CITIZEN REPORT2020

Our Corporate Philosophy“Loved by citizens, working for citizens.”
CITIZENʼs corporate philosophy,“Loved by citizens, working for citizens,”
is to deeply contribute to the lives of people around the world
through the manufacturing of products that are loved andtrusted by citizens.

Our Strategy

Medium-Term Management Plan 2021

Innovation for the next
Sense the Time and Create an Impression for the Future

Our Strength

Manufacture
Never matched
Creating the one and only
Outstanding technology and skills

The CITIZEN Group Corporate Story
The CITIZEN Group was founded in 1918 with the dream of producing a watch made in Japan. We havegrown into a manufacture dʼhorlogerie capable of integrated in-house manufacture of everything fromindividual parts to completed products. Through our core Watches and Machine Tools businesses, we havecontributed to the lives of people around the world. The company name “CITIZEN” embodies theaspiration of our Corporate Philosophy, “Loved by citizens, working for citizens.” As such, our mission is tobe sensitive to changing times, and to create inspiration for a sustainable future. We will continue to go

CONTENTS

Guide to Disclosure

02 Message from the President & CEO

More information

beyond conventional manufacturing as we take on the challenge of creating new value.

08 Sustainable Management
12 Our Businesses
14	FY2019 Full-Year Results and Capital Strategy

Websitehttps://www.citizen.co.jp/global/

Securities
Report*16 Our Business Portfolio
Earnings
Presentation

16 Watches

CITIZENREPORT

CSR
Report22 Machine Tools

27 Electronic Products / Other Products

28 Corporate Governance
32 Management Team

Less information

26 Devices and Components

Consolidated
Business
Results
Group Reportto Shareholders*

Financial

33 FINANCIAL DATA 2020

Non-financial* Published only in Japanese

55 Company Information

Editorial Policy

Forward-Looking Statements

Citizen Watch Co., Ltd. publishes the CITIZEN REPORT to communicate themid- to long-term corporate value of the CITIZEN Group. This report has
been compiled to convey the Groupʼs position and business direction in plain
terms to stakeholders.

This report contains forward-looking statements regarding the CITIZEN Groupʼsfuture performance. These statements are based on information currently
available. Statements regarding future forecasts involve risks and uncertainties
such as exchange rate fluctuations and changes in demand for products.
Readers should understand that actual Group performance may differ from theoutlook provided in this report.

CITIZEN REPORT 202001

Message from the President & CEO“Loved by citizens, working for citizens.”
Even during difficult times, the goal of
the CITIZEN Group is sustainable growth.

Toshihiko Sato
Citizen Watch Co., Ltd.
President & CEO

02

CITIZEN REPORT 2020

Increasing Corporate Value through Business Efficiency

The Operating
Environment and
Key Strategies
Going Forward

In FY2019, the CITIZEN Group launched its new medium-term management
plan with the vision, Innovation for the next—Sense the Time and Create an
Impression for the Future. The plan calls for us to be sensitive to changing
times, going beyond traditional manufacturing and embracing ouraspiration to create new value and a sustainable future. To that end, we
have been executing a variety of strategies. Today, however, we are facedwith the harsh environment brought on by COVID-19 as it continues tospread around the world with no end in sight. The impact of the pandemic
on the global economy and on citizensʼ lives has been immense, and has
forced us to reevaluate the value that we offer as a company. At the sametime, we are keenly aware that we must make strides toward achieving
sustainable growth and heightening our ability to adapt to this new era.
The year 2020 signals a period of major transformation not only for
CITIZEN, but for the world and for society as a whole. In the past, consumer
preferences and technology have always evolved contiguously with thetimes. However, the change brought about by the current pandemic has
been discontinuous and had an enormous impact on the world. Measures
such as stay-at-home recommendations have made the operation ofphysical stores unviable, and the effects continue to be felt across a wide
range of industries and types of business.
Conditions in our own business are also changing on a scale and at a
rate beyond any possible expectations. Given this situation, accelerating
the two growth strategies laid out in our medium-term management plan
—to strengthen profitability in the Watch business and to promote thegrowth of the Machine Tools business—has become an urgent issue.
Strengthening profitability in the Watch business entails three key
strategies: increasing profitability of the CITIZEN brand centered on EcoDrive technology; expanding mechanical watches in the medium to longterm; and shifting to a more profitable structure. At the same time, ourfocus in promoting the growth of the Machine Tools business, our second
core business, also relies on three key strategies: establishing a firmbusiness base through innovative manufacturing; further enhancing thecompetitiveness of existing businesses; and expanding the solutions
business utilizing IoT.
To achieve the two growth strategies, we must strengthen the functions
that underpin growth. We will advance our digital transformation, makestrategic use of intellectual property and implement other measures aimed
at achieving greater business efficiency. Doing so will in turn lead toenhanced corporate value.

CITIZEN REPORT 202003

Message from the President & CEO

Medium-Term Management Plan 2021
Innovation for the next
Sense the Time and Create an Impression for the Future
Sensitive to changes over time, CITIZEN will take on the challenge of creating new, unique value,
not merely continuing manufacturing as in the past, and moving toward a sustainable future.

Medium-Term Management Plan FY2021 Targets

Net Sales

Operating Profit

ROE*

370.0 billion yen

30.0 billion yen

8.0%* ROE = Annual net profit / Net worth

Key Strategies
Promotion of growth in
Watches and Machine Tools

Promotion ofsustainable management

Enhancement ofquality compliance

Offering Customers Products of Value will Drive Profitability

Medium-to-LongTerm Measures toRebuild Profit
Structure

04

CITIZEN REPORT 2020

FY2019 was a difficult year in terms of performance for the CITIZEN Groupʼsmainstay businesses, with both Watches and Machine Tools failing to meet
expectations. In the Watch business, movement sales saw a particularly
large drop, requiring immediate corrective measures to improve profitability.
To date, operating profit has centered on high-value-added analog quartz
movements, for which we were able to maintain high profitability. However,
due to factors including the sudden growth in smartwatches with digital
displays, the market for fashion brand watches has shrunk, causing
movement sales to struggle. With the added impact of COVID-19, thebusiness environment has become increasingly severe, and rebuilding our
profit structure is a major issue.
The accelerating shift from traditional brick-and-mortar sales to e-commercemeans that we are also facing a major change in our distribution structure.
This trend has been particularly striking in the major North American
market, where our current measures to strengthen sales in e-commerceneed further work. By strengthening initiatives targeting the e-commercemarket, which is projected to continue growing, and executing them withgreater speed and efficiency, we expect to improve profitability.
The Machine Tools business is susceptible to economic cycles. Disruption
caused by trade friction between the U.S. and China, as well as economic
stagnation due to the pandemic, has resulted in the continuation of thedownward trend in the global market. Despite recent weak market conditions,
we expect future demand from companies making capital investments and are
therefore creating a structure for new growth that will lead to greater mediumto-long-term sales. This includes expanding production capacity in anticipationof a recovery, among other measures to maximize the efficiency of current
management resources.
Meanwhile, in the Devices and Components and the Electronic Products
businesses, we will apply a strategy of selection and concentration to focus
on businesses and products for which we see a future need. In Devices
and Components, we will move forward with structural reforms in Citizen
Electronics-related businesses, seeking to improve productivity as well as
the reorganization of production sites. We will also focus on products
such as crystal devices and ceramics where we can leverage proprietary
technologies, and establish a dominant competitive advantage in specificfields. In Electronic Products, we will take advantage of the strengths of theprinter business, which is based on our high-precision technologies, and of
the healthcare business, which contributes to resolving issues related to theaging of society, and aim to achieve stable profitability.

Business Portfolio Concept
Watches•A ctively invest Group management resources to promote thegrowth of the CITIZEN Group

Machine Tools•A ccelerate growth through continued investment in line with the
expansion of the market

Core

Generate
profitAutomotive business(metal parts and LEDs)

Improve
profitability

Devices and Components,
Electronic Products
and Other Products•G enerate profit in parts processing business for automotive market•A chieve top manufacturing capacity in the category•S election and concentration of business and products

CITIZEN REPORT 202005

Message from the President & CEO

Accelerating the Evolution into a New CITIZEN Group

External
Influences andSustainable
Management

Sustainable management is an important focus of the CITIZEN Group.
Society expects companies to play a role in addressing issues including
those relating to the United Nationsʼ Sustainable Development Goals(SDGs) and climate change. To us, sustainable management means
responding to those expectations, reaffirming our role as a member ofsociety and living up to our Corporate Philosophy of “Loved by citizens,working for citizens” through our businesses. Specifically, we will achieve
Sustainable Factories, which bring about sustainability throughout our value
chain, including suppliers, and create Sustainable Products, produced inthose Sustainable Factories. Through eco-friendly and long-life products
built using CITIZEN technologies, we will contribute to resolving social
issues. In working with a wide range of stakeholders to create new products,
we will ensure the sustainable growth of the CITIZEN Group.
Our goal should not be to just trumpet our technologies and skills, but
to bring joy to those who use our products. I believe that the new value
people gain from our products comes from technology, design and theunique added benefits that only CITIZEN can provide. Now more than ever,in order to return to the roots of our Corporate Philosophy, “Loved bycitizens, working for citizens,” and to offer customers products of value, wemust continue to adapt and take on new challenges amid the changing
social and economic environment, while enhancing our corporate value.
In April 2020, we established a Sustainability Committee in order toenhance our framework for practicing sustainable management. As the bodytasked with promoting sustainable management, the committee will not
simply set targets, but work in cooperation with the Management Committee
to quickly and appropriately roll out relevant strategies based on a PDCA
cycle. We will not allow ourselves to be constrained by precedent orconventional modes of thinking as we accelerate our evolution into a new
CITIZEN Group capable of adapting flexibly to changing times.

July 2020

Toshihiko Sato
President & CEO
Citizen Watch Co., Ltd.

06

CITIZEN REPORT 2020

Sustainable Products and Sustainable Factories

Sustainable Products
Awareness of the Global Environment◆C onservation of energy andresources◆ Conservation of theenvironment◆ Prevention of pollution◆ Long useful life
◆ Repurposing, reuse andrecycling of resources◆ Management of hazardous
substances

Awareness of Working Environments and People◆ CSR procurement◆ Conflict-free procurement◆ Elimination of hazardous
substances◆ Respect for human rights◆ Safe and secure working
environments

Sustainable Factories◆R educed energy atpoint of manufacture◆ Reduced resources◆ Prevention of pollution◆ Human rights◆ Labor practices◆ Health and safety

CITIZEN Group factories
Suppliers

Sustainable Development Goals
The Sustainable Development Goals (SDGs) are
international goals for achieving a more sustainable
world by 2030. They are set out in the 2030 Agenda for
Sustainable Development that was adopted at theUnited Nations General Assembly in September 2015,
and are the successors to the Millennium Development
Goals (MDGs) formulated in 2001. Consisting of 17
goals and 169 targets, the SDGs pledge to “leave noone behind.” They are a universal call to action thatapplies to both developing and developed countries,
and Japan as a nation is taking an active role inpromoting their achievement.

CITIZEN REPORT 202007

Sustainable Management

Contributing to Society through Sustainable Factories and Sustainable Products
The CITIZEN Group believes that the key to successfully
practicing sustainable management is in Sustainable
Factories and Sustainable Products. We define Sustainable
Factories as production facilities that, in addition to giving
ongoing consideration to the environment, comprehensively
address issues such as compliance, human rights, labor
practices, business continuity planning and productivity
improvement throughout the value chain, including
suppliers. Sustainable Products created in these Sustainable
Factories not only emphasize the perspective ofsustainability, but also take into consideration the creationof new value that leads to innovation.
These sustainability initiatives go beyond CITIZEN itself
to encompass collaboration and cooperation with suppliers
and a variety of other business partners. We will continue tofocus on sustainable management practices in order tocontribute to the lives of “citizens” everywhere and tosociety as a whole.

Overview of sustainable management

System for Promoting Sustainable Management
In April 2020, we established the Sustainability Committee
to promote sustainable management practices, enabling us
to contribute to solving specific material issues while
continuing to provide Sustainable Products generated by
Sustainable Factories. Chaired by the President of Citizen
Watch Co., Ltd. (“the Company”), the committee includes
the full-time Directors of the Company and the presidents
of its operating subsidiaries. This committee is responsible
for promoting sustainable management across the CITIZEN
Group as a whole.

The Sustainability Committee secretariat (consisting of the
CSR Department and the Corporate Planning Division of theCompany) periodically holds Sustainability Secretariat
meetings. These meetings, which bring together CSR
managers, corporate planning divisions of the Group
companies and Materiality Committee secretariats, regularly
review sustainability issues at each company, the progress of
initiatives and other matters. Each company submits proposals
and reports to the Sustainability Committee for deliberation.

Sustainability Promotion System
Board of Directors

Management Committee

Sustainability Committee
Group Information
Governance Committee

08

CITIZEN REPORT 2020

Group Quality Compliance Committee
Group Human Resources Committee

Group Legal
Compliance Committee

Group Environment Committee

Group Business Continuity
Management Committee

Group Sustainable
Procurement Committee

Process for Identifying and Reviewing Materiality
Since FY2017, the CITIZEN Group has worked to identify
priority material issues to fulfill its responsibility as amember of international society and to grow sustainably as
a Solid Global Company.
To do so, we have referred to the Sustainable
Development Goals (SDGs), the United Nations Global
Compact, ISO 26000, the Responsible Business Alliance(RBA), the GRI Standards and other principles andguidelines regarding CSR and sustainability. At the sametime, we have worked to gain a comprehensive
understanding of social issues important to broader society
and our stakeholders, checking them against the CITIZEN
Group Corporate Philosophy, Code of Conduct, mediumterm management plans, and other business strategies,
identifying issues of particularly high importance andgrouping them together as material issues.
In FY2020, in line with the SDG Compass guidelines, wefirst worked to understand the positive and negative

impacts of our business activities throughout the value
chain with regard to the SDGs, mapping these activities
along two axes—their degree of impact on society and theirimportance to our business. In this way, we identified fivematerial issues with both a high impact on society and ahigh degree of importance to our business. In an effort tostrengthen quality-related compliance across the entire
Group, in FY2020 we rephrased the material issue“Commitment to Quality” as “Enhancing Quality
Compliance.” Further, to reflect that “Advancing
Responsible Procurement” entails not only fulfilling oursocial responsibility but also generating new value, thismaterial issue has been rephrased as “Promoting
Sustainable Procurement.”
To ensure that the effectiveness of efforts to addressthese five material issues is enhanced, we created a roadmap
to 2030, and established clear targets, strategies and KPIs.

New Materiality in FY2020
Materiality
Enhancing
corporate
governance

Aiming to grow the corporate value of the CITIZEN Group continually
through the maintenance of internal control systems to secure thetransparency and soundness of management and efficient businessexecution and appropriate supervision throughout the Group

Enhancingqualitycompliance

Striving to ensure thorough quality compliance in all manufacturing
processes in accordance with the Group Quality Code based on the
Corporate Philosophy, “Loved by citizens, working for citizens”

Respect forhuman rights
and labor
practices

Striving to respect and contribute to human rights throughout the entire
value chain as a global business enterprise; also, strengthening ourcorporate culture based on respect for diversity and empowering one
another to build workplaces where all members of the organization canwork with safety and peace of mind

Promotingsustainableprocurement

Aiming both to optimize procurement activities throughout the Groupand to resolve social issues throughout the entire value chain

Promotingenvironmental
innovation

Striving to create new value through eco-friendly business activities inall products of the CITIZEN Group and in the entire process of thevalue chain

Relevant SDGs

Please visit our website to access the CITIZEN Group CSR Report 2020.
https://www.citizen.co.jp/global/csr/report/index.html

CITIZEN REPORT 202009

Sustainable Management

determination to contribute to enriching society throughBasic Approach to Environmental Issues
Since its founding and based on its Corporate Philosophy of“Loved by citizens, working for citizens,” the CITIZEN
Group has constantly taken people and the environment
into consideration in its manufacturing.
In FY2019, we revised the CITIZEN Group Environmental
Policy, which serves as the foundation for Group environmental
initiatives, and CITIZEN Environmental Vision 2050, which isbased on that policy. In doing so, we reemphasized oura focus on decarbonization, resource recycling, safety
and security.
Addressing Climate Change Risks and Opportunities
The CITIZEN Group promotes global environmental
management throughout its value chain. The impact ofclimate change is a global concern. In accordance with therecommendations of the Task Force on Climate-related
Financial Disclosures (TCFD), we are using scenario analysis
to identify and evaluate risks and opportunities that may havea significant impact on the Groupʼs business and finances.

Transition risk
(2°C scenario)
assumptions*1

Rising costs of electricity and other energy
purchases due to factors such as introduction of decarbonization tax andstrengthening of laws and regulations related to energy conservation◆ Policy and regulatory risks

Exclusion of non-eco-friendly products from the market
due to rising environmental awareness among consumers◆ Market risks

Suspension of operation of production facilities andreduced production capacity due to increasingly frequent extreme
weather and resulting flooding and other disasters◆ Acute risks

Physical risk
(4°C scenario)
assumptions*2

Difficulty of operation of production facilities at low
elevations due to rising sea levels and resulting decreases in production
capacity and costs of facility relocation and new construction◆ Chronic risks

Opportunities (both scenarios)

Climate change-related risks and opportunities with a financial impact on the CITIZEN Group◆ Resource efficiency Leading to reduced emissions

and lower energy costs due to progress in areas,such as productivity improvements and increased
efficiency in logistics, resulting from factors, such as
adoption of emissions trading systems and increasing
calls for eco-friendly management
Improved productcompetitive strengths resulting from development
and production of eco-friendly products andefforts to improve quality◆ Products and services

Enhancement of production and supply
structures through establishment of conditions
reflecting consideration for risks, such as thoserelated to water and disasters, in the criteria forchoosing locations for new facilities◆ Resilience*1. Only the impacts of transition risks are considered, with the assumption that there would be no major physical risks.
*2. Only the impacts of physical risks are considered, with the assumption that the physical risks of climate change would be severe.

Basic Approach to Sustainable
Procurement
The CITIZEN Group has set forth the concept of Sustainable
Factories—encompassing not only its own factories, but theentire manufacturing process—as an important pillar ofsustainable management. This concept is aimed at turning
the entire value chain, including suppliers, into a sustainable“factory.” Another pillar of sustainable management is toprovide society with Sustainable Products that are made inthese Sustainable Factories. To achieve this, we believe wemust collaborate with key suppliers in the upstream of ourvalue chain to ensure sustainable procurement andestablish production systems that comprehensively take
into account compliance, human rights, labor practices,
productivity improvement, business continuity planning andother issues.

Basic Approach to Labor Practices
The CITIZEN Group endeavors to create a pleasant andrewarding working environment for employees. As part ofthose efforts, we issued a Health Declaration and arepromoting management of employee health and
10

CITIZEN REPORT 2020

productivity from a business perspective. We are also
stepping up efforts in diversity management from theperspective of gender diversity by addressing conditions
for female employees. The diversity of our employees is asource of competitive strength. Our goal is to create anorganization in which each employee can fulfill her or his
potential and continue to work for a long time.

Basic Approach to Human Rights
Since becoming a signatory to the United Nations Global
Compact in 2005, the CITIZEN Group has endeavored as anenterprise operating globally to support, respect and act on
the 10 principles of the compact regarding human rights,
labor, the environment and anti-corruption. Article 4 of the
CITIZEN Group Code of Conduct also sets forth our basic
policy—that we shall “Respect human rights and diversity,and provide a safe and pleasant working environment”—
and we have established guidelines for respecting humanrights and creating safe, healthy, and pleasant workplaces.
In FY2019, in accordance with a decision of the Board of
Directors to reaffirm the CITIZEN Groupʼs responsibilities
and position regarding respect for human rights, weformulated the CITIZEN Group Human Rights Policy.

Stakeholder Engagement
To maximize the value it offers society, the CITIZEN Group
believes it is important to conscientiously respond to thewishes and expectations of a variety of stakeholders by
incorporating them in its management. By working tocommunicate with our stakeholders, we aim to embody our
Corporate Philosophy.
In FY2019, we set forth “Promotion of Sustainable
Management” as a key strategy under the newly launched

Medium-Term Management Plan 2021. In line with this,
employees of the Company engaged with an international
environmental NGO to reassess how we might contribute tosolving social issues through our business. We hope suchstakeholder collaboration will tie into strategies going forward
by broadening employeesʼ perspectives and values.

Examples of stakeholder engagement
Stakeholder

MethodResults/evaluation

Future initiatives/plans

Customers

Responding to inquiries and requests
received by customer service centers

Improving products and services,
ensuring safety, promoting universal
design principles

Implementing social campaigns

Suppliers

Holding briefings for suppliers onsustainable procurement

Evaluation of results of supplier surveys,
evaluation based on on-site fact-finding

Enhancing human rights due diligence

Employees

Conducting employee satisfaction
surveys, interviews with supervisors,labor-management conferences,providing information on the intranet

Enhancing work-life balance, employee
health promotion, adoption of flextime
systems, adoption of a talentmanagement system

Improving employee satisfaction,enhancing work-life balance programs,
developing workplaces where
employees can work with peace of mind,
developing workplaces where
employees can demonstrate theirabilities to the maximum extent

NGOs andNPOs

Cooperation in projects that
contribute to society, holding
discussions with international
environmental NGOs

Dispatching personnel to joint socialcontribution activity 12 times with a totalof 164 employees participating; holding
briefings to report on results of Social
Contribution Mission Program

Holding briefings to report on the resultsof Social Contribution Mission Program

Local
communities

Conducting community contribution
activities (including watch assemblyclasses and donation/sponsorship
activities), participating in community
events, accepting plant tours,
exchange through table tennis(official corporate sport)

Total number of employees participating
in beautification activities: 2,112; numberof plant tours accepted: 172; number ofwatch assembly classes held: 32;
donations to social contribution activities:
37.5 million yen; number of table-tennis
lessons held: 27

Inviting community residents to events
held on business sites, contributing tostable communities through mutual
understanding, enhancing activities tocontribute to local society through ourbusinesses, improving table-tennis skillsin the community

Major External Recognition
The CITIZEN Group implements its
Corporate Philosophy of “Loved bycitizens, working for citizens” in its
business. The Group is engaged in awide variety of CSR activities aimed
at resolving social issues andcontributing to the creation of asustainable society. These activities
are based on the belief that we mustnever violate social norms, cause
distrust among our customers andsuppliers or be dishonest. Our
approach and related initiatives havebeen recognized by third-party
institutions, and CITIZEN has been
selected for inclusion in ESG-related
stock indices.

FTSE4Good Index Series and
FTSE Blossom Japan Index

Sompo Sustainability Index

MSCI Japan ESG Select Leaders Index and
MSCI Japan Empowering Women Index (WIN)2020 Certified Health & Productivity
Management Outstanding Organization(Large Enterprise Category)

CITIZEN REPORT 2020

11

Our Businesses

1918

Company founded“We want to produce a watch made in Japan.”In 1918, at a time when imports dominated, Shokosha Watch ResearchInstitute, the forerunner of Citizen Watch, was founded with the goal of
producing a watch made in Japan. The finished pocket watch, basedon an original design, was given the name “CITIZEN” by the Mayor ofTokyo, Count Shinpei Goto, in the hope that it would be widely loved
by citizens over the ages. This became the inspiration for the company
name we have today.

The CITIZEN Caliber 0100
(Watches)

Multi-function movements(Movements)

Business Characteristics

Watches

1924
The companyʼs first pocket watch,
CITIZEN, after which the company
was later named.

50.8%

Machine Tools

A Portfolio of Watchmaking Assets
Our Core
Technologies

1956	ParashockFirst Japanese-made watch featuring a
shock-proof mechanism (Parashock)・ Miniaturization
・ Precision processing・ Low power
consumption

1959	ParawaterFirst fully waterproof Japanese-madewatch1971	Hi-sonicFirst Japanese-made tuning fork
electronic watch

21.0%

Devices andComponents

1973	Citizen Quartz
CITIZENʼs first quartz watch

20.1%

1976	Chrystron Solar Cell
Worldʼs first analog light-powered watch

1993	Radio-Controlled Watch
Worldʼs first multi-band analog radio-controlled watch(Japan, Germany, U.K.)
2003	ATTESA Eco-Drive Radio-Controlled Watch
Worldʼs first thin-type radio-controlled watch with afull-metal case (Eco-Drive)

Electronic
Products

2011	Eco-Drive Satellite Wave
Worldʼs first satellite system analog watch

2016	Eco-Drive One
Worldʼs thinnest* analog light-powered watch(case thickness of 2.98 millimeters)
2018

12

CITIZEN REPORT 2020

Announcement of Caliber 0100
Worldʼs most precise* lightpowered movement withtimekeeping accuracy of ±1
second per year (Eco-Drive)

6.1%

Other Products* As a light-powered watch. As of June 2020, CITIZEN survey.

Inspiring people through beautiful designs
perfected with the latest technology—the
fusion of technology and beauty guides
CITIZEN in providing citizens around the world
with better watches. We are one of the worldʼs
few manufactures dʼ horlogerie, capable ofintegrated in-house manufacture of everythingfrom individual parts to completed products.

We began the production of machine tools in
1936, leveraging technology and expertise
gained in the manufacture of watch parts,
which must be compact and extremely precise.
Machine tools for creating components
essential for a wide range of industries—
including the automotive, medical and IT
fields—support todayʼs technology advancesand social development.

We leverage our core technologies developed
through the Watch business, including
miniaturization, precision processing and low
power consumption technologies, to manufacturedevices for use in everyday electronic products.
Our devices enable lower power consumption
and longer product lifespan, thus reducing
environmental impact and creating more
comfortable and convenient lifestyles.

We apply precision processing and assembly
technologies developed through the W
atch business to manufacture point-of-sales
systems, barcode printers and high-resolution
digital photo printers, which play importantroles in retail stores, factories and society ingeneral. Electronic thermometers andelectronic blood pressure monitors assist
people in managing their health, and contributeto healthy living.

CNC automatic lathes(Machine tools)

LEDs for lighting(Opto-devices)

Automotive components(Precision processed components)

Line thermal printer(Electronic products)

Main Customers

Main Products

Net Sales and Operating Profit(Millions of yen)
181,241

 op share of theT
U.S. mid-priced
marketA global leader inmovement sales• Watches• General consumers• Movements• Retail stores• System clocks• Dealers

163,619

20,582
14,493and others

163,718

2015

2016

Net sales

16,183

163,525

141,620

12,440

3,938
2017

2018

2019 (FY)Operating profit(Millions of yen)

A leader in global
share for small- andmid-sized computer
numerical control(CNC) automatic
lathes

A global leader incompact chip LEDs

• Cincom, sliding headstock type CNC
automatic lathe• Miyano, fixed headstock type CNC
automatic lathe• MC20, multi-station machining cell• alkapplysolution, solution service
utilizing IoT• Automotive parts
manufacturers• Medical device
manufacturers

51,517• Semiconductor
production equipment
manufacturers

7,151

6,406

2015

2016



• Automotive components• Lighting manufacturers• Crystal devices• Ferroelectric LCDs

10,443

Net sales

7,261
2017

2018

2019 (FY)Operating profit

80,632• Home appliancemanufacturers• Consumer electronics
manufacturers
58,54549,694(Millions of yen)

• Compact switches• LEDs for lighting

72,16413,082and others• Automotive
manufacturers• Chip LEDs

64,04969,46265,59660,80755,946

6,880
3,983
2,782
2015

and others

2016

Net sales

2,543

2017

2018

926
2019 (FY)Operating profit(Millions of yen)

• Digital photo printers• Line thermal printers pplication of compact • Calculators
A
precision technology• Electronic thermometers• Electronic blood pressure
monitors

23,371• Retailers

21,774

20,58019,33016,875• Wholesalers• Household applianceretailersand others

507

513

2016

2017

438

342

(257)
2015

Net sales

20182019 (FY)Operating profit

CITIZEN REPORT 2020

13

FY2019 Full-Year Results and Capital Strategy

We will achieve greater capitalefficiency, and aim tobalance investment
and shareholder returns.
Toshiyuki Furukawa

Director

Implementing Changes to Businesses to Improve Profitability
Full-year results for FY2019 showed weak performance,
including the CITIZEN Groupʼs first loss attributable toowners of parent in seven years, due to the impact of the
COVID-19 pandemic and other factors.
During the first half of the year, there was some positive
news pointing toward a recovery in the Watch business, withdomestic sales growing in the mid-price product segment.
However, the second half saw sluggish demand linger
following Japanʼs consumption tax hike, and sales also
failed to take off in the U.S. during the key shopping
season. The global COVID-19 pandemic further contributed
to a significant decrease in revenue as lockdowns andtemporary store closings expanded to every region.
Movement sales also continued to face a challenging
market, and the added impact associated with COVID-19

led to a significant decline in sales. Despite cost-saving
initiatives, a major drop in sales in the North American anddomestic markets and in movements also resulted in asignificant decline in operating profit.
The Machine Tools business, which was already seeing
companies around the world take a more cautious approachto capital investments, was similarly affected by the
COVID-19 pandemic. As a result, new orders fell below
expectations, and there is increased uncertainty about thetiming of any recovery in demand going forward.
In addition to costs associated with structural reforms
advanced to date in the Devices and Components businessand other businesses, we also booked risk asset impairment
losses, primarily in the Watch business, posting an
extraordinary loss of 24.5 billion yen as a result. These

Business Results (Operating Profit by Segment / ROE)
(Millions of yen)

904
4,721

6,880

6,794

7,151

19,66920,582

7.8

5.7

342

3,983

2,782
10,443

311
513

2,543
13,082

146
438

6,406
14,493
7.1

(464)

339
507

16,183
7.8

12,440

7,261

5.2

3,938
(257)

(542)

(7)
2014

Watches

14

2015

Machine Tools

CITIZEN REPORT 2020

2016

2017

Devices and Components

Electronic Products

2018

Other Products

2019 (FY)

Return on equity (ROE)41926

FY2019 Results

Dividends per Share and Payout Ratio

Net sales

Operating Profit

278.5 billion yen

6.1 billion yen(down 13.4% year-on-year) (down 72.6% year-on-year)

Profit Attributable to
Owners of Parent-16.6 billion yen

(Yen)

(%)

25

80

22
20

20

(---% year on year)

17
41.1

Data by Region

32.6
Japan

Others

8,474
Net Sales

Number of
Employees(%)

Overseas

20.0%

Asia

40

Domestic

EuropeAmericas

12

36.3

10

35.5%

0.6%

60

47.6
15

16.1%

17

11,119(56.7%)

28.0%

factors resulted in loss attributable to owners of parent of
16.6 billion yen. Of the extraordinary losses posted at theend of FY2019, impairment losses related to the Watch
business totaled 16.7 billion yen. These included
impairment losses primarily on production equipment withworsening results in the movement business; on intangible
assets related to license fees arrangements with Fossil
Group, Inc. resulting from delayed efforts to stimulate
demand for hybrid smartwatches; and on the balance ofintangible assets related to Frederique Constant. Other(43.3%)

20

5
0

2015

2016

2017

2018

2019

(FY)

0

Dividends per share (left)
Payout ratio (right)

impairment losses included 5.7 billion yen related to theDevices and Components business and 1.9 billion yen for the
Other Products segment. Furthermore, in addition to costs
associated with the early retirement program implemented at
Citizen Electronics Co., Ltd. and subsidiaries, and the closingof the Citizen Electronics Funehiki Factory, impairment
losses, etc. were also posted on equipment related to theDevices and Components business. In Other Products,
impairment losses included costs associated with ourwithdrawal from the jewelry and leisure services businesses.

Capital Policy
Medium-Term Management Plan 2021, which began in
FY2019, calls for us to push forward with growth investment
and proactive capital investments in production innovation.
However, with the future outlook uncertain due to the
COVID-19 pandemic, we will demonstrate caution when
making decisions about future capital investments. Moreover,given the need for companies to further expand theiradoption of digital technology and strengthen
competitiveness to improve profitability, we recognize thenecessity of accelerating our own digital transformation.
As of FY2018, we had completed our most recent roundof large-scale investments aimed at advancing our multibrand strategy and further establishing our brand portfolio in
the Watch business. We were therefore in the position of
being able to reexamine the balance between investment
and shareholder returns, and set a policy of delivering an
average total return ratio of 60% or greater for the three
years of Medium-Term Management Plan 2021. However, theposting of an extraordinary loss in FY2019 resulted in loss
attributable to owners of parent, and with the outlook for

FY2020 remaining uncertain, the emphasis of our policy will
be not only to reflect performance, but also to ensure thestable payment of dividends.
Another of the target indicators set in Medium-Term
Management Plan 2021 is ROE. Internally, we apply return on
invested capital (ROIC) as another key performance indicator.
With the goal of enhancing capital efficiency and earning
power, we will use these indicators to help us enhanceinvestment efficiency in each of our businesses and build astronger awareness of the balance sheet. Given that thecurrent environment does not allow for significant near-termsales growth, management needs to emphasize capitalefficiency. By incorporating these target indicators, we willachieve cost savings commensurate with investment levels
and increase asset efficiency as we work toward spreading
company-wide awareness of cost of capital in management.
Moving forward, we will put the assets we have accumulated
to date to best use and focus on increasing profitability as wework to balance growth investment with shareholder returns.

CITIZEN REPORT 2020

15

Our Business Portfolio

Watches
Main Operating Companies
Citizen Watch Co., Ltd.; Citizen Watch
Manufacturing Co., Ltd.; Citizen Retail PlanningCo., Ltd.; Citizen T.I.C. Co., Ltd.

Message from the Director in Charge

Increasing profitability
centered on the
CITIZEN brand while
shifting away fromreliance on movements

Norio Takeuchi
Managing Director

16

Review of FY2019

While sales of finished products, with the CITIZEN brand asa mainstay, struggled in the North American market, theyheld steady in markets in Japan, Europe and China. In the
fourth quarter, however, the impact of the COVID-19
pandemic brought an unavoidable deterioration in sales,
and revenue fell in each of our markets as a result.
In North America, our largest overseas market, we worked
to strengthen online sales, including direct sales
e-commerce, but were strongly impacted by a reduction in
the number of physical stores and sluggish distribution in
travel. Sales of strategic products, including Super Titanium™
watches and PROMASTER, were growing steadily in Europe
until sales fell significantly in March, and revenue ultimately
ended slightly down. In Asia, sales were steady in Vietnam,
Thailand, Singapore and other markets until the third
quarter, but fell rapidly after the start of the new year in
China and other countries. In Japan, products in the highprice range fought well in the midst of dampened appetite
for spending following the consumption tax hike enacted in
October 2019, with sales at about the same levels year-onyear. Revenue ended down, however, impacted by a rapid
downturn in consumption brought on by the COVID-19
pandemic early in 2020.
In movement sales, while demand increased formechanical watch movements, the market for quartz
movements continued to show weakness. In addition, thefact that movement production operations remained low
throughout the year was a factor in significantly driving
down operating profit in the Watch business.
Given these circumstances, we recognize that revising ourstrategy for the Watch business had become an urgent
issue, and we are now implementing three key strategies:
1. Rebuild the movement business; 2. Strengthen the
CITIZEN brand centered on Eco-Drive; and 3. Strengthen
e-commerce sales and digital marketing.

▶ FY2019 Results
Net Sales 

141.6

billion yen

FY2020 Key Strategies

1. Rebuild the movement businessWith the growth of smartwatches with digital displays, themarket for analog quartz watches has continued to shrink.
As it has become more difficult to ensure profitability in the
movement business, once a pillar of the Watch business,rebuilding its profit structure is a pressing issue. To that
end, we will start by working to reduce the scale of analog
quartz movement production, rebuilding a production
structure better suited to demand. At the same time, in
addition to movement manufacturing innovation, we will
move forward with streamlining, which includes
discontinuing and consolidating calibers, in a rigorous
pursuit of cost savings.
In the mechanical movement segment, where
performance has been robust, we will ensure a stable profit
base by developing pricing strategies in line with demand.
2. Strengthen the CITIZEN brand centered on Eco-Drive
In the finished products business, we will focus on the
CITIZEN brand, centered on Eco-Drive. Eco-Drive is a core
CITIZEN technology that harnesses energy from light topower watches. It has been highly lauded, earning us thedistinction of receiving the first Eco Mark certification for awatch in 1996. Going forward, in order to gain new
customers, we will further expand our global brands:
PROMASTER, the professional sports watch, and CITIZEN L,
the sustainable watch. For ATTESA, a brand for business
use, and xC, the ladies watch brand with high functionality—two main brands that are established in Japan—we will
strengthen our position in the domestic market while
actively expanding sales to markets in Asia.

Operating Profit

3.9

billion yen

and it continues to trend upward, with the percentage of
e-commerce sales in Japan also increasing to more than 10%.
We will continue to encourage this existing e-commerce, while
quickly moving to build direct sales e-commerce in Japan as isalready underway in the U.S. market.
We will strengthen bold digital marketing strategies andlink them to profit growth. At the forefront is Riiiver, which
consists of an IoT platform service and a unique CITIZEN
smartwatch, and connects watches, services and people;
together with our Fine Tuning Service (FTS), which answers
the needs of the age of customization by allowing users tocreate their own personalized watches; and our AI Watch
Recommendation Service, which suggests watches to
consumers based on their preferences and sensitivities.
Based on these three business strategies, our key regional
strategy going forward aims for revitalization in Asia,
particularly China, as well as in Japan and North America.
To put operations in the China market back on a growthtrajectory, we will expand product offerings aimed at theyouth segment, and move to further expand e-commerce
sales. Meanwhile, in the North America market, we will
streamline sales and general administrative expenses
through structural reforms aimed at restoring profitability,
while also focusing on further expanding e-commerce sales.
Pushing forward aggressively with these strategies,
we will quickly and fundamentally rebuild the Watch business.

3. Strengthen e-commerce sales and digital marketing
With the added factor of the COVID-19 pandemic,
strengthening e-commerce sales is an important issue.
E-commerce currently represents a significant percentage
of sales, with more than 50% of sales in China and slightly
less than 20% in North America coming from e-commerce,

CITIZEN REPORT 2020

17

Our Business Portfolio

Watches

LUXURYMulti-Brand Strategy
Under the slogan ”From ʻProductʼ to ʻBrand,ʼ” the Watch
business is promoting a multi-brand strategy aimed atbeing widely loved and trusted by citizens.

■ ARNOLD & SON
The Arnold & Son brand reflects the name of John Arnold, an English
watchmaker who made his name by inventing the marine chronometer inthe 18th century and contributing to its further development. Inspired by
the magnificent achievements of John Arnold, the firm continues to create
watches using traditional watchmaking techniques to modern effect. Witha workshop in La Chaux-de-Fonds, the center of Swiss watchmaking, thecompany creates complex movements and entire watches in-house.

■ ANGELUS
Angelus, a Swiss watchmaker founded in 1891, has developed asuccession of innovative watches, including high precision
chronographs and complicated mechanical watches. The advanced
watches it develops in-house have established a solid following
among watch connoisseurs. At its workshop in La Chaux-de-Fonds,
Angelus performs everything in-house, from design and movement
development to assembly.

LUXURYLUXURYHIGHHIGH

CASUAL

FORMALMID■ The CITIZEN
The CITIZEN was launched 25 years ago. With The CITIZEN, we havepursued the essence of the watch as we believe: a watch designed foreveryone with accuracy, longer runtime, visibility and usability. In
autumn 2019, we launched the worldʼs most precise light-powered
watch, equipped with an Eco-Drive movement “Caliber 0100”—
accurate to ±1 second per year. The CITIZEN expresses our ardent
pursuit of the essence of the watch.

FASHION/LOW■ Eco-Drive One
The Eco-Drive One, a watch made with the world’s thinnest lightpowered movement, at just 1.00 mm thick, was created in 2016 in the
pursuit of the essence of the watch. Low power consumption
technology refined through over four decades of efforts in thedevelopment of a light-powered watch has made it possible tomaintain a thin profile, while allowing the watch to run for 12 months
on a full charge.

LOW■ CAMPANOLACAMPANOLA offers a selection of creative models that combine
cutting-edge technologies and the skills of master watchmakers under
the concept of “Enjoy time. Enjoy daily life. Enjoy individuality.” Themulti-layered structure combines numerous parts, including a secondkeeping trivet ring, creating an infinite universe between the dial andthe crystal based on the concept of capturing the beauty of space
itself, and giving an architectural dimension to its face.

Focus Areas■ Frederique Constant
Smartwatches

Mechanical
Watches

Luxury Watches

Focusing on Strengths
to Create Greater Value
With our focus areas in smartwatches, amarket that is predicted to expand, and inmechanical and luxury watches, whichhave maintained strong demand, we willcontinue creating products that takeadvantage of our miniaturization,
precision processing and low power
consumption technologies, with
manufacturing that contributes to citizensʼ
lives across generations.

18

CITIZEN REPORT 2020

The watches of Frederique Constant, which began innovating overthree decades ago in 1988, are inspired by the concept of “accessible
luxury,” and all aspects of watch production are conducted in-house,from design and development to final assembly. To date, Frederique
Constant has developed, manufactured and assembled 29 originalcalibers. The brandʼs mission is to use outstanding manufacturing tooffer high-quality watches at sensible prices.

■ Alpina
Alpina is a Swiss watchmaker founded in 1883. This Swiss watch brandis easily recognized by its red triangle mark, which symbolizes the
Matterhorn. In 1938, with the development of the legendary ALPINA
4, the firm came up with the concept of the sports watch. Alpinaʼs
mission is to develop reliable, high-precision watches capable ofwithstanding even the harsh environment of the Alps.

MID■ CITIZEN
The product lines that form the core of the CITIZEN brand, which is growing along the axis defined by the
globally pioneering development of the light-powered Eco-Drive technology, include brands such as ATTESA,
which offers titanium watches for business use that continue to stay a generation ahead; xC, a brand thatempowers and supports modern women; and the sophisticated EXCEED dress watches. Through such brands,
CITIZEN offers a variety of products to an increasingly wide range of customers.

ATTESA

xC

EXCEEDPROMASTER

CITIZEN L

Eco-Drive Bluetooth■ BULOVAFASHION/LOW

Founded in 1875 by Joseph Bulova in New York. Based on its
advanced technological capabilities, the firm has been a driving force
in the watch market. BULOVA has achieved many firsts in the world,
including the worldʼs first tuning fork watch and the first curved
chronograph. The corporate philosophy of craftsmanship, innovation,and technology that inspired the founder 145 years ago is carefully
maintained to this day.

■ Q&Q
With the concept of “Enrich the everyday lives,” this brand is now soldin more than 120 countries and loved widely by customers all over theworld. Q&Qʼs sales volumes are some of the highest in the world for amonobrand.

■ wiccaThis brand combines designs that appeal to young women with“solartech” technology that does not require regular battery
replacement, thus supporting young women who strive every day toenjoy life in their own way.

CITIZEN REPORT 2020

19

Our Business Portfolio

WatchesAdvanced Manufacturing

Titanium• Lightweight• Gentle on the skin
• Rust-resistant

CITIZENʼs proprietarytitanium processing
technology andsurface hardening
technology (Duratect)

Super Titanium™

• Scratch-resistant• Beautiful• Scratch-resistant• Lightweight• Gentle on the skin
• Rust-resistant• Beautiful

In 1970, as the worldʼs attention focused on titanium as amaterial for spacecraft, CITIZEN unveiled the X-8
Chronometer, the worldʼs first titanium watch. The watch
was greeted by the public with surprise, and in the 50 years
since, CITIZEN has continued to take on the challenge ofworking with titanium.
Titanium is known as a material that is very difficult toprocess. It is difficult to mold, cut, and polish titanium. Its dullshine presents aesthetic issues, and there is also a problem ofhardness, since titanium scratches more easily than stainlesssteel and other materials. Solving each one of these
problems eventually led to Super Titanium™, a proprietary
material developed by CITIZEN that is scratch-resistant,lightweight, gentle on the skin, rust-resistant and beautiful.
Super Titanium™ overcame theweaknesses of conventional
titanium, further expanding its
potential as a new material. All forthe sake of everyone who wears awatch. CITIZENʼs titanium watches
continue to evolve.
Titanium pressing

Surface Processing Development Section, Exterior Development Department,
Manufacturing Technology Division

20

CITIZEN REPORT 2020

Satoshi Ito

Yukiko Tsukahara

Seiichi Hiroe

Surface processing technology
and manufacturing technology
development

Technical appeal andquality control

Titanium material quality
technology and processing
technology development

The Worldʼs Most Precise Light-Powered Watch, Accurate to ±1 Second per Year

The CITIZEN Caliber 0100
The watch utilizes AT cut crystal oscillators to ensure greater precision, one
second at a time. The pursuit of precision also went into the individualcomponents, including the hands, gears and circuits. By combining this design
with the light-powered Eco-Drive, CITIZEN has created a watch that will continue
to tell time accurately within ±1 second per year as long as there is light. Beauty
measured with each passing second. The beauty of each second is expressed in
the way the second hand aligns precisely on the indices.

The Ultimate Pursuit of Thinness and Beauty in a Watch

Eco-Drive One
Pursuing the essence of the watch, with a completely stripped-down beauty and athinness that exceeds the imagination. The structure and machining method used for the
Eco-Drive One have been rethought from the ground up to enable a watch thatencompasses 85 components in a movement just 1.00 mm thick. This light-powered
watch employs a new hard material that balances the conflicting elements of thinness andstrength, as well as Super Titanium created using CITIZENʼs proprietary Duratect surface
hardening technology. Comfortable to wear, with no feeling of heaviness or stress, when
put on the Eco-Drive One offers a moment of bliss as wearer and watch become one.

GO BEYOND: Go Deeper, Go Higher, Go Further

PROMASTER
Since its creation in 1989, the PROMASTER professional sports watch has traveledthrough the years with adventurers around the world. Across three categories—
MARINE, LAND and SKY—PROMASTER continues to offer watches that feature
durability and outstanding functionality in even the harshest environments,
including the worldʼs first diverʼs watch equipped for 1,000-meter saturation diving
and powered by light; a true field watch with an altimeter functional at up to 10,000
meters above sea level; and a peak specification professional pilotʼs watch.

Assembled to the Limits of Accuracy and Precision

Skilled “Meister” Technicians
Watches, which are made up of many components and require advanced
precision, are assembled entirely by hand. Those responsible for that work are
our watch assembly “Meisters,” those with the most advanced skills. Only thoseexperienced craftspeople who have passed internal and external certification
exams, been given awards, or have otherwise been publicly recognized for theircontributions to Japanese manufacturing, are eligible to receive this title. The
current Super Meister has been selected for the Contemporary Master Craftsman
Award by Japanʼs Ministry of Health, Labour and Welfare, and has also been awinner of the Prime Ministerʼs Prize of the Monodzukuri Nippon Grand Award.

CITIZEN REPORT 2020

21

Our Business Portfolio

Machine Tools
Main Operating Companies
Citizen Machinery Co., Ltd.
Citizen Machinery Service Co., Ltd.

Message from the Director in Charge

Establish a position
as a “new manufacturing(monozukuri) company”
creating the worldʼs mostadvanced solution for
innovative manufacturing

Keiichi Nakajima
Director

22

Review of FY2019

The machine tools industry reached a peak around autumn
2018, after which a downward trend has continued. In linewith the trend for total machine tool orders across membersof the Japan Machine Tool Buildersʼ Association, neworders for our Machine Tools business fell about 30% year
on year, with full-year results ending at about the level
forecast as of the third quarter. In the domestic market,
while semiconductor-related products remained solid,
mainstay automotive-related products became moresluggish, and revenue fell. Overseas, in China somemovement was seen in medical- and IT-related products,
but in Europe, the U.S. and elsewhere in Asia the trend was
weak, due in part to the suspension of economic activity
resulting from trade friction between the U.S. and China
and to the COVID-19 pandemic.
In this environment, the Machine Tools business rallied
to its business vision to establish a position as a “newmanufacturing (monozukuri ) company” creating the worldʼsmost advanced solution for innovative manufacturing.
Through this vision, we can contribute to the growth andpeace of mind of customers, as well as the development of
manufacturing worldwide, as we aim for sustainable growth.
In FY2020, an uncertain outlook is expected to continue
with the impact of the COVID-19 pandemic, persistentgeopolitical risks and other factors, and there are concernsthat any turnaround in market conditions for the machine
tools industry will also be delayed. Nevertheless, theMachine Tools business will continue to push steadily
forward with its three key strategies: 1. Establish a firmbusiness base through innovative manufacturing; 2. Further
strengthen the competitiveness of existing businesses,
centered on emerging markets; and 3. Expand businesstailored to the age of IoT (solutions business).

▶ FY2019 Results
Net Sales

58.5

billion yen

FY2020 Key Strategies

1. Establish a firm business base throughinnovative manufacturing
We will realize innovative manufacturing that maximizes theefficiency of current assets, and are moving forward todevelop our organization with the aim of achieving further
growth. By innovative manufacturing, we mean innovation
in “monozukuri” manufacturing and business processes.
Specifically, at factories both in Japan and overseas we willseek to make sales, services and back office business processes
more efficient by utilizing automation and smart, labor-saving
technology, such as robots and AI, as well as making use ofoutsourcing and implementing digital transformation.

2. Further strengthen the competitiveness of existing
businesses, centered on emerging markets
In an effort to strengthen our production, sales, and service
systems in China, where mid- to long-term market growth isexpected, we are moving forward with the relocation andexpansion of a new factory in the region, with the goal ofstarting operation in spring 2021. Completion of this new
factory will boost monthly production capacity, as well as
improve productivity through the use of smart manufacturing
technologies. We are also promoting the ongoing hiring anddevelopment of overseas service engineers, enhancing
service support and technical functions and preparing for a
new phase of growth in terms of both infrastructure andservices. Our MC20 Multi-Station Machining Cell allows for
optimal allocation of machining processes, combining
multiple processing modules to achieve a level ofproductivity exceeding that of existing automatic lathes. We
will transfer production of the MC20 to our Saku Factory in
Nagano Prefecture, and will increase annual sales volume byputting in place infrastructure aimed at enhancing production
capacity and through ongoing efforts to build a sales andservice system.

Operating Profit

7.2

billion yen

3. Expand business tailored to the age of IoT(solutions business)
Created through the combination of our technologies andexpertise with ICT, alkapplysolution is a comprehensive
solutions service for developing and providing content
designed to support improved customer productivity andproblem-solving for issues relating to the use of technologies
such as machine operation monitoring systems and cloudstorage services.
Due to the impact of the COVID-19 pandemic, demand
for web-based support has grown. Going forward, we will
utilize the newly built Global Solutions Center, and expand
solution centers that are able to provide such support online,
thereby further diversifying our offerings to customers. The
spreading impact of the pandemic is expected to bringsocial and economic changes, as well as a corresponding shift
in the role of manufacturing. We believe that this new state of
the manufacturing industry will generate new production
systems, which in turn will result in new needs relating tomachine tools. In addressing those needs, we will continue
to contribute to the development of manufacturing
worldwide as we work to achieve further growth.

New factory in China

CITIZEN REPORT 202023

Our Business Portfolio

Machine Tools

Advanced Manufacturing
LFV Technology
Low frequency vibration cutting (LFV*) technology is a nextgeneration processing technology that leads to productivity
improvements. LFV technology applies proprietary CITIZEN
control technology that vibrates the servo axis in the cutting
direction, allowing for “air cutting” time in which the tool is
not in contact with the workpiece and thereby breaking up
chips during the cutting process. This solves a number oflong-standing chip-related issues, such as how to improvethe efficiency of small-diameter, deep-bore machining, or
break up chips produced when working with difficult-to-cut
materials, which tend to generate long strips. In addition,
this technology dramatically reduces chip volume and helps
prevent defects on the workpiece surface, thereby achieving
high-precision machining over extended periods of time.
CITIZEN has also developed a new “threading mode.”
A step beyond conventional LFV technology, LFV utilized inthreading mode (patent pending) is an innovative technologythat breaks up chips when threading by vibrating the servo
axis in the thread cutting direction (X-axis) while cutting in thelongitudinal direction (Z-axis).
* LFV is a registered trademark of Citizen Watch Co., Ltd.
Conventional chips

Chips from LFV technology

alkapplysolution
alkartshop

alkartproduction
alkartschoolalkartsite

alkartoperation

alkartjoin

alkartlive

alkartstationOverview of alkapplysolution services

Remote support by engineers

24

CITIZEN REPORT 2020

Machine operation monitoringalkapplysolution is an innovative online-enabled service thatoffers diverse solutions. It combines an array of technical andfunctional expertise accumulated at Citizen Machinery over many
years with information and communication technology. It brings
together many of the key elements required for “Ko No Ryosan”(mass customization in CITIZENʼs style), including employee
development, program creation and independent maintenance;
production instructions; machine control and monitoring; andremote maintenance support. At the same time, it serves tocombine and integrate a wide range of mechanical equipment
functions and technical expertise from engineers, plant managers
and others. With our sights set on global-scale manufacturing, we
will soon make it possible to connect multiple remote plants tooperate as one.

CNC Automatic Lathes
Lathes, which cut materials as they turn, are an essential tool in manufacturing. In the 1950s, computer numerical control
technology brought about the creation of NC lathes, which automated manual operation processes. Automation continued toadvance, and in 1968 we developed the worldʼs first computerized CNC automatic lathe. Today, we are a leader in global share.

Sliding Headstock Type CNC Automatic Lathes
CincomIn addition to small-diameter, high-precision processing andminiaturization technologies accumulated through the manufacturingof watch components, with Cincom we have developed andcommercialized a number of other advanced technologies, including
numerical control technologies for achieving high productivity as well
as networking technologies. Cincom offers high-precision, highspeed machining performance and a reputation for ease of use. We
also offer software applications optimized to meet the machining
needs of individual parts, and contribute to manufacturing innovation
in a wide range of industries, including the automotive, medical andIT sectors.

Fixed Headstock Type CNC Automatic Lathes
MiyanoMiyano began as a manufacturer of superfine industrial files. In 1948,
using its own technology, Miyano succeeded in developing the first
fixed headstock automatic lathe in Japan. The high rigidity of thelatheʼs headstock made heavy cutting cycles possible, and it has been
well received by customers around the world. We meet a diverse
range of manufacturing needs through total solutions that include anextensive lineup of products and peripheral equipment. We continue
to provide highly reliable, durable machines, primarily for customers
in the automotive, construction equipment and hydraulic/pneumatic
equipment fields.

Multi-Station Machining Cell
MC20
Manufacturing in the twenty-first century must be able to accommodate
two extremes: mass production and high-mix, variable-volume production.
The MC20 Multi-Station Machining Cell makes “Ko No Ryosan” (masscustomization in CITIZENʼs style) a reality. It offers a combination ofprocessing modules that allow for optimized allocation of processing
steps and flexible handling of a variety of process layouts.

CITIZEN REPORT 2020

25

Our Business Portfolio

Devices and Components
Main Operating Companies
Citizen Electronics Co., Ltd.; Citizen Finedevice Co., Ltd.;
Citizen Micro Co., Ltd.; Citizen Electronics Timel Co., Ltd.; Fujimi Corporation;
Citizen Chiba Precision Co., Ltd.; Citizen Electronics Funehiki Co., Ltd.

Establishing a Top Position in Specific Fields
by Offering Differentiated Products

Creating the Next Generationof Growth Business
Key Strategies

1

Develop a diverse lineup of automotiverelated products centered on the precise
metal part machining business• Establish competitive advantages centered on theautomotive components business• Advance the shift to high-value-added products,
mass production and rationalization, expanding
into areas beyond automotive-related products

2

Expand the range of high-quality,
high-value-added products in response
to market changes• Expand market share using proprietary anddifferentiated technologies, including LEDs andtactile switches

3

Enhance management stability by
improving profitability

LEDs for lighting

26

CITIZEN REPORT 2020

Automotive components

Leveraging our miniaturization, precision processing, andlow power consumption technologies developed in the
manufacture of watches, we make a wide range of components
and products that support the lives of people and society.
Our goal is to establish competitive advantages centeredon automotive components, for which we have established areputation for our core precise metal part machining
technology. In automotive components, we offer products inthe areas of safety, comfort, the environment, and controls.
We primarily supply functional components to automotive
manufacturers around the world. We are also working tocreate added value through the rationalizationand integration of processing systems made possible with
manufacturing facilities we have designed ourselves, as we aim
to expand into areas beyond automotive-related products.
Our LEDs for lighting are next-generation light sources
designed in pursuit of high performance, point light sourceand quality of light. Our tactile switches and crystal device
components are vital in smartphones, wearables, and digital
cameras. Along with our ferroelectric liquid crystal on silicon(FLCOS) display technology, we will use these and otherproprietary, differentiated technologies to expand our offeringof high-quality, high-value-added products in response tomarket changes.
Our focus going forward will continue to be on achieving
greater levels of miniaturization, precision, and low power
consumption. We will work to create the next generation of
growth businesses by establishing a top position in specificfields and transitioning to a leaner earnings structure as wemove to enhance management stability.

Crystal units, crystal oscillators

Ferroelectric LCDsElectronic Products
Main Operating Company
Citizen Systems Japan Co., Ltd.

Providing Value to People
Around the WorldOur Electronic Products business, based on compact
precision technology originating from watchmaking,encompasses the printer business, including photo printersand compact printers; the health maintenance device
business, including blood pressure monitors and digital
thermometers; and the calculator business. Building on ourcore business of high-quality, high-reliability commercial
printers and photo printers, we will work to expand into
global niche markets with the goal of driving stable profits.
Electronic devices are increasingly important in a businessenvironment that demands constant evolution, and in day-today life, where we seek to promote healthy, active lifestyles.
We will continue to pursue new value and convenience while
monitoring peopleʼs health and lifestyle needs.

Digital thermometers

Digital bloodpressure monitors

Digital photo printers

Other Products
Main Operating Companies
Tokyo Bijutsu Co., Ltd.; Citizen Plaza Co., Ltd.

CITIZEN REPORT 202027

Corporate Governance

Basic Approach to Corporate Governance
Loved by citizens, working for citizens—This is the sentiment fromwhich Citizen Watch Co., Ltd. (“the Company”) derives its nameand which it has made its Corporate Philosophy. The Company
works to contribute to society and increase its corporate value
through sustainable corporate activities, in harmony with the local
community and the global environment. To continue to promote its
aims, the Company believes it is important to ensure transparency
in management and multi-faceted management oversight.
Accordingly, the Company is striving to expand and enhance its
corporate governance.
Corporate Governance System
The Board of Directors of the Company consists of seven Inside
Directors who oversee the Group and are responsible for businessexecution in principal operations, and three Outside Directors who
review and monitor business management from an independent
position, making the most of their extensive experience andknowledge of management. The Company is a company with an
Audit & Supervisory Board, and audits are conducted by three Audit& Supervisory Board Members (two of whom are Outside Audit &Supervisory Board Members), who possess a high degree of knowledge
and expertise regarding corporate finance and corporate law.

The Company has voluntarily established the Nomination
Committee and the Compensation Committee to increase thetransparency of management.
The main duties of the Nomination Committee include
discussing matters concerning the appointment ofRepresentative Directors, the President and CEO, and the
Chairperson of the Board of Directors, and making proposals onsuch matters to the Board of Directors. The main duties of theCompensation Committee include discussing matters concerning
the policies and standards of compensation for Directors, andproviding advice on such matters to the Board of Directors.
Committee members are appointed by resolution of theBoard of Directors. Each committee consists of at least three
Directors, the majority of whom are Outside Directors and at
least one of whom is a Representative Director. The Chairpersonof each committee is an Outside Director, elected through themutual consensus of committee members.
The Company has determined that the corporate governancesystem described above is adequate for ensuring the proper andefficient execution of duties, management transparency andmulti-faceted management oversight.

Selection/Dismissal

Selection/Dismissal
Proposal/Reporting

Auditing

Cooperation

Selection/Dismissal

Advice/ReportingAccounting Audit

Appointment/
Removal/Supervision

ReportingInternal Audit

ReportingDirection/Supervision

Cooperation* Chairperson: Outside Director
Members: Three or more Directors (majority Outside Directors, at least one Representative Director)

Outside Officers
The Company has appointed three Outside Directors and two
Outside Audit & Supervisory Board Members. The three Outside
Directors have extensive experience and broad insights as
managers and as an attorney-at-law, which they use to review andmonitor the Companyʼs management. The two Outside Audit &Supervisory Board Members have extensive experience, broad
Name

Reasons for Appointment

Fumiaki Terasaka

To utilize Mr. Fumiaki Terasakaʼs considerable experience in and extensive knowledge of management to check and supervise theCompanyʼs management, and in light of his achievements as an Outside Director of the Company, the Company has reappointed
him as Outside Director.

Outside Director

Toshiko Kuboki

Ms. Toshiko Kuboki has extensive experience and knowledge as an attorney-at-law, and the Company expects that she will be able
to utilize her professional point of view as an attorney-at-law and her experience as an outside director of another company to checkand supervise the Companyʼs management, and in light of her achievements as an outside officer of the Company, the Company
believes she is suitable for the position of Outside Director. While Ms. Kuboki has not been involved in the management of acompany aside from her position as an outside director or as an Outside Audit & Supervisory Board Member of the Company,
given her thorough knowledge of corporate legal affairs as an attorney-at-law, the Company has reappointed her as Outside Director.

Outside Director

Yoshio Osawa

In the belief that Mr. Yoshio Osawa will utilize his considerable experience in and extensive knowledge of management tocheck and supervise the Companyʼs management, and in light of his achievements as an Outside Director of the Company, theCompany has reappointed him as Outside Director.

Outside Audit &Supervisory Board
MemberNoboru Akatsuka

Mr. Noboru Akatsuka has been managing banks and companies for many years and has extensive knowledge and experience
thereof. The Company believes he will utilize such knowledge and experience to audit the Company, and has reappointed him
as Outside Audit & Supervisory Board Member.

Yaeko Ishida

Ms. Yaeko Ishida has extensive experience and knowledge as an attorney-at-law, and since she will be able to utilize her professional
point of view as an attorney-at-law to audit the Company, the Company believes that she is suitable for the position of Outside
Audit & Supervisory Board Member. While Ms. Ishida has not been involved in the management of a company, the Company
deems that she has thorough knowledge of corporate legal affairs as an attorney-at-law and will be able to properly perform her
duties as an Outside Audit & Supervisory Board Member, and has reappointed her as Outside Audit & Supervisory Board Member.

Outside Director

Outside Audit &Supervisory Board
Member28

insights, and expertise relating to finance and accounting as abanker and an attorney-at-law, which they use to audit theCompany. The Company has determined that the systemdescribed above is adequate for maintaining and promoting
corporate governance.

CITIZEN REPORT 2020

Officer Compensation
Regarding the amount of officer compensation, the Company
bases its decisions on the amount of earnings improvement it
desires, the level considered appropriate to secure outstanding
personnel, changes in the management environment, externaldata, levels prevalent at other companies, as well as details ofmanagement duties. Also, regarding decisions about executive
bonuses, in addition to these considerations, it considers financial
benchmarks (sales, operating profit, etc.) and non-financial
benchmarks (corporate structure improvement, systemic
improvement, ideas for the future, etc.).

Total Officer Compensation
Category

No. of officers

Total amount ofcompensation, etc.
(millions of yen)

Of which, fixedcompensation(millions of yen)

Of which, bonuses(millions of yen)

Of which, performance-linked
share-based compensation(millions of yen)

Directors [of whom, Outside Directors]

12 [4]

245 [26]

210 [26]

35 [—]— [—]Audit & Supervisory Board Members[of whom, Outside Audit & Supervisory
Board Members]

4 [3]

42 [24]42 [24]

— [—]

— [—]

Total [of whom, Outside Officers]

16 [7]

287 [50]

252 [50]

35 [—]— [—](Notes) 1.	The above figures include Audit & Supervisory Board Members and Directors who retired at the conclusion of the 134th Ordinary General Meeting of Shareholders heldon June 26, 2019.
2.	The above amount of bonuses (35 million yen) for Directors (excluding Outside Directors) is the amount to be paid after the conclusion of the 135th Ordinary General
Meeting of Shareholders scheduled to be held on June 25, 2020.
3.	The maximum allowance for the total amount of compensation, etc. for Directors (excluding Outside Directors) was set at 370 million yen per year (inclusive of bonuses,etc.) at the 133rd Ordinary General Meeting of Shareholders held on June 27, 2018. Compensation for the performance of the duties of employees who also serve as
Directors is included in the above compensation, etc.
4.	Separate from Note 3 above, at the 133rd Ordinary General Meeting of Shareholders held on June 27, 2018, the maximum allowance for the total amount of
performance-linked share-based compensation for Directors (excluding Outside Directors; excluding Directors who are non-residents of Japan) was set at 300 million
yen for a period of three fiscal years (and 100 million yen for the initial period starting from 2018).
5.	The maximum allowance for the total amount of compensation, etc. for Outside Directors was set at 40 million yen per year at the 134th Ordinary General Meeting of
Shareholders held on June 26, 2019. No bonuses will be paid to Outside Directors.
6.	The maximum allowance for the total amount of compensation, etc. for Audit & Supervisory Board Members was set at 80 million yen per year at the 122nd Ordinary
General Meeting of Shareholders held on June 26, 2007. No bonuses will be paid to Audit & Supervisory Board Members.

Evaluation of the Board of Directorsʼ EffectivenessRegarding the status of directors and auditors holding concurrent
posts, facts are made public in the Companyʼs business reports andin reference materials for the General Meeting of Shareholders.
Three Outside Directors concurrently hold posts as outside

officers of other listed companies as of March 2020. The other
Directors and Audit & Supervisory Board Members do notconcurrently hold posts as officers of other listed companies,
and hold positions only at the Company.

1. Method of Evaluation
The Company administered a questionnaire to allmembers of the Board of Directors and the Audit &Supervisory Board for the purpose of analyzing andevaluating the effectiveness of the Board of Directors.
The Board of Directors then discussed the analysis andevaluation of the questionnaire.
•	Respondents: All Directors and Audit & Supervisory
Board Members (14 people)•	Method: Questionnaire survey (non-anonymous; names
will not be disclosed, in principle)• Period: March 2020
• Questions: 21 in totala.	Questions regarding the structure of the Board of
Directors (3 questions)b.	Questions regarding the management/administrationof the Board of Directors (6 questions)c.	Questions regarding the agenda items at meetingsof the Board of Directors (8 questions)d.	Questions regarding the systems that support theBoard of Directors (4 questions)

2. Summary of Evaluation Results
Based on the analysis and evaluation of the questionnaire regarding the effectiveness of the Board of
Directors, the Directors and the Audit & Supervisory Board Members generally gave high grades, and it was
confirmed that the Board of Directors functioned effectively. The results of the evaluation for each question
are as shown below.
a. Structure of the Board of Directors
The structure of the Board of Directors was evaluated as appropriate, including an appropriate number offemale members and independent Outside Directors of diverse career backgrounds. The opinion was
expressed that, going forward, it would be desirable to increase the number of Outside Directors to at least
one-third of the total to further energize the Board of Directors.
b. Management/Administration of the Board of Directors
The management/administration of the Board of Directors was evaluated as having improved, due to theuse of electronic media to provide materials to the Board in advance, allowing more time for them to begiven consideration. In addition, the opinion was expressed that the increase in the number of Outside
Directors had led to more questions as well as more comments from Inside Directors, resulting in morevigorous Board of Directors meetings.
c. Agenda items at meetings of the Board of Directors
It was evaluated that agenda items are appropriately selected. It was suggested that, given meeting time
constraints, opinions regarding agenda items related to the direction of corporate strategy or theenhancement of corporate value could be exchanged outside of Board meetings.
d. Systems that support the Board of Directors
It was evaluated that training opportunities are appropriately provided to each Director and Audit &Supervisory Board Member. Following the reelection of Outside Directors, there were requests for more
substantial explanations and provision of information regarding businesses and Group companies forrecently appointed outside officers.

3. Future Initiatives
The Company will strive to improve issues recognized in the evaluation of the Board of Directors and further enhance the effectiveness of the Board of Directors.
•	Taking into account the provisions of the Corporate Governance Code, the Company will continue to review the composition of the Board of Directors, based on recognitionand clear understanding of issues faced by the Company and while verifying the management/administration and effectiveness of the Board.
•	In order to further enhance the effectiveness of the Board, the Company will work to ensure that matters such as those relating to its long-term vision and management
strategy are considered on an ongoing basis, with deeper deliberation and verification of the appropriateness of content.

CITIZEN REPORT 202029

Corporate Governance

Strengthening Group Risk Management
The CITIZEN Group has established the Group Risk Management
Committee to help achieve the Groupʼs operating objectives
and continue its sustainable development through the integrated
management of and timely response to risks.
The Group Risk Management Committeeʼs primary
responsibilities are to identify and deal with key risks faced by theGroup, and respond to new risks.
The President and CEO of the Company chairs the committee,
which has established subcommittees for main risk themes. The
officers in charge and risk management departments participate inthese subcommittees. As a result, senior management is able toidentify and address key risks including financial risks, compliance,business continuity planning, intellectual property, information
security, labor practices, and ESG risks including those related
to environmental issues. This system allows the Group to sharerisk management expertise and information on managing key

risks common to all Group companies and risks specific to eachGroup company, enabling consistent risk management Group-wide.
In FY2018, the CITIZEN Group established the Group Quality
Compliance Committee in order to consider and formulate
measures to strengthen quality compliance for the entire Group.
The committee is chaired by the Director in charge of Group risk
management and is composed of quality officers for each Group
company. Its primary responsibility is to handle quality
compliance risks. The CITIZEN Group Quality Assurance Code of
Conduct was formulated based on the deliberations of thecommittee, and we regularly conduct training, education andaudits on the code to improve awareness of quality compliancethroughout the Group.
The CITIZEN Group will continue to make improvements tostrengthen risk management Group-wide.

Group Risk Management Committee

Group Quality
Compliance
Committee

Group Legal
Affairs andCompliance
Committee

Group
Environmental
Management
Committee

Group Accounting
Committee

Group Intellectual
Property
Management
Committee

Group Information
GovernanceCommittee

Group Human
Resources
Committee

Group BusinessContinuity
Management
Committee

Ensuring Appropriate Conduct of Business by Subsidiaries
Based on rules and regulations for subsidiaries and affiliates, theCompany manages and guides the development of management
systems and internal control systems at its subsidiaries.
With regard to the individual business activities of the CITIZEN
Group, the Company thoroughly disseminates the management
policies and plans it has formulated, and clarifies the authority
and responsibility of Group companies. Group companies are
responsible for autonomous management based on the industry
characteristics and other aspects of each business.

In addition, the Group shares information about andcollaborates on key issues for Group businesses throughmeetings including Management Committee meetings andliaison conferences attended by Group companies.
Furthermore, subsidiaries are required to submit regular
reports at Business Control and Management Committee
meetings and Watch Group Control Committee meetings on
the status of business conduct. The Internal Audit Department
also monitors subsidiaries through audits.

Other Corporate Governance Matters
Company Institutions and Internal Control System
The Company holds meetings of the Management Committee
comprising full-time Directors and full-time Audit & Supervisory
Board Members to ensure prompt management decision-making
and management transparency. The committee fully discusses andconducts advance deliberations on matters relevant to management
decisions and other important management matters of the Boardof Directors.

30

CITIZEN REPORT 2020

The Board of Directors makes decisions relevant to businessexecution and supervises business execution. With regard tobusiness execution, Representative Directors, Directors in charge,
and operating officers manage businesses.
The Board of Directors met 17 times during FY2019, and all
Directors and all Audit & Supervisory Board Members attended atleast approximately 94% of meetings held during their respective
terms of office.

Message from an Outside Director

Creating new value andcustomer experiences
through contributions
to society
Fumiaki Terasaka Outside Director

Q. H
 ow would you characterize Board of Directorsʼ
meetings?
The Board of Directors approaches discussions from both shortand long-term perspectives when considering how to increase
corporate value, taking into account both what needs to be done
now and what areas need to be addressed going forward. In
addition, given that overseas sales make up a high proportion of
overall sales, the Board takes a big-picture perspective and looks
at conditions both in Japan and overseas. The world is currently ina period of VUCA (volatility, uncertainty, complexity and ambiguity).
Companies need to make quick decisions about events happening
at the same time all over the world. As a result, discussions haveincreasingly taken on a sense of urgency.
Of the Outside Directors, two have management experienceand one is an attorney-at-law, and I feel that a variety of viewpoints
are expressed at meetings. CITIZENʼs Corporate Philosophy
and universal values and approach are extremely important inproviding a foundation for discussions.
CITIZEN is poised for transformation. The Outside Directors
therefore have a serious responsibility. Through vigorous
discussions guided by the Corporate Philosophy and Code of
Conduct, we aim to help create a company that makes a solid
contribution to realizing a sustainable society.

Q. W
 hat is your role on the Board of Directors?
What kinds of opinions do you express inthat role?
Previously, I think Outside Directors mainly focused on defensive
measures, such as avoiding risk or preventing misconduct. Risk
management is of course important if CITIZEN is to achievesustainable growth and be a company needed by society. In termsof corporate culture, I think CITIZEN values integrity in manufacturinghighly. As such, CITIZEN works continually to strengthen and ensure
quality compliance, and create mechanisms for swiftly addressing
issues and preempting their occurrence.
That being said, companies face constant risks in these
unpredictable times. CITIZEN engages in ambitious global marketing
activities, and is, as such, no exception. Responses to risks will

depend on whether or not they are viewed as threats or as
opportunities. Furthermore, the ability to view risks as opportunities
and take bold action is essential to corporate growth. I consider
my role to be to steer top management in adopting a healthy risk
appetite at such times. In other words, my basic approach is toprovide encouragement where it is needed.
To invigorate the Board of Directors, it is important that
Directors demonstrate ownership in discussions, even if the issue isoutside their own area of expertise. I will continue to engage in
offensive measures, such as applying an objective point of view toencourage robust discussions that serve as catalysts for sustainablegrowth, while also promoting defensive measures, such as theenhancement of management transparency.

Q. What are your expectations for the CITIZEN Group?
CITIZEN has a wonderful Corporate Philosophy, “Loved by citizens,working for citizens.” I believe that society and stakeholders expect
the CITIZEN Group to deliver on this philosophy in a form that canbe understood clearly.
CITIZEN launched a program of sustainable management
initiatives in 2019, and established the Sustainability Committee in
April 2020. The goal of these initiatives is to contribute to solvingsocial issues through products and business processes, thereby
ensuring that our business prospers into the future. CITIZEN aims
to contribute to achieving the Sustainable Development Goals(SDGs) by realizing its Corporate Philosophy through its products
and contribution to society.
To that end, clarity is crucial. One of my favorite sayings is,“Make whatʼs difficult easy, make whatʼs easy deep, make whatʼs
deep fun.” Focused on the Watch business, I hope CITIZEN will
demonstrate its unique strengths as a manufacturer capable ofcreating a fun and rewarding world.
I look forward to seeing a succession of Sustainable Products,
as well as services, created in Sustainable Factories that exist inharmony with local communities, made possible through theongoing commitment of every employee.

CITIZEN REPORT 202031

Management Team

1

2

3

4

5

6

7

8

9

10

11

12

13

Directors
1

Toshihiko Sato
President and CEO

Toshihiko Sato has a record of achievements and experience in running theDevices and Components business, as well as being responsible for watch
manufacturing. He leverages this record to promote Group business as heleads management through the execution of Medium-Term Management
Plan 2021. He assumed his current post in 2019.

2

Norio Takeuchi anaging Director, Senior General Manager of Watch Business
M
Division

Norio Takeuchi has an impressive record in sales strategy and brandstrategy in the Watch business as Director, and experience in managing
overseas subsidiaries involved in watch and clock sales. He assumed his
current post in 2017.

3

Toshiyuki Furukawa
 irector, General Manager of Corporate Planning Division andDin charge of Accounting Department, Public & Investor
Relations Department and IT Management Department

As General Manager of the Corporate Planning Division, Toshiyuki Furukawa
has a record of achievements in formulating Group management strategy,
and as Director has experience leading the Corporate Planning Division,
Accounting Department, and the Public & Investor Relations Department.
He assumed his current post in 2016.

4

Keiichi Nakajima
Director

Keiichi Nakajima has mainly been involved in the Machine Tools business,
driving the Machine Tools business as a whole and promoting businessstrategies as President of Citizen Machinery Co., Ltd. He assumed his
current post in 2013.

5

Shinji Shirai
 irector, Senior General Manager of Manufacturing Technology
D
Division and in charge of Quality Assurance Department

After being involved in watch and clock manufacturing at the Companyʼs
subsidiaries, Shinji Shirai gained experience managing watch manufacturingsubsidiaries. He also has experience in operations involving watch
manufacturing, technologies and product development. He assumed his
current post in 2017.

6

Yoshitaka Oji
Director, Senior General Manager of Product Development
Division and Senior General Manager of R&D Center, andSenior General Manager of Watch Development Division

After being involved in watch and clock sales at one of the Companyʼsoverseas subsidiaries, Yoshitaka Oji gained experience as General
Manager of the Corporate Planning Division, promoting management
strategy in the Watch business and product development of watches andclocks. He assumed his current post in 2017.

32

CITIZEN REPORT 2020

Auditors
7

Yoshiaki Miyamoto irector, General Manager of General Affairs Division and inDcharge of Group Risk Management, Personnel Division,
CSR Department and Environmental Management Department

After being involved in the startup of new plants at Group overseas
subsidiaries engaged in watch and clock manufacturing, Yoshiaki
Miyamoto managed overseas subsidiaries responsible for watch andclock sales. He also has experience as Director with responsibility forGroup risk management, general affairs and personnel. He assumed his
current post in 2018.

8

Fumiaki Terasaka

Outside Director Independent(Career Summary)Operating Officer and Director of Kyushu Sales & Marketing
2004	
Division of Sapporo Breweries Ltd.
Director and Senior Officer, Director of Marketing Division of2004	
Sapporo Breweries Ltd.
2005	Director and Executive Managing Officer, Director of Marketing
Division of Sapporo Breweries Ltd.
2009 Executive Managing Officer of Sapporo Breweries Ltd.
2010 President and Representative Director of Sapporo Breweries Ltd.
2010	Managing Director and Group Operating Officer of Sapporo
Holdings Limited
2013 Advisor of Sapporo Breweries Ltd.
2014 Senior Advisor of Sapporo Breweries Ltd.
2015	Outside Audit & Supervisory Board Member of Daisyo
Corporation (present)2017 Outside Director of Fujitsu General Limited (present)2017 Outside Director of the Company (present)

9

Toshiko Kuboki

Outside Director Independent(Career Summary)1987 Registered as an attorney-at-law
2002 Conciliation Commissioner of Tokyo Family Court (present)
2009	Retirement Benefit Examination Committee Member of Board ofAudit of Japan (present)2012	Visiting Professor of Graduate School of Law, Chuo University(present)2013	Municipal Board of Education Member of Chuo-ku, Tokyo (present)2015	Outside Director of Qol Co., Ltd. (Currently Qol Holdings Co., Ltd.)(present)
2015 Outside Auditor of Kyodo News (present)2016 Outside Audit & Supervisory Board Member of the Company
2019 Outside Director of the Company (present)

10 Yoshio Osawa

Outside Director Independent(Career Summary)
2003	Corporate Officer and General Manager of Network Division of
Sumitomo Corporation
Executive Officer and General Manager of Network Division of2005	
Sumitomo Corporation
2008	Managing Executive Officer and General Manager of Media,
Network & Lifestyle Retail Business Unit of Sumitomo Corporation
Representative Director and Managing Executive Officer of2008	
Sumitomo Corporation2011	Representative Director and Senior Managing Executive Officer of
Sumitomo Corporation2013	Representative Director, President and Chief Operating Officer of
SCSK Corporation
2015 Representative Director and President of SCSK Corporation
2016 Director and Chairman of the Board of SCSK Corporation2017 Director of SCSK Corporation2018 Outside Director of Canon Marketing Japan Inc. (present)
2019 Outside Director of the Company (present)

11 Yoshio Takada

Audit & Supervisory Board Member (Full-time)

Yoshio Takada has mainly been involved in accounting operations,having held several managerial positions in accounting departments of
the Company, following which he also had experience managing a
subsidiary as Director and CEO. He assumed his current post in 2017.

12 Noboru AkatsukaA udit & Supervisory Board Member (Full-time), Outside Audit &Supervisory Board Member Independent(Career Summary)
1981 Joined Dai-Ichi Kangyo Bank, Limited
2005	General Manager of Asia Corporate Banking of Mizuho Corporate
Bank, Ltd. (Currently Mizuho Bank, Ltd.)
2007	General Manager of Overseas Business Promotion Division ofMizuho Corporate Bank, Ltd.
2008	General Manager of Corporate Banking Division No. 18 ofMizuho Corporate Bank, Ltd.
2009 Executive Officer of Mizuho Corporate Bank, Ltd.
2011	Managing Executive Officer of Century Tokyo Leasing
Corporation
2016 Counselor of Century Tokyo Leasing Corporation
2016 Chairman of Fujitsu Leasing Co., Ltd.
2018	Audit & Supervisory Board Member (Full-time) of the Company(present)

13 Yaeko Ishida

Outside Audit & Supervisory Board Member Independent(Career Summary)
2000 Registered as an attorney-at-law
2007 Judicial Commissioner of Tokyo Summary Court
2016	Conciliation Commissioner of Tachikawa Branch of Tokyo Family
Court (present)
2019	Outside Audit & Supervisory Board Member of the Company(present)

Independent
Independent officer pursuant to Rule 436-2 of the Securities Listing
Regulations of Tokyo Stock Exchange, Inc.
Notes: For more information on the nomination of Outside Directors andOutside Audit & Supervisory Board Members, see page 28.
Yaeko Ishida uses the name Yaeko Kitadai in her profession as an
attorney-at-law.

FINANCIAL DATA 2020
Financial Section for the Year Ended March 31, 2020

34

Analysis of Operating Results

35

Risks

36

Consolidated Balance Sheets

38

Consolidated Statements of Income

39

Consolidated Statements of Comprehensive Income

40

Consolidated Statements of Changes in Net Assets

42

Consolidated Statements of Cash Flows

43

Notes to Consolidated Financial Statements

53

Report of Independent Auditors (Translation)

CITIZEN REPORT 202033

Analysis of Operating Results
Fiscal Year-End Operating Results(Millions of yen)

Year ended
March 31, 2019Year ended
March 31, 2020

Year-on-yearchangePercentagechangeNet sales

321,652

278,531(43,120)(13.4%)

Operating profit

22,411

6,136(16,275)(72.6%)

Ordinary profit

26,602

7,531(19,070)(71.7%)

Profit attributable toowners of parent

13,369(16,667)(30,037)—

During the fiscal year ended March 31, 2020, despite a moderate
recovery trend on the back of improved employment conditions andother factors, the Japanese economy deteriorated sharply due tosluggish consumer spending resulting from the consumption tax hike,and the impact of the COVID-19 pandemic. Overseas economies
were also seriously affected by the pandemic. Economic activities
shrank dramatically in China, and other Asian economies also showedsome weakness. In the United States and Europe, whose economies
had been sluggish due to concern over developments in conjunction
with trade with other countries, the pandemic put a great amount of
downward pressure on businesses, further deepening uncertainty.
In this environment, the CITIZEN Group implemented a range
of initiatives laid out for the first year of Medium-Term Management
Plan 2021 which was established in February 2019, such as facilitating
the growth of the Watch business and Machine Tools business,promoting sustainable management and strengthening compliancein quality, with a view to raising the level of traditional manufacturing
and addressing the challenge of new value creation.
The consolidated financial results for the fiscal year under review
recorded a decrease in both sales and profit, with net sales standingat 278.5 billion yen (down 13.4% year on year), and operating profit
at 6.1 billion yen (down 72.6% year on year). Ordinary profit
decreased to 7.5 billion yen (down 71.7% year on year), and profit
attributable to owners of parent turned negative, at a loss of 16.6
billion yen (profit attributable to owners of parent of 13.3 billion yen
in the same period of the previous year), due to the posting of an
extraordinary loss.

Analysis of Financial Position• Assets Outstanding at Fiscal Year End
As of the end of the consolidated fiscal year under review, total assets
decreased by 44.3 billion yen year on year, to 369.5 billion yen. Current
assets declined by 23.3 billion yen, mainly reflecting decreases of 20.8
billion yen in notes and accounts receivable – trade and 6.7 billion
yen in cash and deposits, offsetting an increase of 2.9 billion yen in
inventories. Non-current assets decreased by 21.0 billion yen, primarily
due to decreases of 6.5 billion yen in investment securities, 5.6 billion
yen in machinery, equipment and vehicles – net, and 4.1 billion yen in
intangible assets, offsetting an increase of 2.7 billion yen in deferred
tax assets.
Liabilities decreased by 7.5 billion yen year on year, to 138.7 billion
yen, mainly due to declines of 5.6 billion yen in electronically recorded
obligations – operating, 5.2 billion yen in accrued expenses, and 4.0
billion yen in notes and accounts payable – trade, offsetting an increaseof 4.0 billion yen in total in long-term and short-term loans and a rise of
1.3 billion yen in provision for loss on reorganization.
Net assets decreased by 36.7 billion yen year on year, to 230.7

34

CITIZEN REPORT 2020

billion yen, mainly as a result of declines of 27.1 billion yen, 4.5 billion
yen and 4.3 billion yen in retained earnings, valuation difference on
available-for-sale securities and foreign currency translation adjustment,
respectively.
• Cash FlowsNet cash provided by operating activities decreased by 2.5 billion yen
year on year, to 17.3 billion yen. Major factors contributing to thisresult included 15.4 billion yen in depreciation and 19.2 billion yen in
impairment loss, partially offset by 15.0 billion yen in loss before
income taxes, an 8.9 billion yen decrease in notes and accounts
payable, and 7.1 billion yen in income taxes paid.
Net cash used in investing activities decreased by 4.3 billion yen
year on year, to 15.4 billion yen. Major factors contributing to thisresult included 16.8 billion yen for the purchase of property, plant andequipment, offsetting 4.0 billion yen in proceeds from sales ofinvestment securities and 0.7 billion yen in proceeds from sales ofproperty, plant and equipment.
Net cash used in financing activities increased by 1.1 billion yen
year on year, to 7.0 billion yen. Major factors contributing to this result
included 10.7 billion yen in the repayment of long-term loans payable,
6.9 billion yen in cash dividends paid and 3.0 billion yen in the purchaseof treasury stock, partially offset by cash inflows such as 15.2 billion
yen in proceeds from long-term loans payable.
For the consolidated fiscal year under review, cash and cash
equivalents decreased by 6.5 billion yen year on year, to 77.9 billion
yen as of the end of the year.
• Fundamental Policy Regarding the Distribution of Profits andDividends for the Fiscal Year Under Review and the Fiscal YearEnding March 2021
The Company considers the proportion of the total amount ofdividends and share buybacks to profit attributable to owners ofparent as the ratio of return to shareholders and established a basic
policy of maintaining a ratio of 60% or higher on average for three
years. The ratio is determined in consideration of the balance
between dividend payments based on consolidated results and stabledividend payments.
The year-end dividend for the fiscal year under review will be 0.00
yen per share. As a result, the full-year dividend for the fiscal year
under review will be 12.00 yen per share.
The Company has not currently decided on the expected full-year
dividends per share for the next fiscal year.

RisksMatters which may affect the Groupʼs results, financial position andshare price, etc. include the following:
1. Risks in each of the Groupʼs businesses
The CITIZEN Groupʼs main business is to manufacture and sell watches,machine tools, electronic devices, and electronic products. The Group
operates its business all over the world, and our customers include bothindividuals and various manufacturers. Therefore, our operating results
are influenced by various factors, some of which are listed below.
WatchesCompetition in the watch market is intensifying, not only fromJapanese brands, but also from high-end Swiss brands, low-end
Chinese manufacturers, and smartwatch manufacturers, along withalternative products such as smartphones with watch functions. In the
movement sector, the analog quartz market centering on low-priced
products has been contracting, and we are facing an environment inwhich prices are declining as a result of increasing competition due tothe rise of Chinese manufacturers. Consequently, there is a risk ofdeclines in our product sales and market share.
Moreover, if the adverse outcomes of the COVID-19 pandemic,
such as restrictions on outings, suspension or reduced hours of store
and restaurant operation, and stagnation of supply chains areaggravated or prolonged, our operating results may be affected evenmore severely due to a global decline in consumer confidence.
Machine Tools
The Machine Tools business is susceptible to the effects of economic
cycles and fluctuations in corporate capital investment. The Groupʼs
operating results may be affected by factors such as the U.S.–China
trade friction and a fall in appetite for capital investment due to the
COVID-19 pandemic.
Devices and Components
The Devices and Components business is characterized by rapid
technological innovation and fierce competition between companies,
meaning that declining sales prices or delays in development, forexample, can have a significant impact on business results. Precision
machining components are susceptible to customer trends, including
automotive and smartphone manufacturers. As for opto-devices,
patent licensing agreements are concluded for manufacturing certain
products. Our business results could be affected should a cooperative
relationship underpinning a patent agreement break down and accessto the patent be lost.
Moreover, the Groupʼs operating results may be affected byfactors such as a decrease in plant operating rates, reduced operating
rates of automakers and other clients of the Group, and stagnation of
supply chains as a result of the spread of COVID-19.
Electronic Products
The Electronic Products business is susceptible to declining capital
expenditure and personal spending as a result of changing economic
conditions. The Groupʼs operating results may be affected by thestagnation of the global economy due to the U.S.–China trade friction,
the COVID-19 pandemic, and other factors. With intense competition
from electronics manufacturers in China and other countries in
addition to domestic manufacturers, and rapid technologicalinnovation, business results may also be impacted by factors such as
declining sales prices and development delays.
2. Overseas sales
Overseas sales account for a high percentage of the Groupʼs overall
product sales. As our products are sold worldwide, our operating
results may be affected by economic and consumer trends in eacharea, as well as by political and socioeconomic factors.
3. Foreign currency fluctuation risk
As overseas sales account for a high percentage of the Groupʼs
product sales, as mentioned in 2 above, we enter into foreign currency

contracts, currency options and other such transactions to hedge
against risks. Although we are expanding and strengthening ouroverseas production, currency fluctuations may still affect the Groupʼs
operating results.
4. Manufacturing in China
China is one of the main production bases for the Groupʼs products.
It is therefore possible for our operating results to be affected byfactors in China, such as the suspension of production due toproblems, the enactment of new regulations that could affectproduction, or the sharp appreciation of the Chinese yuan.
5. Impairment loss
An impairment loss would be applicable if the market value of theGroupʼs assets were to decline significantly or the profitability of ourbusiness were to deteriorate. This may affect the Groupʼs operating
results and financial position.
6. Patents and intangible property
As part of the Groupʼs R&D and production activities, we make use ofa variety of technologies covered by intellectual property rights. These
include intellectual property rights that are owned by the CITIZEN
Group, and others for which we believe we have legitimately received
licenses to use. Nevertheless, should a third party claim, based on
grounds of which we are unaware, that its intellectual property rights
have been violated, a dispute could arise that could affect the Groupʼsbusiness results. For some products in particular, manufacturing isbased on patent licensing agreements. If a cooperative relationshipunderpinning such an agreement were to break down, or access to
the relevant patent were to be lost, it may affect our business results.
7. Risk related to natural disaster such as earthquakes
We have established a Group risk management system to avoid any
injury or damage to facilities in the event of a fire, an earthquake orother disaster through drills and other safety activities at our headquarters
and works. In the event of a particularly serious earthquake or othersuch disaster, however, our production activities and product supplies
may be affected. There may also be a significant impact on our operating
results and financial position due to reconstruction costs, for example.
8. Risks related to M&As and business alliances
We are committed to strengthening the Groupʼs business foundations
through M&A and business alliances. When undertaking such activities,
we carry out comprehensive research into and examinations of thecompanies involved. Nevertheless, there may be risks that we discoverlater, such as unrealized liabilities or obstacles in implementing
projects, which may materially affect the Groupʼs operating results
and financial position.
9. Risk related to borrowings
The Groupʼs borrowings include syndicated loans and commitmentline agreements with financial institutions. Any violation of financial
restrictions under such agreements could result in demands for theaccelerated repayment of the relevant borrowings, which may affect
the Groupʼs financial position.
10. Other risks
The Groupʼs operating results may be affected by a variety of factors
in addition to the above, including changes in social infrastructure andmarket competition as a result of rapid advances in technology, changes
in the Groupʼs financial or managerial situation as a result of ongoing
restructuring initiatives, trading restrictions in major markets in Japanor overseas, international taxation risk including the transfer pricing
taxation system, or substantial changes in stock or bond markets.

CITIZEN REPORT 202035

Consolidated Balance Sheets
Consolidated Balance Sheets

Citizen Watch Co., Ltd. and Consolidated Subsidiaries
March 31, 2019 and 2020
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
March 31, 2019 and 2020

ASSETS
2019

2020

2020

¥ 86,875
64,1391,225
98,202
9,653(1,111)
258,985¥ 80,168
43,254
1,395
101,192
10,676(1,033)
235,655$ 742,302
400,508
12,923936,970
98,859(9,565)2,181,999

111,177
127,353
45,7972,764
287,092(213,186)
73,905
10,326
5,437

111,526
122,855
46,472
2,816
283,671(219,006)
64,664
10,164
3,704

1,032,655
1,137,546
430,303
26,0792,626,585(2,027,840)
598,745
94,112
34,298Property, plant and equipment, net

89,66978,532

727,156

Investments and other assets:
Investment securities (Note 3 and 12)Long-term loans (Note 12)
Software
Other intangible assets (Note 10)
Deferred tax assets (Note 5)
Others (Note 12)
Less: Allowance for doubtful accounts
Less: Allowance for loss on investments
Total investments and other assets

39,974
942
4,402
4,330
11,847
4,057
(268)
(23)

33,449
408
3,830
722
14,604
2,657
(239)
(46)
55,386

309,716
3,780
35,464
6,581
135,222
24,716(2,216)(425)

Current assets:
Cash and time deposits (Note 2 and 12)
Notes and accounts receivable – trade (Note 12)
Electronically recorded monetary claims (Note 12)
Inventories (Note 4)
Other current assets
Less: Allowance for doubtful accounts
Total current assets
Property, plant and equipment (Note 10 and 15):
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Leased assets
Less: accumulated depreciation
Land
Construction in progress

Total assets (Note 15)
See notes to consolidated financial statements.

36

Thousands of
U.S. dollars (Note 1)

Millions of yen

CITIZEN REPORT 2020

65,256¥ 413,911¥ 369,575

512,838$ 3,421,994

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term loans payable and current portion of long-termloans payable (Note 6 and 12)
Notes and accounts payable – trade (Note 12)
Electronically recorded obligations – operating (Note 12)
Income taxes payable
Accrued expenses
Accrued bonuses
Provision for reorganization costs (Note 13 and 14)
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term loans payable (Note 6 and 12)
Unsecured bonds (Note 6 and 12)
Deferred tax liabilities (Note 5)
Liability for retirement benefits (Note 7)
Provision for reorganization costs (Note 13)
Other long-term liabilities
Total long-term liabilities
Total liabilities
Net assets:
Common stock
Authorized－959,752,000 shares in 2020 and 2019
Issued－314,353,809 shares in 2020 and 320,353,809
shares in 2019
Capital surplus
Retained earnings
Less: treasury stock, at cost
(1,714,407 shares in 2020 and 2,070,969 shares in 2019)
Total shareholders’ equity
Accumulated other comprehensive income
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

Thousands of
U.S. dollars (Note 1)

Millions of yen

2019

2020

2020

¥ 13,987¥ 17,227$ 159,513

20,496
14,896
2,139
13,395
5,712
484
10,62816,485
9,223
1,551
8,160
4,855
1,840
11,927

152,647
85,406
14,36375,56044,95817,037
109,630

81,741

71,271

659,924

27,077
10,000791
23,328816
2,609
64,622
146,363

27,92910,000585
24,038829
4,128
67,511
138,783

258,607
92,592
5,425
222,575
7,682
38,223625,107
1,285,031

32,64832,648302,304

34,019181,995

33,730154,855

312,319
1,433,844(1,773)(1,069)(9,903)

246,889

220,165

2,038,565

8,111
3,303
(855)

3,578
(1,095)(921)

33,132(10,145)(8,535)

10,55910,098267,547

1,560
9,066
230,791

14,451
83,9452,136,962¥ 413,911¥ 369,575$ 3,421,994

CITIZEN REPORT 202037

Consolidated Statements of Income
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Consolidated Statements of Income
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Thousands of
U.S. dollars (Note 1)(except per share amounts)

Millions of yen

Net sales (Note 15)
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 7 and 8)
Operating profit (Note 15)

Other income (expenses):
Interest income
Dividend income
Interest expense
Foreign currency exchange gain (loss)
Subsidy income
Loss on disposal of property, plant and equipment
Gain on sales of property, plant and equipment
Gain on sales of investment securities
Impairment loss (Note 10 and 15)
Reorganization costs (Note 13)
Special compliance expenses, etc.
Extra retirement payments (Note 14)
Others, net

Income before income taxes and non-controlling interests
Income taxes (Note 5):
Current
Deferred
Total income taxes
Net income
Attributable to:
Owners of parent
Non-controlling interests

2019

2020

2020

¥ 321,652
198,094
123,557¥ 278,531
177,431
101,100$ 2,578,999
1,642,881
936,117

101,146
22,411

94,964
6,136

879,30256,815

525
1,775
(387)
492
754
(884)
239
2,195
(5,688)(2,507)(216)－
542(3,159)

479
1,378
(406)
(919)
230
(252)
40
1,860
(19,272)(1,404)－(2,835)(121)(21,222)

4,441
12,762(3,761)(8,517)2,136(2,333)378
17,222(178,447)(13,005)－(26,256)(296)(196,506)

19,251(15,086)(139,691)

7,010(1,550)5,459
13,792

4,126(1,754)
2,371(17,458)

38,204(16,243)
21,960(161,652)¥ 13,369422¥ (16,667)(790)$ (154,330)(7,321)
U.S. dollars(Note 1)Yen

Per share of common stock:
Net income
Basic
Cash dividends applicable to the year
See notes to consolidated financial statements.

38

CITIZEN REPORT 2020

¥ 42.00
20.00¥ (53.07)
12.00$ (0.49)
0.11

Consolidated Statements of Comprehensive Income
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Consolidated Statements of Comprehensive Income
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net income
Other comprehensive income
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Adjustments for retirement benefits
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income
Total comprehensive income
Total comprehensive income attributable to:
Owners of parent
Non-controlling interests

2019

2020

2020

¥ 13,792¥ (17,458)$ (161,652)(3,797)1,159
209(4,533)(4,403)(65)(41,977)(40,769)
(603)

126

(63)

(589)

(2,302)¥ 11,489(9,065)¥ (26,523)(83,938)$ (245,591)¥ 11,000488¥ (25,666)(856)$ (237,656)(7,934)

See notes to consolidated financial statements.

CITIZEN REPORT 202039

Consolidated Statements of Changes in Net Assets

Citizen Watch Co., Ltd. andConsolidated Subsidiaries
Consolidated
Statementsof Changes in Net Assets
Years ended March 31, 2019 and 2020
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Thousands of
U.S. dollars (Noe 1)

Millions of yen

Shareholders’ equity
Capital stock
Balance at beginning of year
Balance at end of year
Capital surplus
Balance at beginning of year
Changes of items during period
Capital increase from acquisition of
consolidated subsidiaries
Change of scope of consolidation
Retirement of treasury stock
Disposal of treasury stock
Transfer of loss on disposal of treasury stock
Transfer to capital surplus from retained earnings
Total changes of items during period
Balance at end of year
Retained earnings
Balance at beginning of year
Cumulative effects of changes in accounting policies(Note 2)
Restated balance
Changes of items during period
Increase by merger
Change of scope of consolidation
Dividends of surplus
Profit (Loss) attributable to owners of parent
Transfer of loss on disposal of treasury stock
Transfer to capital surplus from retained earnings
Total changes of items during period
Balance at end of year
Treasury stock at cost
Balance at beginning of year
Changes of items during period
Retirement of treasury stock
Purchase of treasury stock
Disposal of treasury stock
Total changes of items during period
Balance at end of year
Total shareholders’ equity
Balance at beginning of year
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Capital increase from acquisition of
consolidated subsidiaries
Increase by merger
Change of scope of consolidation
Dividends of surplus
Profit (Loss) attributable to owners of parent
Purchase of treasury stock
Disposal of treasury stock
Total changes of items during period
Balance at end of year

40

CITIZEN REPORT 2020

2020

2019

2020

¥ 32,648¥ 32,648¥ 32,648¥ 32,648$ 302,304$ 302,304¥ 34,000¥ 34,019$ 314,994

19

0

2

19
¥ 34,019(289)(3,703)
(2)
2
3,703
(288)
¥ 33,730(2,676)(34,296)(18)
18
34,296(2,674)$ 312,319¥ 176,117¥ 181,995$ 1,685,141(199)(1,844)¥ 181,796$ 1,683,297

5,877¥ 181,995

363
5(6,936)(16,667)(2)(3,703)(26,940)¥ 154,855

3,366
54(64,227)(154,330)(18)(34,296)(249,452)$ 1,433,844¥ (1,783)¥ (1,773)$ (16,424)

(1)
10
9
¥ (1,773)

3,703(3,001)2704¥ (1,069)

34,296(27,793)
19
6,521$ (9,903)¥ 240,983¥ 246,889(199)
246,690$ 2,286,015(1,844)2,284,171

19

0

2

(7,480)13,369(1)
0
5,906¥ 246,889

363
(283)
(6,936)(16,667)(3,001)
0(26,525)¥ 220,165

3,366(2,622)(64,227)(154,330)(27,793)0(245,605)$ 2,038,565

(10)
10

(7,480)13,369(10)

Thousands of
U.S. dollars (Note 1)

Millions of yen

2020

2019
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Balance at beginning of year
Changes of items during period
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year
Foreign currency translation adjustments
Balance at beginning of year
Changes of items during period
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year
Remeasurements of defined benefit plans
Balance at beginning of year
Changes of items during period
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year
Total accumulated other comprehensive income
Balance at beginning of year
Changes of items during period
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year
Non-controlling interests
Balance at beginning of year
Changes of items during period
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year
Total net assets
Balance at beginning of year
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Capital increase from acquisition of consolidated
subsidiaries
Increase by merger
Change of scope of consolidation
Dividends of surplus
Profit (Loss) attributable to owners of parent
Purchase of treasury stock
Disposal of treasury stock
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at end of year

2020

¥ 11,909¥ 8,111$ 75,109(3,797)(3,797)¥ 8,111(4,533)(4,533)¥ 3,578(41,976)(41,976)$ 33,132¥ 2,067¥ 3,303$ 30,587

1,236
1,236
¥ 3,303(4,399)(4,399)¥ (1,095)(40,732)(40,732)$ (10,145)¥ (1,047)¥ (855)$ (7,919)

192
192¥ (855)(66)(66)¥ (921)

(616)
(616)
$ (8,535)¥ 12,928¥ 10,559$ 97,777(2,368)(2,368)¥ 10,559(8,999)(8,999)¥ 1,560(83,325)(83,325)$ 14,451¥ 9,801¥ 10,098$ 93,502

297
297¥ 10,098(1,032)(1,032)¥ 9,066(9,557)(9,557)$ 83,945¥ 263,713¥ 263,713¥ 267,547(199)¥ 267,348$ 2,477,295(1,844)$ 2,475,451

19

0

2

‐
‐
(7,480)13,369(1)
0(2,071)
3,834¥ 267,547

363
(283)
(6,936)(16,667)(3,001)0(10,031)(36,556)¥ 230,791

3,366(2,622)(64,227)(154,330)(27,793)0(92,882)(338,488)$ 2,136,962

CITIZEN REPORT 202041

Consolidated Statements of Cash Flows
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Consolidated Statements of Cash Flows
Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Thousands of
U.S. dollars (Note 1)

Millions of yen

2019
Cash flows from operating activities:
Profit (loss) before income taxes
Depreciation
Increase (decrease) in provision for loss on business restructuring
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in other provisions
Increase (decrease) in net defined benefit liability
Amortization of goodwill
Interest and dividend income
Interest expenses
Loss (gain) on sales of investment securities
Loss (gain) on sales of property, plant and equipment
Loss on retirement of property, plant and equipment
Decrease (increase) in notes and accounts receivable – trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable – trade
Impairment loss
Other, net
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

2020

2020

¥ 19,251
13,947
(429)
216
(4)
817
400
(2,300)387(2,195)(239)
863(1,646)(7,051)
(415)
5,688
329
27,6222,300(388)(9,636)
19,897¥ (15,086)
15,4381,375(91)(1,211)639－(1,858)406(1,858)(40)
252
20,214(4,096)(8,999)19,272(1,350)23,005
1,858(408)(7,107)
17,347$ (139,961)
142,950
12,739(845)(11,220)
5,916

Cash flows from investing activities:
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Payments of loans receivableCollection of loans receivable
Other, net
Net cash provided by (used in) investing activities

(305)
4,194
(19,350)764(3,884)(160)
146(1,266)(19,861)(1,971)
4,061(16,851)773(2,254)(2)
173
572(15,498)(18,252)
37,608(156,027)
7,165(20,873)
(26)
1,604
5,298
(143,504)

794
5,063
(3,719)10,000(10,000)(7,480)
(136)
(76)
74

(518)
15,270(10,717)－－(6,936)(170)(3,001)－(4,804)
141,389(99,238)

(172)

(557)

(5,163)(235)(5,888)(416)(7,049)(3,857)(65,276)(270)(6,122)90,655(1,880)(7,080)84,533(17,407)(65,563)782,713

－

544

5,041

¥ 84,533¥ 77,996$ 722,192

Cash flows from financing activities:
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Repayments for redemption of bonds
Cash dividends paid
Dividends paid to non-controlling interests
Purchase of treasury stock
Proceeds from sales of treasury stock
Payments from changes in ownership interests in
subsidiaries that do not result in change in scope of
consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of term
Increase (decrease) in cash and cash equivalents resulting fromchange of scope of consolidation
Cash and cash equivalents at end of term (Note 2)

42

CITIZEN REPORT 2020－
(17,204)
3,761(17,210)
(378)
2,333
187,175(37,928)(83,327)
178,447(12,507)
213,011
17,205(3,777)(65,812)160,625－－(64,228)(1,579)(27,793)－

Notes to Consolidated Financial Statements

Citizen Watch
Ltd. and Consolidated
Subsidiaries Statements
Notes
toCo.,
Consolidated
Financial
Years ended March 31, 2019 and 2020

Citizen Watch Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2019 and 2020

Note 1. Basis of presenting consolidated financial statements

The accompanying consolidated financial statements of Citizen Watch Co.,
Ltd. (the “Company”) and consolidated subsidiaries (collectively, the“Companies”) are prepared on the basis of accounting principles generally
accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial
Reporting Standards, and have been compiled from the consolidated
financial statements prepared by the Company as required by the
Financial Instruments and Exchange Act of Japan.
In preparing these consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated
financial statements issued domestically in order to present them in a form
which is more familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, thecurrency in which the Company is incorporated and mainly operates. The
translation of Japanese yen amounts into U.S. dollar amounts is included
solely for the convenience of readers outside Japan and has been made at
the rate of ¥108 to U.S.$1, the approximate rate of exchange as of March
31, 2020. Such translation should not be construed as a representationthat Japanese yen amounts could be converted into U.S. dollars at that or
any other rate.
As permitted by the Financial Instruments and Exchange Act, for theyears ended March 31, 2020 and 2019, amounts of less than one million
yen have been omitted. Consequently, totals shown in the accompanying
consolidated financial statements for the years ended March 31, 2020 and2019 do not necessarily agree with the sums of the individual amounts.

Note 2. Summary of significant accounting policies

a. Consolidation
The consolidated financial statements include the accounts of theCompany and its subsidiaries (collectively, the “Companies”). All
significant intercompany accounts and transactions have been eliminatedin consolidation.
The Company has 99 subsidiaries at March 31, 2020 (110 for 2019).
The consolidated financial statements include the accounts of theCompany and 84 (92 for 2019) of its significant consolidated subsidiaries(collectively, the “Group”).
The remaining 15 (18 for 2019) non-consolidated subsidiaries whose
combined assets, net sales, net income and retained earnings are notsignificant in the related consolidated totals, are not consolidated with theCompany.
Investments in non-consolidated subsidiaries and affiliates (generally
20% - 50% ownership) over which the Company has the ability to exercise
significant influence in operating and financial policies are accounted forby the equity method. Equity method is applied to 2 affiliates for 2020 (2 for2019).
Investments in non-consolidated subsidiaries and affiliated companies
other than the above (companies owned 20% - 50%) which haveimmaterial effect on the consolidated financial statements are accounted
for at cost.
b. Cash and cash equivalents
Cash equivalents comprise demand deposits in financial institutions andhighly liquid, short-term investments with low risk of fluctuations in value
for which the maturity expires within three months.
The balance of cash and cash equivalents as of March 31, 2020 and2019 is reconciled with the balance sheet as follows:
Thousands of
U.S. dollars

Millions of yen

Balance sheet:
Cash and time deposits
Less:Time deposits over threemonthsSeparate deposits for BIP
Cash and cash equivalents

2019

2020

2020

¥ 86,875¥ 80,168$ 742,302

2,340

2,170

20,0961

1

13¥ 84,533¥ 77,996$ 722,192

c. Marketable and investment securities
The Companies clarify all of their marketable and investment securities asavailable-for-sale. Available-for-sale securities are carried at market value
with the corresponding recognition of net unrealized gains and losses as aseparate component of equity, net of related taxes.
Realized gains and losses are determined on the moving average method
and included in the consolidated statements of income.

loss experience and management’s evaluation of potential losses inoutstanding receivables and loans.
e. Inventories
Inventories held for sale in the ordinary course of business are measured
at the lower of cost or net realizable value, which is defined as selling priceless estimated additional manufacturing costs and estimated direct selling
expenses, determined by the weighted average method.
f. Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation iscomputed on the straight-line basis at the rates based on the estimateduseful lives of the respective assets ranging from 2 to 60 years forbuildings and from 2 to 10 years for machinery and equipment.
Property, plant and equipment are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the assets might be unrecoverable. Recoverability of assets to be held andused is measured by a comparison of the carrying amount to undiscounted
future cash flows expected to be generated by the assets. When therecoverable amount of assets is estimated to be less than their carrying
amount, the carrying amount of the assets is reduced to its recoverable
amount, and an impairment loss is recognized.
Maintenance and repairs, including minor renewals and improvements,
are expensed in the consolidated statements of income as incurred.
g. Goodwill and other intangible assets
Goodwill is amortized on the straight-line basis over reasonable economic
life up to 20 years, though immaterial goodwill is charged to expense in the
period of acquisition.
Software and other intangible assets are amortized on the straight-line
basis over the estimated useful lives of the respective assets.
h. Leases
Finance leases that do not transfer ownership of the leased property to thelessees are depreciated on the straight-line basis over the lease termswith no residual value.
i. Retirement benefits(1) Calculation of retirement benefit obligation
The retirement benefit obligation is calculated based on benefit-formulabasis.
(2) Amortization of actuarial differences and prior service costs
Actuarial differences are amortized on the declining-balance basis fromthe next fiscal year over the period (5-years) which is less than the
average remaining years of employment.
Prior service costs are amortized on the declining-balance basis overthe period (5-years) which is less than the average remaining years of
employment.
j. Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into
Japanese yen at the spot exchange rates at the reporting date.
The foreign currency exchange gains and losses resulting from thesettlement of these items are included in the consolidated statements ofincome.
Balance sheet accounts of foreign subsidiaries are translated into
Japanese yen at the reporting date rates except for equity accounts, which
are translated at the historical rates. Income statements of foreignsubsidiaries are translated at average rates during the year.
Exchange differences arising from the translation are recognized in“Foreign currency translation adjustments” and “non-controlling interests”
in net assets.
k. Per share information
The computation of net income per common share is based on theweighted average number of shares outstanding during each year.
The average number of common shares used in the computation was
314,081 thousand shares and 318,284 thousand in 2020 and 2019,respectively.
Diluted net income per common share assumes full conversion of theoutstanding convertible bonds at the beginning of the year or at the date ofissuance with applicable adjustment for related interest expense, net oftax.
Cash dividends per common share presented in the accompanying
consolidated statements of income are dividends applicable to therespective years including dividends to be paid after the end of the year.

d. Allowance for doubtful accounts
An allowance for doubtful accounts is established based on past credit

CITIZEN REPORT 202043

l. Derivative financial instruments
The Companies have derivative financial instruments, such as foreign
currency forward contracts and interest rate swaps to manage its
exposure to foreign exchange rate and interest rate risks. The Companies
do not enter into derivative financial instruments for trading purposes.
Foreign currency forward contracts are not designated for hedge
accounting and stated at fair value; gains and losses are recognized in the
consolidated statements of income.
The interest rate swaps that qualify for hedge accounting and meet
specific matching criteria are not remeasured at market value.
m. Changes in accounting policies(Adoption of IFRS 16)
Some overseas consolidated subsidiaries have adopted IFRS 16 (Leases)from the beginning of the current fiscal year.
These subsidiaries, as lessees, generally recognize all leases as assets
and liabilities as a result of this adoption. The adoption of this standard did
not have a material impact on the consolidated financial statements.
(Adoption of the “Revenue from Contracts with Customers”(ASC606))
The overseas consolidated subsidiaries which apply US GAAP adopted
ASC606, “Revenue from Contracts with Customers” from the beginning of
the fiscal year ended March 31, 2020.
As a result, the beginning balance of retained earnings of this fiscal year
has decreased by ¥199 million ($1,844 thousand). The adoption of thisstandard did not have a material impact on the net assets per share andnet loss per share as of and for the year ended March 31, 2020.
n. New accounting pronouncements(Accounting standard for revenue recognition, etc.)
・“Accounting Standard for Revenue Recognition”(ASBJ Statement No. 29, March 31, 2020)
・“Implementation Guidance on Accounting Standard for Revenue
Recognition” (ASBJ Guidance No.30, March 31, 2020)
・“Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020)(1) Overview
The International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) in the United States jointly developed
comprehensive accounting standards for revenue recognition andpublished the “Revenue from Contracts with Customers” (IFRS 15 in the
IASB and Topic 606 in the FASB) in May 2014. Given that IFRS 15 will beapplied from a fiscal year starting on or after January 1, 2018 and that
Topic 606 will be applied from a fiscal year starting after December 15,
2017, ASBJ has developed comprehensive accounting standards forrevenue recognition and published them in step with the Implementation
Guidance.
The basic policy of the ASBJ in developing accounting standards forrevenue recognition is thought to be setting accounting standards, with theincorporation of the basic principles of IFRS 15 as a starting point, from astandpoint of comparability between financial statements, which is one of
the benefits of ensuring consistency with IFRS 15, and to be adding
alternative accounting treatments without losing comparability if there is an
item that we should take into account in practices, etc. that have been
conducted in Japan.
(2) Planned date of application
To be applied from the beginning of the fiscal year ending March
31, 2022.
(3) Impact of the application of the accounting standards, etc.
The amount of the impact on consolidated financial statements is currently
under review.
(Accounting Standards for Fair Value Measurement, etc.)
・“Accounting Standard for Fair Value Measurement” (ASBJ
Statement No. 30, July 4, 2019)
・“Revised Accounting Standard for Measurement of Inventories”(ASBJ Statement No. 9, July 4, 2019)
・“Revised Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10, July 4, 2019)
・“Guidance on Accounting Standard for Fair Value Measurement”(ASBJ Guidance No. 31, July 4, 2019)
・“Guidance on Disclosures about Fair Value of Financial Instruments”(ASBJ Guidance No. 19, March 31, 2020)(1) Overview
IASB and FASB have established detailed guidance for fair value
measurement (IFRS 13 “Fair Value Measurement” by IFRS and Topic 820“Fair Value Measurement” by FASB).
In order to improve the comparability between the international
accounting standard and Japanese accounting standard, ASBJ has mainly
considered guidance and disclosure on fair value of financial instruments
and published the accounting standard and implementation guidance forfair value measurement accordingly.

44

CITIZEN REPORT 2020

As the basic policy of ASBJ for the development of accounting standard
for fair value measurement, ASBJ basically adopted all provisions of IFRS
13 by using a unified calculation method, from the point of view of
improving the comparability between the financial statements based on
IFRS or U.S. GAAP and Japanese GAAP. Moreover, in consideration of
the actual practice conducted in Japan, other treatments for individual
items are established within the scope not to fail the comparability.
(2) Planned date of application
To be applied from the beginning of the fiscal year ending March
31, 2022.
(3) Impact of the application of the accounting standards, etc.
The amount of the impact on consolidated financial statements is currently
under review.
(Accounting Standard for Disclosure of Accounting Estimates)・“Accounting Standard for Disclosure of Accounting Estimates”(ASBJ Statement No. 31, March 31, 2020)(1) Overview
With regard to “sources of estimation uncertainty” which are required to bedisclosed under Paragraph 125 of International Accounting Standard(“IAS”) 1 “Presentation of Financial Statements” (“IAS 1”) issued in 2003
by IASB, ASBJ was requested to examine disclosures of such information
under Japanese GAAP as useful information for users of financial
statements. Accordingly, ASBJ has developed and published theaccounting standard for disclosures of accounting estimates (the“Accounting Standard”).
The basic policy of ASBJ for the development of the AccountingStandard was to provide general principles (disclosure objectives) insteadof expanding required information in the notes, and an entity shalldetermine specific disclosures in accordance with its disclosure objectives.
The development of this standard is based on Paragraph 125 of IAS 1.
(2) Planned date of application
To be applied from the end of the fiscal year ending March 31, 2021.
(Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections)
・“Accounting Standard for Accounting Policy Disclosures,
Accounting Changes and Error Corrections” (ASBJ Statement No. 24,
March 31, 2020)(1) Overview
Following the recommendation to examine enhancements
to note information concerning “application of principles ofaccounting policies and procedures where provisions of related
accounting standards are not available,” necessary amendments
were made and the accounting standard for accounting policy
disclosures, accounting changes, and error corrections was published by
ASBJ. When enhancing note information concerning “application ofprinciples of accounting policies and procedures where provisions ofrelated accounting standards are not available,” in order to ensure
consistency with past actual practice in case the provisions of related
accounting standards are clear, the provisions in the Notes on Corporate
Accounting Principles (Note 1-2) have been followed.
(2) Planned date of application
To be applied from the end of the fiscal year ending March 31, 2021.
o. Additional information(Board Incentive Plan)
The Company has introduced a performance-based stock remuneration
plan (hereafter, “the plan”) for directors and titled corporate officers of theCompany (excluding outside directors and corporate officers who are
non-residents of Japan), with the aim of defining the relationship between
remuneration of Directors, etc. and the Company’s stock value, andproviding an incentive for increasing mid- and long-term businessperformance and corporate value.
The Plan adopted a scheme called the Board Incentive Plan (hereafter,
referred to as “BIP Trust”). The BIP Trust refers to an incentive plan for
officers with reference to the performance share planned restricted stockplan in the U.S., under which the BIP Trust purchases Company’s stocks
and then grants and provides such stocks, as well as cash corresponding
to realization value of Company’s stocks to Directors, etc. according to theperformance achieved upon their retirement.
The shares of the Company remaining in the trust are recorded astreasury stock under equity based on the book value (excluding incidental
costs) in the trust. The book value of the treasury stock and the number ofshares for the year ended March 31, 2020 and 2019 were ¥243 million($2,257 thousand) and 376,600 shares, ¥74 million ($671 thousand) and99,100 shares, respectively.

(Accounting estimates due to the impact of COVID-19)
The Companies have made accounting estimates based on theassumption that the impact of COVID-19 will continue until June 2020.
As this assumption is highly uncertain, operating results in the future may
be adversely affected if the impact of COVID-19 is prolonged orworsened.

Note 3. Investment securities

Investment securities consist of equity securities. Unrealized gain and fairvalue pertaining to available-for-sale securities as of March 31, 2020 and2019 are as follows:
Millions of yen

2019

Available-forsale equity
securities

2020

Cost

Fair
value

Unrealized
gain

Cost

Fair
value

Unrealized
gain¥ 12,588

22,727

10,139¥ 12,669

16,735

4,065

Thousands of U.S. dollars

2020
Available-for-sale
equity securities

Cost

Fair value$ 117,314$ 154,957

UnrealizedGain$ 37,643

Major securities with no market value and their amounts on the
consolidated balance sheets as of March 31, 2020 and 2019 are as
follows:
2019

Millions of yen

Thousands of
U.S. dollars

2020¥ 4,886¥ 5,939$ 54,998

Unlisted equity securities¥ 12,360¥ 10,774$ 99,759

Allowance for loss on investments of ¥46 million ($425 thousand) and¥23 million were recorded in the consolidated balance sheets as of March
31, 2020 and 2019, respectively.

Note 4. Inventories

Inventories as of March 31, 2020 and 2019 are as follows:
Millions of yen

2020

Thousands of
U.S. dollars

Millions of yen

2020

2019

Thousands of
U.S. dollars

2020

Deferred tax assets:
Depreciation in excess
Inter-company profits andwrite down on inventory
Liability for
retirement benefits
Net operating loss
carry-forward
Provision forreorganization costs
Others¥ 1,186¥ 6,502$ 60,207

4,311

5,587

51,737

6,707

6,703

62,071

2,779

2,791

25,844

290

973

9,018

9,323

9,627

89,146

Total deferred tax assets
Valuation allowance of tax
loss carried forward
Valuation allowance,othersLess: Total valuation
allowance
Total deferred tax assets¥ 24,599¥ 32,186$ 298,024(2,469)(2,680)(24,820)(5,702)(11,893)(110,122)

Deferred tax liabilities:
Unrealized gain on
subsidiaries
Undistributed earnings offoreign subsidiaries
OthersTotal deferred tax
liabilities
Net deferred tax assets(8,171)(14,573)(134,943)¥ 16,427¥ 17,612$ 163,081¥ (2,085)¥ (535)$ (4,961)(2,840)(2,668)(24,708)

(445)

(390)

(3,613)¥ (5,371)¥ (3,594)$ (33,284)¥ 11,056¥ 14,018$ 129,797

The net deferred tax assets as of March 31, 2020 and 2019 arepresented as follows:
Millions of yen

2020

Finished goods¥ 55,614¥ 58,708$ 543,596

Work-in-process

22,982

20,563

190,404

Row materials

19,60521,920202,969¥ 98,202¥101,192$ 936,970

Total

The Company and its domestic consolidated subsidiaries are subject toJapanese national and local taxes based on income. Overseas
subsidiaries are subject to income taxes of the countries in which they
operate.
Major components of deferred tax assets and liabilities as of March 31,
2020 and 2019 are as follows:

2020

Subsidiaries and affiliates

2019

Note 5. Income taxes

Investments and otherassetsDeferred tax assets

Thousands of
U.S. dollars

2019

2020

2020

¥ 11,847¥ 14,604$ 135,222

¥ 791

¥ 585

$ 5,425

Long-term liabilities
Deferred tax liabilities

Reconciliation between the statutory and the effective tax rate as ofMarch 31, 2020 and 2019 is as follows:
(%)
2019
2020
Statutory tax rate
30.6%－%
Expenses not deductible for tax
0.7%－%
purposes
Non-taxable dividend income-1.0%－%
Changes in valuation allowance
1.9%－%
Amortization of goodwill
7.0%－%
Difference of statutory tax rate in-4.7%－%
subsidiaries
Changes in tax effect of foreign-3.1%－%
subsidiaries
Change in tax law-0.0%－%
Others, net-3.0%－%
Effective tax rate
28.4%－%
As loss before income taxes was recorded, the reconciliation between
the statutory tax rate and the effective tax rate for the year ended March 31,
2020 was omitted.

CITIZEN REPORT 202045

Note 6. Loans payable, bonds and Lease obligations

Short-term loans payable represent loans from banks as of March 31,
2020 and 2019, respectively. The weighted average interest rate for eachbalance is 2.0% for 2020 and 1.8% for 2019.
Short-term bank loans as of March 31, 2020 and 2019 consist of thefollowing:
Millions of yen

Unsecured

2019

2020

¥ 3,987¥ 3,527

Thousands of
U.S. dollars

2020$ 32,661

Long-term loans payable represent loans principally from banks andinsurance companies due through 2039 with interest rate of 0.8% in2020 (0.9% in 2019).
Long-term loans payable as of March 31, 2020 and 2019 consist of thefollowing:
Millions of yen

UnsecuredLess amount due within
one year

2019

2020

¥ 37,077¥ 41,629

Thousands of
U.S. dollars

2020$ 385,459

10,00013,700126,851¥ 27,077¥ 27,929$ 258,607

The annual maturities of long-term loans payable as of March 31, 2020 are
as follows:
Thousands of
U.S. dollars

Millions of yen

Year ending March 31
2021¥ 13,700$ 126,851

2022

8,037

74,421

2023

4,619

42,770

2024

19

178

2025

10,01992,7702026 and thereafter

5,234

48,466¥ 41,629$ 385,459

Unsecured bonds as of March 31, 2020 and 2019 consist of the following:

UnsecuredLess amount due within
one year

UnsecuredThousands of
U.S. dollars

2,232

81

752

2024

96

894

2025

113

1,052

2026 and thereafter

486

4,504

¥ 1,459$ 13,516

Note 7. Liability for retirement benefits

1. Summary of retirement benefit plan
The Company and its domestic consolidated subsidiaries adopt
retirement lump-sum plan and defined contribution pension plan.
2. Defined benefit plan
(1) Reconciliation of retirement benefit obligations
Thousands of
U.S. dollars

Millions of yen

Balance at beginningof yearService costs

2019

2020

2020

¥ 24,206¥ 24,739$ 229,068

1,366

1,349

12,499Interest costs

122

121

1,128

Actuarial differences

(109)

720

6,667

Benefits paid

(929)

(1,006)(9,323)

47

(18)

(175)

Balance at end of year

36

85

787

¥ 24,739¥ 25,990$ 240,651(2) Reconciliation of plan assets
Balance at beginningof yearThousands of
U.S. dollars

Millions of yen

2020

2019

2020

¥ 1,485¥ 1,411$ 13,067

Expected return on plan
assets

45

34

316

Actuarial differences

(92)

546

5,058

Employer contributions

24

14

135

(168)

(125)

(1,165)

40

(4)

(43)

Millions of yen

2021

－

－

2022

－

－

Benefits paid

2023

－

－

Translation adjustments

2024¥ 10,000$ 92,592

CITIZEN REPORT 2020

$ 9,436

241

Others－¥ 1,0192022$ 92,592

－

¥ 992

2023

Thousands of
U.S. dollars

2025

4,080

$ 4,080¥ 10,000

Year ending March 31

440

¥ 440

¥ 10,000

－

428

2021

Translation adjustments$ 92,592$ 13,516

Year ending March 31

2020

－

2020

¥ 1,459

Millions of yen

2020¥ 10,0002020¥ 1,421

The annual maturities of unsecured lease obligations as of March 31,
2020 are as follows:

2019

－

2019

Less amount due
within one year

Millions of yen¥ 10,000Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

The annual maturities of unsecured bonds as of March 31, 2020 are as
follows:

46

Unsecured lease obligations as of March 31, 2020 and 2019 consist of
the following:

OthersBalance at end of year

76

76

709

¥ 1,411¥ 1,952$ 18,076

(3) Reconciliation from retirement benefit obligations and plan assets toliability for retirement benefits on the consolidated balance sheets
Millions of yen

Thousands of
U.S. dollars

2019

2020

¥ 2,763¥ 2,964$ 27,453(1,411)(1,952)(18,076)

1,352

1,012

9,376

Unfunded retirement
benefit obligations

21,97523,025

213,198

Net liability for retirement
benefits

23,32824,038

222,575

Liability for retirement
benefits

23,32824,038

222,575¥ 23,328¥ 24,038$ 222,575

Funded retirement benefit
obligations
Plan assets

Net liability for retirement
benefits

2020(4) Retirement benefit costs
Millions of yen

Thousands of
U.S. dollars

Service costs

2019¥ 1,3662020¥ 1,3492020$ 12,499

Interest costs

122

121

1,128

(45)

(34)

(316)

324

247

2,291

(35)

(32)

(304)

¥ 1,731¥ 1,652$ 15,299

Expected returnon plan assets
Amortization of
actuarial differences
Amortization ofprior service costs
Retirement benefit costs(5) Adjustments for retirement benefits

Service costs
Actuarial differences
Total

2019
¥ 35

Millions of yen

Thousands of
U.S. dollars

2020
¥ 32

2020
$ 304

(323)

182

1,690

¥ (287)¥ 215$ 1,995(6) Accumulated adjustments for retirement benefits
Millions of yen

2020

2019

Thousands of
U.S. dollars

2020

Unrecognizedprior service costs

¥ 172

¥ 205

$ 1,898

Unrecognizedactuarial differences

740

922

8,545

¥ 912

¥ 1,127$ 10,444

Total② Long-term expected rate of return
In order to determine the long-term expected rate of return, present andexpected portfolio of plan assets and estimated long-term rate of various
assets have been considered.
(8) Assumptions of actuarial differences

2020

Discount rate

0.32~4.00

0.32~3.10

Expected rates of long-term
return on plan assets

1.00~5.00

1.00~4.00

3. Defined contribution plan
Contributions to defined contribution plan for the years ended March 31,
2020 and 2019 are ¥1,234 million ($11,428 thousand) and ¥1,149 million,
respectively.

Note 8. Research and development costs

Research and development costs incurred and charged to income for theyear ended March 31, 2020 and 2019 were ¥6,164 million ($57,075
thousand) and ¥6,339 million, respectively.

Note 9. Leases

The amounts of outstanding future lease payments due in respect ofoperating lease contracts as of March 31, 2020 and 2019 are summarized
as follows:

Within one year
Total

2020
¥ 9

2020
$ 87

11

24

226

¥ 15

¥ 33

$ 314

The Company and its subsidiaries classify their fixed assets into groups by
the type of respective operations based on the business segment divided
by managerial accounting categories, which are regarded as the smallest
units independently generating cash flows.
The Group recognized impairment loss of ¥19,272 million ($178,447
thousand) and ¥5,688 million for the years ended March 31, 2020 and
2019, respectively. The Group mainly recognized impairment loss of¥9,081 million ($84,091 thousand) for machinery and equipment, ¥4,402
million ($40,760 thousand) for other intangible assets, ¥2,750 million($25,468 thousand) for buildings and structures and ¥1,894 million($17,543 thousand) for tools, furniture and fixtures for the year ended
March 31, 2020. The main components of impairment losses for the year
ended March 31, 2019 are ¥4,004 million for goodwill, ¥979 million forother intangible assets, ¥349 million for tools, furniture and fixtures and¥ 316 million for buildings and structures.
The main breakdown of impaired assets for the years ended March 31,
2020 and 2019 is as follows:
For the year 2020
Location
Japan(%)
Japan and others

2020

Thousands of
U.S. dollars

Note 10. Impairment loss

Japan

2019

Millions of yen

2019
¥3

Over one year

(7) Plan assets① Breakdown for plan assets

(%)
2019

Equity securities

80.2%

88.1%

Others

Bonds

5.2

1.4

Cash and deposits

2.0

6.2

For the year 2019
Location

Others

12.6

4.3

Total

100.0%

100.0%

Use
Movement
manufacturing
facilities
Assets forhybridsmartwatch
business
Electronic
devicemanufacturing
facilities
OthersUse

Type
Machinery,equipment andvehicles, buildings
and structures, tools,
furniture and fixtures
Other intangible
assetsBuildings andstructures
Other intangible
assets

Switzerland

OthersChina

Assets forbusiness

Type
Goodwill and otherintangible assets
Buildings andstructures

OthersAssets forbusiness

Tools, furniture andfixtures

CITIZEN REPORT 202047

Note 11. Derivative transactions

Fair values of derivative transactions as of March 31, 2020 and 2019 are
as follows:(a) Derivative transactions not designated for hedge accounting
Millions of yen

2019

Amounton contract

Fair
value

2020

Amounton contract

Fair
value

Foreign currency forward contract:

Cash and time deposits

Fair value

Unrealized¥ 86,875¥ 86,875¥－

Notes and accounts
receivable – trade64,13964,139(0)Electronically recordedmonetary claims

1,225

1,225

－

22,72722,727－943

0¥ 5,347¥ (17)¥ 3,275¥ (2)Investment securities
Available-for-sale securities

To Buy¥ 1,845

¥ (2)

¥ 992

¥ 14

Long-term loans942Long-term receivables

76

Allowance for long-term
receivables

(76)

2020

Amounton contract

Fair
Value

Foreign currency forward contract:
To Sell$ 30,325$ (19)To Buy$9,187

$ 130

Note:
The fair values of foreign currency forward contracts are based on market quotations.

(b) Derivative transactions designated for hedge accounting
Millions of yen

2020

2019

Interest
rate
swap

Amountoncontract

Amountoncontract
over 1year¥ 21,100¥ 11,100

Fair
value

Amountoncontract

Amountoncontract
over 1
year

Fair
value

Note

¥ 11,100

－

Note

Total

¥ 175,911¥ 175,911¥ (0)Notes and accounts payable– tradeElectronically recorded
obligations-operating¥ 20,496¥ 20,496¥－

14,896

14,896－

Short-term loans payable

3,987

3,987

－

Unsecured bonds

10,00010,04545

Long-term loans payable

37,07737,309231¥ 86,457¥ 86,734¥ 276¥ (19)¥ (19)¥－

Total
Derivatives

Note:Long-term receivables are included in “Others” in the consolidated balance sheets.
Current portion of long-term loans is included in “Long-term loans” in the table above.

Thousands of U.S. dollars

2020

Amounton contract

Interest
rate
swap$ 102,777

Amountoncontractover
1 year

Fair
value

－

Note

Note:
Interest rate swap is qualified for hedge accounting and meets specific criteria.
The fair value of the interest rate swap is included in fair value of long-term debt.

Note 12. Financial instruments(a) Status of financial instruments(1) Policies
Under the Company’s policy, the Group is limited to utilize short-term
deposits for fund management and obtains fund through financial
institutions. Derivatives are made only for hedging purposes, and theGroup does not use derivative transactions for trading purposes.
(2) Risk management
The Group performs ongoing credit evaluations of significant customers to
avoid credit risks of notes and accounts receivables.
The Group monitors the market price or fair value of the investment
securities and continuously reconsiders investment in each company.
Debt and bonds are mainly for refunding of long-term debt and capital
expenditure in accordance with investment strategy.
The Group has derivative financial instruments, such as foreign
currency exchange forward, foreign currency option and interest rate swap,
and all derivative financial instruments are designated for hedging
purposes.
(3) Fair value estimation
The fair value of financial instruments is based on market price, if available.
The fair value of financial instruments might be reasonably estimated withadequate assumption and factors when market price is not available.
Estimated fair value depends on applied assumptions and factors.
(b) Fair value of financial instruments
The table below shows the amounts of financial instruments recorded in
the consolidated balance sheets, their fair values and unrealized gains orlosses as of March 31, 2020 and 2019.

48

CITIZEN REPORT 2020

Millions of yen

Carrying
amountTo SellThousands of U.S. dollars

2019

Millions of yen

2020

Carrying
amountFair value

Unrealized

Cash and time deposits¥ 80,168¥ 80,168¥－

Notes and accounts
receivable – trade
Electronically recordedmonetary claims

43,254

43,254

(0)

1,395

1,395

－

16,735

16,735

－

407

(0)

Investment securities
Available-for-salesecurities
Long-term loans

408

Long-term receivables

69

Allowance for long-term
receivables

(69)

Total

¥ 141,963¥ 141,962¥ (0)Notes and accounts
payable – trade¥ 16,485¥ 16,485

¥－

9,223

9,223

－

Electronically recorded
obligations-operating
Short-term loans payable

3,527

3,527

－

Unsecured bonds

10,000

9,968

(32)

Long-term loans payable

41,62941,69969¥ 80,866¥ 80,904

¥ 37

¥ 11

¥ 11

¥ －

Total
Derivatives

Note:Long-term receivables are included in “Others” in the consolidated balance sheets.
Current portion of long-term loans is included in “Long-term loans” in the table above.

Thousands of U.S. dollars

2020

Carrying
amountFair value$ 742,302$ 742,302$ －400,508

400,505(2)

12,923

12,923－

154,957

154,957

－

3,780

3,776

(3)

$ 1,314,472$ 1,314,466$ (6)$ 152,647$ 152,647$ －Electronicallyrecorded obligations

85,40685,406－

Short-term loans
payable32,661

32,661－

Unsecured bonds

92,592

92,296(296)

Long-term loans
payable385,459

386,103643$ 748,767$ 749,114

$ 347

$ 110

$ 110

$ －

Cash and time
deposits
Notes and accounts
receivable – trade
Electronicallyrecorded monetaryclaimsInvestment
securities
Available-for-salesecurities
Long-term loans
Long-term
receivables

646

Allowance forlong-term
receivables

(646)

Total
Notes and accounts
payable – trade– operating

Total
Derivatives

Unrealized

Note:Long-term receivables are included in “Others” in the consolidated balance sheets.
Current portion of long-term loans is included in “Long-term loans” in the table above.

(i) Method of fair value measurement of financial instruments:
Assets:Cash and time deposits
The carrying amount of these accounts approximates their fair value
because these accounts are settled in a short period of time.
Notes and accounts receivable
Certain notes and accounts receivable that take time to collect ismeasured at present value; it shows amounts discounted at reasonable
rate under corresponding terms to maturity.
The carrying amounts of other notes and accounts receivables thatare settled in a short period of time, approximate their fair value.
Electronically recorded monetary claims
The carrying amounts of the accounts approximate its fair value
because the account is settled in a short period of time.
Investment securities
The fair values of equity securities are based on the prices at exchange
market.
Long-term loans
The fair value of long-term loans receivable is measured at present
value obtained by discounting the future cash flows classified by certain
period at an adequate rate such as market rate with credit-spread taken
into account.
However, as the interest rates of long-term loans receivable withfloating rate are to be revised by certain prescribed period, theircarrying amounts approximate their fair value.
Liabilities:
Notes and accounts payable, short-term loans payable and electronicallyrecorded obligations-operating
The carrying amount of these accounts approximates their fair value
because these accounts are settled or repaid in a short period of time.
Unsecured bonds
Since the market price is not available, the fair value of bonds ismeasured at present value by discounting principles, interests andguarantee fees at a rate with term to maturity and credit risk taken into
account.
Long-term loans payable
The fair value of long-term debt is measured at present value by
discounting total amount of principles and interests at an assumed rate
for new borrowings under similar conditions.
However, as the interest rates of long-term loans payable withfloating rate are to be revised by certain prescribed period, theircarrying amount approximate their fair value.
(ii) Unmarketable securities of ¥10,774 million ($99,759 thousand) and¥12,360 million as of March 31, 2020 and 2019 are not included in“Investment securities, Available-for-sale securities”, since their market
prices are not available and it is not possible to estimate their future cash
flows, and therefore it is deemed extremely difficult to assume their fairvalue.
(iii) Expected maturities of cash and time deposits, notes and accounts
receivable, electronically recorded monetary claims and long-term loans
as of March 31, 2020

Cash and time
deposits
Notes andaccounts
receivable – trade
Electronicallyrecorded monetaryclaimsLong-term loans

Millions of yen

Within one
year

Over
one yearwithinfive
years

Over fiveyears
within ten
years

Over tenyears¥ 80,168

¥ －

¥ －

¥ －

43,110

144

－

－

1,395

－

－

－

－

408

－

－

CITIZEN REPORT 202049

Thousands of U.S. dollars
Over five
years
Over ten
within ten
years
years

Within one
year

Over oneyear within
five years

Cash and time
deposits
Notes andaccounts
receivable-trade
Electronicallyrecordedmonetary claims$742,302

$ －

$ －

$ －

399,173

1,334

－

－

12,923－－－Long-term loans

－

3,780

－

－

Note 13. Reorganization costs

The total amount of reorganization costs is as follows:

2019
Reorganizationcosts¥ 2,507

Millions of yen

Thousands of
U.S. dollars

2020

2020

¥ 1,404$ 13,005

Reorganization costs in the consolidated statements of income for theyears ended March 31, 2020 and 2019 are related to expenses for
restructuring of the Company and its consolidated subsidiaries. The major
item in the costs for the year ended March 31, 2020 is reorganization costs
for the withdrawal from jewelry business. Provision for reorganization
costs of ¥2,669 million ($24,720 thousand) and ¥1,301 million wererecorded in the consolidated balance sheets as of March 31, 2020 and
2019, respectively.

Note 14. Extra retirement payments

The total amount of extra retirement payments is as follows:

Extra retirement
payments

2019¥ －Millions of yen

Thousands of
U.S. dollars

2020

2020

¥ 2,835$ 26,256

Extra retirement payments in the consolidated statements of income forthe year ended March 31, 2020 is related to expenses for restructurings ofdevices and components business.
Provision for reorganization costs of ¥1,337 million ($12,387 thousand)was recorded in the consolidated balance sheets as of March 31, 2020.

50

CITIZEN REPORT 2020

Note 15. Segment information(a) General information about reportable segments:
The CITIZEN Group’s reportable segments are group components forwhich separate financial information can be obtained. Each segment issubject to periodic examinations to allow the Board of Directors to decide
how to allocate management resources and assess performance.
The CITIZEN Group has adopted an operating holding company
structure and comprehensive strategies are proposed and businesses are
pursued by individual operating companies.
Consequently, the CITIZEN Group, starting from a foundation ofoperating companies manages its businesses through five reportablesegments – Watches, Machine tools, Devices and components, Electronic
products, and Other products – based on factors like similarity of types
and characteristics of products.
(b) Basis of measurement of reportable segment net sales, profit (loss),and other items:
The accounting methods applied to the business segments reported are
generally the same as those described under “Basis of presenting theconsolidated financial statements.”
Inter-segment earnings and transfers are based on market prices.

March 31, 2019
Watches

Machine tools

Devices andcomponents¥ 72,164¥ 60,807

Millions of yen
Electronic
Other
products
products

Segment total

Adjustments

Consolidated¥ 321,652¥ －¥ 321,652

I. Net sales, segment
profit and segment
assets
Net sales(1) Sales to outside
customers¥ 163,525(2) Inter-segment
sales and transfers
Total
Segment profit

108

1,201

1,930

115

829

4,185

(4,185)－

163,633
12,44073,365
13,08262,737
2,543

19,446
438

6,654
146

325,837
28,651(4,185)(6,240)321,652
22,411

189,683

66,55882,501

15,761

6,770

361,276

52,635413,911

7,379
400
－
12,095

1,574
－
3,533
3,260

3,876
－
－
7,113

295
－
－
425

23
－
－
27

13,149400
3,533
22,921

798
－
－
834

13,947400
3,533
23,756

Segment total

Adjustments

Consolidated¥ 278,531¥ －¥ 278,531

Segment assets
II. Other
Depreciation
Amortization of
goodwill
Investment in affiliates
Capital expenditures
March 31, 2020

WatchesI. Net sales, segment
profit (loss) and segment
assets
Net sales(1) Sales to outside
customers(2) Inter-segment
sales and transfers
Total
Segment profit (loss)
Segment assets
II. Other
Depreciation
Amortization of
goodwill
Investment in affiliates
Capital expenditures¥ 141,620

II. Other
Depreciation
Amortization of
goodwill
Investment in affiliates
Capital expenditures¥ 58,545

Devices andcomponents¥ 55,946¥ 5,824

Millions of yen
Electronic
Other
products
products¥ 16,875¥ 5,543

99

549

1,867

96

778

3,391

(3,391)－

141,719
3,938
173,62159,094
7,261
61,20857,814926
77,152

16,972(257)
13,931

6,321
41
6,338

281,923
11,911
332,252(3,391)(5,775)37,323

278,5316,136
369,575

8,470－－
10,319

1,694
－
3,817
4,185

4,014
－
－
4,226

299
－
－
361

24
－
－
11

14,503－
3,817
19,104

935
－
－
2,035

15,438－
3,817
21,140

Segment total

Adjustments

Consolidated

March 31, 2020
I. Net sales, segment
profit (loss) and segment
assets
Net sales(1) Sales to outside
customers(2) Inter-segment
sales andtransfers
Total
Segment profit (loss)
Segment assets

Machine tools¥ 19,330

Watches

Machinetools

Devices andcomponents

Thousands of U.S. dollars
Electronic
Other
products
products$ 1,311,301$ 542,088$ 518,025$ 156,256$ 51,325$ 2,578,999$ －$ 2,578,999

916

5,086

17,292896

7,210

31,404(31,404)－

1,312,218
36,465
1,607,604

547,175
67,240566,743535,318
8,582
714,377

157,153(2,381)
128,997

58,536388
58,6862,610,403
110,295
3,076,408(31,404)(53,480)
345,585

2,578,999
56,815
3,421,994

78,433－－
95,54937,172－35,34938,7532,770－－
39,13815,687
－
－
3,345

224
－
－
108

134,286－
35,349176,896

8,661－－
18,848142,950－
35,349195,745

Notes:For the year ended March 31, 2019
1. “Adjustments” segment profit (loss) totaling ¥ (6,240) million ($(56,217) thousand) includes inter-segment elimination of ¥ (191) million ($(1,729) thousand) and general
corporate expenses of ¥ (6,048) million ($(54,488) thousand) not allocated to any reportable segments.
2. “Adjustments” segment assets totaling ¥52,635 million ($474,191 thousand) includes inter-segment elimination of ¥ (38,082) million ($(343,084) thousand) and general
corporate assets of ¥90,717 million ($817,275 thousand) not allocated to any reportable segments.
3. Reported segment profit (loss) is reconciled to operating profit in the consolidated statements of income.

For the year ended March 31, 2020
1. “Adjustments” segment profit (loss) totaling ¥ (5,775) million ($(53,480) thousand) includes inter-segment elimination of ¥ 23 million ($218 thousand) and general
corporate expenses of ¥ (5,799) million ($(53,699) thousand) not allocated to any reportable segments.
2. “Adjustments” segment assets totaling ¥37,323 million ($345,585 thousand) includes inter-segment elimination of ¥ (34,923) million ($(323,368) thousand) and general
corporate assets of ¥72,247 million ($668,954 thousand) not allocated to any reportable segments.
3. Reported segment profit (loss) is reconciled to operating profit in the consolidated statements of income.

CITIZEN REPORT 202051

(c) Other information
1) Overseas sales for the years ended March 31, 2020 and 2019
Millions of yen

Japan
Asia
America
EuropeOthersTotal

Note: Overseas sales are reported based on locations of customers.

2019¥ 108,463
92,81562,98354,8622,528¥ 321,652

2020¥ 98,839
77,88455,312
44,952
1,543¥ 278,531

2) Property, plant and equipment as of March 31, 2020 and 2019
Millions of yen

Japan
Asia
OthersTotal

2019¥ 63,056
19,174
7,438¥ 89,669

2020¥ 51,851
18,965
7,716¥ 78,532

3) Impairment loss for the years ended March 31, 2020 and 2019
Impairment loss
Watches
Machine tools
Devices and components
Electronic products
Other products
Eliminations or general corporate
Consolidated

Millions of yen

2019¥5,652331
0
0－¥5,6882020¥ 15,436
－
3,153
566
12
103
¥ 19,272

4) Goodwill information as of and for the years ended March 31, 2020 and 2019
Amortization
Watches
Machine tools
Devices and components
Electronic products
Other products
Eliminations or general corporate
Consolidated
Goodwill
Watches
Machine tools
Devices and components
Electronic products
Other products
Eliminations or general corporate
Consolidated

52

CITIZEN REPORT 2020

Millions of yen

2019
¥400
－
－
－
－
－
¥400

2020
¥ －
－
－
－
－
－
¥ －

Millions of yen

2019
¥ －
－
－
－
－
－
¥ －

2020
¥ －
－
－
－
－
－
¥ －

Thousands of
U.S. dollars

2020$ 915,183
721,148
512,152
416,225
14,289$ 2,578,999

Thousands of
U.S. dollars

2020$ 480,108
175,601
71,445$ 727,156
Thousands of
U.S. dollars

2020$ 142,926－
29,201
5,242
116
959
$ 178,447
Thousands of
U.S. dollars

2020
$ －
－
－
－
－
－
$ －
Thousands of
U.S. dollars

2020
$ －
－
－
－
－
－
$ －

Report of Independent Auditors (Translation)

English Translation
INDEPENDENT AUDITOR’S REPORTTo the Board of Directors of
Citizen Watch Co., Ltd.

June 26, 2020
Nihombashi Corporation
Chuo-Ku, Tokyo

Shigehiro Chiba
Designated and Engagement Partner
Certified Public Accountant
Hidekazu Takahashi
Designated and Engagement Partner
Certified Public Accountant
Yoichi Endo
Designated and Engagement Partner
Certified Public Accountant
OpinionPursuant to Article 193-2, paragraph 1 of the Financial Instruments and Exchange Law of Japan,
we have audited the consolidated financial statements of Citizen Watch Co., Ltd. and its
subsidiaries (the Group), which comprise the consolidated balance sheet as at March 31, 2020,
and the consolidated statements of income, comprehensive income, changes in net assets andcash flows for the year then ended, and notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2020, and its
consolidated financial performance and its consolidated cash flows for the year then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the professional ethical standards in Japan, and we have fulfilled
our other ethical responsibilities in accordance with those standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .
Responsibilities of Management and Audit & Supervisory Board and its member for theConsolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for suchinternal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing theGroup’s ability to continue as a going concern and disclosing, as required by accounting
principles generally accepted in Japan, matters related to going concern.
Audit & Supervisory Board and its member are responsible for overseeing the Group’s financial
reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial

CITIZEN REPORT 202053

statements as a whole are free from material misstatement, whether due to fraud or error, and toissue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error and areconsidered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we
exercise professional judgment and maintain professional skepticism throughout the audit.
We also:• Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
• Consider internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances for our risk assessments, while the purpose of the audit of theconsolidated financial statements is not expressing an opinion on the effectiveness of theGroup’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness ofaccounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant doubt on the Group’s ability to continue
as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on theaudit evidence obtained up to the date of our auditor’s report. However, future events orconditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation inaccordance with accounting principles generally accepted in Japan.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit.
We remain solely responsible for our audit opinion.
We communicate with Audit & Supervisory Board and its member regarding, among othermatters, the planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
We also provide Audit & Supervisory Board and its member with a statement that we havecomplied with relevant ethical requirements regarding independence, and to communicate withthem all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
Conflicts of Interest
We have no interest in the Group which should be disclosed in accordance with the Certified
Public Accountants Act.

Notes to the Readers of Independent Auditor’s Report
This is an English translation of the Independent Auditor’s Report as required by the Financial
Instruments and Exchange Act of Japan for the conveniences of the reader.

54

CITIZEN REPORT 2020

Company Information
Company Overview (As of March 31, 2020)
Corporate name Citizen Watch Co., Ltd.
EstablishedMay 28, 1930

Headquarters

6-1-12, Tanashi-cho,Nishi-Tokyo-shi, Tokyo
188-8511, Japan

Representative

Toshihiko Sato,
President and CEO

Capital¥32,648 million

Stock Information (As of March 31, 2020)

Employees

19,593 (consolidated)

Business
Manufacturing and sale of watches anddescription their components, and as a holding
company, planning and implementationof Group management strategies,
Group business auditing, developmentof Group technologies, intellectual
property management, and otheradministrative operations.

Securities
identification code

7762

Stock exchange
listing

Tokyo Stock Exchange(First Section)

Total number ofauthorized shares

959,752,000

Total number ofshares issued

314,353,809

Number ofshareholders

34,986

Principal Places of Business and Group Companies
1 Headquarters, Tokyo Works[OVERSEAS GROUP]

2 Tokorozawa WorksEUROPE[DOMESTIC GROUP]
3 CITIZEN MACHINERY CO., LTD.
4 CITIZEN ELECTRONICS CO., LTD.
5 CITIZEN FINEDEVICE CO., LTD.
6 CITIZEN SYSTEMS JAPAN CO., LTD.
7 CITIZEN WATCH MANUFACTURING CO., LTD.
8 CITIZEN RETAIL PLANNING., LTD.
9 CITIZEN T.I.C. CO., LTD.
10 TOKYO BIJUTSU CO., LTD.
11 CITIZEN PLAZA CO., LTD.
12 CITIZEN CUSTOMER SERVICE CO., LTD.
13 CITIZEN LOGISTICS SERVICE CO., LTD.
14 CITIZEN MACHINERY SERVICE CO., LTD.
15 CITIZEN ELECTRONICS FUNEHIKI CO., LTD.
16 CITIZEN ELECTRONICS TIMEL CO., LTD.
17 CITIZEN MICRO CO., LTD.
18 CITIZEN CHIBA PRECISION CO., LTD.
19 FUJIMI CORPORATION

1 CITIZEN WATCH EUROPE G.M.B.H.
2 CITIZEN WATCH IBÉRICA S.A.U.
3 CITIZEN WATCH ITALY S.P.A.
4 CITIZEN WATCH UNITED KINGDOM, LTD.
5 FREDERIQUE CONSTANT HOLDING S.A.
6 MANUFACTURE LA JOUX-PERRET S.A.
7 CITIZEN MACCHINE ITALIA S.R.L.
8 CITIZEN MACHINERY EUROPE G.M.B.H.
9 CITIZEN MACHINERY UK LTD.
10 HESTIKA FRANCE S.A.S.
11 C-E (DEUTSCHLAND) G.M.B.H.
12 CITIZEN SYSTEMS EUROPE G.M.B.H.

ASIA, OCEANIA
1 CITIZEN (SHANGHAI) TRADING CO., LTD.
2 CITIZEN WATCH (CHINA) CO., LTD.
3 CITIZEN WATCH MANUFACTURING(THAILAND) CO., LTD.

4 CITIZEN WATCHES (H.K.) LTD.
5 CITIZEN WATCHES (INDIA) PVT. LTD.
6 CITIZEN WATCHES (MALAYSIA) SDN. BHD.
7 CIVIS MANUFACTURING LTD.
8 GUANGZHOU MOST CROWN ELECTRONICS LTD.
9 ROYAL TIME CITI CO., LTD.
10 SUNCITI MANUFACTURERS LTD.
11 SUNCITI PVD (JIANGMEN) LTD.

12 CITIZEN WATCHES AUSTRALIA PTY LTD.
13 CINCOM MIYANO TAIWAN CO., LTD.
14 CITIZEN (CHINA) PRECISION MACHINERY CO., LTD.
15 CITIZEN MACHINERY ASIA CO., LTD.
16 CITIZEN MACHINERY PHILIPPINES INC.
17 CITIZEN MACHINERY VIETNAM CO., LTD.
18 C-E (HONG KONG) LTD.
19 CITIZEN ELECTRONICS (CHINA) CO., LTD.
20 FIRSTCOME ELECTRONICS LTD.
21 JIANG XING ELECTRONICS LTD.
22 CITIZEN FINEDEVICE PHILIPPINES CORP.
23 CITIZEN SEIMITSU (THAILAND) CO., LTD.
24 MASTER CROWN ELECTRONICS (WUZHOU) LTD.
25 MOST CROWN INDUSTRIES LTD.
26 CITIZEN SYSTEMS (DONGGUAN) CO., LTD.
27 CITIZEN SYSTEMS (H.K.) LTD.
28 CITIZEN SYSTEMS (JIANGMEN) CO., LTD.

NORTH AMERICA, SOUTH AMERICA
1
2
3
4
5
6
7

CITIZEN DE MEXICO, S. DE R. L. DE C. V.
CITIZEN LATINAMERICA CORPORATIONCITIZEN WATCH CANADA, LTD.
CITIZEN WATCH COMPANY OF AMERICA, INC.
CECOL, INC.
MIYOTA DEVELOPMENT CENTER OF AMERICA INC.
CITIZEN SYSTEMS AMERICA CORP.

CITIZEN REPORT 2020

55

Citizen Watch Co., Ltd.
6-1-12, Tanashi-cho, Nishi-Tokyo-shi, Tokyo 188-8511, Japan
TEL. 81-42-466-1231 FAX. 81-42-466-1280
https://www.citizen.co.jp/global
CITIZEN is a registered trademark and a trade name of Citizen Watch Co., Ltd.
Eco-Drive is a registered trademark and a trade name of Citizen Watch Co., Ltd.