Financial Review

Consolidated Operating Results, Consolidated Financial Position, and Consolidated Cash Flow for Fiscal
2016 (from June 1, 2016 to May 31, 2017) are as follows:

Results of Operation
Orders received
YoY +8.7%
Net sales
YoY +2.3%
Profit/Loss
Net Income
attributable toowners of the parent
YoY +32.0%

Orders received increased 8.7% compared with the previous fiscal year to 43,355 million yen due to an increasein orders received in the Transportation Systems segment, the Industrial Systems segment and the Information
Equipment Systems segment.
Net sales increased 2.3% compared with the previous fiscal year to 40,668 million yen due to an increase in theTransportation Systems segment and the Information Equipment Systems segment, despite a decrease in the Industrial Systems segment.
From a profit perspective, operating income decreased 4.1% compared with the previous fiscal year to 1,571 million yen due to decreased
revenue in the Industrial Systems segment, despite increased revenue in the Transportation Systems segment and the Information Equipment Systems segment. However, ordinary income increased 11.5% compared with the previous fiscal year to 1,663 million yen due to a
sharp decrease in foreign exchange losses, and net income attributable to owners of the parent increased 32.0% to 1,174 million yen.

Financial Position
AssetsTotal Assets
54,927 million yen

Total assets as of May 31, 2017 stood at 54,927 million yen, an increase of 4,693 million yen compared with the end of

Liabilities
Total liabilities
30,324 million yen

Total liabilities as of May 31, 2017 stood at 30,324 million yen, an increase of 3,767 million yen compared withNet Assets
Total net assets
24,603 million yen

Net assets as of May 31, 2017 stood at 24,603 million yen, an increase of 926 million yen compared with thethe previous fiscal year. The increase in total assets was largely attributable to increases of 2,040 million yen in trade notes
and accounts receivable, 3,261 million yen in property, plant and equipment and 758 million yen in investment securities.
the end of the previous fiscal year. This increase was largely attributable to an increase in debts of 3,450 millionyen.
end of the previous fiscal year. This increase was largely attributable to an increase of 871 million yen from retained earnings and a 410 million yen increase in unrealized holding gain on available-for-sale securities.

Cash Flows

Financial Report

Financial Report

32

Financial Review

33

Consolidated Balance Sheets

35

Consolidated Statements of Income
and Comprehensive Income

3136

Consolidated Statements of Changes in Net Assets

37

Consolidated Statements of Cash Flows

Cash flow fromoperating activities
Net cash provided byoperating activities
1,505 million yen
Cash flow frominvesting activities
Net cash used ininvesting activities
4,691 million yen

Net cash provided by operating activities amounted to 1,505 million yen. A principal cash inflow was income before income taxes at 1,707 million yen, while a major cash outflow was depreciation and amortization at 801
million yen.
Net cash used in investing activities totaled 4,691 million yen, and mainly comprised funds used in for the purchases of property, plant and equipment at 3,901 million yen as well as funds used in for the purchases of intangible assets at 619 million yen.

Cash flow fromfinancing activities Net cash provided by financing activities was 2,868 million yen. A major cash inflow was an increase in longNet cash provided byfinancing activities term debt at 3,500 million yen, while a major cash outflow was purchases of treasury stock at 302 million yen.
2,868 million yen
Toyo Denki Seizo Report 201732

TOYO DENKI SEIZO K.K.
Consolidated Balance Sheets

As of

May 31,
2017

May 31,
2016(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)(Note 3)

AssetsCurrent assets:
Cash on hand and in banks (Notes 18 and 20)¥2,091¥2,401$18,846

Trade notes and accounts receivable (Note 18)

15,831

13,790142,673

Electronically recorded receivables (Note 18)

532

966

4,792

6,479

7,320

58,391

Deferred tax assets (Note 13)

577

518

5,198

Other current assets

291

529

2,626

Allowance for doubtful accounts

(2)

(3)

(15)

25,79925,521

232,511Inventories (Note 5)

Total current assets

Property, plant and equipment (Note 6):
Buildings and structures

2,705

2,635

24,377

Machinery and vehicles

791

715

7,130

Land

1,346

289

12,130Construction in progress

2,337

269

21,061

444

453

3,998

7,623

4,361

68,696

Other
Total property, plant and equipment

Investments and other assets (Note 7):18,154

17,396

163,611

66

55

596

Intangible assets

1,082

544

9,748

Other

2,216

2,369

19,971

Allowance for doubtful accounts

(12)

(12)

(110)

Total investments and other assets

21,506

20,352

193,816

Total assets (Note 22)¥54,928¥50,234$495,023

Investment securities (Notes 7, 18 and 19)
Deferred tax assets (Note 13)

33

As of

May 31,
2017

May 31,
2016(Millions of yen)

LIABILITIES AND NET ASSETS
Current liabilities:
Trade notes and accounts payable (Note 18)
Electronically recorded payables (Note 18)
Short-term borrowings and current portion of long-term debt
(Notes 8 and 18)
Income taxes payable (Note 13)
Accrued expenses
Accrued directors’ bonuses
Accrued employees’ bonuses
Reserve for losses on order acknowledgements (Note 5)
Other
Total current liabilities

May 31,
2017(Thousands of
U.S. dollars)(Note 3)

¥3,3475,489¥3,743
5,278$30,161
49,468

4,970

1,018

44,788

437
1,069
33
953
366
879
17,543

254
1,250
37
928
295
781
13,584

3,941
9,640
300
8,587
3,296
7,925
158,106

6,786
1,793
3,913
158
131
12,781

7,288
1,637
3,853
158
37
12,97361,157
16,15435,2671,423
1,182
115,183

Net assets (Notes 10 and 17):
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity¥4,998
3,178
10,170(478)
17,868¥4,998
3,178
9,299
(176)
17,299$45,047
28,63691,655(4,305)
161,033

Accumulated other comprehensive income:Unrealized holding gain on securities
Translation adjustments
Retirement benefits liability adjustments (Note 9)
Total accumulated other comprehensive income
Total net assets

6,880
157
(301)
6,736
24,604

6,469
261
(352)
6,378
23,677

61,9991,413(2,711)60,701
221,734

Total liabilities and net assets¥54,928¥50,234$495,023

Long-term liabilities:
Long-term debt (Notes 8, 18 and 21)
Deferred tax liabilities (Note 13)
Liability for retirement benefits (Note 9)Long-term payables
Other
Total long-term liabilities
Commitments and contingencies (Note 16)

See notes to consolidated financial statements.

Toyo Denki Seizo Report 201734

TOYO DENKI SEIZO K.K.
Consolidated Statements of Income

For the Years Ended

Net sales (Note 22)
Cost of sales (Note 5)
Gross profit
Selling, general and administrative expenses (Note 11)
Operating income (Note 22)
Non-operating income (expenses):
Interest and dividend income
Interest expense
Equity in earnings of unconsolidated subsidiaries and affiliates
Dividend income on life insurance
Foreign exchange loss
Other income (expenses), net
Ordinary income
Special gains (losses), net (Note 12)
Income before income taxes
Income taxes (Note 13):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

TOYO DENKI SEIZO K.K.
Consolidated Statements of Changes in Net Assets
May 31,
2017

May 31,
2016(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)(Note 3)

¥40,668
31,4479,221¥39,746
30,6279,119$366,511
283,407
83,104

7,649
1,572

7,480
1,639

68,938
14,166

228
(123)
68
48
(17)
(112)
92
1,664
44
1,708

233
(125)
76
70
(418)
18
(146)
1,493
(88)
1,405

2,056
(1,105)
614
428
(155)
(1,011)827
14,993396
15,389

663
(129)
534
1,174
—
¥1,174(Millions of yen)
Shareholders’ equity

369
146
515
890
—
¥890

5,968
(1,161)
4,807
10,582—$10,582

See notes to consolidated financial statements.

Commonstock

Balance as of June 1, 2015

Accumulated other comprehensive income

Treasury
stock

Total
shareholders’equityUnrealized
holding
gain onsecurities

Translation
adjustments

Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeCapitalsurplusRetainedearnings¥4,998¥3,178¥ 8,698¥(172)¥16,702¥ 8,317¥ 260¥(384)¥ 8,193¥24,895

Total net
assetsChanges during the year
Cash dividends paid

—

—

(289)

—

(289)

—

—

—

—

(289)

Net income attributable toowners of the parent

—

—

890

—

890

—

—

—

—

890

Purchase of treasury stock

—

—

—

(4)

(4)

—

—

—

—

(4)

Balance as of May 31, 2016——
¥4,998——¥3,178—601¥ 9,299—(4)¥(176)—
597¥17,299(1,848)(1,848)¥ 6,469

1
1
¥ 261

32
32
¥(352)(1,815)(1,815)¥ 6,378(1,815)(1,218)¥23,677

Balance as of June 1, 2016

¥4,998¥3,178¥ 9,299¥(176)¥17,299¥ 6,469¥ 261¥(352)¥ 6,378¥23,677

Cash dividends paid

—

—

(289)

—

(289)

—

—

—

—

(289)

Net income attributable toowners of the parent

—

—

1,174

—

1,174

—

—

—

—

1,174

Net changes in items
other than those inshareholders’ equity
Total changes during the year

Changes during the year

Change in scope of equity
method application
Purchase of treasury stock
Net changes in items
other than those inshareholders’ equity
Total changes during the year
Balance as of May 31, 2017

(14)

(14)

(14)

—

—

—

(302)

(302)

—

—

—

—

(302)

—
—
¥4,998——¥3,178—871¥10,170—(302)¥(478)—
569¥17,868411
411¥ 6,880

(104)
(104)
¥ 157

51
51
¥(301)

358
358¥ 6,736358
927¥24,604(Thousands of U.S. dollars) (Note 3)
Shareholders’ equity

TOYO DENKI SEIZO K.K.
Consolidated Statements of Comprehensive Income

Balance as of June 1, 2016

Accumulated other comprehensive income
Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeCommonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityUnrealized
holding
gain onsecurities$45,047$28,636$83,803$(1,581) $155,905$58,303$2,344$(3,170)$57,477$213,382

Translation
adjustments

Total net
assetsChanges during the year

For the Years Ended

Net income
Other comprehensive income (loss) (Note 14):
Unrealized holding gain (loss) on securities
Translation adjustments
Retirement benefits liability adjustments
Share of other comprehensive loss of affiliates accounted for by theequity method
Total other comprehensive income (loss)

May 31,
2017

May 31,
2016(Millions of yen)

¥1,174410(12)51

May 31,
2017(Thousands of
U.S. dollars)(Note 3)

¥ 890

$10,582

Cash dividends paid——

(2,605)—(2,605)

—

—

—

—

(2,605)

Net income attributable toowners of the parent——

10,582—

10,582————

10,582

Change in scope of equity
method application

—

—

(125)

—

(125)

—

—

—

—

(125)

Purchase of treasury stock

—

—

—

(2,724)(2,724)

—

—

—

—

(2,724)——$45,047——$28,636—
7,852$91,655——(2,724)
5,128$(4,305) $161,033

3,696
3,696
$61,999

(931)
(931)
$1,413459
459$(2,711)

3,224
3,224
$60,701

3,224
8,352
$221,734

Net changes in items
other than those inshareholders’ equity(1,848)
49
32

3,696
(106)
459

Total changes during the year

(109)
340

(48)

(989)

See notes to consolidated financial statements.

(1,815)

3,060

Comprehensive income (loss)¥1,514¥ (925)$13,642Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests¥1,514—¥ (925)—$13,642—

Balance as of May 31, 2017

See notes to consolidated financial statements.

35

Toyo Denki Seizo Report 201736

TOYO DENKI SEIZO K.K.
Consolidated Statements of Cash Flows

For the Years Ended

TOYO DENKI SEIZO K.K.
Notes to Consolidated Financial Statements
May 31,
2017

May 31,
2016(Millions of yen)

Operating activities
Income before income taxes
Depreciation and amortization
Reversal of allowance for doubtful accounts
Provision for accrued employees’ bonuses
Decrease in reserve for ecological countermeasures
Increase in liability for retirement benefits
Interest and dividends income
Interest expenses(Gain) loss on sales of investment securities
Loss on sales of property, plant and equipment
Changes in operating assets and liabilities:
Trade notes and accounts receivable
Inventories
Trade notes and accounts payable
Reserve for losses on order acknowledgements
Advances received
Accrued expenses
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities(Thousands of
U.S. dollars)(Note 3)

¥1,708
802
(1)
24
—
61
(228)
123
(67)
23

¥1,405
851
(37)
0
(65)
116
(233)
125
12
—

$15,389
7,228
(11)
220
—
547
(2,057)
1,105
(607)
211

(1,618)
829
(168)
70
37
(182)
158
1,571
236
(118)
(183)
1,506

(3)
(957)
972
1
(206)
274
(87)
2,168
242
(129)
(1,145)
1,136(14,578)
7,471(1,514)628
335(1,642)
1,433
14,1582,124(1,062)(1,649)13,571

Investing activities
Purchases of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Payments for investments in capital of subsidiaries and affiliates
Other, net
Net cash used in investing activities(3,902)
(619)
(321)
93
—
58
(4,691)

(452)
(336)
(13)
19
(197)
41
(938)

(35,164)(5,583)(2,889)842—
518(42,276)

Financing activities
Increase (decrease) in short-term loans payable
Increase in long-term debt
Repayment of long-term debt
Purchases of treasury stock
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 20)

314
3,500
(352)
(302)
(290)
(1)
2,869
6
(310)
2,401
¥2,091

(247)
—
(794)
(4)
(295)
(1)
(1,341)(27)(1,170)3,571¥2,401

2,826
31,543(3,172)(2,724)(2,611)(9)25,85357(2,795)
21,641$18,846

See notes to consolidated financial statements.

37

May 31,2017

1. Summary of Significant Accounting Policies(a) Basis of presentation
The accompanying consolidated financial statements of TOYO DENKI SEIZO K.K. (the “Company”) and consolidated subsidiaries(collectively the “Group”) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from theconsolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act of Japan.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.
(b) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The accompanying consolidated financial statements included the accounts of the Company and any significant companies controlled
directly or indirectly by the Company.
Companies over which the Company exercises significant influence in terms of their operating and financial policies have beenaccounted for by the equity method. The Company applies the “Practical Solution of Unification of Accounting Policies Applied toForeign Subsidiaries for Consolidated Financial Statements” (Accounting Standards Board of Japan (ASBJ) Practical Issues Task
Force (PITF) No. 18) and “Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for using Equity
Method” (PITF No. 24). In accordance with these PITF, the accompanying consolidated financial statements have been preparedby using the accounts of foreign consolidated subsidiaries and affiliates prepared in accordance with either International Financial
Reporting Standards (IFRS) or accounting principles generally accepted in the United States as adjusted for certain items including
goodwill, actuarial differences and capitalized development costs.
As of May 31, 2017, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 6 and 3(6 and 2 in 2016). Beijing Jingche Shuangyang Traction System Co., Ltd. which was not accounted for by the equity method in thefiscal year ended May 31, 2016, is accounted for by the equity method from the fiscal year ended May 31, 2017 due to its increased
importance. A subsidiary, TOYO DENKI USA, INC., whose fiscal year end is December 31, is consolidated by using their pro forma
financial statements as of March 31 which are prepared solely for consolidation purposes and necessary adjustments are made totheir financial statements to reflect any significant transactions from April 1 to May 31. All significant intercompany balances andtransactions have been eliminated in consolidation.
Investments in subsidiaries and affiliates which are neither consolidated nor accounted for by the equity method are carried at costor less. Where there has been a permanent decline in the value of such investments, the Company has written down the investments.
(c) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance
sheet date, and differences arising from the translation are included in the consolidated statements of income.
The balance sheet accounts of the foreign consolidated subsidiaries are translated into yen at the rates of exchange in effect at thebalance sheet date, except for the components of net assets excluding non-controlling interests which are translated at their historicalexchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Differences
arising from the translation are presented as translation adjustments in the consolidated financial statements.
(d) Cash and Cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term investmentswith a maturity of three months or less from the date of purchase, which can easily be converted to cash and are subject to little riskof change in value.
(e) Inventories
Inventories are stated principally at the lower of cost or market, cost being determined principally by the specific identification method
for finished products and work in process and by the moving average cost method for raw material and supplies.
(f) Short-term investments and investment securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories: trading, held-tomaturity or other securities (available-for-sale securities). Trading securities are carried at fair value and held-to-maturity securities
are carried at amortized cost. Available-for-sale securities with market quotation are carried at fair value with changes in unrealized
holding gain or loss, net of the applicable income taxes, included directly in net assets. Available-for-sale securities without market
quotation are carried at cost. Cost of securities sold is determined by the moving average method.
Toyo Denki Seizo Report 201738

(g) Property, plant and equipment (except for leased assets) and depreciation
Depreciation of property, plant and equipment of the Company and its consolidated subsidiaries is calculated principally by the
declining-balance method based on the estimated useful lives and the residual value, while buildings except for facilities attached tobuildings acquired on or after April 1, 1998 and facilities attached to buildings and structures acquired on or after June 1, 2016 aredepreciated by the straight-line method. The estimated useful lives of these assets are as follows:
Buildings and structures:		
8 to 60 years
3 to 12 years
Machinery and vehicles:		
Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income.
(h) Intangible assets (except for leased assets)
Intangible assets are amortized using the straight-line method. Software for internal use is amortized over the internal available period(5 years) using the straight-line method.
(i) Leases
Leased assets capitalized under the finance lease arrangements which do not transfer ownership to the lessee are depreciated overthe lease period without any residual value using the straight-line method.
All other lease transactions are accounted for as operating leases and related payments are charged to income as incurred.
(j) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on past experience for normal receivables and on an estimate of the collectabilityof receivables from companies in financial difficulty.
(k) Accrued directors’ bonuses
Accrued directors’ bonuses are provided to cover the current fiscal year’s portion of the estimated amounts to be paid in future for the
performance incentive bonuses.
(l) Accrued employees’ bonuses
Accrued employees’ bonuses are provided to cover the current fiscal year’s portion of the estimated amounts to be paid in future.
(m) Reserve for losses on order acknowledgements
Reserve for losses on order acknowledgements is provided based on the amounts expected to be incurred during the current fiscal
year and which are able to estimate the losses reasonably to cover the future losses on order acknowledgements. Provision of reserve
for losses on order acknowledgements in the amounts of ¥70 million ($628 thousand) and ¥1 million is included in cost of sales forthe years ended May 31, 2017 and 2016, respectively.
(n) Retirement benefits
Retirement benefit obligation is attributed to each period by the benefit formula method over the estimated years of service of theeligible employees.
Prior service cost is amortized as incurred by the straight-line method over a fixed period (10 years) within the average remaining
years of service of the employees.
Actuarial differences are amortized in the year following the year in which gain or loss is recognized primarily by the straight-line
method over a fixed period (10 years) within the average remaining years of service of the employees.
(o) Income taxes
Deferred tax assets and liabilities have been recognized in the consolidated financial statements with respect to the differences
between the financial reporting and tax bases of the assets and liabilities, and were measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.
(p) Construction revenue and costs
Construction revenue and construction costs are recognized by the percentage-of-completion method, if the outcome of aconstruction contract can be estimated reliably. The percentage of completion is measured based on the percentage of the costs
incurred to the estimated total costs. For other construction contracts, the completed-contract method is applied.

39(q) Research and development expenses
Research and development expenses are charged to income when incurred.
(r) Consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(s) Derivative financial instruments
The Company and certain consolidated subsidiaries enter into various derivative transactions in order to manage certain risks arisingfrom adverse fluctuations in interest rates. Derivative financial instruments are carried at fair value with changes in unrealized gain orloss charged or credited to operations, except for these which meet the criteria for deferred hedge accounting under which unrealized
gain or loss is deferred as a component of net assets.
Deferred hedge accounting is adopted for derivatives which qualify as hedges, under which unrealized gain or loss is deferred.
Hedging instruments are derivative transactions and hedged items are primarily interest on debts. Hedge effectiveness is notassessed if the substantial terms and conditions of the hedging instruments and the hedged items are the same.
2. Accounting Changes
The Company and its consolidated subsidiaries in Japan has applied “Practical Solution on a Change in Depreciation Method due
to Tax Reform 2016” (ASBJ PITF No. 32, June 17, 2016) effective June 1, 2016 and changed the depreciation method for facilities
attached to buildings and structures acquired on or after June 1, 2016 from the declining-balance method to the straight-line method.
The effect on the operating income and income before income taxes for the year ended May 31, 2017 is immaterial.
3. Additional Information
The Company and its consolidated subsidiaries in Japan applied “Revised Implementation Guidance on Recoverability of Deferred Tax
Assets” (ASBJ Guidance No. 26, March 28, 2016) from the fiscal year ended May 31, 2017.
4. U.S. Dollar Amounts
The accompanying consolidated financial statements are expressed in yen, and solely for the convenience of the reader, havebeen translated into U.S. dollars at the rate of ¥110.96=U.S.$1, the approximate rate of exchange prevailing at May 31, 2017. Thistranslation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.
5. Inventories
Inventories as of May 31, 2017 and 2016 were as follows:

As ofMerchandise and finished products
Work in process
Raw materials and supplies

May 31,
2017

May 31,
2016(Millions of yen)

¥ 871
3,373
2,235
¥6,479May 31,
2017(Thousands of
U.S. dollars)¥1,491
3,172
2,657¥7,320$ 7,849
30,402
20,140$58,391

Inventories are stated at the lower of cost or market and the Company recognized losses on write-down of inventories held for theordinary sales purpose due to a decline in profitability in the amount of ¥11 million ($103 thousand) and ¥(205) million for the years
ended May 31, 2017 and 2016, respectively. These amounts were included in “Cost of sales.”Inventories related to construction contracts which are estimated to make losses are stated after deducting the corresponding reserve
for losses on order acknowledgements in the following amounts:

As ofMerchandise and finished products
Work in process

May 31,
2017

May 31,
2016(Millions of yen)

¥46
41
¥87

May 31,
2017(Thousands of
U.S. dollars)

¥ 4
68
¥72

$413
375
$788

Toyo Denki Seizo Report 201740

6. Property, Plant and Equipment
The following table sets forth the acquisition costs and related accumulated depreciation:

As of
Buildings and structures
Machinery and vehicles
Other
Accumulated depreciation

The maturities of long-term debt are summarized as follows:

May 31,
2017

May 31,
2016(Millions of yen)¥7,416
7,030
3,364
17,810(13,870)¥3,940

May 31,
2017(Thousands of
U.S. dollars)¥7,1726,729
3,281
17,182(13,380)¥3,802$66,830
63,35930,313
160,502(124,998)$35,504

For the Years Ended

May 31,
2016(Millions of yen)¥802

May 31,
2017(Thousands of
U.S. dollars)¥851$7,228

Accumulated depreciation of property, plant and equipment amounted to ¥13,870 million ($124,998 thousand) and ¥13,380
million as of May 31, 2017 and 2016, respectively.
7. Investments and Other Assets
Investments in unconsolidated subsidiaries and affiliates included in “Investment securities” as of May 31, 2017 and 2016 were as
follows:

As ofInvestments in capital

May 31,
2017

May 31,
2016(Millions of yen)

¥1,345

May 31,
2017(Thousands of
U.S. dollars)¥1,390$12,121

8. Short-Term Borrowings and Long-Term Debt
As of May 31, 2017 and 2016, short-term borrowings and the current portion of long-term debt consisted of the following:

As ofLoans, principally from banks
Current portion of long-term debt

May 31,
2017

May 31,
2016(Millions of yen)

¥968
4,002
¥4,970

May 31,
2017(Thousands of
U.S. dollars)

¥666
352
¥1,018$8,72136,067$44,788

The annual weighted average interest rates applicable to short-term borrowings and current-portion of long-term debt as of May
31, 2017 were 1.831% and 1.215%, respectively.
As of May 31, 2017 and 2016, long-term debts were as follows:

As of

May 31,
2017

May 31,
2016(Millions of yen)

Long-term debt, excluding current portion, serially due from 2018 through 2032

¥6,786

May 31,
2017(Thousands of
U.S. dollars)¥7,288(Millions of yen)(Thousands of
U.S. dollars)

2018
2019
2020
2021
2022 and thereafter¥ 4,002
3,356
420
379
2,631
¥10,788$36,067
30,244
3,782
3,421
23,710$97,224

The assets pledged as collateral for short-term borrowings of ¥960 million ($8,649 thousand) and long-term debt of ¥4,676
million ($42,141 thousand) as of May 31, 2017 were as follows:

As of May 31

Depreciation of property, plant and equipment for the years ended May 31, 2017 and 2016 were as follows:

May 31,2017

Years ended May 31

Buildings and structures
Machinery and vehicles
Other property, plant and equipment
Land(Millions of yen)(Thousands of
U.S. dollars)¥1,759
612
346
1,215
¥3,932$15,852
5,515
3,118
10,949$35,434

The following assets included in the above are set by factory foundation fixed collateral security:

As of May 31
Buildings and structures
Machinery and vehicles
Other property, plant and equipment(Millions of yen)(Thousands of
U.S. dollars)¥1,759612
346¥2,717$15,852
5,515
3,118$24,485

9. Retirement Benefit Plans
The Company and its consolidated subsidiaries have retirement benefit plans combined by defined contribution plans and lump-sum
payment plans.
The Company and its consolidated subsidiaries introduced the point system in the lump-sum payment plans, under which
retirement benefit amounts are computed based on the accumulated points granted according to the job ranking and performances.
Under the lump-sum payment plans held by certain consolidated subsidiaries, the liability for retirement benefits and retirement
benefit expenses are calculated using a simplified method.
The changes in the retirement benefit obligation during the years ended May 31, 2017 and 2016 are as follows:

For the Years Ended
Retirement benefit obligation as of June 1
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Retirement benefit obligation as of May 31

May 31,
2017

May 31,
2016(Millions of yen)

¥3,853
284
15
(1)
(238)
¥3,913

May 31,
2017(Thousands of
U.S. dollars)¥3,726
287
14
10
(184)
¥3,853$34,720
2,556
133
(0)
(2,142)$35,267$61,157

The annual weighted average interest rate applicable to long-term debt as of May 31, 2017 was 0.995%.

41

Toyo Denki Seizo Report 201742

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of
May 31, 2017 and 2016 for the Company’s and the consolidated subsidiaries’ defined benefit plans:

As of

May 31,
2017

May 31,
2016(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)

Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,913
3,913¥3,853
3,853$35,267
35,267

Liability for retirement benefits
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,913
3,913¥3,853
3,853$35,267
35,267

Note: The plan adopting the simplified method is included.

The components of retirement benefit expenses for the years ended May 31, 2017 and 2016 are as follows:

For the Years Ended
Service cost
Interest cost
Amortization of actuarial loss
Retirement benefit expenses

May 31,
2017

May 31,
2016(Millions of yen)

¥284
15
73
¥372

May 31,
2017(Thousands of
U.S. dollars)

¥287
14
70
¥371

$2,556133
663$3,352

10. Net Assets
Information regarding changes in net assets for the years ended May 31, 2017 and 2016 is as follows:a. Shares issued and outstanding/ Treasury stock
For the year ended May 31, 2017

Type of shares

Actuarial gain
Total

May 31,
2017

May 31,
2016(Millions of yen)

¥74
¥74

May 31,
2017(Thousands of
U.S. dollars)

¥60
¥60

$663
$663

Retirement benefits liability adjustments included in accumulated other comprehensive income (before tax effect) as of May 31,2017 and 2016 are as follows:

As ofUnrecognized actuarial gain
Total

May 31,
2017

May 31,
2016(Millions of yen)

¥434
¥434

May 31,
2017(Thousands of
U.S. dollars)

¥507
¥507

$3,909$3,909Major actuarial assumptions (weighted average) used in accounting for the above plans as of May 31, 2017 and 2016 were as
follows:

For the Years Ended
Discount rate

May 31,
2017
0.4%

May 31,
2016
0.4%

Shares issued:
Common stock
Treasury stock:
Common stock

43

Decrease

48,675,000—

38,940,000

9,735,000

493,478956,297

1,159,206

290,569

Notes: 1. The Company implemented a share consolidation of 5 shares of common stock into 1 share of common stock on December 1, 2016.
2. The decrease in the number of shares of common stock issued is due to the share consolidation.
Details of the changes in common stock under treasury stock are as the following:
Increase due to purchase of shares of less than standard unit before the share consolidation:
3,529 shares
768 shares
Increase due to purchase of shares of less than standard unit after the share consolidation:
952,000 shares
Increase due to purchase of treasury stock based on the resolution of the Board of Directors’ meeting:Decrease is due to the share consolidation.

For the year ended May 31, 2016

Number ofshares as ofJune 1, 2015

Type of shares

Increase

Decrease

Number ofshares as of
May 31, 2016

(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock
Note:
Detail of the increase is as the following:
Increase due to purchase of shares of less than standard unit

48,675,000——

48,675,000

484,737

8,741—

493,478

Cut-off date

Effective date

8,741 sharesb. Dividends
1) Dividends paid
For the year ended May 31, 2017
Resolution
Annual general meetingof the shareholders on
August 26, 2016

Type of shares
Common stock

Total dividends Total dividends
Dividends per(Millions of (Thousands of Dividends per share (U.S.
yen)
U.S. dollars)
share (Yen)dollars)¥289$2,605

¥6.00

$0.05

Total dividends(Millions of Dividends per
yen)share (Yen)

Cut-off date

Effective date

May 31, 2016 August 29, 2016

For the year ended May 31, 2016

Note: The Company does not use the expected rate of salary increase in computing retirement benefit obligation since the Company adopts the point system.

The amounts of the required contribution to the defined contribution plans of the Company and its consolidated subsidiaries were¥117 million ($1,057 thousand) and ¥115 million for the years ended May 31, 2017 and 2016, respectively.

Increase

Number ofshares as of
May 31, 2017

(Shares)

Retirement benefits liability adjustments included in other comprehensive income (before tax effect) as of May 31, 2017 and 2016
are as follows:

As of

Number ofshares as ofJune 1, 2016

Resolution
Annual general meetingof the shareholders on
August 27, 2015

Type of shares
Common stock¥289¥6.00 May 31, 2015 August 28, 2015

Toyo Denki Seizo Report 2017442) Dividends with the cut-off date in the year ended May 31, 2017 and the effective date in the year ending May 31, 2018
Total
dividends Total dividends
Dividends per(Millions of (Thousands of Source of Dividends per share (U.S.
Type of shares
yen)
U.S. dollars) dividends
share (Yen)dollars)Cut-off date Effective date
Resolution
Annual general meetingof the shareholders on
CommonRetained
May 31,
August 30,
August 29, 2017
stock
2017
¥283
$2,553 earnings¥30.00$0.27 201711. Selling, General and Administrative Expenses
The main components of “Selling, general and administrative expenses” for the years ended May 31, 2017 and 2016 were as follows:

For the Years Ended
Salaries and allowances
Provision for accrued directors’ bonuses
Provision for accrued employees’ bonuses
Retirement benefit expenses
Provision for allowance for doubtful accounts
Research and development expenses

May 31,
2017

May 31,
2016(Millions of yen)

¥1,975
33
404
217
(1)
927

May 31,
2017(Thousands of
U.S. dollars)¥1,966
37
392
196
(37)
868

$17,801
299
3,640
1,960
(10)
8,358

12. Special Gains (Losses), Net
The components of “Special gains (losses), net” for the years ended May 31, 2017 and 2016 were as follows:

For the Years Ended
Special gains:
Gain on sales of investment securities
Special losses:
Loss on sales of property, plant and equipment
Removal expenses for property, plant and equipment
Loss on sales of investment securities
Other
Total

45

May 31,
2017

May 31,
2016(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)

¥67

¥—

$607

(23)
—
—
—
¥44

—
(72)
(12)
(4)
¥(88)

(211)
—
—
—
$396

13. Income Taxes
Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants’taxes and enterprise tax, which, in the aggregate, resulted in a statutory rate of approximately 30.9% and 33.1% for the years
ended May 31, 2017 and 2016, respectively. Income taxes of a foreign consolidated subsidiary are based generally on the tax rates
applicable in the country of incorporation.
The reconciliation between the effective tax rates reflected in the consolidated statements of income and the effective statutory tax
rate for the year ended May 31, 2017 is omitted since the difference was less than 5% of the effective statutory tax rate.
The reconciliation between the effective tax rates reflected in the consolidated statements of income and the effective statutory tax
rate for the year ended May 31, 2016 was as follows:

For the Year Ended
Effective statutory tax rate
Effect of:
Non-deductible expenses for income tax purpose
Non-taxable income such as dividends income, etc.
Per capita inhabitant tax
Valuation allowance
Income from affiliates accounted for by the equity method
Unrecognized tax benefits from losses of subsidiaries
Effect of income tax rate change
Other
Effective tax rate

May 31,
2016
33.1%
2.0
(1.1)
1.9
(11.4)
(1.8)
7.0
5.6
1.4
36.7%

The significant components of deferred tax assets and liabilities as of May 31, 2017 and 2016 were as follows:

As ofDeferred tax assets:
Write-down of inventories
Liability for retirement benefits
Accrued employees’ bonuses
Reserve for losses on order acknowledgements
Tax loss carryforwards
Other
Total gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax liabilities

May 31,
2017

May 31,
2016(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)

¥165
1,204
301
115
387
431
2,603
(703)
1,900

¥153
1,186
292
105
312
448
2,496
(684)
1,812

$1,491
10,854
2,709
1,035
3,491
3,884
23,464(6,339)17,125(3,049)(1)(3,050)¥(1,150)(2,857)(19)(2,876)¥(1,064)(27,478)(6)(27,484)$(10,359)

Toyo Denki Seizo Report 201746

14. Other Comprehensive Income (Loss)
The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income(loss) for the years ended May 31, 2017 and 2016:

For the Years Ended
Unrealized holding gain (loss) on securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectUnrealized holding gain (loss) on securities
Translation adjustments
Amount arising during the year
Amount before tax effectTranslation adjustments
Retirement benefits liability adjustments
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effect
Retirement benefits liability adjustments
Share of other comprehensive loss of affiliates accounted forby the equity method
Amount arising during the year
Share of other comprehensive income (loss) of affiliates accounted forby the equity method
Total other comprehensive income (loss)

May 31,
2017

May 31,
2016(Millions of yen)

¥ 669
(67)
602
(192)
410

May 31,
2017(Thousands of
U.S. dollars)¥(2,921)
11(2,910)1,062(1,848)$ 6,032(607)
5,425(1,729)
3,696

(12)
(12)
(12)

49
49
49

0
74
74
(23)
51

(10)
70
60
(28)
32

(106)
(106)
(106)

0
663
663
(204)
459

47

May 31,
2017

May 31,
2016

Net income:Basic¥123.87¥92.33

$1.12

As of

May 31,
2017

May 31,
2016

May 31,
2017

Net assets¥2,605.09(Yen)

May 31,
2017(U.S. dollars)(Yen)(U.S. dollars)¥2,457.05$23.48Notes: 1. Diluted net income per share is omitted since there is no dilution of equity.
2.	The Company implemented a share consolidation of 5 shares of common stock into 1 share of common stock on December 1, 2016. Accordingly, above amounts
per share are computed as if the share consolidation had been implemented at the beginning of the fiscal year ended May 31, 2016.

Basic net income per share

For the Years Ended

May 31,
2017

May 31,
2016(Millions of yen)

Net income attributable to owners of the parent
Net income not attributable to common shareholders
Net income attributable to owners of the parent related to common stock¥1,174—
1,174

Average number of shares of common stock during the year

9,479

May 31,
2017(Thousands of
U.S. dollars)

¥890
—
890

$10,582—
10,582(Thousand shares)

9,636

18. Financial Instruments

(109)

(48)

(989)

(109)
¥ 340

(48)
¥(1,815)(989)$ 3,060

16. Contingent Liabilities
As of May 31, 2017 and 2016, the Company was committed to provide guarantees on bank borrowings of the following affiliates:

Hunan Xiangyang Electric Co., Ltd.
Changzhou Ruiyang Transmission Technology Co., Ltd.
Beijing Jingche Shuangyang Traction Co., Ltd.

For the Years Ended

The bases for calculation are as follows:

15. Lease Transactions
The information about finance leases that do not transfer ownership of the leased property to the lessee is omitted since there is nomateriality in terms of value.

As of

17. Amounts Per ShareMay 31,
2017

May 31,
2016(Millions of yen)

¥—
164
49

May 31,
2017(Thousands of
U.S. dollars)

¥ 30
169
—

$—
1,475
440

Overview(1) Policy for financial instruments
The Group raises its necessary funds for capital investments to reinforce and renew production facilities and working capital
principally through bank borrowings. The Group manages temporary cash surpluses through low risk financial assets. The Group
uses derivatives in order to avoid the following risks and does not enter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables—trade notes and accounts receivable and electronically recorded receivables—are exposed to credit risk inrelation to customers. Trade receivables denominated in foreign currencies arising from international business are exposed to foreignexchange fluctuation risk, but the Group utilizes forward foreign exchange contracts to reduce such risk as a hedging instrument.
Investment securities are composed of mainly the shares of common stock of other companies with which the Group has business
relationships and exposed to market risk.
Certain long-term debt raised for the purpose of making capital investments with variable interest rates is exposed to interest rate
fluctuation risk. However, to reduce such risk and fix interest expense for long-term debt bearing interest at variable rates, the Grouputilizes interest rate swap transactions as a hedging instrument.
Regarding hedging instruments and hedged items in hedge accounting, hedging policy, and assessment of the effectiveness ofhedging activities, etc., please see Note 1(s) “Derivative financial instruments.”

Toyo Denki Seizo Report 201748

(3) Risk management for financial instruments(a) Monitoring of credit risk (the risk that customers or counterparties may default)
In accordance with the internal policies of the Group for managing credit risk arising from receivables, each related division monitors
credit worthiness of their main customers periodically, and monitors due dates and outstanding balances by individual customer. In
addition, the Group is making efforts to identify and mitigate risks of bad debts from customers who are having financial difficulties.
Investment securities are composed of mainly the shares of common stock of highly rated companies with which the Group hasbusiness relationships. Accordingly, the Group believes that the credit risk deriving from such investment securities is insignificant.
The Group also believes that the credit risk of derivatives is insignificant as it enters into derivative transactions only with financial
institutions which have a sound credit profile.
(b) Monitoring of market risks (the risk arising from fluctuations in foreign exchange rates, interest rates and others)
The Group utilizes interest rate swap transactions to reduce interest rate fluctuation risk on long-term debt.
For investment securities, the Group periodically reviews the fair values of such financial instruments and the financial position of
the issuers.
In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set
forth delegation of authority and maximum upper limit on positions. Monthly reports including actual transactions data are submitted
to the Board of Directors for their review.
(c) Monitoring of liquidation risk (the risk that the Group may not be able to meet its obligations on scheduled due dates)
Based on the report from each division, the Group prepares and updates its cash flow plans on a timely basis to manage liquidationrisk.
(4) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market priceavailable, fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives in Note 21, Derivative
Transactions are not necessarily indicative of the actual market risk involved in derivative transactions.
Estimated Fair value of Financial Instruments
Carrying value of financial instruments on the consolidated balance sheets as of May 31, 2017 and 2016 and estimated fair value areshown in the following table. The following table does not include financial instruments for which it is extremely difficult to determine
the fair value (Please refer to Note 2 below):

As of May 31, 2017

Carrying value

Fair value

Difference(Millions of yen)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*49¥2,091
15,831
532
17,209¥35,663¥2,091
15,831
532
17,209¥35,663

¥—
—
—
—
¥—

¥3,347
5,489
968
10,788¥20,592¥—¥3,347
5,489
968
10,803¥20,607
¥—

¥—
—
—
15
¥15
¥—

As of May 31, 2017

Carrying value

Fair value

Difference(Thousands of U.S. dollars)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*$18,846
142,673
4,792
155,089$321,400$18,846
142,673
4,792
155,089$321,400

$—
—
—
—
$—

$30,161
49,468
8,721
97,224$185,574$—$30,161
49,468
8,721
97,361$185,711
$—

$—
—
—
137
$137
$—

Fair value

Difference*Derivative transactions are presented in a net amount of receivables and payables and net payables are shown in parenthesis.

As of May 31, 2016

Carrying value(Millions of yen)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*¥2,401
13,790966
16,757¥33,914¥2,401
13,790966
16,757¥33,914

¥—
—
—
—
¥—

¥3,743
5,278
666
7,640
¥17,327¥43¥3,743
5,278
666
7,724
¥17,411
¥43

¥—
—
—
84
¥84
¥—

*Derivative transactions are presented in a net amount of receivables and payables and net payables are shown in parenthesis
Notes:
1. Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions
Assets:Cash on hand and in banks, trade notes and accounts receivable and electronically recorded receivables
Since these items are settled in a short period of time, their carrying value approximates fair value.
However, if they are settled in a long period of time, the fair value of receivables is based on the present value of the receivables classified by definite periods discounted
using interest rates on the corresponding period until settlement.
Investment securities
The fair value of stocks is based on quoted market prices. Investment securities held by the Group are classified as available-for-sale securities and please see Note 19“Securities.”
Liabilities:
Trade notes and accounts payable, electronically recorded payables and short-term borrowings
Since these items are settled in a short period of time, their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new borrowings
were entered into. The fair value of long-term debt with variable interest rates, which is hedged by the interest rate swaps and to which hedge accounting is applied (referto the following paragraph), is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new borrowings wereentered into.
Derivative transactions
The fair value of interest rate swaps accounted for by the hedge accounting is included in the fair value of the related long-term debt, since such interest rate swaps areaccounted for together with long-term debt as hedged items.
The fair value of interest rate swaps accounted for by the normal method is determined based on the price, etc. provided by the financial institutions.

Toyo Denki Seizo Report 201750

2. Financial instruments for which it is extremely difficult to determine the fair value

May 31,
2017

As of

May 31,
2016(Millions of yen)

¥946

Unlisted equity securities

May 31,
2017(Thousands of
U.S. dollars)¥639$8,523

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included in the above table.

As of May 31, 2017

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Millions of yen)

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables

As of May 31, 2017

¥2,088
15,012532¥17,632
Due in One Yearor Less

¥—
819
—
¥819

¥—
—
—
¥—

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

¥—
—
—
¥—
Due after
Ten Years(Thousands of U.S. dollars)

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables

As of May 31, 2016

$18,817
135,290
4,792$158,899

$—
7,383
—
$7,383

$—
—
—
$—

$—
—
—
$—

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Millions of yen)

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables

4. The redemption schedule for long-term debt is disclosed in Note 8.

¥2,398
12,942966¥16,306

Information regarding securities classified as available-for-sale securities
Available-for-sale securities

As of May 31, 2017

Carrying value Acquisition cost

Unrealized
gain (loss)(Millions of yen)

3. Redemption schedule for receivables and securities with maturities at May 31, 2017 and 2016 are as follows:

Due in One Yearor Less

19. Securities

¥—
848
—
¥848

¥—
—
—
¥—

¥—
—
—
¥—

Securities whose carrying value exceeds their acquisition cost:
Stock
Subtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Subtotal
Total

As of May 31, 2017¥17,209¥17,209¥7,280¥7,280¥9,929¥9,929¥—¥—¥17,209¥—¥—¥7,280¥—¥—¥9,929Carrying value Acquisition cost

Unrealized
Gain (Loss)(Thousands of U.S. dollars)

Securities whose carrying value exceeds their acquisition cost:
Stock
Subtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Subtotal
Total$155,089$155,089$65,611$65,611$89,478$89,478$—$—$155,089$—$—$65,611$—$—$89,478

Notes: 1. Unlisted stocks are not included in the above table because there were no quoted market prices available and they are extremely difficult to determine the fair value.
2.	Acquisition cost in the above table represents carrying value reflecting impairment losses.
If the market value of the securities declines by 50% or more from the acquisition cost as of the end of the fiscal year, the Group recognizes the difference between
the market value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss forthe necessary amount considering its recoverability.

As of May 31, 2016

Carrying value Acquisition cost

Unrealized
Gain (Loss)(Millions of yen)

Securities whose carrying value exceeds their acquisition cost:
Stock
Subtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Subtotal
Total¥16,744¥16,744¥7,416¥7,416¥9,328¥9,328¥13¥13¥16,757¥15¥15¥7,431¥(2)¥(2)¥9,326

Notes: 1. Unlisted stocks are not included in the above table because there were no quoted market prices available and they are extremely difficult to determine the fair value.
2.	Acquisition cost in the above table represents carrying value reflecting impairment losses.
If the market value of the securities declines by 50% or more from the acquisition cost as of the end of the fiscal year, the Group recognizes the difference between
the market value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss forthe necessary amount considering its recoverability.

51

Toyo Denki Seizo Report 201752

Information regarding available-for-sale securities soldFor the Years Ended
Stock:
Sales proceeds
Gain on sales
Loss on sales

Currency-related derivatives:

May 31,
2017

May 31,
2016(Millions of yen)

¥232
67
—

May 31,
2017(Thousands of
U.S. dollars)

¥ 19
—
12

$2,090607—

20. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash flows for the years ended May 31, 2017 and 2016 are reconciled to
cash on hand and in banks in the consolidated balance sheets as follows:

As ofCash on hand and in banks
Cash and cash equivalents

May 31,
2017

May 31,
2016(Millions of yen)

¥2,091¥2,091

May 31,
2017(Thousands of
U.S. dollars)¥2,401¥2,401$18,846$18,846

As of May 31, 2017, there were no currency-related derivatives.

As of May 31, 2016

53

Fair value

Unrealized gain
(loss)

¥486

¥—

¥43

¥43

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

Fair value

Note: Fair value is determined based on the forward foreign exchange rate.

Derivative transactions to which hedge accounting is applied:Interest-related derivatives:

As of May 31, 2017

(Millions of yen)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixedLong-term debt

As of May 31, 2017

Notional amount
Major hedged
Maturing after
item
Contract amount
one yearHedging policies

Types and purpose of derivative transactions

Maturing after
one year(Millions of yen)

Forward foreign exchange contracts:
Sold:
USD

21. Derivative Transactions

The Company utilizes forward foreign exchange contracts and interest rate swaps for the purpose of hedging its exposure tofluctuations in foreign exchange rates and interest rates, respectively. However, based on internal management rules on financial
market risk approved by the Company’s Board of Directors, Group companies do not enter into transactions involving derivatives for
speculative or trading purposes.

Contract amount¥7,128¥3,216Note

Fair value(Thousands of U.S. dollars)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixedLong-term debt

$64,239$28,983

Note

Note: Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received
under the swap agreement is recognized and included in interest expenses. Accordingly, the fair value of interest rate swaps is included in the fair value of long-term
debt. The notional amount of long-term debt includes current portion of long-term debt.

As of May 31, 2016

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

Fair value(Millions of yen)

The Company primarily uses forward foreign exchange contracts to hedge against the fluctuations in foreign currency exchange rates
on trade receivables denominated in foreign currencies and interest rate swaps to hedge against the adverse impact of fluctuations ininterest rates on interest-bearing debt.

Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixed

Derivative transactions to which hedge accounting is not applied:

Note:	Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received
under the swap agreement is recognized and included in interest expenses. Accordingly, the fair value of interest rate swaps is included in the fair value of long-term
debt. The notional amount of long-term debt includes current portion of long-term debt.

Long-term debt

¥7,360¥7,128Note

Toyo Denki Seizo Report 201754

22. Segment Information
The reportable segments of the Group are components for which discrete financial information is available and whose operating
results are regularly reviewed by the Board of Directors to make decisions about resource allocation and to assess performance.
The Group establishes business units by product and each business unit designs domestic and overseas comprehensive strategies
for its products and is developing business activities. Accordingly, the Group consists of the three reportable segments by productbased on the business units, which are Transportation Systems, Industrial Systems and Information Equipment Systems.
The accounting policies of the segments are substantially same as those described in the significant accounting policies in Note 1.
Segment profit is evaluated based on operating income.
Inter-segment sales are recorded at the same prices used in transactions with third parties.
For the year ended May 31, 2017
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated

For the year ended May 31, 2016
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated(Millions of yen)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers¥26,758¥12,027¥955¥6¥39,746¥—¥39,746

Segment profit
Segment assets

30
26,788¥2,965¥19,605

4
12,031¥1,020¥8,035

—
955
¥ 96
¥587

597
603
¥31
¥569

631
40,377¥4,112¥28,796

(631)
(631)
¥(2,473)¥21,438—
39,746¥1,639¥50,234

Other items:
Depreciation
Capital expenditures

¥550
¥470

¥151
¥126

¥ 20
¥ 12

¥1
¥0

¥722
¥608

¥129
¥295

¥851
¥903

(Millions of yen)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers
Segment profit
Segment assets
Other items:
Depreciation
Capital expenditures¥28,200¥11,073¥1,388¥7¥40,668¥—¥40,668

Note: “Other” represents business units which are not included in reportable segments and consists of worker dispatching service related activities, etc.

38
28,238¥3,079¥19,926

3
11,076¥747¥11,791

—
1,388
¥305
¥817

672
679
¥60
¥601

713
41,381¥4,191¥33,135

(713)
(713)
¥(2,619)¥21,793—
40,668¥1,572¥54,928

Geographical information

¥516
¥518

¥172
¥3,520

¥18
¥21

¥1
¥3

¥707
¥4,062

¥95
¥544

¥802
¥4,606

For the year ended May 31, 2017
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Segment profit
Segment assets
Other items:
Depreciation
Capital expenditures

For the Years Ended

May 31,
2017

May 31,
2016

Japan
China
Other
Consolidated¥27,987
7,640
5,041¥40,668¥27,094
8,375
4,277¥39,746(Millions of yen)(Thousands of
U.S. dollars)¥4,640$41,816(Millions of yen)

May 31,
2017(Thousands of
U.S. dollars)$252,226
68,85045,435$366,511

Note: Net sales information above is based on customers’ location.

Total

Adjustments

Consolidated(Thousands of U.S. dollars)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers

Net sales to third parties by countries or areas grouped according to geographical classification for the years ended May 31, 2017and 2016 are summarized as follows:

Major customer information
Major customer information for the year ended May 31, 2017 is as follows:$254,142$99,795$12,512$62$366,511$—$366,511

345
254,487$27,749$179,581

28
99,823$6,734$106,258—
12,512$2,747$7,363

6,050
6,112
$538
$5,415

6,423
372,934$37,768$298,617(6,423)(6,423)$(23,602)$196,406—
366,511$14,166$495,023$4,649$4,668$1,547$31,724

$168
$190

$7
$25

$6,371$36,607$857$4,906$7,228$41,513

Customer
Meiji Sangyo Co., Ltd.

Segment
Transportation Systems

Major customer information for the year ended May 31, 2016 is as follows:
Customer
Segment
Meiji Sangyo Co., Ltd.
Transportation Systems(Millions of yen)

¥5,506

23. Significant Subsequent Events
There were no significant subsequent events to be noted.

Note: “Other” represents business units which are not included in reportable segments and consists of worker dispatching service related activities, etc.

55

Toyo Denki Seizo Report 2017

56

Report of Independent Auditors57