Toyo Denki Seizo Report2017

O u r H e a r t a n d Te c h n o l o g y f o r t h e F u t u r eTokyo Tatemono Yaesu Building, 1-4-16, Yaesu, Chuo-ku, Tokyo 103-0028 Tel: +81-3-5202-8121 (General Affairs Division)

https://www.toyodenki.co.jp/

Our Long-Term Vision

Toyo Denki Seizo K.K.
Contributes to the Development ofSocial Infrastructure Systems
Shiga Ryuo Plant (Conceptual drawing)
Completion is scheduled for January 2018
and full-scale operation for June 2018.

Integrating the exceptional motor drive technologies since establishment with our breakthroughadvanced technologies to help build social infrastructure systems that are considerate of the
global environment through global business development.

CONTENTS
Contents / Editorial Policy / Long-Term Vision
Consolidated Financial Highlights
Message from the President
Construction of New Production
Base in the Shiga, Ryuo Region
Business Report
CSR Report
Financial Report
Reference Data for Management IndicesCompany Profile
Executive Profiles
Organization Chart
Stock Related Information

1

1
3
5
7
9
15
31
58
59
60
61
62

Editorial Policy ●We have been publishing this report since 2013 with the goal of allowing a wide range of stakeholders to have abetter understanding of the Company. This report combines our management policy with reports on our businesses, CSR and finances. We are committed to describing our initiatives during the year and our future direction in amanner that is easy to understand.
● Period Covered by This Report ●This report focuses on our activities in fiscal 2016 (from June 2016 to May 2017), but also contains some information from outside this period.
● Organizations Covered by This Report ●This report covers the Toyo Denki Group, including Toyo Denki Seizo K.K. and its consolidated subsidiaries.
● Reference Guidelines ●• Global Reporting Initiative (GRI) “Sustainability Reporting Guidelines Version 4”●

Toyo Denki Seizo K.K. has contributed with new technologies to the development of railways, industries and social infrastructure in Japanand the world. Toyo Denki Seizo K.K. was founded in 1918 in an aim to “domestically manufacture electrical equipment for rail vehicles” andwill celebrate the 100th anniversary of its founding in June 2018.
We are developing businesses in transportation, industry and information equipment sectors, and all the three sectors shares a high relevancy to society and the public interest. We contribute to the development of industry and enrichment of people’s lives through our manufacturing expertise by leveraging high technological skills.
We will continue to promote global development and aggressively work to develop advanced technologies befitting the name of “Toyo as atechnology company,” promote transfer of expertise and skills as well as training of human resources for supporting the development of advanced technologies, and create new businesses. Furthermore, through ensuring compliance and enhancing governance, we will strive tobuild a solid presence in the world as a manufacturer trusted by all stakeholders.
Toyo Denki Seizo Report 20172

Consolidated Financial Highlights
Highlights of Toyo Denki Seizo K.K. and Consolidated Subsidiaries for the Consolidated Fiscal Year ended May 31 or as of May 31

9,221

Operating income

501

1,076

1,596

1,638

1,571

Net income attributableto owners of the parent

722

644

1,105

889

1,174

Comprehensive income

3,761

1,421

5,468

(925)

1,513

Capital investment

1,296

612

969

902

4,606

Research anddevelopment costs

916

665

897

868

927

FY 2012

2013

2016

Net assets/Total assets

(Unit: Million yen)

23,676

24,603

Total assets

42,36444,75253,041

50,23354,927

Number of employees

1,170

1,201

1,216

1,245

1,262

53,041

24,89544,752

19,35042,364

18,51950,233

Net assets

Fiscal Year-End
Net assets

FY 2012

2013

2014

2015

Number of employees

2016(Unit: Persons)

FY 2012

Total assets

Dividend

66.85

114.72

92.33

123.87

6

6

6

6

30

Dividend

Note: Effective as of December 1, 2016, the Company implemented a share consolidation (five shares consolidated into one share). Net assets and net income are calculated on the assumptionthat the share consolidation was implemented at the beginning of the 152nd fiscal term.
Dividends are presented in the actual amounts paid.

FY 2012

2013

2014

2015

2016

Return on equity (ROE)
5.0(Unit: %)

3

43.2

46.9

47.1

44.8

Return on equity (ROE)

4.3

3.4

5.0

3.7

4.9

Operating income ratio

1.6

3.1

4.0

4.1

3.9

Overseas net sales ratio

23.7

27.3

38.0

32.0

31.1

Dividend payout ratio

40.0

44.9

26.2

32.5

24.2

FY 2012(Unit: %)Operating income ratio

2013

4.9

2014

4.0

2015

4.1

32.5% 24.2%

2016

FY 2012

2013

2014

2015

(Unit: %)Overseas net sales ratio

3.9

2016

(Unit: %)

38.0

3.1

3.7

3.4

43.7

26.2%

4.3

Major Management Indices
Shareholders’equity ratio

44.9%

6

74.92

2016

Dividend payout ratio

6

Net income

2015

6

2,605.092014

6

2,457.05

24,603

2,583.04

23,6762,007.25

24,895

1,920.70

19,350Net assets

18,519(Unit: Yen)

2013

Dividend/Dividend payout ratio (Unit: Yen)

40.0%

Per Share Information

1,174

2015

1,105

2014

30

9,119

889

9,282

(30)

8,097

(30)

7,696

644

Gross profit(30)

40,668722

39,746(30)

39,617

1,571

34,957

1,076

30,575

Net income attributable to owners of the parent (Unit: Million yen)

501

Net sales

30,575

Fiscal Year34,957(Unit: Million yen)

1,262

Fiscal 2016
1,638

Fiscal 2015

(Unit: Million yen)

1,245

Fiscal 2014

1,216

Fiscal 2013

Operating income

1,201

Fiscal 2012

(Unit: Million yen)

1,170

156

40,668155

54,927

154

39,746153

1,596

Net sales

152

39,617

Fiscal term

32.0

31.1

2015

2016

27.3
23.7
1.6

FY 2012

2013

2014

2015

2016

FY 2012

2013

2014

2015

2016

FY 2012

2013

2014

Toyo Denki Seizo Report 20174

Message from the President

President,
Representative Director

Kenzo Terashima

5

The medium-term management plan “NEXT 100: Beyond 100
years, Ver. 2,” which has been under way, is aimed at building amanagement foundation toward significant growth in the future
through such basic policies as “strengthening international competitiveness,” “restructuring production system” and “developing
new businesses and technologies,” with a focus on “building astable business earnings structure,” in the two-year period fromfiscal 2016 to fiscal 2017.
With regard to “strengthening international competitiveness,”
we are accelerating development in China in the Transportation
Systems segment. We have captured demands associated with
the introduction of standard vehicles of high-speed railways andexpanded the maintenance business for electrical equipment for
subway vehicles in Beijing. Furthermore, to expand the subway-related business from Beijing to other regions, we will en-

All-time highs since 2000 posted in both orders received and net sales on a consolidated basis(Billion yen)

Net sales

Orders received

46.0

International competitiveness was strengthened andrestructuring of production systems progressed.
Advancing in the initiatives for development of new
businesses and technologies.

The Company will continue product development that contributes
to environmental loading reduction, based on such keywords as“energy conservation,” “high efficiency” and “clean.”
Since we operate in the railway transportation domain, which
is of a highly public nature and requires a high level of safety, weare striving to improve and develop our business in the recognition that our business itself contributes to society. Therefore, we
aim to be a “company needed by society” and “build a solid position as a specialized manufacturer” through development and innovation of environment-friendly products. At the same time, wewill enhance our foundation for growth by pushing forward withutilization of diverse human resources and diverse work styles inorder to raise the job satisfaction of employees, those of which
are the starting point of value creation cycle of the Company.
We will realize a company that is trusted by all stakeholders
and live up to their expectations by achieving sustainable development through the initiatives mentioned above.

45

40

43.0

In the fiscal year ended May 3 1, 2 0 1 7, all three business segments secured more orders than the previous fiscal year and weachieved a year-on-year increase of 2.3% in net sales, mainly attributable to the Transportation Systems segment and the Information Equipment Systems segment. Orders of 43.3 billion yen
and net sales of 40.6 billion yen are both all-time highs since
2000. Ordinary income increased 11.5% year on year and net income attributable to owners of the parent grew 32.0% year on
year thanks to a sharp decrease in exchange losses, although operating income declined from the previous fiscal year due to decreased profits in the Industrial Systems segment.
In the Transportation Systems segment, orders received for
Chinese high-speed railways decreased since it was not the timing for rail vehicles to be replaced with new models, but orders
increased in Japan, mainly from private railway companies. Coupled with the robust performance of the business for domestic
buses, operated by a subsidiary, both net sales and profits in thissegment increased.
In the Industrial Systems segment, net sales decreased due toa decline in sales for testing equipment for automobile

development, despite increases in orders for processing equipment and for overseas, mainly Southeast Asian countries andSouth Korea. Profits decreased significantly as a result of a decline in profitability in addition to the impact of net sales decrease.
The decline in profitability was temporary, resulting from a longer-than-expected man hours required for designing in relation to
the high functionalization of testing equipment for automobile development and its expansion to automotive parts manufacturers.
We believe that the technologies and knowledge acquired throughthis experience will fully contribute to future market expansion.
In the Information Equipment Systems segment, the increasein orders through acquisition of orders for large-scale projects ofcomposite commuter pass issuing machines that can singlehandedly issue a variety of tickets resulted in sharp increases in net
sales and profits.
Looking at the future business environment, the overall economy is expected to continue a gradual recovery in the near term.
Investments in railway infrastructure are projected to continue expanding in China and the ASEAN countries and demands are increasing toward the hosting of the Tokyo 2020 Olympic andParalympic Games. With regard to consolidated financial results
for the fiscal year ending May 31, 2018, we project increases inboth net sales and profits, since the order backlog has increased
in all the three business segments and more orders are expected.

Understanding that contribution to the establishmentof railway and industrial infrastructure is the missionof the Company and the basis of environmental, socialand governance (ESG), we will strive to consolidate ourposition as a specialized manufacturer by taking on
the challenge of innovation for providing further values.

43.3

Orders increased favorably and net sales topped
40.0 billion yen.
Both net sales and profits are expected to increase
also in the fiscal year ending May 31, 2018.

Unfortunately, we are unlikely to achieve the initial performancetargets of the plan. However, we will steadily establish a management foundation over the next year to build a foothold for the next
leap.

40.6

Building a foothold for the next leap by steadily
establishing a management foundation

gage in local production of pantographs at Chengdu Yonggui Toyo
Rolling Stock Equipment Co., Ltd., which was established inChengdu. Other than China, we will seize the opportunities formarket expansion in India and the ASEAN region. In the Industrial
Systems segment, orders for generators and processing machines are increasing in Asia due to the effect of establishing a
representative office in Thailand in 2014. As for testing equipment
for automobile development, we are currently strengthening oursales activities for parts manufacturers in addition to finished vehicle manufacturers.
Regarding “restructuring production system,” construction
work of the Shiga Ryuo Plant is advancing steadily and full-scale
operation of the plant is expected to start in June 2018. We willrealize more than 30% improvement in productivity by consolidating the development, design and production functions of the Industrial Systems segment, which are now dispersed in Yokohama
and Shiga, into the new plant. At the same time, we will expand
business domains by expanding the lineup of motors and inverters and enhancing the competitive advantage of our products,
such as by adding higher values to generators, and will thereby
increase net sales. Meanwhile, we will push forward with the restructuring of the production lines at the Yokohama Plant to reinforce production capability of the Transportation Systems
segment.
With regard to “developing new businesses and technologies,”
we are working on development projects, with an eye on future
growth domains in the Transportation Systems segment and theIndustrial Systems segment, including “inverters adopting siliconcarbide (SiC) elements” that contribute to space and energy saving for rail vehicles, multifunctional testing equipment applicablefor tests for electric vehicles (EVs) and hybrid electric vehicles(HEVs) and generation systems that support effective use of natural energies.

35

30

25

FY 2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

(Forecast)

Toyo Denki Seizo Report 20176

Special Report
1Strengthen international
competitiveness2

Build a stable businessearnings structure

6

Train human resources tosupport global development

Medium-Term
Management Plan

NEXT 100

3

Restructure
production system

Fundamental Policy

45

Establish new
businesses

Promote developmentof technology

Overview of the new factory
Name

TOYO DENKI SEIZO K.K.
Shiga Ryuo Plant

Location

2911-6 Oaza Okaya
Ryuo Town, Gamo District,
Shiga Prefecture(Shiga Ryuo Industrial Park vicinity)

Land area

Approx. 32,706 m2

Total floor area

Approx. 19,997 m2

Total investment
amountApprox. ¥7.0 billion(Land, buildings, equipment)

Financing plan

Self-financing and loans

Products

Products for Industrial Systems segment(Industrial motors and inverters, etc.)

Schedule for Shiga Ryuo Plant
March 1, 2017:

Ground-breaking ceremony

May 26, 2017:

Column-setting ceremony

September 21, 2017: Framework-raising ceremony
January 3, 2018:

Completion

March 2018:

Start of operation

June 2018:

Full-scale operation

on systems

Restructuring producti

Commencement of constructionof a new production base in
Ryuo Town, Shiga Prefecture
We commenced the construction of a new production base in Ryuo Town, Shiga Prefecture this March. Building this new production base is
one of the core measures of our medium-term management plan, “NEXT 100: Beyond 100 years, Ver. 2,” implemented as a foothold to expand our business scale as well as to establish a stable business earnings structure.
At the new production base, we aim to increase production efficiency by grouping up the previously scattered production bases of the Industrial Systems segment, alongside working towards the expansion of our business areas and increase of sales through the strengtheningof our research and development function.

7

Ground-breaking ceremony

Framework-raising ceremony

Main concepts of the Shiga Ryuo Plant

To increase
productivity andimprove quality

To expand productline-upTo enhance theproduct testing
environment

To improve the
To provide a femaleproduct development
inclusive plant
environment

To achieve an ecofriendly plant

Inside the plant in September 2017

Our coming schedule
The construction of the new production base is progressing asplanned, and we are smoothly reaching a turning point towards its
completion in January 2018. We plan to start working on the relocation and installation of production equipment after completion, andcommence partial operation in March 2018. Full-scale operation is
expected in June of the same year, coinciding with our 100th anniversary of foundation.
At the same time, we plan to increase the productivity of Yokohama Works, the production base of the Transportation Systems segment. Through expanding both of our core segments, the Industrial
Systems segment and the Transportation Systems segment, we planto achieve further growth.
Toyo Denki Seizo Report 20178

Transportation Systems Segment

Support railway transportation that connects people andcities with safety and trust, through manufacturing thatmerges electronics technologies and mechanicaltechnologies in a highly advanced mannerBusiness Overview
Percentage of
total net sales
69.4%

Electrical equipment for rail vehicles manufactured by the Company using its technological capability developed
over about a century covers a wide range of fields, including propulsion systems (drive systems), auxiliary
power supply and door-closing units of trains, and we contribute to the maintenance and development ofrailway infrastructure overseas, not to mention in Japan, by pursuing safety and comfort of trains.

28,199 million yen(Up 5.4% year on year)

Segment Income

3,079 million yen(Up 3.9% year on year)

TOPICSFY 2014

2015

2016

Development and Delivery of VVVF Inverter Using
SiC Element*1

Hiroshima Electric Railway Co., Ltd. Type 3900 trains

 eduction of 35% in both volume and mass compared with previous VVVF invertersRR eduction of workload of train drivers through setting a new function that enables
constant-velocity drive

11 Industrial Systems segment
12 Information Equipment Systems
segment
13 Expansion of New Businesses
14 Research and Development/
Intellectual Property
9

Segment income increased 3.9% compared with the previous fiscal year to
3,079 million yen.

Features of the retrofitted VVVF inverters are as follows:

10 Transportation Systems segment

3,079

2,964

3,117

2015

28,199FY 2014Segment Income (Unit: Million yen)

Net sales totaled 2 8,1 9 9 million yen, a
5.4% increase from the previous fiscal
year, due to an increase in Japan.

With regard to the retrofit of main circuit device of Type
3900 trains for Hiroshima Electric Railway Co., Ltd., wedelivered VVVF inverters using silicon carbide (SiC) elements instead of the conventional VVVF inverters using
reverse conducting GTO elements*2.

BUSINESS

26,757

Net Sales

Net Sales (Unit: Million yen)

26,869(Up 8.4% year on year)

29,36629,366 million yen

Orders received increased 8.4% compared with the previous fiscal year to
29,366 million yen, led by upturns in Japan mainly due to demand ahead of theTokyo 2020 Olympic and Paralympic
Games.

24,759Orders Received

27,092

Orders Received (Unit: Million yen)

Results for fiscal 2016

Type 3900 trains for Hiroshima Railway are articulated vehicles of three bodies and four trucks,
which made the debut in 1990, and directly run between inner-city lines (tracks) and the Miyajima Line (ordinary railway). Type 3900 trains equipped with the new VVVF inverters started
commercial operation from the end of February 2017.
The Company will continue to contribute to realizing an energy-saving society by expanding
the use of electrical equipment using SiC element.
*1: An element using silicon carbide (compound of carbon and silicon) as reflux diodes.
*2: An element that incorporates Gate Turn-Off thyristor and reflux diodes into one package.

2016

FY 2014

2015

2016

Establishment of a newcompany in Chengdu, China
The Company has
expanded its business in China,
chiefly the deliveryof electrical equipment for railway
A pantographvehicles of urban
transit and high-speed railway, since the late
1990s. The Company established a new production base in Chengdu, a major city in China, to further reinforce its business. The newcompany will mainly assemble and test pantographs for urban transit railway vehicles.
Company name: Chengdu Yonggui Toyo Rolling Stock Equipment Co., Ltd.
Location:

Chengdu, Sichuan Province

Establishment:

August 23, 2017

Business
activities:

Manufacture, sales, etc. of electrical equipment (mainly
pantographs) for urban transit railway vehicles

Investment
ratio:

Zhejiang Yonggui Electric Equipment Co., Ltd.: 51%
Toyo Denki Seizo K.K.: 49%

Toyo Denki Seizo Report 201710

Industrial Systems Segment

Information Equipment Systems Segment

Deliver technologies and gratitude to customers withhighly precise, highly responding and highly efficient
power electronics, for realization of an environmentfriendly society

Provision of products that make the execution ofoperations on station premises and trains smoothand convenient and M2M solutions based on mobile
phone networks and cloud servers using remotemonitoring system

Business Overview

2015

2016

FY 2014

2015

2016

FY 2014

2015

2016

Net Sales

1,388 million yen(Up 45.4% year on year)

Segment Income

304 million yen

Inverter

TOPICS

Further improvement of convenience and operabilityof testing equipment for automobile development~ Development of measurement control system RunView

The newly developed measurement control system, RunView, enables customers
who perform tests to conduct tests under wide-ranging conditions by freely customizing user interfaces, including intuitive operation, flexible composition andchanges/revisions of monitor displays.
The Company has developed solution systems in which inverters and machines
are combined, with a focus on the development of low-inertia, high-torque motors
as well as dynamos. The addition of this measurement control system to such solutions will enable us to respond to a wider range of requests of customers in automobile development processes.
We will strengthen our proposal capabilities to parts manufacturers, in addition
to automobile manufacturers, by further enhancing these comprehensive solutions.

11

RunView
measurement
control system(Up 218.8% year on year)

Low-inertia
motor

TOPICS
Mechanical system
Testing systems for automobiles

Display example of
RunView measurement
control system

Net sales increased 45.4% year on year
to 1,388 million yen for a reason similar
to that for increased orders received.
Segment income increased 218.8%
compared with the previous fiscal year to
304 million yen.

FY 2014

2015

2016

FY 20142015

304

FY 20142016

95(Up 30.6% year on year)

Orders received increased 30.6% compared with the previous fiscal year to
1,788 million yen, due to the receipt of alarge-scale order for railway station operating equipment.

71

1,788 million yen

Segment Income (Unit: Million yen)

1,388

747

1,019

848

11,073

Orders Received

Percentage of
total net sales
3.4%

Net Sales (Unit: Million yen)954

747 million yen(Down 26.7% year on year)

Segment income totaled 747 million yen,a 26.7% decrease compared with theprevious fiscal year, due to a decrease insales and development costs ofmulti-functional testing equipment.

Orders Received (Unit: Million yen)

Results for fiscal 2016

1,127

Segment Income

Segment Income (Unit: Million yen)In the Information Equipment Systems segment, we operate in the two fields of railway station operating
equipment and remote monitoring systems, by merging advanced telecommunication technologies andmechatronics.
With regard to railway station operating equipment systems, we develop and manufacture commuter
pass issuing machines that quickly became IC card compliant and portable terminal devices for conductors,
and provide systems for smooth toll collection and income management system to railway operators.
Our remote monitoring systems greatly contribute to labor saving and maintenance saving of customers through realization of various equipment monitoring and position monitoring, by leveraging cloudcomputing.

1,788(Down 7.9% year on year)

Business Overview

1,369

11,073 million yen

Net sales decreased 7.9% year on year
to 11,073 million yen, due to decreases
in sales of testing equipment and processing equipment.

12,027

Net Sales

Net Sales (Unit: Million yen)

11,613(Up 6.8% year on year)

12,194

12,194 million yen

Orders received increased 6.8% compared with the previous fiscal year to
12,194 million yen, due to increased orders for processing equipment and outside Japan.

13,319Orders Received

11,421

Orders Received (Unit: Million yen)

Results for fiscal 2016

Percentage of
total net sales
27.2%

985

The Company is extensively contributing to customers at home and abroad through general industrial
machinery and equipment, testing equipment for automobile development and social infrastructure
equipment that is indispensable to the daily lives of people. In addition, we address manufacturing that
contributes to the prevention of global warming, while providing products manufactured through highsystem-building technologies that make full use of energy-saving motors, inverters, FA controllers andnetworks.

FY 2014

2015

2016

Order received for IC station terminal devices for the Bureauof Transportation of the Tokyo Metropolitan Government

We have received order for IC station terminal devices from the Bureau of Transportation of theTokyo Metropolitan Government, following the order received for commuter pass issuing machines for the Transportation Bureau of the City of Yokohama last year. The hardware of this product is a composite ticket vending machine that can handle IC card-related business processing
and singlehandedly issue a variety of tickets such as commuter passes, standard tickets, booksof tickets and special tickets. However, the specification of the IC station terminal devices is limited to IC card-related business processing and issuance of special tickets.
The terminal devices conform to the security authorization standards of the Congress of Japan Railway Cybernetics.
We will continue to develop and provide easier-to-use railway station operating equipment.

Composite ticket vending machine (separate type)

Toyo Denki Seizo Report 201712

Expansion of New Businesses

Initiatives in distributed power source (small-scale hydropower, solar, wind power, biomass, wave power, tidal power, etc.)
We have been working to safely make the most of natural energy sources such as small-scale hydropower, solar, wind power, biomass,
wave power and tidal power, by leveraging the know-how of permanent magnet synchronous generators and interconnected systems wehave developed over many years.
Take the small-scale hydropower generation system for instance. The system uses water as renewable energy, and effectively utilizes
water resources which have not been utilized before, such as agricultural waterways and agricultural dams. We will continue working on
effective utilization of various natural energy sources.

 ystem upgrades of distributed power source sysStems of Toyo Denki Seizo K.K.
Bountiful experience with power companies in Japan
Interconnected system protective function
Higher efficiency by combining with permanent magnet synchronous
generators
Islanding detection function is incorporated in inverters that support
interconnected systems
Switchable from interconnected system operation to self-supporting
operation
Black start in the absence of power source systems is possible
System upgrades of overload protection, external signal input, etc.
Output control function
A wide range of lineup with output from 10 to 750 kW, in particular,bountiful experience with output from 10 to 200 kW

R&D to support the development of social
infrastructure and supporting frameworks
Research and Development
The Group’s R&D activities are based on seeking to create products that fully satisfy our customers and challenging the creationand expansion of these products, and we actively promote

development of technologies of our existing businesses and basic
technology developments that support this development as well
as development of new products that expand our businesses.

Results and topics from fiscal 2016

Segment

Power Conditioner

Information
Equipment
Systems

We contribute to improvements of efficiency in operations through IoT/M2M solutions using mobile phone networks and cloud servers formonitoring and control.

Joint development of data acquisition and analysis systems for fuel cell lift trucks
In cooperation with TOYOTA INDUSTRIES CORPORATION, we have developed data acquisition andanalysis systems for fuel cell lift trucks. With this system, operation data is collected, stored in cloudservers using mobile phone communication systems, and analyzed. For the remote data management system owned by Toyo Denki Seizo K.K., we developed a data logger capable of on-board use,which enables real-time analysis of cloud servers and is equipped with information transmissionfunction. This system analyses and visualizes data on location information and operation states,
thereby contributing to optimization of maintenance services and improvement of merchantability.

Description
Developed our first VVVF inverter for commercial vehicles, to which silicon carbide (SiC) semiconductor is applied, for replacement of streetcars.
Developed super small-diameter induction motor and drive unit, which enable the application of theparallel cardan drive method to super low floor type trains.

Development of high-torque, super
low-inertia motor

With regard to high-torque motors used as alternative loads on the wheel side at automobile testing
facilities, developed a high-torque, super low-inertia motor, whose inertia is lowered to as low as
45% of that of conventional motors.

Development of dual bench

Developed a dual bench that can conduct evaluation tests both on torque converters and clutch
packs, both of which are automotive parts, by using our proprietary transfer mechanism. This bench
can singlehandedly conduct the two kinds of evaluation tests that previously required individual test
devices for each test.

Development of software module forrailway station operating equipment

Developed a common software module for various types of railway station operating equipment for the purpose of quality improvement. This module is also effective in reducing development costs at the time of repair.

Improvement of various ticket issuingmachines

With regard to composite ticket issuing machines and small ticket vending machines, realized addition of functions to hardware and standardization of control boards.

Basic development of control system forindustrial use, compliant with IoT

To expand overseas development of industrial equipment, developed a system with basic IoT functions
in consideration of IoT standards for plants, including “Industrie 4.0” of Germany and “Industrial Internet Consortium (IIC)” of the U.S., and built a prototype system modeled on a system in a small plant.

Research on wireless power transmission

Succeeded for the first time in the world in power supplying from coils laid in roads to in-wheel motors during the actual vehicle run. With regard to this system, our research laboratory was responsible
for the development of a converter and its controller that wirelessly transmits power via coils between
the vehicle body and wheels and between the ground and wheels as well as an in-wheel motor
mounted on wheels, and an inverter that controls the in-wheel motor. A joint paper on this research,which was mainly written by an employee of our research laboratory, won the 2017 IEEE Power Electronics Transactions First Paper Award of the Institute of Electrical and Electronics Engineers (IEEE).

Industrial
Systems

EDG Permanent magnet
synchronous generator(supports 10 - 750kW)

Research
Laboratory

Data logger unit

Intellectual Property
Fuel cell lift trucks

Joint development of communication power generator mounted with remote monitoring system

In cooperation with Denyo Co., Ltd., we developed a communication power generator mounted witha remote monitoring system, and commenced its services. The communication power generator wasdeveloped by mounting “IORemotor,” Toyo Denki Seizo K.K.’s remote monitoring terminal, to Denyo
Co., Ltd.’s engine power generator. It enables sending email alerts in case of failure and remotemonitoring through cloud services utilizing mobile phone lines. Customers can use various functions
through ASP services. We will continue to contribute to operational efficiency through provision ofeasy-to-install and affordable IoT/M2M solutions.

Project

Development of VVVF inverter unit toTransportation which SiC semiconductor is applied
Systems
Development of parallel cardan electricalequipment for super low floor type trains

Initiatives in remote monitoring(IoT/M2M solutions)13

Research and Development/Intellectual Property

IORemoter
Communication
power generator

Our intellectual property is placed as a key corporate resource.
Our intellectual property department is responsible for the
management of intellectual property and our research laboratory
and the development divisions in each business unit actively apply
for patents and utility models.
In the overseas markets which we expect to further expand ourbusinesses, we have started to actively engage in activities
concerning our intellectual property in order to protect our
technologies and brand.

Patent applications granted
Patent applications:
Granted cases:(Applications)

80
60

2

5

54

40

52 22

20

22

2
0

35
33

2013

1
0

30
30

0
FY

62

2014

0

57
16 0
16
2015

Japan
Japan

Overseas
Overseas

66

45

45

65 27
14
14

2016

0

1

26
2017

Toyo Denki Seizo Report 201714

Environment

Initiatives to Protect the Environment
With a view to realizing an environment-friendly society, the Company will further strive to promote the reduction ofenvironmental burden, while providing more efficient products that contribute to energy conservation.

Environmental Philosophy
The Toyo Denki Group sets initiatives to protect the global environment as its priority task and contributes to the development of a sustainable society.

Action Guidelines
We will continue to provide products and services that are considerate of the burden on the global environment by drawing on our “future-oriented technologies friendly to the Earth and mankind.”
1.
2.
3.
4.

We will comply with all environmental requirements including those under the relevant laws and regulations.
We will strive to minimize environmental burden through a reduction of energy consumption and other measures at
all stages of product lifecycle, namely planning, development, design, production, sales, use and disposal.
We will establish and execute a system to continuously promote activities to protect the global environment.
We will raise environmental awareness among individuals through enlightenment activities within the Group

Aiming for Realization of a Sustainable Society

CSR Report

Environment

Governance16

25

Corporate Governance

27

Internal Control and Compliance27

Risk Management

27

Information Security

28

Business Risk

29

Data

Initiatives to Protect the Environment

Social15

19With Our Customers

20

With Our Suppliers

21With Our Shareholders and Investors

22

Contributions to Local Communities

23

With Our Employees

A sustainable society as envisaged by the Company is the combination of a “low-carbon society,” a “recycling-based society” anda “nature-symbiotic society.”
The environment technologies of the Company have produced
numerous products that contribute to energy conservation, including
high efficiency motors and inverters that capitalize on the amalgamation of our outstanding motor drive technology and other state-of-theart technologies. In the meantime, the Company has been striving toconserve resources through not only the efficient use of energy but
also the reduction of the size and weight of its products.
In addition, the Company is working on the development of
products with lower levels of noise involved in their use to makethem friendlier to the surrounding environment.
The Company will make further contribution to make society
more sustainable, fully utilizing on its environmental technologies
on a global scale, while carrying out various environmental
actions at each of its bases.

Energy conservation throughthe Company’s technologies
and products

Low-carbon society
Implementation of measuresagainst global warming

Energy conservation in
production activities
Use of sustainable energy

Recycling-based society

Improvement of logistics
efficiency

Promotion of 3Rs(reduce, reuse, recycle)

Proper treatment of wastes
Reduction of amount of final
disposal of wastes

Nature-symbiotic society

Proper management ofchemical substances

Conservation of biodiversity

Cleanup around offices

Environmental Management System
In order to tackle environmental issues on an independent and continuous basis, the Company has developed and operates an environmental management system and thereby obtained ISO 14001
certification. This certification has been acquired for all offices andthe production bases Yokohama Plant and Shiga Factory.

Years of ISO 14001 certification

Yokohama Plant
2004

Shiga Factory
2001

Extended to all offices
2010

Toyo Denki Seizo Report 201716

Environment

Notification volume for Pollutant Release and Transfer Register (PRTR) substances

Initiatives to Prevent Global Warming

Initiatives for Control over Chemical Substances

Initiatives to reduce greenhouse gas (CO2) emissions

Targeted reduction of CO2 emissions and progress status

The Company is promoting energy conservation at each of its
production bases and offices to reduce its CO2 emissions. At the
production bases in particular, we are promoting power-savingand streamlining at production facilities. In addition, the Yokohama
Plant uses solar power generation for peak shaving of power demands.

Aiming to reduce CO2 emissions per unit of production output by
1% year on year, the Company’s main production base, the Yokohama Plant, reduced emissions by approximately 0.9% in fiscal
2016.

Total energy input at Yokohama Plant (electricity and gas)
(Unit: 10,000 kWh)

800

600

Electricity

400

651.8
284.7

615.6
294.1

617.8
286.0

10,000

8,300

8,000

7,900

7,300

7,700
7,000

6,120

6,000

4,810

Total amount of shift

5,260

5,290

5,800

4,000

2,000

0
2012

2013

2014

2015

2016 (year*)

Total CO2 emissions at Yokohama Plant
Gas (Unit: 1,000 Nm3)

628.5
284.0

590.9

Volatile organic compounds (VOCs) emitted as a result of ourbusiness activities are adequately controlled and the amount ofemission is monitored under the Pollutant Release and Transfer
Register (PRTR).
We will further engage in the reduction of waste through suchmeasures including using non-VOC materials and implementing
recovery and reuse of solvents. PCB waste is also subject to adequate control, storage and disposal in accordance with Japan’s
Act on Special Measures concerning Promotion of Proper Treatment of PCB Wastes.

Total amount of air emissions

(kg)

(t)

3,936.0

4,000

4,095.0
3,759.0

Initiatives for Reducing Disposed
Waste as Well as Recycling

3,734.0

3,307.3
300

3,000

200

2,000

252.0

Main actions

400

200

0
2012

2013

2014

2015

2016

100

1,000

0

0

The Company successfully reduced its landfill waste rate to 0.9%
in fiscal 2016, as a result of thoroughly implementing waste processing rules, sorting of metal waste and recycling of paper resources.
2012(year*)

2013

2014

2015

2016

(t)

General waste output

500

Total solar power generation at Yokohama Plant(kWh)Total water input/output
at Yokohama Plant
横浜製作所
水資源投入量・排出量
Based on 500 kW generator

750,000

676,000.0
600,000

408.5

400
Water input(Unit: 1,000 m3)

25

Water output

346.0

628,268.0

20

255.6

19.9

434.3

Valuable waste output

15

13.9

14.2

14.1 14.1

15.2 15.2

9.0
8

274.1

5.9

6

5.0

246.2

5.0

4

15.2 15.2
109.6

100

12.3
300,000

10

424.5

200
450,000

(t)

361.3
290.9

300

635,843.0

Volume of landfill waste

Output of general and valuable waste(year*)

2.3

2

10
0

0
2012

150,000

2013

2014

2015

2016

(year*)

2012

2013

2014

2015

2016

(year*)

5

0

0
2014

2015

2016

(year*)

2012

2013

2014

2015

2016

(year*)*The fiscal year is from April to March of the following year.

17

Toyo Denki Seizo Report 201718

SocialWith Our Customers

With Our Suppliers

The Company makes it one of our business principles to “build trust by focusing on quality first.” As such, we strive
to enhance customer satisfaction through our commitment to thorough-going quality control as we believe delivering safe and secure products and services to customers is the Company’s most important mission.

The Company responds to the needs of our customers through the strong network we have built with suppliers inline with our unique characteristics as a business based on an individual build-to-order/multi-product small lot
manufacturing model.

Quality Control– Providing Safe and High-Quality Products

Year ISO 9001 certification obtained

Yokohama Plant
1994

Shiga Factory
2000

Extended companywide
2007

Towards Just and Fair Procurement
Communication with suppliers

Basic policy on quality control
The Company’s electrical equipment for rail vehicles is installed inmany rail vehicles. These extremely important products play a
direct role in ensuring the safety of human life and property
during rail transportation. In the Industrial Systems and Information Equipment Systems segments as well, the Company’s products and services are used in customers’ production facilities,
development sites and in the field of social infrastructure, andthey form the foundation supporting the sustainable developmentof a society that is safe and comfortable to live in.
In order to ensure the high quality of our products and services, the Company has established a “Basic Policy on Quality
Control” which is deployed at all production bases as we strive tomaintain and improve our human resources education, compliance with rules, and our facilities.
Promotion framework
With regard to quality control, each fiscal year the Company develops policies and the promotion framework aimed at further maintaining and improving quality in each business unit, along withspecific policies pertaining to the reduction of flaws and other issues. The Company’s Corporate Quality Control Division works together with the quality control department or the quality assurance
department in each business unit to put together a report on thestatus of quality control and results in each unit. The report is delivered to top management at the monthly Executive Officer Liaison
Meeting where measures are debated and decided. Furthermore,in the event that a flaw is discovered after a product has been
shipped, the necessary steps are swiftly taken, mainly by the quality assurance department in each business unit, while at the sametime the causes that led to the flaw and its mechanism are investigated, and this information is put into a database so that the information can be shared in-house in an effort to prevent recurrence.

Responding to the Global Market
Proper export controls
The Export Control Department at General Affairs Division is responsible for export management as the export management
control department. We have created a system for the proper
management of exports in order to ensure compliance with thelaws and regulations concerning export management in the countries and regions where we engage in business activities as wellas to avoid involvement in transactions that could hinder the
maintenance of international peace and safety.
The Export Control Department handles cargo and technology
parameters used in determining whether or not export permits are
required, as well as investigation of transactions. In addition, theDepartment carries out employee education and guidance andsupport for Group companies.

The Company has created and operates a quality management
system at its production bases, the Yokohama Plant and the Shiga
Factory, and has obtained ISO 9001 certification.

19

The Company endeavors to maintain proper execution of operations by implementing a variety of training programs for material
procurement officers to deepen their knowledge of the Act against
Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors
and related laws and regulations and to cultivate awareness oflegal compliance.
External whistle-blower system (for suppliers)
The Company has established an external whistle-blower system
to receive consultations or reports on compliance from our suppliers. The legal compliance department handles complaints andconsultations about transactions, and the Company’s retained
lawyer resolves issues when necessary.

Acquisition of International Standards
The Company has acquired International Railway Industry Standard (IRIS)* and China Railway Certification Center (CRCC) certification.
Going forward, we will continue to acquire international standards as we aim to further promote global expansion and sales
growth.
* Acquired for the first time in Japan with our auxiliary power supply (SIV).

Formulation of “Procurement Action Guidelines” (formulated in February 2016)
Procurement Action Guidelines
These guidelines indicate the codes of conduct that the Toyo Denki Group’s executives and employees should observe in the procurementof purchased parts and outsourced parts as required for the manufacturing of products ordered by customers (“procurement transactions”).
1. Procurement transactions shall be carried out in observance of the laws of the relevant countries.

Towards Greater Customer Satisfaction
Good Relations with our Customers

Quality management system

The Company’s products possess various distinctive characteristics such as being individually built-to-order, manufactured in
multi-product small lots, and demanding high reliability. Therefore,
the Company can be affected by the performance of our suppliers
as a result of issues such as delays in supply due to fluctuationsin production quantity or delays in processing due to the quality of
products received.
In order to reduce these risks as much as possible, the Company carries out instruction and support related to quality, technology, and skills for our suppliers, as well as guidance for improvement of manufacturing sites, in order to ensure stableprocurement of even better quality products. In addition, we
actively promote information sharing through the “Toyo Denki
Cooperation Association” to which our leading suppliers belong.

Training for material procurement officers

Information based on customer opinions and requirements obtained by the sales department is periodically reported to the top
management at the executives’ briefing sessions, and that information is shared within the Company. We strive to maintain good
relations with our customers by identifying problems that need tobe solved and swiftly addressing them in order to raise customer
satisfaction.

2. Information concerning suppliers in procurement transactions shall only be obtained within the scope necessary for conducting procurement activities in accordance with contracts. Furthermore, efforts shall be made to carefully manage and observe the confidentiality of
information gained through procurement transactions.
3. Personal interests with suppliers shall be prohibited in procurement transactions, including the lending and borrowing of money.
4. Receiving of support beyond the socially accepted practices or receiving of money or inappropriate gifts or any other forms of personal
rewards from suppliers shall be prohibited in personal transactions. In addition, forceful requests for any of the above from suppliers shallbe prohibited in procurement transactions.

* Inquiries from outside are accepted via the following phone number and e-mail address:

Legal Compliance Department, General Affairs Division +81-3-5202-8121

email address for inquiries to Toyo Denki Seizo K.K.: contact@toyodenki.co.jp
Toyo Denki Seizo Report 201720

SocialWith Our Shareholders and Investors

Contributions to Local Communities

We strive to ensure transparency of management through the timely and proper disclosure of information and various modes of communication in order to receive an appropriate evaluation of the Company from our shareholders
and investors.

We are committed to various social contribution activities, to contribute to society through our business while facilitating our own co-existence with communities and to foster young people who will represent the next generation.

Towards Enhancement of Corporate Value
Basic philosophy
Through timely and appropriate disclosure of information to ourshareholders and investors, the Company accurately conveys ourmanagement policy and business conditions while making use of
IR tools such as our website to promote a full range of IR activities
that contribute to the improvement of our corporate value.
Development of IR activities
IR activities for institutional investors and securities analysts
The Toyo Denki management team holds a financial results briefing each quarterly period to provide opportunities for institutional
investors and securities analysts to understand the summary of
our financial results. The management team gives a report including the state of progress of the medium-term management plan
and an overview and forecast for each segment as well as neworders received and other topics.
In addition, we strive to deepen understanding of the Company
through individual visits to institutional investors or holding factory
tours to provide opportunities for them to actually see our manufacturing sites, as well as participating in small meetings organized by securities companies, and taking other measures.
IR activities for individual shareholders and individual investors
The Company website includes a “For Individual Investors” page
which offers a clear introduction to our business activities and our
results, as well as making available a variety of IR materials.

Dividends
Maintenance of stable dividends forms the basis of the Company’s distribution of profit, and the dividend for the fiscal year ended May 3 1, 2 0 1 7 was 3 0 yen per share (interim dividend of 0yen, fiscal year-end dividend of 30 yen).
Effective as of December 1, 2016, the Company changed thenumber of shares constituting one share unit from 1,000 sharesto 100 shares, and implemented a stock consolidation at the ratioof five shares to one share at the same time. Since the theoreticalvalue per share has increased fivefold as a result of the shareconsolidation, we increased the dividend per share from 6 yen to
30 yen.

To Convey the Mission and Appeal of ElectricalIndustry as Well as of Toyo Denki

we inform the participants of our products as well as our actions
for environmental protection and factory facilities, in an effort tobuild up relationships built on trust with local communities.

Receiving interns
We are committed to activities that raise awareness and appreciation of our manufacturing expertise by accepting interns from local technical high schools and providing them with hands-on experience at manufacturing sites. This internship system serves as
an effective means of recruiting outstanding technical staff on aconsistent basis as some students from these schools apply for
positions at the Company.
Participation in university endowment courses and hands-on courses

Dividend per share
(Yen)

40
30

(30)

(30)

(30)

(30)

6

6

6

6

FY 2012

2013

2014

2015

30

20
10
0
2016

(Share consolidation)

We participated in endowment courses sponsored by the Yokohama Green Purchasing Network so that participants can deepen
their knowledge on history of railway and the environment throughour business activities.
We conduct lectures leveraging the know-how fostered throughoperations and our business activities in on-site training courses
held by educational institutions including universities.

A factory tour

Cooperation with Yokohama Kyodo no Mori Fund
The Company cooperates in small woodlands conservation activities led mainly by the city of Yokohama by donating part of theproceeds from vending machines installed at the Engineering
Center of the Yokohama Plant to the fund.
Cleanup campaigns within the vicinity of the production bases

Record of 156th Ordinary General Meeting of Shareholders
Date held: Tuesday, August 29, 2017
Attendance: 127 people

In cooperation with neighboring companies, we conduct cleanup
campaigns within the vicinity of the Yokohama Plant and theShiga Factory.

URL “For Individual Investors”
https://www.toyodenki.co.jp/ir/individual.php
Holding of factory tour for shareholders
Friday, April 14, 2017 at the Yokohama Plant
Attendance: 32 people

Endowment course at a university

Factory tours

Cleanup campaign(Yokohama Plant)

Cleanup campaign(Shiga Factory)

We are conducting “factory tours” to provide opportunities formembers of local communities to actually see our manufacturing
facilities and products in order to develop deeper understanding
about the business operations of the Company. During these tours,
President Terashima making a presentation (at the factory tour for shareholders)

21

Toyo Denki Seizo Report 201722

SocialWith Our Employees

Creating a Pleasant Workplace

The Company seeks to cultivate a dynamic corporate culture and to create a pleasant and safe workplace where
each and every employee can unleash his or her diverse capabilities.
Education and training system

Towards the Development of Human
Resources with Competitive Strengths

Training programs at the Company
are divided into several categories
according to the employee’s yearof service, type of work and role,and training is carried out after
clarifying what part each employee is expected to play.
Training for new employees
Furthermore, for the purpose of developing human resourcesthat support global development, we offer an overseas trainee program and various language programs tailored to the level of participating employees.
To maintain high quality and pass on outstanding technologies
and skills, the Company works on education on maintenance andimprovement of expertise individually at each division and encourages employees on a company-wide basis to obtain public certifications.
Furthermore, employees with exceptional manufacturing skills or
expertise are recognized as “Technical My Star” internally and given
responsibility to instruct and train younger employees. At the Technical Training Center, established within the Yokohama Plant, training is carried out for technical staff through lectures and various
hands-on workshops.

Human resources development policy
The Company has set the following policy on human resources
development and carries out education and training under the education and training system diagram as shown below.
Human Resources Development Policy(1)	To develop human resources who understand and practiceour business principles and code of conduct and who are ofvalue both as company employees and as members of society.
(2)	To develop human resources who are professionals, eachpossessing a high degree of specialized expertise, by enhancing the knowledge, techniques, and skills they need tocarry out their duties.
(3)	To provide a variety of educational opportunities in order topromote personal development, with emphasis on a self-directed approach to study and growth.

Education and training system diagram
Level-specific education and training(Human Resources Division)

Support for acquiring certifications
necessary for operation of business andoffices as well as execution of duties

OJT

Under the “Company-Wide Safety and Hygiene Management Policy,” formulated every fiscal year, the Company holds the Safety andHygiene Committee monthly at each office, where annual plans are
drawn up and ongoing discussions are held in order to build a safe
working environment, to reduce workplace injuries to zero and tofind solutions to issues, including mental health. In addition, theCompany holds the “Company-Wide Safety and Hygiene Committee” every quarter to promote sharing of information between offices as well as between Group companies.
Acquisition of the “Kurumin” certification logo (June 2014)
In recognition of our efforts as a “company that
supports child-rearing,” which includes a substantial childcare system, educational activities concerning a work-life balance, the creation of an environment in which it iseasy to obtain childcare leave, and the acquisition record of childcare leave by male employees, we received the “Kurumin” certification logo from the Tokyo Labor Bureau in June 2014.
Initiatives for diverse work-styles
The Company has implemented a flexible work-style including a
flextime system for sales staff and those involved in development.
Furthermore, in order to encourage retention and utilization of
employees with knowledge and skills, we have put in place the“System for Rehiring Employees” for employees who have resigned due to life events that occur in the course of their career(childbirth, childcare, family care, spouse’s transfer, etc.), so thatthey can be rehired when they reach the stage when it is possible
to return to work.
As for employees who wish to be rehired after they reach themandatory retirement age (60), in principle, we continue to employ them until the age of 65.

The Company makes improvements to the workplace environmentand carries out workplace training with the aim of creating aworkplace where the disabled and those in normal health canwork together energetically. We also promote collaboration withlocal governing agencies and special-needs schools regarding
employment of the disabled.
Mental health measures
As measures to address mental health, the Company conducts“Line care training” for administrative professionals and “Self caretraining” for employees. In addition, we have partnered with an
external medical institution to set up a telephone and e-mail consultation service to provide support for prevention, treatment, andreturn to work.
Implementation of employee satisfaction survey
The Company conducts an “employee satisfaction survey”
once per year, and relevant departments work to resolve
various issues extracted from the survey results. In addition,
the company-wide “Dynamism Committee,” whose purpose
is to create a “dynamic corporate culture,” leads various
activities aimed at revitalizing internal communication.
Response to the Act on Promotion of Women’s Participation and Advancement in the Workplace
In accordance with The Act on Promotion of Women’s Participation and Advancement in the Workplace (Women’s Advancement
Promotion Act) that was enacted on April 1, 2016, the Company
is formulating an action plan to create an environment where
women can continue working with a sense of security as they advance their careers.

Work and family life balance

Other

Audit

SafetyOperation chief

Field

Skill

Technology

Sales

I am struggling every day, feeling grateful for the understanding of colleagues at work.
Chika Yamaya (China Sales Division, Transportation Business Unit)
Skill

Technology

Sales

Staff

Introductory training
Correspondence course for unofficial new hires (graduates)

Expansion toother divisions

Staff

Training in business manners

Education including
computer operation

Skill

I. Common basic course
II. Speciality basic course
III. Workplace hands-on learning

Technology

Basic technical training

Technical education
for the first year

Sales

Practical training

Division education and training
Maintenance andimprovement ofexpertise

Staff

Follow-up training (First year)

Support for correspondence training

Follow-up training (Fifth year after graduation from high school)

Follow-up training (Second year) Follow-up training (Third year after graduation from high school)

On site hands-on learning

23

Regular new hires(Clerical staff)

Support for language training (TOEIC, e-learning, sending employees to English conversation classes and others)

Non-managerial employees

Follow-up training (Third year)

Regular new hires(Technical staff)

Seminars outside the company

Job Instruction (JI), Training Within Industry (TWI)

Regular new hires(General staff)

Overseas trainees

Pre-promotion training for workplace overseers:

Training for transmission, maintenance and improvement of advanced expert skills (My Star Recognition Committee)

Mid-career hires

Training for workplace overseers:
Job Instruction (JI), Job Relations (JR), Training Within Industry (TWI)

Training for maintenance and improvement of specific technologies, common technologies and patent technologies (Engineer Development Committee)

Pre-promotion training for senior general staff

Training for improvement of innovative thinking capability

Deputydepartment heads

Comprehensive training for newly appointed senior general staff: basic financial training, coaching training

Support for acquiring certification (Chief Electricity Engineer, Electrician, Information Technology Engineer, bookkeeping, business law)

Pre-promotion training for managers

Support for fostering specialists (Doctor of Engineering, Master of Business Administration (MBA), Management of Technology (MOT) and Professional Engineer)

Training for newly appointed managers and professionals: evaluator training, basic financial training, coaching training

Inspection program for foreign affairs

Department
heads

Training for third-year managers and professionals

Mental health training

Divisionheads

Training for newly appointed division heads

Life-planning training (including DC)

Executives

Executive training

Support for
self-development andacquisition of certification(Human Resources Division)

Individual training(Human Resources Division)

Safety and hygiene initiatives

Initiatives for employment of the disabled

I returned to duties at the China Sales Division, where I had been assigned previously, in May 2017 after having taken maternity and childcare leaves of about one and a half years.
It was a natural choice for me to continue working after I had a child,probably because I had grown up looking at the back of my working
mother. However, I had a rough time in finding a day nursery, and now I
work by leaving my child in a non-certified nursery. At first, I was anxious about leaving her at a nursery for many hours. However, such anxiety was blown away as I watched my daughter pleasantly go to nurserywith a smile every day. Now, both my daughter and I live each day tothe fullest.

In fact, my husband is also an
employee of the Company. Thanks
to understanding at workplace ofeach other, we are tiding over
hard times. For example, when our daughter runs a fever, we take aleave by turns. With no relatives around to turn to, such cooperationfrom my husband is a great help as we both work. I will try my best in
confronting the work, so that I can not only fulfill my roles as a parent
but also contribute to society as a person, while continuing to cooperatewith my husband in rearing our daughter.

Toyo Denki Seizo Report 201724

Governance

External Statutory Auditors and Outside Directors

In an effort to continuously enhance its corporate value, the Company is striving to ensure transparency ofmanagement and compliance, along with the maintenance and operation of an adequate governance framework while reinforcing its risk management framework.

Business Principles

Code of Conduct
1. Respond to customers in a timely and speedy mannerPrioritize ethics and contribute to the prosperityof customers and society as a whole

2. Tackle all challenges with forethought and creativity
3.	Continuous efforts toward self-development and skill improvement
4.	Keep a broad perspective and influence each other toward growth

Encourage creativity and enterprisingspirit to meet the challenges of the future
Build trust by focusing on quality first

Corporate GovernanceOur philosophy of corporate governance
The Group’s business activities are based on the business principles that “prioritize ethics and contribute to the prosperity of customers and society as a whole.” We therefore strive to attainsound corporate management through strengthening and reinforcing corporate governance, fully appreciating the significanceof compliance based on corporate ethics. At the same time, we
review as appropriate our management monitoring system to ensure its conformity to the changes in the business environment
including social environment and relevant legislation.
Corporate governance
We have corporate bodies established in accordance with laws
and regulations as well as the Articles of Incorporation, including
the General Meeting of Shareholders, Directors and the Board of
Directors, Statutory Auditors and the Board of Statutory Auditors,
and Accounting Auditors. At its regular monthly meetings as well
as extraordinary meetings held when appropriate, the Board of
Directors, which is composed of eight Directors including two
Outside Directors, discusses and decides on important management matters such as reports on Directors’ business execution
and matters to be decided solely at the discretion of the Board of
Directors, while supervising Directors’ business execution. In addition, the Company has meeting bodies including the Manage-

25

5.	Act with awareness and pride of a good member of society andbusinessman
Established in June 2001

ment Strategy Meeting and Executive Officer Liaison Meeting.
Through these bodies, specific matters related to their executionof duties are reported to the President by the general managers
of business execution departments, and critical management
matters including those subject to the deliberation of the Board of
Directors are deliberated and discussed preliminarily. As for thematters discussed at meetings, matters subject to the deliberationof the Board of Directors are decided by the Board of Directors
and other matters are decided by employees with business execution authority through means such as circulars based on theManagement Authority Rules.
Internal audit and statutory auditor’s audit
Action plans and results of internal audits are reported to theBoard of Directors and Statutory Auditors by the Audit Division, as
part of an effort to reinforce corporate governance. Statutory Auditors hold preliminary meetings with Accounting Auditors after
the Ordinary General Meeting of Shareholders to exchange opinions regarding the audit plan. Statutory Auditors receive the results of quarterly reviews from Accounting Auditors both verballyand in writing, and confirm their action plans (if required by thereviews) to be taken at a fiscal year-end audit. Statutory Auditors
also receive the results of the reviews on the fiscal year-end audit
from Accounting Auditors in a statutory document along withverbal reviews. Furthermore, Statutory Auditors are in principle
required to be present at inventory taking or on-site inspection at
subsidiaries by Accounting Auditors.

The Company has established independence guidelines regarding independence required for a candidate for its Outside Executive, andappoints Outside Directors and External Statutory Auditors who haveexcellent insight in their areas of expertise. Currently, the Company appointed two Outside Directors and three External Statutory Auditors.
Note that each of the External Statutory Auditors is playing a role toenhance audit functions required by laws and regulations while remaining independent from the Company.
Mr. Hirokazu Chinone, our Outside Director, is qualified as a lawyer
and provides useful advice regarding management in general, drawing
on his specialized knowledge regarding corporate law and his wealthof experience developed throughout his career.
Mr. Takashi Yamagishi, our Outside Director, provides useful advice
regarding management in general, drawing on his wealth of corporate
management experience in Japan and overseas and his superior expertise.
Mr. Hiroshi Hamano and Eiichi Suzuki, our External Statutory Auditors, are engaged in the auditing activities for the Company, drawing
on their wealth of experience and knowledge of audit developed incorporate management and service at financial institutions.
Mr. Yoshinori Kawamura, our External Statutory Auditor, was newly
appointed as an External Statutory Auditor at the 156th Ordinary General Meeting of Shareholders (August 29, 2017). He serves as Professor of Faculty of Commerce, Waseda University, with experiences as
Secretary and Special Member of the Business Accounting Council of
the Financial Services Agency, and an examiner of the Certified Public
Accountant Examination, etc. We look forward to his auditing activities,

drawing on his expertise regarding corporate finance and accounting
developed thus far.
The Company has appointed Mr. Hirokazu Chinone, Mr. Takashi Yamagishi and Mr. Yoshinori Kawamura as independent directors andregistered them as such at Tokyo Stock Exchange, Inc.
Executive Remuneration
Total amounts of remuneration for Directors and Statutory Auditors are
decided by a resolution at the General Meeting of Shareholders. Basic
remuneration for Directors is a fixed salary while a bonus is payable asdetermined by each Director’s contribution to management as well as
business results of the Company. Basic remuneration for both Standing and Part-time Statutory Auditors is a fixed salary without bonus
payments.
(As of the end of May 2017)
Number of
executives
applicable

Total amount of
remuneration(Unit: Million yen)

Directors(excluding Outside Directors)

8

145

Statutory Auditors(excluding External Statutory Auditors)

1

14

Outside Executives(Outside Directors and External Statutory Auditors)

5

38

Category of executives(Note) The number of executives applicable mentioned above includes one Director who retired fromoffice at the end of the 155th Ordinary General Meeting of Shareholders held on August 26,
2016.

Corporate governance framework
General meeting of shareholders
Appointments/dismissals

Accounting Auditors

Reporting

ReportingAppointments/dismissals

Board of Statutory Auditors

Legal audit

Appointments/dismissals Reporting on business execution

Business audit

Accounting audit

President

Reporting/decisions
Instruction/reporting

Audit DivisionInternal Control Committee
Internal audit(Secretariat)
General Affairs Division(Contact for whistle-blowers)(Contact for legal consulting)
Legal counsel(Contact for whistle-blowers)

Appointments/dismissals

Directors

Statutory Auditors
Reporting

ReportingBoard of Directors

Appointments/
reporting/recommendations
Whistle-blowings
Oversight
Whistle-blowings

Management Strategy Meeting
Executive Officer Liaison Meeting
National and Global Group Company Meetings

Appointments/
dismissals

Instruction/reporting

Directors and Executive Officers
Instruction/reporting

Each business department

Instruction/
reportingInstruction/reporting

Each Group company

Toyo Denki Seizo Report 201726

GovernanceInternal Control and ComplianceInternal Control
The Company views the development and operation of an internal control system to be an important management issue, and it has developed
an efficient, legal and appropriate business execution system pursuant
to Article 362 of the Companies Act and Article 100 of the Ordinancefor Enforcement of the Companies Act. The Internal Control Committee
established under the Board of Directors reviews the operational statusof the internal control system and will revise it as necessary.
Principles of compliance
The Company has set “1. adherence to rules,” “2. observance ofconfidentiality,” “3. distinction between private and public matters,” “4. strictness with money,” “5. prohibition of side jobs,” and“6. prohibition of discriminatory and sexually suggestive statements or behavior” as principles of compliance.

Risk Management
Basic policy
The Company is engaged in developing rules and a framework for risk
management according to the Basic Rules for Risk Management established in August 2006.
Promotion framework
The Company has established the Internal Control Committee under the
Board of Directors, chaired by the President. It analyzes and assesses
all the risks that exist in the Group and develops an effective risk management framework capable of dealing precisely with the risks of thetypes and degrees that the Group is exposed to. The committee specifically reviews risk verifications and countermeasures, and periodicallyreports details of its deliberations to the Board of Directors.
Furthermore, the committee is committed to enhancing the Groupwide risk management framework in accordance with the Basic Rules
for Risk Management.

Compliance promotion framework
To focus on business principles and fulfill its social responsibility,
the Company has provided all officers and employees with a copyof the Compliance Manual (Toyo Denki Seizo Ethical Standards)
that stipulates its code of conduct. The move is part of an effort tohave the code and the basic rules of work fully known.
The Company has also introduced a whistle-blowing systemthat allows employees to provide information directly to the management. The system is aimed at ensuring that any illegal orinappropriate conduct within the Company is detected at theearliest possible stage and that adequate measures are taken
promptly and as needed so that such conduct is rectified.
Compliance education
The Company is organizing scheduled and systematic training
sessions based on a compliance training master plan to enhanceknowledge on compliance while promoting a conscious respect
for corporate ethics.

27

Information Security
Basic policy
The Company holds a vast amount of information assets including
information presented by customers related to its businessexecution and confidential information concerning the Group’s
proprietary technologies and its trade. Each Group company istaking various measures in this respect based on an awarenessof shared security under the Group’s Information Security Guidelines, which have been established to adequately manage anduse these information assets.
Information security training
The Company is conducting educational activities to develop
information security awareness among all employees including
various training sessions, some involving the use of educational
DVDs.

Risk Factors
From the perspective of proactive information disclosure, theGroup intends to disclose a wide range of recognizable risks. Major risks that may affect its earnings and financial position are set
out below. The Group aims for thorough understanding of theserisks in order to establish a necessary risk management framework designed to prevent the risks from materializing or minimize
the impact of risks if they do materialize.
(1) Business activities, business structure, economic trends, and other factors
The Group’s sales heavily rely on the Transportation Systems
and Industrial Systems segments. Its customers conduct business operations at home and overseas. As such, businessclimates and individual spending conditions in different
countries may affect the Group’s business performance.
(2) Production bases
The great majority of the Group’s production bases are locatedin the Kanto area. Production capacity may be severely affected by large-scale disasters in the area.
(3) Intensifying competition
The Japanese market for the Transportation Systems segment
has matured and thus faces intensifying competition. The Industrial Systems segment is under pressure from intensifying
competition for product development. The Group’s businessperformance may be affected by such intensifying competition.
(4) Product quality
Defects in products may link to materialization of a risk that
requires large-scale compensation for damages. The possibility exists that insurance may not be able to cover associatedcosts, which may affect the Group’s business performance.
(5) Product development
With a view to providing attractive products to customers, theGroup applies itself to gathering information about customer
needs and leverages it in the development of new products to
support its future growth. However, delays in the developmentof new products to respond to rapid technological or environmental changes may affect the Group’s performance.
(6) Material procurement
Owing to the fact that the Group’s business has various distinctive characteristics, some of the materials it procures are noteasily available due to factors such as a limited number of suppliers. Delays in supply or discontinuation in production of suchmaterials may affect the Group’s performance. In addition, disruptions to the entire supply chain caused by a large-scaledisaster or other incidents could impact the Group’s operations.

Moreover, its business may be affected by the fluctuation in
prices of raw materials, notably steel products and copper.
(7) Overseas expansion
The Group proactively pursues the expansion of overseas
operations including the Chinese market. Its performance may
be affected by major changes in situations overseas.
(8) Intellectual property rights
The Group attends to the protection of intellectual property
rights. However, amid drastically advancing technical innovations and accelerating globalization of business, the Group isinevitably exposed to potential disputes with third parties overintellectual property rights. If a dispute occurs, the Group’sbusiness may be affected.
(9) Business alliances
With the aim of business expansion and enhancing competitiveness, the Group proactively pursues various alliances withthird parties. However, if these alliances do not deliver expected results due to a failure in forging favorable relationships
with partners, the Group may face an impact on its performance.
(10) Exchange rate fluctuations
On the back of aggressive expansion into overseas markets,
the Group will inevitably face heavier impact of foreign currency exchange rate fluctuations on its earnings as itincreases foreign currency denominated transactions.
(11) Holding assets
Fluctuations in the fair value of assets held by the Group may
affect its performance.
(12) Financing
The Group’s financing programs may be affected by unexpected changes in financial conditions.
(13) Information security
The Group retains customer information related to its businessexecutions. Also, it possesses various types of confidential information concerning the Group’s proprietary technologies andoperations. If these information assets leak outside the Groupfor unforeseeable reasons, it may impact its performance.
(14) Compliance
The Group proactively pursues expansion in overseas operations, particularly the Chinese market; therefore its operations are subject to the laws and regulations of each country.
Although the Group has established and conducts a robust
compliance system, its operations are still at risk from the effects of unforeseeable events.
(15) Litigation
If the Group becomes the subject of any legal action or otherlegal procedures, its business may be affected.
Toyo Denki Seizo Report 2017

28

Data
Environmental Data

Data Concerning Personnel and Labor

Indices

Data concerning personnel and labor (at Toyo Denki Seizo K.K.)
Item

Unit

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

791

797

804

824

832

735

737

740

761

768

56

60

64

63

64

7.1

7.5

8.0

7.6

7.7

152

156

151

155

150

151

155

149

151

146

1

1

2

4

4

%

0.7

0.6

1.3

2.6

2.7

41.0

41.1

40.5

40.4

40.4

Age

41.1

41.2

40.7

40.4

40.4

Total
Men

Number of employees

Persons

Women%

Ratio of female employees
Total
Men

Number of administrative professionals

Persons

Women
Ratio of female administrative professionals
OverallMen

Average age

Women

38.9

39.0

38.7

39.5

40.1

Overall

16.1

16.3

15.8

15.4

15.2

16.3

16.5

15.9

15.5

15.2

14.5

14.5

14.5

14.1

14.8

Men

Average years of employment

Years

Women
Average annual salaryYen

5,885,559

5,750,453

5,888,577

6,024,175

5,990,250

Overturn rate (within 3 years of joining the Company)

%

3.8

7.7

0.0

3.4

2.0

Number taking childcare leave

Persons

3

4

5

7

9

Number taking family care leave

Persons

0

0

0

0

0

Number of temporary staff (including part-timers)

Persons

167

158

153

160

152

Notes

Electric power (10,000 kWh)Solar power generation (kWh)Urban gas (1,000 Nm3)

Water input (1,000 m3)

Water output (1,000 m3)CO2 emissions (t)Indices
Total amount of air emissions (kg)
Total amount of shift (kg)
Total amount of
air emissions
Ethylbenzene (kg)
Total amount of
shift
Total amount of
air emissions

Reference data I: Number of Officers (at Toyo Denki Seizo K.K.)
Unit
Total
Men

Number of Officers

Persons

Women
Notes

Xylene (kg)Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

10

11

12

13

13

10

11

12

13

13

0

0

0

0

0

Total amount ofshift

PRTR *5

Total amount of
Tetrahydromethylphthalic air emissions
anhydride(kg)
Total amount ofshift

For each fiscal year as of May 31 Executives include Directors and Statutory Auditors (including Internal and External)

Total amount of
air emissions

Reference data II: Number of employees at the Group Companies in Japan and overseas (at the 6 consolidated subsidiaries of Toyo Denki Seizo K.K.)
Item

Unit

Fiscal 2012

Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016

Persons

1,170

1,201

1,216

1,245

1,262

Number of employees at Group companies in Japan and overseas Persons

379

404

412

421

430

Number of temporary staff on a consolidated basis(including part-timers; stated in the Annual Securities Report)

Persons

256

255

214

274

233

Number of temporary staff (including part-timers)

Persons

89

97

61

114

81

Number of employees on a consolidated basis

Notes

Toluene (kg)
Total amount of
shift

IndicesIndustrial waste (tons)

Reference data III: System for support of work-family balance (at Toyo Denki Seizo K.K.)

Maternity andchildcare related

Family care related

Other

29

Can be taken from 8 weeks prior to due date (14 weeks prior in the case of multiple births).
(6 weeks is required by law)

Maternity leave

Can be taken for up to 8 weeks after the following day of birth.

Childcare leave

In principle, childcare leave can be taken for a period as needed from the day after 8 weeks have elapsed since birth (completion of maternity leave), until
the day before the child turns 1 year old. In cases where it is difficult to find a place in daycare, etc., it is possible to apply for an extension of childcare
leave until the child is 1 year and 6 months, or until the last day of the month of March after the child has reached the age of 1 year, whichever is longer.

If an employee has taken childcare leave within 8-week period after his spouse has given birth, he may take repeat childcare leave until the
Repeat childcare leavechild reaches one year of age. Further if the employee and spouse both take childcare leave, the period of childcare leave can be extended(Mom and Dad Childcare Leave Plus)
until the child reaches 1 year and 2 months.

Fiscal 2014
684.3
651.8
32.5
30.1
67.6
284.7
284.7
14.1
14.1
0.0
14.1
14.1
0.0
4,265.0
4,095.0
170.0
180.0

Fiscal 2015
648.8
617.8
31.0
26.6
63.6
286.0
286.0
15.2
15.2
0.0
15.2
15.2
0.0
3,924.0
3,759.0
165.0
152.0

Fiscal 2016
647.2
615.6
31.6
26.7
62.8
294.1
294.1
15.2
15.2
0.0

Fiscal 2013
8,300
5,290
2,000
2,000
0
430
430
0
3,300
3,300
0
360
360
0
0
0
0
2,900
2,900
0
3,000
3,000
0
1,600
1,600
0

Fiscal 2014
7,900
6,120
2,000
2,000
0
670
670
0
3,400
3,400
0
550
550
0
0
0
0
2,500
2,500
0
2,500
2,500
0
2,400
2,400
0

Fiscal 2015
7,700
5,260
2,200
2,200
0
470
470
0
2,600
2,600
0
390
390
0
0
0
0
2,700
2,700
0
2,900
2,900
0
1,700
1,700
0

Fiscal 2016
7,000
5,800
2,400
2,400
0
600
600
0
2,100
2,100
0
400
400
0
0
0
0
2,800
2,800
0
2,500
2,500
0
2,000
2,000
0

Remarks

Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory

Fiscal 2012
7,300
4,810
1,800
1,800
0
330
330
0
2,900
2,900
0
280
280
0
0
0
0
3,000
3,000
0
2,600
2,600
0
1,200
1,200
0

Applicable premises
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory

Fiscal 2012
279.9
244.1
35.8
101.9
101.9
255.6
255.6
637.3
601.5
35.8
435.2
435.2
5.0
5.0
0.8
0.8
-

Fiscal 2013
290.3
262.0
28.3
99.3
99.3
290.9
290.9
680.5
652.2
28.3
462.4
462.4
5.9
5.9
0.9
0.9
-

Fiscal 2014
333.4
303.1
30.3
105.4
105.4
274.1
274.1
712.9
682.6
30.3
598.2
598.2
9.0
9.0
1.3
1.3
-

Fiscal 2015
355.0
335.9
19.1
98.4
98.4
246.2
246.2
699.6
680.5
19.1
584.0
584.0
2.3
2.3
0.8
0.8
-

Fiscal 2016
334.1
308.7
25.4
115.8
115.8
109.6
109.6
559.5
534.1
25.4
477.2
477.2
5.0
5.0
0.9
0.9
-

Remarks

15.2
0.0
3,895.0
3,734.0
161.0
158.0

Remarks

*1
*3

*2

*2

*4

Applicable premises

Waste Data

As of May 31 for each fiscal year

Prenatal leave

Fiscal 2013
664.8
628.5
36.3
27.9
67.5
284.0
284.0
14.2
14.2
0.0
12.3
12.3
0.0
4,122.0
3,936.0
186.0
168.0

PRTR Data* Number of regular employees including Executive Officers, and number of special employees, temporary employees, contract employees and staff on loan from other companies, etc.

Item

Fiscal 2012
624.1
590.9
33.2
31.2
43.4
252.0
252.0
19.9
19.9
0.0
13.9
13.9
0.0
3,456.3
3,307.3
149.0
169.0

Applicable premises
Production bases total
Yokohama Plant
Shiga FactoryNon-production bases total
Based on 500 kW generator Yokohama Plant
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga Factory
Production bases total
Yokohama Plant
Shiga FactoryNon-production bases total

General waste (tons)

Valuable metal waste (tons)

WastesWaste output () (tons)

Recycled amount (tons)

Shorter working hours forchildcare

Working hours may be set at 5 hours 45 minutes or 6 hours 45 minutes per day for a period as needed from the end of childcare leave until
the child graduates from elementary school.

Volume of landfill waste (tons)

Nursing leave

Up to 5 special days off (by day or half day) may be taken per family member each leave year for nursing care for pre-elementary school age
children.

Percentage of landfill waste (%)
Yearly comparison

Family care leave

A total of up to 3 years of family care leave may be taken per subject family member, and the leave can be divided into up to 3 parts.

Family care work hours

Separately from family care leave, employees may use short working hours for family care twice or more during the 3-year period from thestarting of use (Working hours may be set at 5 hours and 45 minutes or 6 hours and 45 minutes per day).

System for Rehiring
Employees

Employees who have resigned due to marriage, infertility treatment, childbirth, childcare, family care, or spouse’s transfer, etc., may be rehired
when they are able to return to work depending on the employee’s request and workplace needs.

*6

*6

*6

*6

*The fiscal year is from April to March of the following year. *Non-production bases: Toyo Denki Seizo Head Office, Osaka Branch, Nagoya Branch, Hokkaido Branch, Kyushu Branch, Hiroshima Branch*4 Production activities at Shiga Factory recorded close to zero water output.
*1 ISO 14001 certification was obtained for non-production bases in June 2010.
*2 Production activities at Shiga Factory recorded close to zero water input.
*5 PPTR: Pollutant Release and Transfer Register*3 500 kW solar panel became operational in July 2012.
*6 The recycled amount and the volume of landfill waste at the Shiga Factory are scheduled for investigation starting in fiscal 2015.

Toyo Denki Seizo Report 201730

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 201756

Reference Data for Management Indices2016

Cash flows from operating activities (Unit: Million yen)

2015

2016

FY 2012

Cash flows from investing activities (Unit: Million yen)
2013

2014

2015

2013

2016

2014

2015

FY 2012

2016

2013

2014

2015

Net sales by region
Japan

FY 2012

57

China

2013

Others

2014

927
2016

18
(1,199)(4,691)
2013

2015

1,505

1,135

1,514
1,069
FY 20122014

Cash flows from financing activities (Unit: Million yen)155

(1,457)

(753)

3,621

FY 2012

897
665

850

2014

801

916
2013

881

1,000
FY 2012

2,868

2015

(1,341)

2014

(937)

902

2013

969

612

1,296
FY 2012

Research and development costs (Unit: Million yen)

868

Depreciation and amortization (Unit: Million yen)

(988)

(Unit: Million yen)

4,606

Capital investment 

1,144

Report of Independent Auditors

2016(Unit: Million yen)Overseas net sales ratio

2015

FY 2012

2013

2014

2015

2016

Japan

23,34025,39824,54727,09428,006

China

5,495

7,118

11,634

8,374

5,882

Others

1,738

2,440

3,435

4,277

6,778

Total

30,57534,95739,61739,746

40,668Overseas net sales
ratio

23.7%

27.3%

38.0%

32.0%

31.1%

2016

Toyo Denki Seizo Report 201758

Company Profile (as of May 31, 2017)

Executive Profiles (as of August 29, 2017)

Company Profile
Company NameTOYO DENKI SEIZO K.K.
(TOYO ELECTRIC MFG. CO., LTD.)

Established

June 20, 1918

Capital4,998,390,000 yen

Number of Employees

1,262 (Consolidated) 832 (TOYO DENKI SEIZO K.K.)

Head Office

Tokyo Tatemono Yaesu Building,
1-4-16, Yaesu, Chuo-ku, Tokyo, 103-0028, Japan
TEL +81-3-5202-8121 (General Affairs Division)
https://www.toyodenki.co.jp/

Hokkaido Branch

Stock Exchange Listing

The Tokyo Stock Exchange, First Section

Code Number

6505

Number of Shares Authorized

36,000,000 shares

Number of Shares Issued

9,735,000 shares

Number of Shareholders

6,349

President,
Representative Director

Kenzo Terashima
Sendai Branch
Niigata Branch

Yokohama Branch
Shiga Factory
Nagoya Branch
Hiroshima Branch Osaka Branch
Kyushu Branch

Subsidiaries and Affiliates (as of September 1, 2017)
TOYOKOUKI Co., Ltd.

Senior Managing Director,
Representative Director

Senior Managing
Director

Masami Tsuchiya

Hiroshi Shimotakahara

Managing Director

Kenichi Gotoh

Headofficebuilding

Taihei Electric Co., Ltd.
Toyo Sangyo Co., Ltd.
TD Drive Co., Ltd.
Toyo Shoji Co., Ltd.
TOYO DENKI USA, INC.

Okinawa
BranchToyo Denki (Beijing) Co., Ltd.
Taiping Zhanyun Automatic Door (Changzhou) Co., Ltd.

Director

Director

Director (Outside)

Director (Outside)

Akihiko Ishii

Akira Watanabe

Hirokazu Chinone

Takashi YamagishiStanding Statutory
Auditor (External)

Standing Statutory
Auditor

Statutory Auditor(External)

Statutory Auditor(External)

Yoshihiko Yoshino

Eiichi Suzuki

Yoshinori Kawamura

Hunan Xiangyang Electric Co., Ltd.
Changzhou Ruiyang Transmission Technology Co., Ltd.
Beijing Jingche Shuangyang Traction System Co,. Ltd
Chengdu Yonggui Toyo Rolling Stock Equipment Co., Ltd.

Yokohama plant

Beijing Jingche Shuangyang Traction System Co., Ltd.

Changzhou Ruiyang Transmission Technology Co., Ltd.
Chengdu Yonggui Toyo Rolling Stock Equipment Co., Ltd.
TOYO DENKI SEIZO K.K. DELHI LIAISON OFFICE

Toyo Denki (Beijing) Co., Ltd.

TOYO DENKI USA, INC.

Hiroshi Hamao

Taiping Zhanyun Automatic Door (Changzhou) Co., Ltd.
Hunan Xiangyang Electric Co., Ltd.
TOYO DENKI SEIZO K.K. Bangkok Representative OfficeSenior Executive Officers Shuji Horie
Executive Officers

59

Toshihiko Akihiro

Yoshifumi Otsubo
Tetsuto Iwaki

Kenji Tanimoto
Yukimasa Tanabe

Yuji Nagano
Kenji Fujiwara

Toyo Denki Seizo Report 201760

Organization Chart (as of September 1, 2017)

Stock Related Information
Management Planning Division
Group Administration Office
General Affairs Division

Human Resources Division
Financial Affairs DivisionCorporate Quality Management Division
Personnel Affairs Committee

National and Global Group
Company Meetings

Executive Officer Liaison
Meeting

Management Strategy
Meeting

President

Board of Directors

Purchasing Division

Business Development Division

Transportation Business Unit
Audit Division
Ryuoh Factory Integration Division

Office of
Auditors

Statutory
Auditors

Internal Control Committee

Board of
Statutory
Auditors

General Meeting of Shareholders

Corporate Production Planning Division

Industry Business Unit

IT Business Unit

Research Laboratory
Yokohama Plant
Shiga Ryuo Plant
Osaka Branch
Nagoya BranchManagement Planning Department
PR, IR and CSR Department
Information Systems Department
General Affairs Department
Legal Compliance Department
Export Management Department
Human Resources Department
Education and Development Department
Finance and Accounting Department
Group Administrative Control Department
Planning and Research Department
Quality Management Department 1
Quality Management Department 2
Production Planning Department
Production Innovation Department
Production Engineering Department
Planning and Research Department
Procurement Department 1
Procurement Department 2
Procurement Department 3
Logistics Department
Development Promotion Department
EV Systems Department
Transportation Business Planning Division
Japan Sales Division
JR Group Sales Division
Commuter Rail and Subway Sales
Osaka Sales Division
Nagoya Sales Division
Engineering Division
China Sales DivisionInternational Sales Division
India Promotion OfficeInternational Project Division
Development Division
Transportation Systems Works
Production Management Division
Design Division
Quality Assurance Division
Manufacturing Division
Industrial Systems Planning Division
Domestic Sales Division
Osaka Sales Division
Nagoya Sales Division
Global Sales Division
Engineering Division
Development Division
Industrial Systems Works
Production Management Division
Design, Development & Engineering Division
Quality Assurance Division
Shiga Factory
Manufacturing Division
Information Systems Planning Division
Information Systems Sales Division
Osaka Sales Division
Monitoring and Control Systems Development Division
Information Systems Works
Design Division
Quality Assurance Division
Engineering Management Division
Engineering Research Division
Administration Division
Administration Division

Kyushu Branch
Hokkaido Branch

61

Number of shares (As of May 31, 2017)
Number of shares authorized

36,000,000

Number of shares issued

9,735,000

Number of shareholders

6,349

Distribution of shares by type of shareholder
Treasury stock
1.45%

Major shareholders
Shareholders
East Japan Railway Company
TOYOTA INDUSTRIES CORPORATION
Employees Stock Ownership PlanNIPPON LIFE INSURANCE COMPANY
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
BNP PARIBAS SECURITIES SERVICESLUXEMBOURG/JASDEC/HENDERSON HHF SICAV
Masayoshi Yamauchi
Hitachi, Ltd.
Toyo Denki Subcontractor Factories
Shareholding Association
The Bank of Yokohama, Ltd.

Number of shares held
% of(Thousands)
total shares held
480
5.08
420
4.44
409
4.33
337
3.57
270
2.86
259

2.74

246
220

2.60
2.32

217

2.29

207

2.19

(Note) T he percentages of total shares held are calculated excluding 290,000 treasury stocks held by
the Company.

Financial instruments
business operators
2.99%

Foreigncorporations, etc.
6.80%
Financial
institutions
19.85%

Other
corporations
25.27%

Individuals
and others
43.64%

Share consolidation and change to the number of sharesconstituting one share unit
Effective as of December 1, 2016, the Company implemented ashare consolidation (five shares consolidated into one share) andrevised the number of shares constituting one share unit (from1,000 shares to 100 shares).

Transition of share price
Share price

Before stock consolidation
(Yen)

600

Before stock consolidation(Yen)

Stock consolidation (5:1)

After stock consolidation(Yen)

Stock consolidation (5:1)

After stock consolidation
(Yen)

3,000

600

3,000

400

2,000

400

2,000

200

1,000

200

1,000

0

0

(Thousands) 2014.6

Trading volume

2015.1

2016.12017.1(Thousands)

2015.1

2016.12017.1(Thousands)

15,000
0(Thousands) 2014.6

3,000015,0003,000

10,0002,000

10,000

2,000

5,000

1,000

5,000

1,000
0

0
2016.1200
2016.12Disclaimer on the forward-looking statements
Information in this corporate report contains forward-looking statements. Such statements were developed based on the information available at the time
when this report was prepared. These forward-looking statements may be largely revised in the future, and the actual outcome could significantly varyfrom the stated or implied contents of such statements subject to various factors. This report is not intended to solicit investment. Investors are kindly
asked to make your investment decision at your own judgment and responsibility. Numbers presented in 100 million yen or million yen are rounded down
to the nearest respective unit.

Toyo Denki Seizo Report 201762