 billion year on year to ¥1,059.2 3,452 to boosting research and development capabilities. 3,225 3,314 billion, reflecting ¥123.1 billion in net income. The ratio of shareholders’ equity 3,162 Capital expenditure is essentially derived from cash on hand and funds to total assets was 30.7%, an increase of 2.3 points compared with the end of from operations. During the fiscal year under review, production capacity was 30.7 the previous fiscal year. 28.4 not materially affected by the sale, disposal, damage or loss by natural disaster 22.8 18.7 of property, plant and equipment. 1,059 942 602 721 395 10.7

CASH FLOWS 03 04 05 06 07 03 04 05 06 07

Total assets Shareholders’ equity (Yen in billions) ratio (%) Shareholders’ equity In the fiscal year under review, while net cash provided by operating activities Cash flows (Yen in billions) amounted to ¥274.6 billion, net cash used in investing activities was ¥155.6 305 173 275 billion. As a result, free cash flow totaled ¥119.0 billion, a decrease of ¥29.6 238 244 145 149 billion compared to the previous fiscal year. Net cash used in financing activi- 189 ties decreased by ¥88.7 billion, resulting in year-end cash and cash equivalents 119 of ¥342.6 billion, an increase of ¥38.1 billion. 88 Net cash provided by operating activities decreased by ¥30.2 billion to ¥274.6 billion. Although net income increased year on year, growth in sales -70 -94 -101 and orders led to increases in receivables and in inventories. -156 -156 Net cash used in investing activities decreased by ¥0.6 billion to ¥155.6 billion, reflecting a decrease in purchases of short-term investments and invest- 03 04 05 06 07 03 04 05 06 07

ment securities, which offset increased capital expenditures, mainly in elevators Net cash provided by Free cash flows operating activities (Yen in billions) and escalators, automotive equipment and factory automation equipment. (Yen in billions) Net cash used in financing activities totaled ¥88.7 billion. As in the previ- Net cash used in investing activities ous fiscal year, this reflected the continued repayment of debts and redemption (Yen in billions) of bonds to improve the Company’s financial standing.

28 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 29 CONSOLIDATED BALANCE SHEETS Mitsubishi Electric Corporation and Subsidiaries March 31, 2007 and 2006 U.S. dollars U.S. dollars (thousands) (thousands) Yen (millions) (note 2) Yen (millions) (note 2) 2007 2006 2007 2007 2006 2007 Assets Liabilities and Shareholders’ Equity Current assets: Current liabilities: Cash and cash equivalents ¥ 342,640 ¥ 304,514 $ 2,903,729 Bank loans (note 7) ¥ 148,621 ¥ 93,958 $ 1,259,500 Short-term investments (notes 3 and 18) 16,258 7,991 137,780 Current portion of long-term debt (notes 7, 18 and 20) 104,520 153,637 885,763 Trade receivables (notes 4 and 16) 891,271 843,600 7,553,144 Trade payables (note 8) 739,585 714,455 6,267,670 Inventories (note 5) 520,238 491,950 4,408,797 Accrued expenses (note 17) 334,413 314,105 2,834,008 Prepaid expenses and other current assets (note 9) 280,093 238,724 2,373,669 Accrued income taxes (note 9) 75,971 64,590 643,822 Total current assets 2,050,500 1,886,779 17,377,119 Other current liabilities (note 10) 126,728 99,388 1,073,966 Total current liabilities 1,529,838 1,440,133 12,964,729

Long-term debt (notes 7, 18 and 20) 387,941 445,583 3,287,636 Retirement and severance benefits (note 10) 360,713 420,348 3,056,890 Long-term receivables and investments: Other liabilities (note 9) 54,169 13,081 459,059 Long-term trade receivables (note 18) 3,711 4,378 31,449 Total liabilities 2,332,661 2,319,145 19,768,314 Investments in securities and other (notes 3 and 18) 312,189 332,193 2,645,669 Investments in and advances to affiliated companies (notes 6 and 10) 259,269 252,678 2,197,195 Minority interests 60,361 52,395 511,534 575,169 589,249 4,874,313 Shareholders’ equity Common stock (note 11): Authorized 8,000,000,000 shares; issued 2,147,201,551 shares in 2007 and in 2006 175,820 175,820 1,490,000 Property, plant and equipment (notes 7, 19 and 20): Capital surplus (note 11) 210,910 210,938 1,787,373 Land 103,090 102,434 873,644 Legal reserve 54,929 54,514 465,500 Buildings 567,173 545,631 4,806,551 Retained earnings 577,074 473,726 4,890,458 Machinery and equipment 1,407,607 1,339,749 11,928,873 Accumulated other comprehensive income (loss) Construction in progress 24,378 28,297 206,593 (notes 3, 9, 10 and 13) 40,932 27,718 346,881 2,102,248 2,016,111 17,815,661 Treasury stock, at cost Less accumulated depreciation 1,496,963 1,426,113 12,686,127 686,023 shares in 2007 and Net property, plant and equipment 605,285 589,998 5,129,534 862,650 shares in 2006 (456) (514) (3,865) Total shareholders’ equity 1,059,209 942,202 8,976,347 Other assets (note 9) 221,277 247,716 1,875,229 Commitments and contingent liabilities (note 17) ¥ 3,452,231 ¥ 3,313,742 $29,256,195 ¥ 3,452,231 ¥ 3,313,742 $29,256,195

See accompanying notes to consolidated financial statements.

30 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 31 CONSOLIDATED STATEMENTS OF INCOME CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY Mitsubishi Electric Corporation and Subsidiaries Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2007, 2006 and 2005 Years ended March 31, 2007, 2006 and 2005 U.S. dollars Yen (millions) (thousands) Accumulated Yen (millions) (note 2) other Common Capital Legal Retained comprehensive Treasury 2007 2006 2005 2007 stock surplus reserve earnings income (loss) stock Total Revenues: Balance at March 31, 2004 ¥ 175,820 ¥ 210,672 ¥ 51,883 ¥ 337,367 ¥(173,837) ¥ (373) ¥ 601,532 Comprehensive income (loss): Net sales ¥ 3,855,745 ¥ 3,604,185 ¥ 3,410,685 $32,675,805 Net income 71,175 71,175 Interest and dividends 12,281 9,492 7,437 104,076 Other comprehensive income (loss), net of tax (note 13): Gain on transfer of the substitutional portion of Foreign currency translation adjustments 5,726 5,726 Employee Pension Funds (note 10) — 17,767 2,718 — Minimum pension liability adjustments (note 10) 54,186 54,186 Unrealized gains (losses) on securities (note 3) 903 903 Other (notes 3, 13 and 19) 28,464 18,721 26,235 241,220 131,990 Total revenues 3,896,490 3,650,165 3,447,075 33,021,101 Transfer to legal reserve 713 (713) — Cash dividends (12,877) (12,877) Purchase of treasury stock (58) (58) Costs and expenses: Reissuance of treasury stock 15 35 50 Balance at March 31, 2005 ¥ 175,820 ¥ 210,687 ¥ 52,596 ¥ 394,952 ¥(113,022) ¥ (396) ¥ 720,637 Cost of sales (notes 10 and 20) 2,831,309 2,694,985 2,559,499 23,994,144 Comprehensive income (loss): Selling, general and administrative Net income 95,692 95,692 Other comprehensive income (loss), (notes 10, 19 and 20) 667,655 630,438 612,430 5,658,093 net of tax (note 13): Research and development 123,779 121,044 118,114 1,048,975 Foreign currency translation adjustments 20,148 20,148 Minimum pension liability adjustments (note 10) 79,963 79,963 Interest 9,375 9,648 10,868 79,449 Unrealized gains (losses) on securities (note 3) 40,612 40,612 Other (notes 3, 13, 16, 17 and 19) 79,596 41,724 43,848 674,542 Unrealized gains (losses) on derivative instruments 17 17 Total costs and expenses 3,711,714 3,497,839 3,344,759 31,455,203 236,432 Transfer to legal reserve 1,918 (1,918) — Cash dividends (15,000) (15,000) Income before income taxes 184,776 152,326 102,316 1,565,898 Purchase of treasury stock (4,583) (4,583) Reissuance of treasury stock 251 4,465 4,716 Balance at March 31, 2006 ¥ 175,820 ¥ 210,938 ¥ 54,514 ¥ 473,726 ¥ 27,718 ¥ (514) ¥ 942,202 Income taxes (note 9): Comprehensive income (loss): Current 70,650 46,905 31,169 598,728 Net income 123,080 123,080 Other comprehensive income (loss), Deferred 9,553 22,796 17,001 80,958 net of tax (note 13): 80,203 69,701 48,170 679,686 Foreign currency translation adjustments 22,662 22,662 Minimum pension liability adjustments (note 10) 6,282 6,282 Unrealized gains (losses) on securities (note 3) (8,392) (8,392) Income from consolidated operations 104,573 82,625 54,146 886,212 Unrealized gains (losses) on derivative instruments (28) (28) 143,604 Equity in earnings of affiliated companies (note 6) 18,507 13,067 17,029 156,839 Adjustment to initially apply SFAS No. 158, net of tax (note 10) (7,310) (7,310) Transfer to legal reserve 415 (415) — Net income ¥ 123,080 ¥ 95,692 ¥ 71,175 $ 1,043,051 Cash dividends (19,317) (19,317) Purchase of treasury stock (132) (132) Reissuance of treasury stock (28) 190 162 Balance at March 31, 2007 ¥175,820 ¥210,910 ¥54,929 ¥577,074 ¥ 40,932 ¥ (456) ¥1,059,209 Net income per share (note 14): U.S. dollars (thousands) (note 2) U.S. dollars Accumulated Yen (note 2) other Common Capital Legal Retained comprehensive Treasury Basic ¥ 57.34 ¥ 44.64 ¥ 33.16 $ 0.486 stock surplus reserve earnings income (loss) stock Total Diluted 57.34 44.63 33.16 0.486 Balance at March 31, 2006 $1,490,000 $1,787,610 $461,983 $4,014,627 $234,898 $(4,356) $7,984,762 Comprehensive income (loss): See accompanying notes to consolidated financial statements. Net income 1,043,051 1,043,051 Other comprehensive income (loss), net of tax (note 13): Foreign currency translation adjustments 192,051 192,051 Minimum pension liability adjustments (note 10) 53,237 53,237 Unrealized gains (losses) on securities (note 3) (71,119) (71,119) Unrealized gains (losses) on derivative instruments (237) (237) 1,216,983 Adjustment to initially apply SFAS No. 158, net of tax (note 10) (61,949) (61,949) Transfer to legal reserve 3,517 (3,517) — Cash dividends (163,703) (163,703) Purchase of treasury stock (1,119) (1,119) Reissuance of treasury stock (237) 1,610 1,373 Balance at March 31, 2007 $1,490,000 $1,787,373 $465,500 $4,890,458 $346,881 $(3,865) $8,976,347

See accompanying notes to consolidated financial statements.

32 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 33 CONSOLIDATED STATEMENTS OF CASH FLOWS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Mitsubishi Electric Corporation and Subsidiaries Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2007, 2006 and 2005 U.S. dollars (thousands) (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Yen (millions) (note 2) 2007 2006 2005 2007 (a) Description of Business requires management to make estimates and assumptions that Cash flows from operating activities: Mitsubishi Electric Corporation (the “Company”) is a multi- affect the reported amounts of assets and liabilities and the Net income ¥ 123,080 ¥ 95,692 ¥ 71,175 $ 1,043,051 national concern which develops, manufactures and distributes Adjustments to reconcile net income disclosure of contingent assets and liabilities at the date of the to net cash provided by operating activities: a broad range of electrical equipment in fields as diverse as consolidated financial statements and the reported amounts of Depreciation 130,130 126,169 105,356 1,102,797 home appliances and space electronics. revenues and expenses during the reporting period. Significant Impairment losses of property, plant The Company’s principal lines of business are: (1) Energy items subject to such estimates and assumptions include valua- and equipment 11,384 9,652 5,974 96,474 and Electric Systems, (2) Industrial Automation Systems, tion allowances for receivables, inventories and deferred tax Loss from sales and disposal of property, (3) Information and Communication Systems, (4) Electronic assets; the carrying amount of property, plant and equipment; plant and equipment, net 6,206 7,681 1,737 52,593 Devices, (5) Home Appliances and (6) Others. Percent of total and assets and obligations related to employee benefits. Deferred income taxes 9,553 22,796 17,001 80,958 sales, including internal sales by these categories for the year Actual results could differ from those estimates. In the fiscal Loss (gain) from sales of securities and ended March 31, 2007 are as follows: Energy and Electric year ended March 31, 2007, the Company changed its other, net (4,214) (5,357) (5,986) (35,712) Systems—22%, Industrial Automation Systems—22%, accounting estimates relating to the salvage value of certain Devaluation losses of securities and other, net 1,917 1,635 3,892 16,246 Information and Communication Systems—16%, Electronic machinery and equipment. As a result of the change, net Equity in earnings of affiliated companies (18,507) (13,067) (17,029) (156,839) Devices —4%, Home Appliances—21% and Others—15%. income and net income per share (basic and diluted) decreased Decrease (increase) in trade receivables (35,474) (19,359) (29,665) (300,627) The operations of the Company in Japan are relatively by ¥7,287 million ($61,754 thousand) and ¥3.39 ($0.029), Decrease (increase) in inventories (15,954) (9,379) (41,223) (135,203) significant in comparison with the Company’s worldwide respectively. In the fiscal year ended March 31, 2006, the Decrease (increase) in other assets 964 (3,308) 18,855 8,169 operation. Net sales for the year ended March 31, 2007 are Company changed its accounting estimates relating to the Increase in trade payables 19,252 60,170 14,927 163,152 geographically broken down as follows: Japan—69%, North salvage value of certain machinery and equipment. As a result Increase (decrease) in accrued expenses and America—8%, Asia (excluding Japan)—12%, Europe—9% of the change, net income and net income per share (basic and retirement and severance benefits (33,753) 18,880 3,712 (286,042) and Others—2%. diluted) decreased by ¥6,466 million and ¥3.02, respectively. Increase in other liabilities 78,135 16,466 30,768 662,161 Manufacturing operations are conducted principally at 24 (e) Cash and Cash Equivalents Other, net 1,911 (3,830) 9,430 16,195 sites (for the Parent’s only) located in Japan and at overseas Net cash provided by operating activities 274,630 304,841 188,924 2,327,373 The Company considers all highly liquid debt instruments sites located in the United States, United Kingdom, Thailand, with original maturities of three months or less to be cash Malaysia, China and other countries. Cash flows from investing activities: equivalents. Capital expenditure (140,557) (134,413) (125,657) (1,191,161) (b) Basis of Presentation (f) Short-Term Investments and Investment Securities Proceeds from sale of property, The Company and its subsidiaries maintain their books of The Company applies Statement of Financial Accounting plant and equipment 4,782 5,374 16,492 40,525 account in conformity with financial accounting standards in Standards (SFAS) No. 115, “Accounting for Certain Purchase of short-term investments the countries of their domicile. Investments in Debt and Equity Securities,” which requires and investment securities (24,115) (33,590) (52,489) (204,364) The consolidated financial statements presented herein that certain investments in debt and equity securities should be Proceeds from sale of short-term have been prepared in a manner and reflect the adjustments classified as trading, available-for-sale, or held-to-maturity investments and investment securities 28,163 32,937 58,978 238,669 which are considered necessary to conform with accounting securities. Trading securities are bought and held principally Decrease (increase) in loans receivable (18,973) 2,331 3,648 (160,788) principles generally accepted in the United States of America. for the purpose of selling them in the near term. Held-to- Payment for purchasing of associated assets and (c) Consolidation maturity securities are those securities in which the Company liabilities relating to joint venture dissolution — (25,700) — — The consolidated financial statements include the accounts of has the ability and intent to hold the security until maturity. Other, net (4,899) (3,148) (2,107) (41,517) the parent company and those of its majority-owned sub- All securities not included in trading or held-to-maturity are Net cash used in investing activities (155,599) (156,209) (101,135) (1,318,636) sidiaries, whether directly or indirectly controlled. All classified as available-for-sale. significant intercompany transactions and accounts have been Trading and available-for-sale securities are recorded at Cash flows from financing activities: eliminated. fair value. Held-to-maturity securities are recorded at amor- Proceeds from long-term debt 32,200 62,675 49,590 272,881 The Company evaluates whether it has a controlling tized cost, adjusted for the amortization or accretion of Repayment of long-term debt (154,250) (100,024) (116,698) (1,307,203) financial interest in an entity through means other than voting premiums or discounts. Unrealized holding gains and losses on Increase (decrease) in bank loans, net 50,496 (43,794) (94,214) 427,932 rights and accordingly should consolidate the entity in Dividends paid (19,317) (15,000) (12,877) (163,703) trading securities are included in earnings. Unrealized holding accordance with Financial Accounting Standards Board Purchase of treasury stock (132) (4,583) (58) (1,119) gains and losses, net of the related tax effect, on available-for- Reissuance of treasury stock 162 125 50 1,373 (FASB) Interpretation No. 46 (revised) (FIN No. 46R), sale securities are excluded from earnings and are reported as Other, net 2,107 —— 17,856 “Consolidation of Variable Interest Entities.” a separate component of other comprehensive income (loss) Net cash provided by (used in) financing activities (88,734) (100,601) (174,207) (751,983) Investments in corporate joint ventures and affiliated com- until realized. Realized gains or losses from the sale of securi- Effect of exchange rate changes on panies owned 20% to 50%, in which the Company does not have ties are determined on the average cost of the particular cash and cash equivalents 7,829 9,920 2,385 66,348 control, but has the ability to exercise significant influence, are security held at the time of sale. Net increase (decrease) in cash and accounted for by the equity method of accounting. Investments A decline in the market value of any available-for-sale cash equivalents 38,126 57,951 (84,033) 323,102 of less than 20% or where the Company does not have security below costs that is deemed to be other-than-temporary Cash and cash equivalents at beginning of year 304,514 246,563 330,596 2,580,627 significant influence are accounted for using the cost method. results in a reduction in carrying amount to fair value. The Cash and cash equivalents at end of year ¥ 342,640 ¥ 304,514 ¥ 246,563 $ 2,903,729 (d) Use of Estimates impairment is charged to earnings and a new cost basis for the

See accompanying notes to consolidated financial statements. The preparation of the consolidated financial statements in security is established. To determine whether an impairment is conformity with generally accepted accounting principles other-than-temporary, the Company considers whether it has

34 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 35 the ability and intent to hold the investment until a market more likely than not that some portion or all of the deferred recognized over the contract term when the maintenance is designated as fair value hedges, changes in fair value of the price recovery and considers whether evidence indicating the tax asset will not be realized. provided and the cost is incurred. Also, the Company applies hedged item and the derivative are recognized currently in cost of the investment is recoverable outweighs evidence to (l) Product Warranties the percentage of completion method for long-term construc- earnings. For derivatives designated as cash flow hedges, fair the contrary. Evidence considered in this assessment includes The Company generally warrants its products against certain tion contracts. The Company measures the percentage of com- value changes of the effective portion of the hedging instru- the reasons for the impairment, the severity and duration of manufacturing and other defects. These product warranties pletion by comparing expenses recognized through the current ments are recognized in other comprehensive income (loss) the impairment, changes in value subsequent to year-end, and are provided for specific periods of time and/or usage of the year to the aggregate amount of estimated cost. Any antici- until the hedged item is recognized in earnings. The ineffective forecasted performance of the investee. product depending on the nature of the product, the geo- pated losses on fixed price contracts are charged to operations portion of all hedges is recognized in earnings immediately. Other investments are stated at cost. The Company would graphic location of its sale and other factors. The Company when such losses can be estimated. Provisions are made for (t) Securitizations recognize a loss when there is a decline in value of other recognizes accrued warranty costs based primarily on histori- contingencies in the period when they become known pursuant The Company applies SFAS No. 140, “Accounting for Transfers investments which is deemed to be other-than-temporary, cal experience of actual warranty claims as well as current to specific contract terms and conditions and are estimable. and Servicing of Financial Assets and Extinguishments of using similar criteria as noted for available-for-sale security information on repair costs. Arrangements which may include any combination of Liabilities.” In accordance with SFAS No. 140, the sale of impairments described above. products, equipment, installation and maintenance are (m) Retirement and Severance Benefits receivables is accounted for as a sale because the Company (g) Allowance for Doubtful Receivables Effective March 31, 2007, the Company adopted the allocated revenue to each element based on its relative fair has relinquished control of the receivables. Accordingly, the An allowance for doubtful receivables is provided based on cred- recognition and disclosure provisions of SFAS No. 158, value if such element meets the criteria for treatment as a receivables sold under these facilities are excluded from it loss history and evaluation of specific doubtful receivables. “Employers’ Accounting for Defined Benefit Pension and separate unit of accounting as prescribed in the Emerging receivables in the accompanying consolidated balance sheets. (h) Inventories Other Postretirement Plans – an amendment of SFAS No. 87, Issue Task Force Issue 00-21 (EITF No. 00-21), “Revenue Gain or loss on sale of receivables is computed based on the Work in process is stated at the lower of cost or estimated net 88, 106, and 132(R).” The recognition and disclosure provi- Arrangements with Multiple Deliverables.” allocated carrying amount of the receivables sold. Retained realizable value with cost being determined by accumulated sions of SFAS No. 158 requires the Company to recognize the (o) Research and Development and Advertising interests are recorded at the allocated carrying value of the production costs for contract items and by average production funded status (i.e., the difference between the fair value of The costs of research and development and advertising are assets based on their relative fair values at the date of sale. costs for regular production items. Net costs in excess of plan assets and the projected benefit obligations) of its pen- expensed as incurred. The Company estimates fair value based on the present value billings on long-term contracts are included in inventories. sion plans in the consolidated balance sheet at March 31, (p) Shipping and Handling Costs of future expected cash flows less credit losses. Raw material and finished product inventories are stated at 2007, with a corresponding adjustment to accumulated other Shipping and handling costs are mainly included in selling, (u) Impairment of Long-Lived Assets the lower of cost or market with cost being determined princi- comprehensive income (loss), net of tax. general and administrative expenses. The Company applies SFAS No. 144, “Accounting for the pally by the average-cost method. In accordance with the gen- Prior to the adoption of the recognition and disclosure pro- (q) Net Income per Share Impairment or Disposal of Long-Lived Assets.” In accordance eral practice in the heavy electrical industry, inventories visions of SFAS No. 158, the Company applies SFAS No. 87, Basic net income per share is computed by dividing net income with SFAS No. 144, long-lived assets, such as property, include items with long manufacturing periods which are not “Employers’ Accounting for Pensions,” and SFAS No. 88, available to common shareholders by the weighted-average plant, and equipment, and purchased intangibles subject to realizable within one year. “Employers’ Accounting for Settlements and Curtailments of number of common shares outstanding during each year. amortization, to be held and used are reviewed for impairment (i) Property, Plant and Equipment Defined Benefit Pension Plans and for Termination Benefits.” Diluted net income per share reflects the potential dilution and whenever events or changes in circumstances indicate that the Property, plant and equipment are stated at cost. Depreciation The effect of the adoption is discussed in Note 10 is computed on the basis that all convertible debentures were carrying amount of an asset may not be recoverable. of property, plant and equipment is computed generally by the Retirement Severance Benefits. converted at the beginning of the year or at time of issuance Recoverability of assets to be held and used is measured by a declining-balance method, except for certain assets which are The Company applies the Emerging Issue Task Force (if later), and that all dilutive warrants were exercised (less comparison of the carrying amount of an asset to estimated depreciated by the straight-line method, based on the estimat- Issue 03-2 (EITF No. 03-2), “Accounting for the Transfer to the number of treasury stock assumed to be purchased from undiscounted future cash flows expected to be generated by ed useful lives of the assets according to general class, type of the Japanese Government of the Substitutional Portion of the proceeds using the average market price of the Company’s the asset. If the carrying amount of an asset exceeds its esti- construction and use. The estimated useful life of buildings is Employee Pension Fund Liabilities.” EITF No. 03-2 addresses common stock). mated future cash flows, an impairment loss is recognized by 3 to 50 years, while machinery and equipment is 2 to 20 years. accounting for a transfer to the Japanese government of a (r) Foreign Currency Translation the amount by which the carrying amount of the asset exceeds (j) Leases substitutional portion of Employee Pension Funds (EPFs). Assets and liabilities of the Company’s subsidiaries located the fair value of the asset. Long-lived assets to be disposed of The Company records capital leases at the inception of the EITF No. 03-2 requires employers to account for the entire outside Japan are translated into Japanese yen at the rates of other than by sale shall continue to be classified as held and lease at the lower of the discounted present value of future separation process of a substitutional portion from an entire exchange in effect at the balance sheet date. Income and used until they are disposed of. Long-lived assets classified as minimum lease payments or the fair value of the leased assets plan (including a corporate portion) upon completion of the expense items are translated at the weighted average exchange held-for-sale would be separately presented in the balance and that amortization of the leased assets be in a manner transfer to the government of the substitutional portion of the rate prevailing during the year. Gains and losses resulting from sheet and reported at the lower of the carrying amount or fair consistent with the lessee’s normal depreciation policy. benefit obligation and related plan assets as the culmination translation of financial statements are excluded from the con- value less costs to sell, and are no longer depreciated. The (k) Income Taxes of a series of steps in a single settlement transaction. solidated statements of income and are accumulated in share- assets and liabilities of a disposed group classified as held-for- Deferred income taxes are accounted for under the asset and (n) Revenue Recognition holders’ equity as foreign currency translation adjustments sale would be presented separately in the appropriate asset liability method. Deferred tax assets and liabilities are recog- The Company recognizes revenue when persuasive evidence of which are included in other comprehensive income (loss). and liability sections of the balance sheet. nized for the future tax consequences attributable to differ- an arrangement including title transfer exists, delivery has (s) Derivatives (v) Stock-based Compensation ences between the financial statement carrying amounts of occurred, the sales price is fixed or determinable, and col- The Company applies SFAS No. 133, “Accounting for Effective April 1, 2006, the Company adopted SFAS No. 123 existing assets and liabilities and their respective tax bases lectibility is probable. These criteria are met for mass- Derivative Instruments and Hedging Activities,” as amended, (revised 2004)(SFAS No. 123R), “Share-Based Payment.” and operating loss and tax credit carryforwards. Deferred tax merchandising products such as consumer products and which establishes accounting and reporting standards for SFAS No. 123R requires the Company to recognize the cost assets and liabilities are measured using enacted tax rates semiconductors at the time when the product is received by the derivative instruments and for hedging activities and requires of employee services received in exchange for stock compensa- expected to apply to taxable income in the years in which the customer, and for products with acceptance provisions such as that an entity recognize all derivatives as either assets or lia- tion based on the grant-date fair value of the employee stock temporary differences are expected to be recovered or settled. heavy machinery and industrial products at the time when the bilities in the balance sheet and measure those instruments at options. Incremental compensation costs arising from subse- The effect on deferred tax assets and liabilities of a change in product is received by the customer and the specific criteria of fair value. Changes in the fair value of derivatives are recorded quent modifications of awards after the grant date must be tax rates is recognized in income in the period that includes the product are demonstrated by the Company with only cer- each period in current earnings or other comprehensive income recognized. the enactment date. Valuation allowances are established to tain inconsequential or perfunctory work left to be performed (loss), depending on whether a derivative is designated as a Prior to the adoption of SFAS No. 123R, the Company reduce deferred tax assets to their net realizable value if it is by the customer. Revenue for maintenance agreements is hedge of a change in fair values or cash flows. For derivatives applied APB Opinion No. 25, "Accounting for Stock Issued to

36 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 37 Employees" and used the intrinsic-value-based method of obligations associated with the retirement of long-lived assets (2) U.S. DOLLAR AMOUNTS accounting. that result from the acquisition, construction and development, As discussed in Note 12 Stock Option Plans, the adoption and (or) the normal operation of a long-lived asset, except for The consolidated financial statements presented herein are the Tokyo Foreign Exchange Market at the end of March of SFAS No. 123R did not have a material impact on the certain obligations of lessees. SFAS No. 143 requires that the expressed in yen and, solely for the convenience of the reader, 2007. This translation should not be construed as a represen- Company's financial position and results of operations for the fair value of a liability for an asset retirement obligation be have been translated into United States dollars at the rate of tation that the amounts shown could be converted into United year ended March 31, 2007. recognized in the period in which it is incurred if a reasonable ¥118=U.S.$1, the approximate exchange rate prevailing on States dollars at such rate. (w) Goodwill and Other Intangible Assets estimate of fair value can be made. The associated asset The Company applies SFAS No. 141, “Business Combinations” retirement costs are capitalized as part of the carrying (3) SECURITIES and No. 142, “Goodwill and Other Intangible Assets.” SFAS amount of the long-lived asset and subsequently allocated to No. 141 requires that the purchase method of accounting be expense over the asset’s useful life. Subsequent to the initial Marketable securities included in short-term investments and unrealized holding losses and fair value for such securities by used for all business combinations completed after June 30, measurement of the asset retirement obligation, the obligation investments in securities and other consist of available-for- major security type at March 31, 2007 and 2006 are as 2001 and also specifies the types of acquired other intangible would be adjusted at the end of each period to reflect the pas- sale securities. The cost, gross unrealized holding gains, gross follows: sage of time and changes in the estimated future cash flows assets that are required to be recognized and reported sepa- Yen (millions) rately from goodwill and those acquired other intangible underlying the obligation. Gross Gross assets that are required to be included in goodwill. SFAS No. (aa) Reclassifications unrealized unrealized holding holding 142 requires that goodwill no longer be amortized, but instead Certain reclassifications have been made to the prior years’ con- Cost gains losses Fair value be tested for impairment at least annually. SFAS No. 142 solidated financial statements to conform to the presentation 2007: also requires recognized other intangible assets determined to used for the year ended March 31, 2007. Current: have finite useful lives to be amortized over their respective (bb)Future Application of New Accounting Standards Available-for-sale: estimated useful lives and reviewed for impairment in accor- In June 2006, the FASB issued FASB Interpretation No. 48 Corporate debt securities ¥ 14,717 ¥ — ¥ 461 ¥ 14,256 dance with SFAS No. 144. Any recognized other intangible (FIN No. 48), “Accounting for Uncertainty in Income Taxes, Fund trusts 2,003 — 1 2,002 asset determined to have an indefinite useful life is not to be an interpretation of FASB Statement No. 109.” FIN No. 48 ¥ 16,720 ¥ — ¥ 462 ¥ 16,258 amortized, but instead tested for impairment until its life is clarifies the accounting for uncertainty in income taxes Noncurrent: determined to no longer be indefinite. recognized in an enterprise’s financial statements and pre- Available-for-sale: (x) Cost Associated with Exit or Disposal Activities scribes a threshold of more-likely-than-not for recognition of Japanese and foreign government debt securities ¥ 4,207 ¥ 12 ¥ 20 ¥ 4,199 The Company applies SFAS No. 146, “Accounting for Costs tax benefits of uncertain tax positions taken or expected to be Corporate debt securities 48,354 419 2,621 46,152 Associated with Exit or Disposal Activities.” SFAS No. 146 taken in a tax return. FIN No. 48 also provides related guid- Fund trusts 4,353 86 2 4,437 addresses financial accounting and reporting for costs ance on measurement, derecognition, interest and penalties, associated with exit or disposal activities. SFAS No. 146 classification, and disclosure. The Company is required to Marketable equity securities 60,689 114,226 961 173,954 requires that a liability be recognized for those costs only adopt FIN No. 48 on April 1, 2007. The adoption of FIN ¥ 117,603 ¥ 114,743 ¥ 3,604 ¥ 228,742 when the liability is incurred, that is, when it meets the defini- No. 48 will not have a material effect on the Company’s tion of a liability in the Statements of Financial Accounting consolidated financial position and result of operations. Yen (millions) Gross Gross Concepts No. 6, “Elements of Financial Statements.” SFAS In September 2006, the FASB issued SFAS No. 157, unrealized unrealized No. 146 also establishes fair value as the objective for initial “Fair Value Measurement.” SFAS No. 157 defines fair value, holding holding Cost gains losses Fair value measurement of liabilities related to exit or disposal activities. establishes a framework for the measurement of fair value, 2006: (y) Guarantees and enhances disclosures about fair value measurements. Current: The Company applies FASB Interpretation No. 45 (FIN No. SFAS No. 157 does not require any new fair value measures. 45), “Guarantor’s Accounting and Disclosure Requirements The Company is required to adopt SFAS No. 157 on April 1, Available-for-sale: for Guarantees, Including Indirect Guarantees of Indebtedness 2008. The adoption of SFAS No. 157 will not have a material Japanese and foreign government debt securities ¥ 1,400 ¥ — ¥ — ¥ 1,400 of Others.” FIN No. 45 requires that entities recognize the effect on the Company’s consolidated financial position and Corporate debt securities 3,643 27 43 3,627 fair value of guarantee and indemnification arrangements result of operations. Fund trusts 2,953 11 — 2,964 issued or modified by the Company after December 31, 2002, In September 2006, the FASB issued the measurement ¥ 7,996 ¥ 38 ¥ 43 ¥ 7,991 if these arrangements are within the scope of FIN No. 45, date provision of SFAS No. 158, “Employers’ Accounting for Noncurrent: and disclosures about the guarantees that the entities have Defined Benefit Pension and Other Postretirement Plans – an Available-for-sale: issued, including a rollforward of the Company’s product war- amendment of SFAS No. 87, 88, 106, and 132(R).” The meas- Japanese and foreign government debt securities ¥ 8,103 ¥ 6 ¥ 86 ¥ 8,023 ranty liabilities. In addition, under previously existing urement date provision of SFAS No. 158 requires the Company Corporate debt securities 53,565 50 2,476 51,139 to measure the fair value of plan assets and benefit obligations generally accepted accounting principles, the Company contin- Fund trusts 3,812 37 80 3,769 as of the date of the fiscal year-end consolidated balance sheet. ues to monitor the conditions that are subject to the guaran- Marketable equity securities 58,060 130,531 392 188,199 tees and indemnifications to identify whether it is probable The Company is required to adopt the measurement date provi- ¥ 123,540 ¥ 130,624 ¥ 3,034 ¥ 251,130 that a loss has occurred, and would recognize any such losses sion of SFAS No. 158 in the fiscal year ending on March 31, under the guarantees and indemnifications when those losses 2009. The adoption of the measurement date provision of are estimable. SFAS No. 158 will not have a material effect on the Company’s (z) Asset Retirement Obligations consolidated financial position and result of operations. The Company applies SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 applies to legal

38 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 39 U.S. dollars (thousands) Gross unrealized losses on available-for-sale securities and the fair value of the related securities, aggregated by investment Gross Gross unrealized unrealized category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2007, were holding holding as follows: Cost gains losses Fair value Yen (millions) 2007: Less than 12 months 12 months or more Total Current: Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Available-for-sale: Current: Corporate debt securities $ 124,721 $ — $ 3,907 $ 120,814 Available-for-sale: Fund trusts 16,974 — 8 16,966 Corporate debt securities ¥12,055 ¥ 442 ¥ 1,581 ¥ 19 ¥ 13,636 ¥ 461 $ 141,695 $ — $ 3,915 $ 137,780 Fund trusts 50 1 — — 50 1 Noncurrent: ¥ 12,105 ¥ 443 ¥ 1,581 ¥ 19 ¥ 13,686 ¥ 462 Available-for-sale: Noncurrent: Japanese and foreign government debt securities $ 35,653 $ 101 $ 169 $ 35,585 Available-for-sale: Corporate debt securities 409,779 3,551 22,212 391,118 Japanese and foreign government debt securities ¥ — ¥ — ¥ 3,187 ¥ 20 ¥ 3,187 ¥ 20 Fund trusts 36,890 729 17 37,602 Corporate debt securities — — 28,220 2,621 28,220 2,621 Marketable equity securities 514,314 968,016 8,144 1,474,186 Fund trusts — — 999 2 999 2 $ 996,636 $ 972,397 $30,542 $ 1,938,491 Marketable equity securities 3,810 445 1,334 516 5,144 961 ¥ 3,810 ¥ 445 ¥ 33,740 ¥ 3,159 ¥ 37,550 ¥ 3,604 In the years ended March 31, 2007, 2006 and 2005, net As of March 31, 2007 and 2006, the cost of non- unrealized gains on available-for-sale securities, net of taxes marketable equity securities is ¥22,367 million ($189,551 U.S. dollars (thousands) and minority interests, decreased by ¥8,392 million ($71,119 thousand) and ¥25,633 million, respectively. Less than 12 months 12 months or more Total thousand) and increased by ¥40,612 million and ¥903 Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses million, respectively. Current: Available-for-sale: Maturities of marketable securities classified as available-for-sale at March 31, 2007 were as follows: U.S. dollars Corporate debt securities $102,161 $ 3,746 $ 13,398 $ 161 $115,559 $ 3,907 Yen (millions) (thousands) Fund trusts 424 8 — — 424 8 Cost Fair value Cost Fair value $102,585 $ 3,754 $ 13,398 $ 161 $115,983 $ 3,915 Due within one year ¥ 16,720 ¥ 16,258 $ 141,695 $ 137,780 Noncurrent: Due after one year through five years 15,250 15,153 129,237 128,415 Available-for-sale: Due after five years 41,664 39,635 353,085 335,890 Japanese and foreign government debt securities $ — $ — $ 27,008 $ 169 $ 27,008 $ 169 Marketable equity securities 60,689 173,954 514,314 1,474,186 Corporate debt securities — — 239,153 22,212 239,153 22,212 ¥ 134,323 ¥ 245,000 $1,138,331 $ 2,076,271 Fund trusts — — 8,466 17 8,466 17 Marketable equity securities 32,288 3,771 11,305 4,373 43,593 8,144 Proceeds from the sale of available-for-sale securities and gross realized gains and gross realized losses on those sales in the $ 32,288 $ 3,771 $285,932 $ 26,771 $318,220 $ 30,542 years ended March 31, 2007, 2006 and 2005 were as follows: U.S. dollars Yen (millions) (thousands) The Company did not recognize an other-than-temporary as a result of consideration of the Company’s ability and intent 2007 2006 2005 2007 impairment loss in its marketable securities since the Company to hold these investments for a reasonable period of time Proceeds ¥20,223 ¥ 8,639 ¥ 51,143 $ 171,381 concluded that the decline in fair value of its investments sufficient for a recovery of fair value. Gross realized gains 3,278 2,597 4,649 27,780 including unrealized losses would not be other-than-temporary Gross realized losses 147 70 209 1,246 (4) TRADE RECEIVABLES The devaluation losses due to other-than-temporary declines in fair value of marketable securities were immaterial for the years ended March 31, 2007, 2006 and 2005. Trade receivables are summarized as follows: U.S. dollars Yen (millions) (thousands) 2007 2006 2007 Notes receivable ¥ 57,582 ¥ 54,673 $ 487,983 Accounts receivable 841,980 796,300 7,135,424 Allowance for doubtful receivables (8,291) (7,373) (70,263) ¥891,271 ¥843,600 $ 7,553,144

40 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 41 (5) INVENTORIES Investments in affiliated companies accounted for by the equity method of accounting include the shares of 10 publicly quoted affiliates (10 publicly quoted affiliates existed in 2006), which are summarized as follows: Inventories are comprised of the following: U.S. dollars Yen (millions) (thousands) U.S. dollars 2007 2006 2007 Yen (millions) (thousands) 2007 2006 2007 Investments at equity ¥ 46,271 ¥43,479 $ 392,127 Work in process ¥277,032 ¥ 264,414 $ 2,347,729 Quoted market value 48,667 47,624 412,432 Less accumulated billings on long-term contracts 21,224 14,723 179,865 255,808 249,691 2,167,864 Raw materials 78,773 71,390 667,568 (7) BANK LOANS AND LONG-TERM DEBT Finished products 185,657 170,869 1,573,365 Bank loans consisted of the following: ¥520,238 ¥ 491,950 $ 4,408,797 U.S. dollars Yen (millions) (thousands) 2007 2006 2007 (6) INVESTMENTS IN AFFILIATED COMPANIES Bank borrowings ¥ 88,621 ¥ 93,958 $ 751,025 Commercial paper 60,000 — 508,475 Summary of combined financial information relating to affiliated companies accounted for by the equity method of accounting as ¥148,621 ¥ 93,958 $ 1,259,500 of March 31, 2007 and 2006, and for the years ended March 31, 2007, 2006 and 2005 is as follows: U.S. dollars Yen (millions) (thousands) The weighted average interest rates on bank loans outstanding At March 31, 2007, the Company had unused committed 2007 2006 2007 as of March 31, 2007 and 2006 are 2.04% and 1.43%, lines of credit amounting to ¥114,000 million ($966,102 Financial Position respectively. thousand). Current assets ¥ 1,311,107 ¥ 1,241,333 $11,111,076 Property, plant and equipment 510,290 493,291 4,324,492 Long-term debt consisted of the following: Other assets 327,946 309,019 2,779,203 U.S. dollars Yen (millions) (thousands) Total assets ¥ 2,149,343 ¥ 2,043,643 $18,214,771 2007 2006 2007 Loans, principally from banks and insurance Current liabilities ¥ 1,099,550 ¥ 1,052,611 $ 9,318,220 companies, maturing in installments through Long-term debt 386,743 360,622 3,277,483 2025; bearing interest ranging from 0.55% Total liabilities 1,486,293 1,413,233 12,595,703 to 8.91% in 2007 and 0.11% to 8.91% in 2006: Shareholders’ equity 663,050 630,410 5,619,068 Secured ¥ 1,367 ¥ 9,423 $ 11,585 Total liabilities and shareholders’ equity ¥ 2,149,343 ¥ 2,043,643 $18,214,771 Unsecured 259,869 251,361 2,202,280 2.7% Japanese yen bonds due 2008 30,000 30,000 254,237 U.S. dollars Yen (millions) (thousands) 0.63% Japanese yen bonds due 2006 — 15,000 — 2007 2006 2005 2007 1.03% Japanese yen bonds due 2008 10,000 10,000 84,746 Results of Operations 0.83% Japanese yen bonds due 2006 — 100,000 — Sales ¥ 2,144,745 ¥ 2,033,109 ¥ 2,424,823 $18,175,805 1.22% Japanese yen bonds due 2008 25,000 25,000 211,864 Net income 45,296 31,168 45,389 383,864 1.76% Japanese yen bonds due 2011 25,000 25,000 211,864 0.78% Japanese yen bonds due 2007 25,000 25,000 211,864 In May 2005, the Company and Toshiba Corporation joint venture of NEC Mitsubishi Electric Visual Systems 1.09% Japanese yen bonds due 2009 15,000 15,000 127,120 (“Toshiba”) dissolved the corporate joint venture agreement Corporation (“NMV”), which was established by the Company 1.7% Japanese yen bonds due 2012 10,000 10,000 84,746 of TM T&D Corporation (“TM T&D”), which was established and NEC to assemble cathode-ray tubes for monitors. In 0.55% Japanese yen bonds due 2009 30,000 30,000 254,237 by the Company and Toshiba for the power transmission and March 2005, the Company transferred all of its shares (on 1.09% Japanese yen bonds due 2009 30,000 30,000 254,237 distribution business. In March 2006, TM T&D was removed 50% ownership) in NMV to the NEC group pursuant to the Capital lease obligations 31,225 23,436 264,619 as an affiliated company, which was previously accounted for share transfer agreement. Accordingly, NMV was removed as 492,461 599,220 4,173,399 under the equity method of accounting. an affiliated company, which was previously accounted for Less amount due within one year 104,520 153,637 885,763 In February 2005, the Company and NEC Corporation under the equity method of accounting. ¥ 387,941 ¥ 445,583 $ 3,287,636 (“NEC”) entered into an agreement to dissolve the corporate

42 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 43 The aggregate annual maturities of long-term debt outstanding at March 31, 2007 were as follows: The significant components of deferred tax expense attributable to income taxes are as follows: U.S. dollars U.S. dollars Year ending March 31: Yen (millions) (thousands) Yen (millions) (thousands) 2008 ¥ 104,520 $ 885,763 2007 2006 2005 2007 2009 104,507 885,654 Change in valuation allowance ¥18,319 ¥ 1,421 ¥ 63,098 $ 155,246 2010 96,198 815,237 Other (8,766) 21,375 (46,097) (74,288) 2011 49,820 422,203 ¥ 9,553 ¥ 22,796 ¥ 17,001 $ 80,958 2012 67,128 568,881 Thereafter 70,288 595,661 The Company is subjected to a number of income taxes. The statutory tax rate is approximately 41% for the years ended March Total ¥ 492,461 $ 4,173,399 31, 2007, 2006 and 2005. The actual tax rate for the years ended March 31, 2007, 2006 and 2005 is reconciled with the Japanese statutory tax rate in the Substantially all of the loans are with banks that have basic Certain of the secured loan agreements contain provisions following table: written agreements with the Company to the effect that, with that permit the lenders to require additional collateral, and 2007 2006 2005 respect to all present or future loans from such banks, the substantially all of the unsecured loan agreements permit the Japanese statutory tax rate 41.0% 41.0% 41.0% Company shall provide collateral or guarantors immediately lenders to require collateral or guarantors for such loans. upon the banks’ request and that any collateral furnished Property, plant and equipment carried at ¥3,817 million Change in valuation allowance 9.9 0.9 (6.1) pursuant to such agreements or otherwise will be applicable to ($32,347 thousand) are pledged as security for long-term Expenses permanently not deductible for tax purposes 1.6 2.1 2.9 all indebtedness to such banks. loans from banks and insurance companies. Dividends received 3.7 4.5 10.1 International tax rate difference (0.9) (1.1) (5.7) Tax credits (9.5) (6.9) — (8) TRADE PAYABLES Tax effect attributable to investments at equity 1.2 4.9 6.5 Trade payables are summarized as follows: Other (3.6) 0.4 (1.6) U.S. dollars Actual income tax rate 43.4% 45.8% 47.1% Yen (millions) (thousands) 2007 2006 2007 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities Notes payable ¥ 38,400 ¥ 63,435 $ 325,424 at March 31, 2007 and 2006 are as follows: Accounts payable 701,185 651,020 5,942,246 U.S. dollars ¥739,585 ¥714,455 $ 6,267,670 Yen (millions) (thousands) 2007 2006 2007 Deferred tax assets: (9) INCOME TAXES Retirement and severance benefits ¥ 172,040 ¥ 189,184 $ 1,457,966 Accrued expenses 94,263 88,255 798,839 Total income taxes were allocated as follows: Property, plant and equipment 36,220 33,318 306,949 U.S. dollars Inventories 37,567 30,341 318,365 Yen (millions) (thousands) 2007 2006 2005 2007 Minimum pension liability adjustments — 45,414 — Income before income taxes ¥ 80,203 ¥ 69,701 ¥ 48,170 $ 679,686 Pension liability adjustments 43,606 — 369,542 Tax loss carryforwards 7,205 11,449 61,059 Shareholders’ equity – accumulated other Other 99,992 80,963 847,390 comprehensive income (loss): Total gross deferred tax assets 490,893 478,924 4,160,110 Foreign currency translation adjustments 2,593 5,699 1,838 21,975 Valuation allowance (49,247) (30,928) (417,348) Minimum pension liability adjustments — 57,170 35,014 — Deferred tax assets, less valuation allowance 441,646 447,996 3,742,762 Pension liability adjustments 2,109 —— 17,873 Deferred tax liabilities: Unrealized gains (losses) on securities (6,621) 27,290 1,517 (56,110) Securities contributed to employee Unrealized gains (losses) on derivative instruments (8) 11 — (68) retirement benefit trust 32,856 32,856 278,441 ¥ 78,276 ¥159,871 ¥ 86,539 $ 663,356 Property, plant and equipment 13,856 13,506 117,424 Net unrealized gains on securities 46,693 53,314 395,703 Other 20,375 16,055 172,669 Total gross deferred tax liabilities 113,780 115,731 964,237 Net deferred tax assets ¥ 327,866 ¥ 332,265 $ 2,778,525

The valuation allowance for deferred tax assets as of April 1, ¥1,421 million, respectively. In assessing the realizability 2005 was ¥29,507 million. The net change in the total valua- of deferred tax assets, management considers whether it is tion allowance for the years ended March 31, 2007 and 2006 more likely than not that some portion or all of the deferred was an increase of ¥18,319 million ($155,246 thousand) and tax assets will be realized. The ultimate realization of

44 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 45 deferred tax assets is dependent upon the generation of future and ¥25,701 million ($217,805 thousand) for corporate and The effects of adopting the provisions of SFAS No. 158 on the accompanying consolidated balance sheet at March 31, 2007 are taxable income during the periods in which those temporary local income tax purposes, which were available to offset as follows: differences become deductible. Management considers the future taxable income, if any. A significant portion of the net Yen (millions) Before application After application scheduled reversal of deferred tax liabilities, projected future operating loss carryforwards will expire in the years ending of SFAS No. 158 Adjustment of SFAS No. 158 taxable income, and tax planning strategies in making this March 31, 2009 and 2012. Other current liabilities ¥ — ¥(6,066) ¥ (6,066) assessment. Net deferred tax assets and liabilities at March 31, 2007 Retirement and severance benefits (360,661) (52) (360,713) At March 31, 2007, certain subsidiaries had net operating and 2006 are reflected in the accompanying consolidated Investment in and advances to affiliated companies (6,499) (3,504) (10,003) loss carryforwards of ¥13,036 million ($110,475 thousand) balance sheets under the following captions: Deferred income taxes 41,294 2,312 43,606 U.S. dollars Yen (millions) (thousands) Accumulated other comprehensive income (loss) 52,413 7,310 59,723 2007 2006 2007 Prepaid expenses and other current assets ¥ 147,023 ¥ 130,079 $ 1,245,958 U.S. dollars (thousands) Before application After application Other assets 181,047 202,659 1,534,296 of SFAS No. 158 Adjustment of SFAS No. 158 Other liabilities (204) (473) (1,729) Other current liabilities $ — $ (51,407) $ (51,407) ¥ 327,866 ¥ 332,265 $ 2,778,525 Retirement and severance benefits (3,056,449) (441) (3,056,890) Investment in and advances to affiliated companies (55,076) (29,695) (84,771) Income taxes have not been accrued for undistributed income taxable under present circumstances or is not material. Income Deferred income taxes 349,948 19,594 369,542 of domestic subsidiaries and affiliated companies as such taxes based on undistributed income of foreign subsidiaries Accumulated other comprehensive income (loss) 444,178 61,949 506,127 income, if distributed in the form of dividends, is either not and affiliated companies have been accrued.

Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows: (10) RETIREMENT AND SEVERANCE BENEFITS U.S. dollars Yen (millions) (thousands) 2007 2006 2007 The Company has non-contributory and contributory defined The applications, which were submitted by the Company Change in benefit obligations: benefit plans covering substantially all of its employees who and certain subsidiaries for approval, were approved by the Benefit obligations at beginning of year ¥ 1,118,007 ¥ 1,177,512 $ 9,474,636 meet eligibility requirements. government for an exemption from the obligation to pay bene- Service cost 34,210 32,501 289,915 Under the non-contributory plans, employees with less fits for future employee service related to the substitutional Interest cost 28,587 29,595 242,263 than twenty years of service are entitled to lump-sum sever- portion of the Governmental Welfare Pension Insurance. Plan participants’ contributions 1,305 1,442 11,059 ance indemnities at date of severance, and employees with Furthermore, these companies transferred the government- twenty or more years of service are entitled to annuity pay- specified portion of the plan assets for past services related to Amendments (1,353) (179) (11,466) ments subsequent to retirement, determined by the current the substitutional portion to the government, which were Actuarial loss (gain) 2,638 (5,255) 22,356 basic rate of pay, length of service and termination conditions. approved by the government for an exemption from the obli- Benefits paid (63,166) (60,902) (535,305) In addition, certain employees who meet the eligibility gation to pay benefits for past employee services related to the Acquisitions and divestitures, etc. 12,099 11,723 102,534 requirements are entitled to additional lump-sum payments at substitutional portion. Transfer of the substitutional portion of EPF — (68,430) — the date of retirement based on the retirement age. Under the Upon the completion of the transfer to the government of Benefit obligations at end of year 1,132,327 1,118,007 9,595,992 contributory plans, employees are entitled to annuity payments the government-specified portion of the plan assets for past at a certain age. The assets of certain of the non-contributory services related to the substitutional portion, the Company Change in plan assets: plans and the contributory plans are combined in accordance recognized a net gain for ¥17,767 million and ¥2,718 million Fair value of plan assets at beginning of year 703,136 560,066 5,958,780 with the regulations and administered by a board of trustees in “Revenues – Gain on transfer of the substitutional portion Actual return on plan assets 15,932 161,818 135,017 comprised equally of employer and employee representatives. of Employee Pension Funds” in the accompanying consolidat- Employer contributions 64,455 46,797 546,229 An employee retirement benefit trust is established for certain ed statements of income for the years ended March 31, 2006 Contribution to employee retirement benefit trust 2,000 — 16,949 of the non-contributory plans. and 2005, respectively. Plan participants’ contributions 1,305 1,442 11,059 The Company amended its benefit plan under labor and Effective March 31, 2007, the Company adopted the Benefits paid (29,337) (33,117) (248,619) management agreement during the year ended March 31, recognition and disclosure provisions of SFAS No. 158, Acquisitions and divestitures, etc. 8,057 3,956 68,280 2005, and established a defined contribution plan on April 1, “Employers’ Accounting for Defined Benefit Pension and Transfer of the substitutional portion of EPF — (37,826) — 2005. In addition, the Company amended its contributory Other Postretirement Plans – an amendment of SFAS No. 87, Fair value of plan assets at end of year 765,548 703,136 6,487,695 defined benefit plan and introduced a cash balance pension 88, 106, and 132(R).” The recognition and disclosure pro- plan. Under the cash balance pension plan, each participant visions of SFAS No. 158 requires the Company to recognize Funded status ¥ (366,779) ¥ (414,871) $ (3,108,297) has a notional account which is credited yearly based on the the funded status (i.e., the difference between the fair value of current rate of contribution and market-related interest rate. plan assets and the projected benefit obligations) of its pen- Certain subsidiaries sponsor varying types of retirement sion plans in the consolidated balance sheet at March 31, and severance benefit plans covering substantially all of their 2007, with a corresponding adjustment to accumulated other employees who meet eligibility requirements, most of which comprehensive income (loss), net of tax. are defined benefit plans and some of which are defined contribution plans.

46 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 47 Amounts recognized in the consolidated balance sheet at March 31, 2007 consist of: Actuarial assumptions used to determine benefit obligations at March 31, 2007 and 2006 were as follows: U.S. dollars Yen (millions) (thousands) 2007 2006 Other current liabilities ¥ (6,066) $ (51,407) Discount rate 2.5% 2.5% Retirement and severance benefits (360,713) (3,056,890) Assumed rate of increase in future compensation levels 1.7% 1.7% ¥ (366,779) $ (3,108,297) Actuarial assumptions used to determine net periodic retirement and severance costs for the years ended March 31, 2007, 2006 Amounts recognized in accumulated other comprehensive income (loss) at March 31, 2007 consist of and 2005 were as follows: U.S. dollars Yen (millions) (thousands) 2007 2006 2005 Actuarial gain or loss ¥ 272,031 $ 2,305,347 Discount rate 2.5% 2.5% 2.5% Prior service benefit (168,336) (1,426,576) Assumed rate of increase in future compensation levels 1.7% 1.7% 3.7% ¥ 103,695 $ 878,771 Expected long-term rate of return on plan assets 3.0% 3.0% 3.5%

The funded status at March 31, 2006, reconciled to the net amount recognized in the consolidated balance sheet The expected long-term rate of return is based on actual historical returns and the expectations for future returns of each plan at that date, is summarized as follows: asset category in which the Company invests. Yen (millions) Funded status ¥ (414,871) Plan Assets Unrecognized actuarial gain or loss 287,946 The weighted-average asset allocation of the Company’s pension benefits and postretirement benefits at March 31, 2007 and Unrecognized prior service benefit (181,656) 2006 were as follows: Net amount recognized ¥(308,581) 2007 2006 Asset Category Amounts recognized in the consolidated balance sheet at March 31, 2006 consist of: Equity securities 58.5% 63.2% Yen (millions) Debt securities 26.8% 22.2% Retirement and severance benefits ¥(420,348) Cash 3.9% 1.2% Accumulated other comprehensive income (loss) 111,767 Life insurance company general accounts 8.6% 8.0% Net amount recognized ¥(308,581) Other 2.2% 5.4% 100.0% 100.0% The accumulated benefit obligation for all defined benefit plans was as follows: U.S. dollars Yen (millions) (thousands) The Company’s investment policies are designed to ensure mid-term to long-term basis. The Company evaluates the gap 2007 2006 2007 adequate plan assets are available to provide future payments between expected return and actual return of invested plan Accumulated benefit obligation ¥ 1,126,498 ¥ 1,111,403 $ 9,546,593 of pension benefits to eligible participants. Taking into assets on an annual basis. In addition, taking into the consid- account the expected long-term rate of return on plan assets, eration the management environment and the revision of Net periodic retirement and severance costs for the years ended March 31, 2007, 2006 and 2005 consisted of the following the Company formulates an investment portfolio comprised of regulations, the Company revises the investment portfolio components: the optimal combination of equity and debt securities. Plan when and to the extent considered necessary to achieve the U.S. dollars Yen (millions) (thousands) assets are invested in individual equity and debt securities expected long-term rate of return on plan assets based on the 2007 2006 2005 2007 using the guidelines of the investment portfolio in order to pension asset and liability management method. Service cost ¥ 35,515 ¥ 33,943 ¥ 29,253 $ 300,975 produce a total return that will match the expected return on a Interest cost on projected benefit obligation 28,587 29,595 33,088 242,263 Expected return on plan assets (13,871) (12,134) (13,679) (117,551) Cash Flows Amortization of the unrecognized transition obligations — — 986 — The Company expects to contribute ¥46,032 million ($390,102 thousand) to its pension plan in the year ending March 31, 2008. Amortization of prior service benefit (14,494) (14,493) (5,365) (122,831) Estimated future benefit payments are as follows: U.S. dollars Amortization of actuarial losses 17,933 26,402 26,045 151,974 Year ending March 31: Yen (millions) (thousands) 53,670 63,313 70,328 454,830 2008 ¥ 70,567 $ 598,025 Plan participants’ contributions (1,305) (1,442) (2,417) (11,059) 2009 73,589 623,636 Net periodic retirement and severance costs ¥ 52,365 ¥ 61,871 ¥ 67,911 $ 443,771 2010 72,580 615,085 2011 70,071 593,822 The estimated actuarial gain or loss and prior service benefit for the defined benefit pension plans that will be amortized from 2012 71,097 602,517 accumulated other comprehensive income (loss) into net periodic benefit cost over the next year are summarized as follows: 2013—2017 300,273 2,544,686 U.S. dollars Yen (millions) (thousands) The amount of cost recognized for the Company and certain subsidiaries’ defined contribution plans for the years ended March Actuarial gain or loss ¥ 17,119 $ 145,076 31, 2007, 2006 and 2005 was ¥4,962 million ($42,051 thousand), ¥3,740 million and ¥686 million, respectively. Prior service benefit (14,493) (122,822)

48 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 49 (11) SHAREHOLDERS’ EQUITY Shares Weighted average exercise price Yen U.S. dollars Outstanding at March 31, 2004 1,065,000 ¥526 Changes in common stock for the years ended March 31, 2007 and 2006 were as follows: Shares Granted —— 2007 2006 Exercised 70,000 584 Number of common shares issued: Outstanding at March 31, 2005 995,000 522 Balance at beginning of year 2,147,201,551 2,147,201,551 Granted —— Balance at end of year 2,147,201,551 2,147,201,551 Exercised 241,000 467 Outstanding at March 31, 2006 754,000 539 $ 4.57 Conversions into common stock of convertible debenture The amount available for dividends under the Japanese Granted ——— issued subsequent to October 1, 1982 and exercise of warrants Corporate Law is based on the amount recorded in the Exercised 295,000 517 4.38 were accounted for in accordance with the provisions of the Company’s books of account in accordance with accounting Outstanding at March 31, 2007 459,000 ¥554 $ 4.69 Japanese Commercial Code by crediting one-half of the con- standards of Japan. The adjustments included in the accompa- version price and exercise price to each of the common stock nying consolidated financial statements to have them conform The weighted average remaining contractual life is 0.66 years, and the exercisable stock options were 459,000 shares as of account and the capital surplus account. with accounting principles generally accepted in the United March 31, 2007. Certain sections of the Japanese Commercial Code are States of America, but not recorded in the books of account, repealed by the Japanese Corporate Law effective May 1, 2006. have no effect on the determination of retained earnings avail- (13) OTHER COMPREHENSIVE INCOME (LOSS) The Japanese Corporate Law provides that an amount able for dividends under the Japanese Corporate Law. equal to 10% of dividends and other distributions paid in cash Retained earnings available for dividends shown in the Change in accumulated other comprehensive income (loss) is as follows: by the Company and its domestic subsidiaries be appropriated Company’s books of account amounted to ¥142,578 million U.S. dollars as a legal reserve until an aggregated amount of additional ($1,208,288 thousand) at March 31, 2007. Yen (millions) (thousands) paid-in capital and the legal reserve equals 25% of their Cash dividends and appropriations to the legal reserve 2007 2006 2005 2007 respective common stock. The additional paid-in capital and charged to retained earnings during the years ended March Foreign currency translation adjustments: the legal reserve may be used to reduce a deficit or transferred 31, 2007, 2006 and 2005 represent dividends paid out during Balance at beginning of year ¥ 9,426 ¥ (10,722) ¥ (16,448) $ 79,881 to common stock by resolution of the shareholders’ meeting. the years and the related appropriations to the legal reserve. Adjustments for the year 22,662 20,148 5,726 192,051 Balance at end of year 32,088 9,426 (10,722) 271,932

(12) STOCK OPTION PLANS Minimum pension liability adjustments: Balance at beginning of year (58,695) (138,658) (192,844) (497,415) The Company granted stock options to directors, executive have a material impact on the Company’s financial position Adjustments for the year 6,282 79,963 54,186 53,237 officers and senior employees. Under the stock option plan, and results of operations as of and for the year ended March Adjustment to initially apply SFAS No. 158 52,413 —— 444,178 options to purchase common stock, which were granted at 31, 2007. Balance at end of year — (58,695) (138,658) — exercise prices not less than market value at date of grant, are Prior to the adoption of SFAS No. 123R, the Company exercisable from two years after the date of grant and expire applied APB Opinion No. 25, “Accounting for Stock Issued to Pension liability adjustments: within four years after the date of vest. Effective April 1, Employees” and used the intrinsic-value-based method of Balance at beginning of year — —— — 2006, the Company adopted SFAS No. 123 (revised accounting. Under this method, the Company recognized no Adjustments for the year — —— — 2004)(SFAS No. 123R), “Share-Based Payment” and uses compensation expense related to employee stock options, as Adjustment to initially apply SFAS No. 158 (59,723) ——(506,127) Modified prospective application transition method of no options were granted at an exercise price below the market Balance at end of year (59,723) ——(506,127) accounting. Under this method, SFAS No. 123R applies to price on the date of grant. The pro forma effect of applying new awards and to awards modified, repurchased, or cancelled SFAS No. 123, “Accounting for Stock-based Compensation” Unrealized gains (losses) on securities: after April 1, 2006. Additionally, compensation cost for the on net income and net income per share for the years ended Balance at beginning of year 76,970 36,358 35,455 652,288 portion of awards for which the requisite service has not March 31, 2007, 2006 and 2005 was not material. Adjustments for the year (8,392) 40,612 903 (71,119) been rendered that are outstanding as of April 1, 2006 shall A summary of the stock option plan activity for the years Balance at end of year 68,578 76,970 36,358 581,169 be recognized. The adoption of SFAS No. 123R did not ended March 31, 2007, 2006 and 2005 is shown as follows: Unrealized gains (losses) on derivative instruments: Balance at beginning of year 17 —— 144 Adjustments for the year (28) 17 — (237) Balance at end of year (11) 17 — (93)

Total accumulated other comprehensive income (loss): Balance at beginning of year 27,718 (113,022) (173,837) 234,898 Adjustments for the year 20,524 140,740 60,815 173,932 Adjustment to initially apply SFAS No. 158 (7,310) —— (61,949) Balance at end of year ¥ 40,932 ¥ 27,718 ¥ (113,022) $ 346,881

50 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 51 Tax effects allocated to each component of other comprehensive income (loss) and reclassification adjustments are as follows: Yen (millions) Yen (millions) Tax (expense) Before-tax amount or benefit Net-of-tax amount Tax (expense) Before-tax amount or benefit Net-of-tax amount 2005: 2007: Foreign currency translation adjustments: Foreign currency translation adjustments: Amount arising during the year on investments in Amount arising during the year on investments in foreign entities held at end of year ¥ 4,656 ¥ (932) ¥ 3,724 foreign entities held at end of year ¥ 25,251 ¥(2,593) ¥22,658 Reclassification adjustments for the portion of Reclassification adjustments for the portion of gains and losses realized upon sale or gains and losses realized upon sale or liquidation of investments in foreign entities 2,908 (906) 2,002 liquidation of investments in foreign entities 404 Net change in foreign currency translation Net change in foreign currency translation adjustments during the year 7,564 (1,838) 5,726 adjustments during the year 25,255 (2,593) 22,662 Minimum pension liability adjustments 89,200 (35,014) 54,186 Minimum pension liability adjustments 110,703 (4,421) 6,282 Unrealized gains (losses) on securities: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during the year 4,332 (2,375) 1,957 Unrealized holding gains (losses) arising during the year (11,017) 4,943 (6,074) Less reclassification adjustments for gains (losses) Less reclassification adjustments for gains (losses) included in net income (1,912) 858 (1,054) included in net income (3,996) 1,678 (2,318) Net change in unrealized gains (losses) on securities 2,420 (1,517) 903 Net change in unrealized gains (losses) on securities (15,013) 6,621 (8,392) Other comprehensive income (loss) ¥99,184 ¥(38,369) ¥60,815 Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year (36) 8 (28) U.S. dollars (thousands) Other comprehensive income (loss) ¥ 20,909 ¥ (385) ¥20,524 Tax (expense) Before-tax amount or benefit Net-of-tax amount 2007: Yen (millions) Foreign currency translation adjustments: Tax (expense) Before-tax amount or benefit Net-of-tax amount Amount arising during the year on investments in 2006: foreign entities held at end of year $ 213,992 $ (21,975) $ 192,017 Foreign currency translation adjustments: Reclassification adjustments for the portion of Amount arising during the year on investments in gains and losses realized upon sale or foreign entities held at end of year ¥ 25,238 ¥ (5,572) ¥ 19,666 liquidation of investments in foreign entities 34 0 34 Reclassification adjustments for the portion of Net change in foreign currency translation gains and losses realized upon sale or adjustments during the year 214,025 (21,975) 192,051 liquidation of investments in foreign entities 609 (127) 482 Minimum pension liability adjustments 90,703 (37,466) 53,237 Net change in foreign currency translation Unrealized gains (losses) on securities: adjustments during the year 25,847 (5,699) 20,148 Unrealized holding gains (losses) arising during the year (93,364) 41,890 (51,475) Minimum pension liability adjustments 137,133 (57,170) 79,963 Less reclassification adjustments for gains (losses) Unrealized gains (losses) on securities: included in net income (33,864) 14,220 (19,644) Unrealized holding gains (losses) arising during the year 71,624 (28,816) 42,808 Net change in unrealized gains (losses) on securities (127,229) 56,110 (71,119) Less reclassification adjustments for gains (losses) Unrealized gains (losses) on derivative instruments: included in net income (3,722) 1,526 (2,196) Unrealized holding gains (losses) arising during the year (305) 68 (237) Net change in unrealized gains (losses) on securities 67,902 (27,290) 40,612 Other comprehensive income (loss) $ 177,195 $ (3,263) $ 173,932 Unrealized gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year 28 (11) 17 Other comprehensive income (loss) ¥230,910 ¥(90,170) ¥140,740

52 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 53 (14) NET INCOME PER SHARE Information with Respect to Fair Value Hedges hedges and excluded from the assessment of hedge effective- Certain subsidiaries have entered into foreign currency swaps ness were immaterial for the years ended March 31, 2007, A reconciliation of the numerators and denominators of the basic and diluted net income per share computations is as follows: to hedge currency exposure and designate them as fair value 2006 and 2005. U.S. dollars hedges. The gains or losses as ineffective portion of hedges Yen (millions) (thousands) and excluded from the assessment of hedge effectiveness Undesignated Derivative Instruments 2007 2006 2005 2007 were immaterial for the years ended March 31, 2007, 2006 Foreign exchange contracts and certain of foreign currency Net income available to common stockholders ¥ 123,080 ¥ 95,692 ¥ 71,175 $ 1,043,051 and 2005. swaps and interest rate swaps not designated as hedging Effect of dilutive securities — —— — instruments under SFAS No. 133, “Accounting for Derivative Diluted net income ¥ 123,080 ¥ 95,692 ¥ 71,175 $ 1,043,051 Information with Respect to Cash Flow Hedges Instruments and Hedging Activities,” as amended, are also The Company and certain of its subsidiaries have entered into used to hedge certain foreign currency and interest rate Shares 2007 2006 2005 interest rate swap agreements, the effect of which is to modify exposures. The Company and certain of its subsidiaries Average common shares outstanding 2,146,457,505 2,143,700,823 2,146,281,308 the interest rate characteristics of a portion of its long-term recognize changes in unrealized gains and losses on such debt from a variable to a fixed rate and designate them as Effect of dilutive securities: instruments in earnings. cash flow hedges. The gains or losses as ineffective portion of Stock option 209,194 184,942 72,472 Diluted common shares outstanding 2,146,666,699 2,143,885,765 2,146,353,780 (16) SECURITIZATIONS Yen U.S. dollars 2007 2006 2005 2007 The Company transfers trade accounts receivable and trade The Company recognized losses of ¥823 million ($6,975 Net income per share: notes receivable under several securitization programs. thousand), ¥422 million and ¥341 million on the securitiza- Basic ¥ 57.34 ¥44.64 ¥33.16 $ 0.486 When the Company holds subordinated retained inter- tions of receivables for the years ended March 31, 2007, Diluted 57.34 44.63 33.16 0.486 ests for certain trade accounts receivable upon the sale of 2006 and 2005, respectively. receivables, a portion of these, where the Company holds sub- Subsequent to securitization, the Company retains collec- ordinated retained interests, is not taken off the balance sheet tion and administrative responsibilities for the receivables. (15) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES and is recorded at their fair value. Such carrying value is The Company has not recorded a servicing asset or liability adjusted to reflect the portion that is not expected to be since the cost of service for collection is similar to the com- Foreign Exchange Risk Management and Interest Rate Risk Contract Amounts, Notional Principal Amounts and Credit Risk collectible. As of March 31, 2007, the Company did not hold mission income. Management The Company and its subsidiaries are exposed to risk of subordinated retained interests for certain trade accounts Certain cash flows received from special purpose entities The Company and its subsidiaries operate internationally, giv- credit-related losses in the event of nonperformance by coun- receivable upon the sale of receivables. As of March 31, (SPEs) and banks on the above transactions for the years ing rise to significant exposure to market risks from changes terparties to foreign exchange contracts, foreign currency 2006, the fair value of retained interest was ¥24 million. ended March 31, 2007, 2006 and 2005 are as follows: in foreign currencies and interest rates. Derivative financial swaps and interest rate swaps, but they believe such risk to be U.S. dollars Yen (millions) (thousands) instruments are comprised principally of foreign exchange minor because of the high credit ratings of the counterparties. 2007 2006 2005 2007 contracts, foreign currency swaps and interest rate swaps Proceeds from new securitizations ¥ 458,295 ¥ 382,503 ¥ 314,103 $ 3,883,856 utilized by the Company and certain of its subsidiaries to Cash flow received on retained interests 24 4,745 6,306 203 reduce these risks. The Company and its subsidiaries do not hold or issue financial instruments for trading purposes. As of March 31, 2006, the key economic assumptions used to compute the fair value of retained interests are as follows:

Accounts receivable 2007 2006 Contract amounts of foreign exchange contracts and foreign currency swaps and notional principal amounts of interest rate Weighted-average life (in years) — 0.10 swaps at March 31, 2007 and 2006 are set forth below: Residual cash flows discount rate — 0.475—0.495% U.S. dollars Yen (millions) (thousands) 2007 2006 2007 Quantitative information about trade receivables including securitized receivables as of March 31, 2007 and 2006 are as follows: Foreign exchange contracts U.S. dollars Yen (millions) (thousands) Forwards to sell foreign currencies ¥ 122,171 ¥ 117,481 $ 1,035,347 2007 2006 2007 Forwards to buy foreign currencies 16,559 13,971 140,331 Trade receivables ¥1,001,269 ¥ 944,314 $ 8,485,330 Foreign currency swaps 5,396 3,620 45,729 Less: Securitized receivables 109,998 100,714 932,186 Interest rate swaps 12,950 8,200 109,746 Total receivables ¥ 891,271 ¥ 843,600 $ 7,553,144

As of March 31, 2007 and 2006, delinquencies and credit losses of trade receivables including securitized receivables are immaterial.

54 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 55 (17) COMMITMENTS AND CONTINGENT LIABILITIES (18) FAIR VALUE OF FINANCIAL INSTRUMENTS

At March 31, 2007, commitments outstanding for the pur- DRAM and SRAM. Certain numbers of associated civil law- The following methods and assumptions were used to estimate (c) Long-term trade receivables chase of property, plant and equipment were ¥15,362 million suits have been filed against several companies involved, the fair value of each class of financial instrument for which it The fair value of the Company’s long-term trade receivables ($130,186 thousand). including the Company and concerned subsidiaries. In is practical to estimate that value: are estimated based on the amount of future cash flows It is common practice in Japan for companies, in the ordi- addition, the Company received a decision rendered by the discounted using estimated market discount rates. nary course of business, to receive promissory notes in European Commission imposing fines for an infringement of (a) Cash and cash equivalents, Trade receivables, Bank loans, settlement of trade accounts receivable and to subsequently EU Competition Rules against its sales of certain gas-insulated Trade payables, Accrued expenses and Other current (d) Long-term debt discount such notes at banks. At March 31, 2007, certain switchgears in Europe. However, there is significant inconsis- liabilities The fair value of the Company’s long-term debt is estimated companies were contingently liable to trade notes discounted tency on recognition of the material underlying facts between The carrying amount approximates fair value because of the based on the amount of future cash flows associated with each in the amount of ¥740 million ($6,271 thousand). Discounted the European Commission and the Company. Therefore, the short maturity of these instruments. instrument discounted using the Company’s current borrowing notes are accounted for as sales. Company has appealed to the European Court of First Instance rate for similar debt of comparable maturity, or based on the As of March 31, 2007, the Company had no significant and is challenging the decision. Requests for Information were (b) Short-term investments and Investments in securities quoted market prices for the same or similar issues. concentrations of credit risk. served to the Company by the European Commission inquiring and other While the Company and certain of its subsidiaries are competition-related matters concerning the sales of DRAM The fair values of most short-term investments and invest- (e) Derivative financial instruments defendants and co-defendants in various lawsuits and legal and power transformers in the European market. No determi- ments in securities and other are estimated based on quoted The fair values of derivative financial instruments, consisting actions, based upon the advice of legal counsel, the Company’s nation has been rendered in any of aforementioned matters. market prices for these instruments. For other investments for principally of foreign exchange contracts, foreign currency management is of the opinion that damages, if any, would not For the year ended March 31, 2007, the Company recognized which there are no quoted market prices, a reasonable esti- swaps and interest rate swaps are estimated by obtaining have a material adverse effect on the Company’s consolidated a reasonably estimable amount of ¥42,167 million ($357,347 mate of fair value could not be made without incurring quotes from brokers. (See note 15) financial position and results of operations, except for the thousand) as a reserve for various competition-law-related excessive costs. following cases. expenses in “Costs and expenses – Other” relating to the The Company and certain of its subsidiaries are under DRAM case in the United States and gas-insulated switchgears The estimated fair values of the Company’s financial instruments at March 31, 2007 and 2006 are summarized as follows: investigations conducted by the Antitrust Division of the in Europe. The Company is unable to estimate the impact on U.S. dollars United States Department of Justice against an alleged viola- the Company’s consolidated financial position and operational Yen (millions) (thousands) 2007 2006 2007 tion of the United States antitrust laws in the markets of results as to be arising out of other legal proceedings. Carrying Estimated Carrying Estimated Carrying Estimated amount fair value amount fair value amount fair value The following table provides the undiscounted maximum amount of potential future payments for each major group of guarantees Nonderivatives: at March 31, 2007: Assets: U.S. dollars Marketable securities ¥ 245,000 ¥ 245,000 ¥ 259,121 ¥ 259,121 $ 2,076,271 $ 2,076,271 Yen (millions) (thousands) Long-term trade receivables 3,711 4,468 4,378 5,358 31,449 37,864 Guarantees of bank loan: Employees ¥21,205 $ 179,703 Liabilities: Affiliated and other companies 23,251 197,042 Long-term debt, including Other 6,272 53,153 current portion (461,236) (455,610) (575,784) (570,254) (3,908,780) (3,861,102) Total ¥50,728 $ 429,898

Derivatives: The guarantees for the employees are principally made for are made to enhance their credit, and the term of guarantees Foreign exchange contracts (1,932) (1,932) (2,737) (2,737) (16,373) (16,373) their housing loans, and the term of guarantees is 1 year to 30 is 1 year to 11 years. Foreign currency swaps 33 33 40 40 280 280 years. The guarantees for the affiliated and other companies Interest rate swaps (124) (124) (190) (190) (1,051) (1,051)

Change in accrued product warranty for the years ended March 31, 2007 and 2006 is summarized as follows: U.S. dollars Limitations and involve uncertainties and matters of significant judgment Yen (millions) (thousands) 2007 2006 2007 Fair value estimates are made at a specific point in time based and therefore cannot be determined with precision. Changes in Balance at beginning of year ¥31,560 ¥ 28,323 $ 267,458 on relevant market information and information about the assumptions could significantly affect the estimates. Addition 33,543 28,613 284,263 financial instrument. These estimates are subjective in nature Utilization 28,054 25,600 237,746 Foreign currency translation adjustments 250 224 2,118 Balance at end of year ¥37,299 ¥ 31,560 $ 316,093

56 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 57 (19) SUPPLEMENTARY INCOME AND EXPENSE INFORMATION (20) LEASES

U.S. dollars The Company and certain of its subsidiaries enter into capital The Company and certain of its subsidiaries lease mainly Yen (millions) (thousands) 2007 2006 2005 2007 lease and operating lease agreements with Mitsubishi Electric certain parts of machinery and equipment. At March 31, Advertising expenses ¥ (22,029) ¥ (22,417) ¥ (19,943) $ (186,686) Credit Corporation, that is accounted under the equity method 2007, the gross amount of leased assets at cost under capital of accounting. The leased assets, which are committed under leases and accumulated depreciation amounted to ¥49,632 Shipping and handling costs (73,031) (73,920) (65,904) (618,907) capital lease agreements, are capitalized. million ($420,610 thousand) and ¥24,267 million ($205,653 Exchange gains (losses) (668) 34 2,602 (5,661) thousand), respectively. Restructuring charges — (1,949) (13,820) — Impairment losses (14,630) (9,839) (6,460) (123,983) Future minimum lease payments under capital and non-cancelable operating leases as of March 31, 2007 are as follows: U.S. dollars Advertising expenses are included in “Costs and expenses – For the year ended March 31, 2006, the Company and Yen (millions) (thousands) Selling, general and administrative.” certain of its subsidiaries recognized impairment losses of Capital leases Operating leases Capital leases Operating leases Shipping and handling costs represents the costs included ¥9,652 million for tangible assets, such as land, buildings and Year ending March 31: in “Costs and expenses – Selling, general and administrative.” tools, and ¥187 million for intangible assets. The Company 2008 ¥ 11,732 ¥ 1,836 $ 99,424 $ 15,559 Exchange gains (losses) are included in “Revenues – recognized impairment losses of ¥3,205 million, based on a 2009 8,648 1,904 73,288 16,136 Other” and “Costs and expenses – Other.” real-estate appraisal value, for Sanda Education Center in 2010 6,005 988 50,890 8,373 Restructuring charges are included in “Costs and expenses Hyogo, which is scheduled to be sold, as part of integration 2011 3,650 454 30,932 3,847 – Other.” and reorganization of the education centers in the Kansai 2012 1,498 93 12,695 788 For the year ended March 31, 2006, the Company recog- district. A domestic subsidiary recognized impairment losses Thereafter 2,034 6 17,237 51 nized restructuring charges of ¥1,949 million for restructur- of ¥1,920 million for the logistics center due to a decline in Total minimum lease payments 33,567 ¥ 5,281 284,466 $ 44,754 ing the overseas mobile phone businesses, which included the profitability corresponding to price reductions for major Less: Estimated executory costs 897 7,602 retirement benefits and other charges associated with the dis- customers, while an overseas subsidiary recognized impair- Net minimum lease payments 32,670 276,864 solution of R&D departments and sales departments of the ment losses of ¥2,313 million for molds for the old model Less: Amount representing interest 1,445 12,245 mobile phone businesses in China. products due to a decline in the profitability in the projection Present value of net minimum capital lease payments 31,225 264,619 For the year ended March 31, 2005, the Company recog- TV business in North America. The impairment losses were Less: Current portion of obligations under capital leases 10,822 91,712 nized restructuring charges of ¥8,020 million for restructur- mainly measured based on the fair value of the discounted Obligations under capital leases, excluding current portion ¥ 20,403 $ 172,907 ing the domestic businesses. The restructuring included losses present value of expected future cash flow. of ¥6,518 million generated from the removal and disposal of For the year ended March 31, 2005, the Company rec- facilities associated with the cathode-ray tubes monitor ognized impairment losses of ¥3,834 million for tools, Rental expenses related to operating leases for the years million, respectively. These operating leases are for office space, business. In addition, the Company recognized restructuring equipment and fixtures used in the production of its second- ended March 31, 2007, 2006 and 2005 amounted to ¥39,178 warehouses, employee facilities and computer equipment, and charges of ¥5,800 million for restructuring the overseas generation mobile phones. The migration to third-generation million ($332,017 thousand), ¥39,981 million and ¥39,772 are customarily renewed. businesses. The restructuring included charges of ¥3,798 mil- mobile phones has significantly reduced the production levels lion for retirement benefits and costs for the removal and of the second-generation phones. The mobile phone manufac- (21) SUPPLEMENTARY CASH FLOW INFORMATION disposal of facilities associated with the restructuring of the turing industry is operating in an extremely competitive mar- mobile phone businesses in Europe. ket and pressure is constantly being applied to the maximize U.S. dollars Yen (millions) (thousands) Impairment losses are included in “Costs and expenses – production levels. In addition, the Company recognized 2007 2006 2005 2007 Other.” impairment losses of ¥486 million for intangible assets. Cash paid during the year for: For the year ended March 31, 2007, the Company and Domestic subsidiaries recognized impairment losses of ¥2,140 Interest ¥ 9,786 ¥ 9,668 ¥ 10,744 $ 82,932 certain of its subsidiaries recognized impairment losses of million for property, plant and equipment such as buildings Income taxes 51,170 29,581 21,552 433,644 ¥11,384 million ($96,475 thousand) for tangible assets such and lands. The impairment losses were mainly measured based as buildings and machinery and ¥3,246 million ($27,508 on the fair value of the discounted present value of expected thousand) for intangible assets. The Company recognized future cash flow. the impairment losses for a part of the assets for the Home Appliances business due to a decline in the profitability, corre- sponding to intensified price competition in the domestic mar- ket and a change in the business environment. The impairment losses were mainly measured based on the fair value less cost to sell.

58 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 59 INDEPENDENT AUDITORS’ REPORT SHAREHOLDER INFORMATION

Major Shareholders Number of Shares Percentage of (thousands) Total The Master Trust Bank of Japan, Ltd. (Trust Account)...... 161,940 7.5% Japan Trustee Services Bank, Ltd. (Trust Account) ...... 121,457 5.7% Meiji Yasuda Life Insurance Company ...... 84,892 4.0% Nippon Life Insurance Company ...... 70,437 3.3% The Bank of Tokyo-Mitsubishi UFJ, Ltd...... 61,370 2.9% Japan Trustee Services Bank, Ltd. (Trust Account 4)...... 59,206 2.8% State Street Bank and Trust Company 505103...... 55,971 2.6% Mitsubishi Electric Group Employees’ Shareholding Union ...... 51,668 2.4% The Dai-ichi Mutual Life Insurance Company ...... 37,360 1.7% The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account ...... 29,066 1.4%

Distribution of Shareholders Other Corporations Securities Companies 5.8% 1.1%

Foreign Corporations Financial Institutions 28.1% 45.3%

Individuals and Others 19.7%

Stock Price (Yen)

Annual Meeting The annual meeting of shareholders of the Corporation is normally held in June each year. In addition, the Corporation may hold a special meeting of shareholders as necessary, giving at least two weeks advance notice to shareholders.

Stock Exchange Listings Japan: Tokyo, Osaka Europe: London, Euronext (Amsterdam), Frankfurt

60 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2007 61 X-X01-7-C7792-A HQ0707〈MDOC〉 Printed in Japan