Financial Review

Financial Report

Consolidated Operating Results, Consolidated Financial Position, and Consolidated Cash Flow for Fiscal
2013 (from June 1, 2013 to May 31, 2014) are as follows:

Results of Operation
Orders received
YoY +25.4%

Orders received increased 25.4% compared with the previous fiscal year to 42,568 million yen. Thisoverall result reflected a surge in orders received in the Transportation Systems segment both in andoutside Japan.

Net sales
YoY +14.3%

Net sales increased 14.3% year on year to 34,957 million yen. Despite a slight decrease in the
Industrial Systems segment, this overall result reflected a significant surge in the Transportation
Systems segment both in and outside Japan, and a slight increase in the Information Equipment
Systems segment.

Profit/Loss
Net Income
YoY -10.8%

From a profit perspective, operating income increased 575 million yen compared with the previous
fiscal year to 1,076 million yen, mainly due to the increase in net sales and reductions in expenses.
Ordinary income decreased 115 million yen to 1,035 million yen, which was partly attributable toforeign exchange losses, albeit small. Net income declined 78 million yen to 644 million yen.

Financial Position
AssetsTotal Assets
44,752 million yen

Total assets as of May 31, 2014 stood at 44,752 million yen, an increase of 2,388 million yen
compared with the end of the previous fiscal year. Despite a decrease in trade notes and accounts
receivable of 578 million yen, the increase in total assets was largely attributable to increases in cash
and cash equivalents of 1,695 million yen, inventories of 436 million yen, and investment securitiesof 944 million yen.

Liabilities
Total liabilities
25,402 million yen

Total liabilities amounted to 25,402 million yen, an increase of 1,558 million yen compared with theprevious fiscal year end. While short-term debt contracted 2,308 million yen, this upswing in total
liabilities reflected a 1,521 million yen increase in long-term debt and a 909 million yen increase inaccrued expenses as well as an increase of 755 million yen in net defined benefit liability (deductionof decrease in the provision for employees’ retirement benefits) as a result of application of therevised retirement benefits accounting standards.

Net Assets
Total net assets
19,350 million yen

Net assets as of May 31, 2014 stood at 19,350 million yen, an increase of 830 million yen comparedwith the previous fiscal year. This increase was largely attributable to a 355 million yen increase inretained earnings and a 622 million yen increase in unrealized holding gain on available-for-salesecurities despite a decrease of 298 million yen from remeasurements of defined benefit plans.

Cash Flows
Financial Report

32 Financial Review
33 Consolidated Balance Sheets
35 Consolidated Statements of Income and Comprehensive Income
36 Consolidated Statements of Changes in Net Assets
37 Consolidated Statements of Cash Flows
38 Notes to Consolidated Financial Statements
58 Report of Independent Auditors
31

Cash flow fromoperating activities
Net cash provided byoperating activities
3,621 million yen

Net cash provided by operating activities amounted to 3,621 million yen. Apart from accrued
expenses, major cash outflows were an increase of 1,537 million yen in accrued expenses and tradenotes and accounts payable. Principal cash inflows were income before income taxes and minority
interests at 1,030 million yen and depreciation and amortization at 1,000 million yen.

Cash flow frominvesting activities
Net cash used ininvesting activities
753 million yen

Net cash used in investing activities totaled 753 million yen for the fiscal year under review andmainly comprised funds used for the purchases of property, plant and equipment at 635 million yen.

Cash flow fromfinancing activities
Net cash used infinancing activities
1,199 million yen

Net cash used in financing activities was 1,199 million yen. The principal cash inflow was an increasein long-term debt at 2,650 million yen, while major cash outflows were a decrease in short-termloans payable at 2,265 million yen and repayment of long-term debt at 1,172 million yen.
Toyo Denki Seizo Report 201432

TOYO DENKI SEIZO K.K.
Consolidated Balance Sheets

As of

May 31,
2014

May 31,
2013(Millions of yen)

May 31,
2014(Thousands of
U.S. dollars)(Note 3)

AssetsCurrent assets:
Cash on hand and in banks (Notes 19 and 21)¥ 2,998¥ 1,302$ 29,488

Trade notes and accounts receivable (Notes 4 and 19)

12,806

13,384125,964

Inventories (Note 5)

7,101

6,665

69,855

Deferred tax assets (Note 14)

545

453

5,360

Other current assets

140

179

1,376

Allowance for doubtful accounts

(34)

(40)

(335)

23,556

21,943

231,708

Total current assets

As of

May 31,
2014

May 31,
2013(Millions of yen)

LIABILITIES AND NET ASSETS
Current liabilities:
Trade notes and accounts payable (Notes 4 and 19)
Short-term borrowings and current portion of long-term debt
(Notes 8 and 19)
Current portion of bonds payable (Note 9)
Income taxes payable (Note 14)
Accrued expenses
Accrued directors’ bonuses
Accrued employees’ bonuses
Reserve for losses on order acknowledgements (Note 5)
Other
Total current liabilities

May 31,
2014(Thousands of
U.S. dollars)(Note 3)

¥ 5,286¥ 4,647$ 51,993

1,988

4,296

19,555

—
375
3,792
28
915
130
983
13,497

120
319
2,883
17
773
196
1,029
14,280—3,685
37,302
279
9,004
1,278
9,666
132,762

6,934
—
653
44
4,045
146
84
11,906

5,413
3,289
615
44
—
165
38
9,564

68,208—6,424
431
39,7881,433
832
117,116

Buildings and structures

2,847

2,985

28,007

Machinery and vehicles

909

1,109

8,938

Land

289

289

2,848

Construction in progress

63

81

623

Long-term liabilities:
Long-term debt (Notes 8, 19 and 22)
Accrued retirement benefits (Note 10)
Deferred tax liabilities (Note 14)
Reserve for ecological countermeasures
Liability for retirement benefits (Note 10)Long-term payables
Other
Total long-term liabilities

Other

548

548

5,386

Commitments and contingencies (Note 17)

4,656

5,012

45,802

Net assets (Notes 11 and 18):
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity¥ 4,998
3,178
7,511
(168)
15,519¥ 4,998
3,178
7,156
(164)
15,168$ 49,168
31,25673,882(1,647)
152,659

Accumulated other comprehensive income:Unrealized holding gain on securities
Deferred loss on hedging instruments
Translation adjustments
Retirement benefits liability adjustments (Note 10)
Total accumulated other comprehensive income
Total net assets

3,990
(26)
166
(299)
3,831
19,350

3,367
—
(15)
—
3,352
18,52039,247(256)
1,631(2,940)37,682
190,341

Total liabilities and net assets¥44,753¥42,364$440,219

Property, plant and equipment (Note 6):

Total property, plant and equipment

Investments and other assets (Note 7):

14,263

13,318140,301

Deferred tax assets (Note 14)

36

39

352

Intangible assets

268

322

2,636

1,986

1,893

19,541

Allowance for doubtful accounts

(12)

(163)

(121)

Total investments and other assets

16,541

15,409

162,709

Total assets¥44,753¥42,364$440,219

Investment securities (Notes 7, 19 and 20)

Other

See notes to consolidated financial statements.

33

Toyo Denki Seizo Report 201434

TOYO DENKI SEIZO K.K.
Consolidated Statements of Income

For the Years Ended

TOYO DENKI SEIZO K.K.
Consolidated Statements of Changes in Net Assets
May 31,
2014

May 31,
2013(Millions of yen)

Net sales (Note 23)
Cost of sales (Note 5)
Gross profit
Selling, general and administrative expenses (Note 12)
Operating income

May 31,
2014(Millions of yen)
Shareholders’ equity(Thousands of
U.S. dollars)(Note 3)¥34,958
26,8608,098¥30,575
22,8797,696$343,869
264,21479,655

7,022
1,076

7,195
501

69,06910,586

Balance as of June 1, 2012

Ordinary income
Special gains (losses), net (Note 13)
Income before income taxes and minority interests
Income taxes (Note 14):
Current
DeferredIncome before minority interests
Minority interests
Net income

169
(182)
(14)
6
(15)
(13)
9
(40)
1,036
(6)
1,030

160
(215)
(16)
91
630
(16)
16
650
1,151
122
1,273

1,660
(1,790)
(140)
57
(144)
(131)
93
(395)
10,191(53)
10,138

624
(238)
386
644
—
¥ 644

496
55
551
722
—
722

6,139
(2,340)
3,799
6,339
—
$ 6,339¥

Unrealized
holding
gain onsecurities¥(162) ¥14,736

¥ 415

—

¥(102)—¥ 313¥15,049

(288)
722
(2)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(288)
722
(2)

Commonstock

CapitalsurplusRetainedearnings

Treasurystock¥4,998¥3,178¥6,722

Cash dividends paid
Net income

—
—
—

—
—
—

(288)
722
—

Net changes in items
other than those inshareholders’ equity
Total changes during the year——
¥4,998——¥3,178—434¥7,156——(2)432¥(164) ¥15,168

2,952
2,952
¥3,367

—
—
—

87
87
¥ (15)

—
—
—

3,039
3,039
¥3,352

3,039
3,471¥18,520

Balance as of May 31, 2013
Balance as of June 1, 2013
Cash dividends paid

¥4,998———¥3,178———¥7,156(289)
644—¥(164) ¥15,168
—
(289)
—
644
(4)
(4)

¥3,367
—
—
—

—
—
—
—

¥ (15)
—
—
—

—
—
—
—

¥3,352———¥18,520
(289)
644
(4)

Net income
Purchase of treasury stock
Net changes in items
other than those inshareholders’ equity
Total changes during the year——
¥4,998——¥3,178—355¥7,511——(4)351¥(168) ¥15,519

623
623¥3,990

(26)
(26)
¥(26)

181
181
¥ 166

(299)
(299)
¥(299)

479
479¥3,831

479
830¥19,350

Balance as of May 31, 2014

Total
Deferred
Retirement accumulated
loss
benefitsotheron hedging Translation
liability comprehensive
instruments adjustments adjustments
incomeTotal net
assets——(2)

Balance as of June 1, 2013

For the Years Ended

Cash dividends paid
Net income
Purchase of treasury stock
Net changes in items
other than those inshareholders’ equity

May 31,
2014

May 31,
2013(Millions of yen)

May 31,
2014(Thousands of
U.S. dollars)(Note 3)

¥ 644

¥ 722

$ 6,339

623
(26)
14

2,951
—
27

6,127
(256)
138

167
778

61
3,039

Comprehensive income¥1,422¥3,761$13,985

Comprehensive income attributable to:
Owners of the parent
Minority interests¥1,422—¥3,761—$13,985—

Income before minority interests
Other comprehensive income (Note 15):
Unrealized holding gain on securities
Deferred loss on hedging instruments
Translation adjustments
Share of other comprehensive income of affiliates accounted for by theequity method
Total other comprehensive income

Total net
assets(Thousands of U.S. dollars) (Note 3)
Shareholders’ equity

Accumulated other comprehensive income

See notes to consolidated financial statements.

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

Total
Deferred
Retirement accumulated
loss
benefitsotheron hedging Translation
liability comprehensive
instruments adjustments adjustments
incomeTotal
shareholders’equityChanges during the year

Purchase of treasury stock

Non-operating income (expenses):
Interest and dividend income
Interest expense
Equity in losses of unconsolidated subsidiaries and affiliates
Dividend income on life insurance
Foreign exchange gain (loss)
Loss on disposal of property, plant and equipment
Other income, net

Accumulated other comprehensive income

Total changes during the year
Balance as of May 31, 2014

Total
shareholders’equityUnrealized
holding
gain onsecurities

Commonstock

CapitalsurplusRetainedearnings

Treasurystock$49,168———$31,256———$70,388(2,845)
6,339—$(1,613) $149,199—(2,845)
—
6,339
(34)
(34)

$33,120
—
—
—

—
—
—
—

$ (144)—————$49,168——$31,256—
3,494$73,882

—
—
(34)
3,460
$(1,647) $152,659

6,127
6,127
$39,247

(256)
(256)
$(256)

1,775
1,775$1,631————$32,976 $182,175—(2,845)
—
6,339
—
(34)

(2,940)4,706
4,706(2,940)4,706
8,166$(2,940) $37,682 $190,341

See notes to consolidated financial statements.

1,637
7,646

See notes to consolidated financial statements.

35

Toyo Denki Seizo Report 201436

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,
2014

May 31,
2013(Millions of yen)

Operating activities
Income before income taxes and minority interests
Depreciation and amortization(Reversal of) provision for allowance for doubtful accounts
Provision for (reversal of) accrued employees’ bonuses(Reversal of) provision for accrued retirement benefits
Increase in liability for retirement benefits
Interest and dividends income
Interest expenses
Gain on sales of investment securities
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
Investing activities
Purchases of property, plant and equipment
Purchases of investment securities
Proceeds from sales of investment securities
Other payments
Other receipts
Other, net
Net cash used in investing activities
Financing activities
Decrease in short-term loans payable
Increase in long-term debt
Repayment of long-term debt
Redemption of bonds payable
Purchases of treasury stock
Cash dividends paid
Other, net
Net cash (used in) provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 21)

37

May 31,
2014(Thousands of
U.S. dollars)(Note 3

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.

¥ 1,030
1,001
(157)
143
(3,289)
3,580
(169)
182
—

¥ 1,273
1,144
158
(118)
153
—
(160)
215
(72)

$ 10,138
9,843(1,544)
1,400(32,355)
35,219(1,660)
1,790
—

586
(430)
635
(68)
(142)
902
384
4,188
169
(168)
(568)
3,621

231
(1,123)
100
(6)
201
(29)
(243)
1,724
172
(211)
(615)
1,070

5,766
(4,231)
6,249(671)(1,399)8,876
3,778
41,1991,660(1,654)(5,583)35,622

(635)
(13)
—
(75)
4
(34)
(753)

(1,426)
(13)
127
(178)
124
(92)
(1,458)(6,251)
(131)
—
(734)
40
(338)
(7,414)(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 atthe balance sheet date, except for the components of net assets excluding minority 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.

(2,265)2,650(1,172)
(120)
(3)
(288)
(1)
(1,199)
27
1,696
1,302
¥ 2,998(2,000)3,800(1,196)
(160)
(1)
(288)
(0)
155
46
(187)
1,489
¥ 1,302(22,281)
26,067(11,529)(1,180)(34)(2,830)(9)(11,796)264
16,676
12,812$ 29,488(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.

(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, 2014, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 6 and 2 (6and 3 in 2013). 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.

(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 201438

(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 leasehold
improvements acquired on or after April 1, 1998 are depreciated by the straight-line method. The estimated useful lives of theseassets are as follows:
Buildings and structures:
8 to 60 years
Machinery and vehicles:
3 to 12 years
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
Non-cancellable lease transactions that transfer substantially all risks and rewards associated with the ownership of assets to thelessee are accounted for as finance leases. Leased assets capitalized under the finance lease arrangements are depreciated over thelease 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 forthe 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 ¥(66) million ($(650) thousand) and ¥(2) million is included in cost of sales
for the years ended May 31, 2014 and 2013, respectively.
(n) Reserve for ecological countermeasures
Reserve for ecological countermeasures is provided based on the amounts expected to be incurred in future to cover the costs on
ecological countermeasures such as soil pollution countermeasures.

39(q) 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.
(r) Research and development expenses
Research and development expenses are charged to income when incurred.
(s) Consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(t) 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.
(u) Standards issued but not yet adopted
On May 17, 2012, the ASBJ issued “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26) and “Guidance on
Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25), which replaced the Accounting Standard for Retirement
Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000 and other related
practical guidances, followed by partial amendments from time to time through 2009.
(1) Overview
The standard provides guidance for the accounting for unrecognized actuarial differences and unrecognized prior service costs,
the calculation methods for the retirement benefit obligation and service costs, and enhancement of disclosures taking into
consideration improvements to financial reporting and international trends.
(2) Scheduled date of adoption
The revised accounting standard and guidance were adopted as of the end of the fiscal year ended May 31, 2014. However,revisions to the calculation methods for the retirement benefit obligation and service costs are scheduled to be adopted from the
beginning of the fiscal year ending May 31, 2015.
(3) Impact of adopting revised accounting standard and guidance
The Company is currently evaluating what effect these modifications will have on its consolidated financial statements.

(o) Retirement benefits
Retirement benefit obligation is attributed to each period by the straight-line method over the estimated years of service of the eligible
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 following 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.
Net retirement benefit obligation at transition is amortized principally over a period of 15 years by the straight-line method.

2. Accounting Changes
The Company adopted “Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26 of May 17, 2012; hereinafter the“Standard”) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25 of May 17, 2012; hereinafter
the “Guidance”) (excluding provisions described in the main clause of Paragraph 35 of the Standard and in the main clause of
Paragraph 67 of the Guidance) as of the end of the fiscal year ended May 31, 2014. Accordingly, retirement benefit obligation has
been changed to the method where it is recorded as liability for retirement benefits and unrecognized actuarial differences andunrecognized prior service cost are recorded under liability for retirement benefits. Concerning the application of the Standard, in
accordance to the provisional treatments set out in Paragraph 37 of the Standard, the effects of such changes in the current fiscal
year have been recorded in retirement benefits liability adjustments included in accumulated other comprehensive income. As resultof this change, liability for retirement benefits was recognized in the amount of ¥4,045 million ($39,788 thousand) and accumulated
other comprehensive income decreased by ¥299 million ($2,940 thousand) as of May 31, 2014. The effect on per share information
is described in Note 18.

(p) 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.

3. 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 ¥101.66=U.S.$1, the approximate rate of exchange prevailing at May 31, 2014. Thistranslation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.
Toyo Denki Seizo Report 201440

4. Notes Receivable and Payable
As May 31, 2014 falls on a bank holiday, the following notes receivable and payable were accounted for as if they were settled on thematurity date:

As of

May 31,
2014

May 31,
2013(Millions of yen)

¥155
66

Notes receivable
Notes payable$1,520652

5. Inventories
Inventories as of May 31, 2014 and 2013 were as follows:

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

May 31,
2014

May 31,
2013(Millions of yen)

¥1,483
3,459
2,159¥7,101

May 31,
2014(Thousands of
U.S. dollars)¥1,465
3,082
2,118¥6,665$14,593
34,027
21,235$69,855

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 ¥200 million ($1,968 thousand) and ¥55 million for the years
ended May 31, 2014 and 2013, 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 of

May 31,
2014

May 31,
2013(Millions of yen)

¥ 18
147
¥165

Merchandise and finished products
Work in process

May 31,
2014(Thousands of
U.S. dollars)

¥ 8
30
¥38

$ 176
1,447
$1,623

Buildings and structures
Machinery and vehicles
Other
Accumulated depreciation

May 31,
2013(Millions of yen)

¥1,001

May 31,
2014(Thousands of
U.S. dollars)¥1,144$9,843

Accumulated depreciation of property, plant and equipment amounted to ¥12,623 million ($124,167 thousand) and ¥12,113
million as of May 31, 2014 and 2013, respectively.
The following amount of deferred gain was directly deducted from the acquisition costs of the related property, plant and equipment
acquired during the year ended May 31, 2013:
Buildings and structures:¥29 million
Other:
6 million
No deferred gain was recorded as of May 31, 2014.
7. Investments and Other Assets
Investments in unconsolidated subsidiaries and affiliates included in “Investment securities” as of May 31, 2014 and 2013 were as
follows:

As ofEquity securities
Investments in capital

May 31,
2014

May 31,
2013(Millions of yen)

¥

—
1,034

May 31,
2014(Thousands of
U.S. dollars)

¥ 59
856

$

—
10,175

8. Short-Term Borrowings and Long-Term Debt
As of May 31, 2014 and 2013, 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,
2014

May 31,
2013(Millions of yen)

¥ 7,076
6,679
3,171
16,926(12,623)¥ 4,303¥ 6,973
6,757
3,025
16,755(12,113)¥ 4,642

May 31,
2014(Thousands of
U.S. dollars)

May 31,
2014

May 31,
2013(Millions of yen)

¥ 915
1,073
¥1,988

May 31,
2014(Thousands of
U.S. dollars)¥3,180
1,116¥4,296$ 9,000
10,555$19,555$ 69,600
65,70031,198
166,498(124,167)$ 42,331

As of May 31, 2014 and 2013, long-term debts were as follows:

As ofLong-term debt, excluding current portion, serially due from 2015 through 2020

May 31,
2014

May 31,
2013(Millions of yen)

¥6,934

May 31,
2014(Thousands of
U.S. dollars)¥5,413$68,208

The annual weighted average interest rate applicable to long-term debt as of May 31, 2014 was 1.312%.
The maturities of long-term debt are summarized as follows:

Years ended May 31
2015
2016
2017
2018
2019 and thereafter41

May 31,
2014

The annual weighted average interest rates applicable to short-term borrowings and current-portion of long-term debt as of May
31, 2014 were 1.125% and 1.847%, respectively.

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

As of

For the Years Ended

May 31,
2014(Thousands of
U.S. dollars)¥——

Depreciation of property, plant and equipment for the years ended May 31, 2014 and 2013 were as follows:(Millions of yen)(Thousands of
U.S. dollars)¥1,073
794
352
4,002
1,786
¥8,007$10,555
7,810
3,463
39,367
17,568$78,763

Toyo Denki Seizo Report 2014

42

The assets pledged as collateral for short-term borrowings of ¥1,638 million ($16,112 thousand) and long-term debt of ¥1,929
million ($18,975 thousand) as of May 31, 2014 were as follows:

As of May 31
Buildings and structures
Machinery and vehicles
Other property, plant and equipment
Land(Millions of yen)(Thousands of
U.S. dollars)¥1,731
711
399
158¥2,999$17,023
6,996
3,923
1,559
$29,501

Service cost
Interest cost
Amortization of actuarial loss
Amortization of prior service cost
Amortization of net retirement benefit obligation at transition
Retirement benefit expenses

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

The Company(Millions of yen)(Thousands of
U.S. dollars)¥1,731711
399¥2,841$17,023
6,996
3,923$27,942

May 31,
2013(Millions of yen)

Unrecognized prior service cost
Unrecognized actuarial loss
Unamortized net retirement benefit obligation at transition
Total

¥—
¥—

May 31,
2014(Thousands of
U.S. dollars)

¥120
¥120

$—
$—

10. Retirement Benefit Plans
For the year ended May 31, 2014
The Company and its consolidated subsidiaries have retirement benefit plans combined by defined contribution plans and lump-sum
payment plans.
Under defined contribution plans and 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 year ended May 31, 2014 are as follows:
Retirement benefit obligation as of June 1, 2013
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Retirement benefit obligation as of May 31, 2014

(Thousands of
U.S. dollars)

¥211
59
44
(10)
270
¥574

$2,079
581
430
(99)
2,653
$5,644(Millions of yen)(Thousands of
U.S. dollars)¥ (39)
234
269
¥464

$ (386)
2,309
2,646$4,569Major actuarial assumption (weighted average) used in accounting for the above plans as of May 31, 2014 were as follows:
Discount rate:
1.5%

May 31,2014
5th unsecured bonds issued on Mar. 25, 2009 at 1.12%, dueon Mar. 25, 2014

(Millions of yen)

Retirement benefits liability adjustments (before tax effect) as of May 31, 2014 are as follows:

9. Bonds Payable
As of May 31, 2014 and 2013, bonds payable consisted of the following:

As ofIssued by:

The components of retirement benefit expenses for the year ended May 31, 2014 are as follows:(Millions of yen)(Thousands of
U.S. dollars)¥4,052
211
59
5
(282)
¥4,045$39,860
2,079
581
48
(2,780)$39,788

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheet as of
May 31, 2014 for the Company’s and the consolidated subsidiaries’ defined benefit plans:(Millions of yen)(Thousands of
U.S. dollars)

Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits on the consolidated balance sheet¥4,045
4,045$39,788
39,788

Liability for retirement benefits
Net liability (asset) for retirement benefits on the consolidated balance sheet¥4,045
4,045$39,788
39,788The amount of the required contribution to the defined contribution plans of the Company and its consolidated subsidiaries was¥109 million ($1,074 thousand) for the year ended May 31, 2014.
For the year ended May 31, 2013
The Company and its consolidated subsidiaries have retirement benefit plans combined by defined contribution plans and lump-sum
payment plans.
The following table sets forth the components of the amounts recognized in the consolidated balance sheets as of May 31, 2013
for the Company and its consolidated subsidiaries’ benefit plans:(Millions of yen)

Retirement benefit obligation
Unrecognized net retirement benefit obligation at transition
Unrecognized actuarial loss
Unrecognized prior service costAccrued retirement benefits¥(4,052)
539
273
(49)
¥(3,289)

Consolidated subsidiaries adopted a simplified method in the calculation of their retirement benefit obligation.
The components of retirement benefit expenses for the year ended May 31, 2013 are outlined as follows:(Millions of yen)

Service cost
Interest cost
Amortization of net retirement benefit obligation at transition
Amortization of actuarial loss
Amortization of prior service cost
Other
Retirement benefit expenses

¥229
61
270
44
(10)
112
¥706

Notes: 1. Retirement benefit expenses for consolidated subsidiaries adopting the simplified method are included in “Service cost.”
2. “Other” represents contributions paid to defined contribution pension plans.

Notes: The plan adopting the simplified method is included.

43

Toyo Denki Seizo Report 2014

44

The assumptions used in accounting for the above plans for the year ended May 31, 2013 were as follows:
Inter-period allocation method of estimated retirement benefits
Discount rate
Amortization period of actuarial loss
Amortization period of prior service cost
Amortization period of net retirement benefit obligation at transition

b. Dividends

Straight-line method

1) Dividends paid

1.5%
10 years
10 years
15 years

For the year ended May 31, 2014
Resolution
Annual general meetingof the shareholders on
August 27, 2013

11. Net Assets
Information regarding changes in net assets for the years ended May 31, 2014 and 2013 are as follows:a. Shares issued and outstanding/ Treasury stock

Type of shares

Note:
Detail of the increase is as the following:
Increase due to purchase of shares of less than standard unit

Number ofshares as ofJune 1, 2013

Increase

Decrease

Number ofshares as of
May 31, 2014

48,675,000——

48,675,000

463,566

10,961—

474,527

Decrease

Number ofshares as of
May 31, 2013

10,961 shares

For the year ended May 31, 2013

Type of shares

Number ofshares as ofJune 1, 2012

Increase(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

$2,845

¥6.00

$0.06

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

Cut-off date

Effective dateCut-off date

Effective date

May 31, 2013 August 28, 2013

For the year ended May 31, 2013

(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock¥289

Common stock

For the year ended May 31, 2014

Type of shares

Total dividends Total dividends
Dividends per(Millions of (Thousands of Dividends per share (U.S.
yen)
U.S. dollars)
share (Yen)dollars)

48,675,000——

48,675,000

458,570

4,996—

463,566

4,996 shares

Resolution
Annual general meetingof the shareholders on
August 28, 2012

Type of shares
Common stock¥289¥6.00 May 31, 2012 August 29, 2012

2) Dividends with the cut-off date in the year ended May 31, 2014 and the effective date in the year ending May 31, 2015
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 28,
August 27, 2014
stock
2014
¥289
$2,845 earnings¥6.00$0.06 201412. Selling, General and Administrative Expenses

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,
2014

May 31,
2013(Millions of yen)

¥1,849
28
389
317
(21)
666

May 31,
2014(Thousands of
U.S. dollars)¥1,760
17
320
347
165
917

$18,189
279
3,828
3,121
(209)
6,550

13. Special Gains (Losses), net
The components of “Special Gains (Losses), net” for the years ended May 31, 2014 and 2013 were as follows:

For the Years Ended
Special gains:
Gain on sales of investment securities
Refund of temporary exceptional enterprise tax
Special losses:
Office relocation costs
Loss on liquidation of an affiliate
Total

45

May 31,
2014

May 31,
2013(Millions of yen)

May 31,
2014(Thousands of
U.S. dollars)

¥—
—

¥ 72
65

$—
—

—
(6)
¥ (6)

(15)
—
¥122

—
(53)
$(53)

Toyo Denki Seizo Report 201446

14. 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 38.0% for the years ended May 31,
2014 and 2013. Income taxes of a foreign consolidated subsidiary are based generally on the tax rates applicable in the country ofincorporation.
The information for the year ended May 31, 2014 is omitted since the difference between the effective statutory tax rate andeffective tax rate is 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, 2013 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
Other
Effective tax rate

May 31,
2013
38.0%
1.3
(1.7)
2.1
(4.4)
0.5
5.2
2.2
43.2%

The significant components of deferred tax assets and liabilities as of May 31, 2014 and 2013 were as follows:

As ofDeferred tax assets:
Write-down of inventories
Accrued retirement benefits
Liability for retirement benefits
Accrued employees’ bonuses
Reserve for losses on order acknowledgements
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,
2014

May 31,
2013(Millions of yen)

May 31,
2014(Thousands of
U.S. dollars)

¥ 140
—
1,444

¥ 177
1,187
—

$ 1,376—
14,200

328

295

3,228

36
854
2,802
(674)
2,128

65
776
2,500
(792)
1,708

359
8,402
27,565(6,634)20,931(2,196)(4)(2,200)¥ (72)(1,828)(3)(1,831)¥ (123)(21,602)(41)(21,643)$ (712)

15. Other Comprehensive Income
The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income
for the years ended May 31, 2014 and 2013:

For the Years Ended

May 31,
2014

May 31,
2013(Millions of yen)

May 31,
2014(Thousands of
U.S. dollars)

Unrealized holding gain on securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectUnrealized holding gain on securities

¥990
—
990
(367)
623

¥ 4,568(73)
4,495(1,544)
2,951$9,741—
9,741(3,614)
6,127

Deferred gains or losses on hedging instruments:
Amount arising during the year
Amount before tax effectTax effect
Deferred gains or losses on hedging instruments

(40)
(40)
14
(26)

—
—
—
—

(398)
(398)
142
(256)

Translation adjustments
Amount arising during the year
Amount before tax effectTranslation adjustments

14
14
14

27
27
27

138
138
138

167

61

1,637

167
¥778

61
¥ 3,039

1,637$7,646

Share of other comprehensive income of affiliates accounted forby the equity method
Amount arising during the year
Share of other comprehensive income in affiliates accounted forby the equity method
Total other comprehensive income

16. 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.
In addition, finance leases that do not transfer ownership of the leased property to the lessee and whose lease inception was onor before March 31, 2008 are permitted to continue to be accounted for as operating lease transactions if certain “as if capitalized”
information is disclosed in the note to the financial statements, but such information is omitted since there is no materiality in termsof value.

Adjustments of deferred tax assets and liabilities due to a change in the income tax rate:“Act on Partial Revision, etc. of the Income Tax Act, etc.” proclaimed on March 31, 2014 repealed the special reconstruction corporate
tax from the year beginning on or after April 1, 2014. As a result, the effective statutory tax rate used in computing deferred tax assets
and liabilities has been reduced from 38.0% to 35.6% for the temporary differences expected to be settled in the year beginning on
June 1, 2014. The effects from this rate change were a decrease in net deferred tax assets (after deducting deferred tax liabilities) asof May 31, 2014 by ¥50 million ($494 thousand) and an increase in income taxes – deferred for the year ended May 31, 2014 by thesame amount.

47

Toyo Denki Seizo Report 201448

17. Contingent Liabilities
As of May 31, 2014 and 2013, the Company was committed to provide guarantees on bank borrowings of the following affiliates:

As of
Hunan Xiangyang Electric Co., Ltd.
Changzhou Ruiyang Transmission Technology Co., Ltd.

May 31,
2014

May 31,
2013(Millions of yen)

May 31,
2014

Overview(Thousands of
U.S. dollars)(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 and issuance of corporate bonds. The Group manages temporary cash surpluses through low
risk financial assets. The Group uses interest rate swaps for the purpose of reducing the interest rate fluctuation risk on long-term
debt and fixing the interest expenses and does not enter into derivatives for speculative or trading purposes.

¥138
185

¥198
187

$1,361
1,817

May 31,
2014

May 31,
2013

May 31,
2014

18. Amounts Per Share

For the Years Ended
Net income:
Basic

(Yen)

(U.S. dollars)¥13.37¥14.98

$0.13

As of

May 31,
2014

May 31,
2013

May 31,
2014

Net assets¥401.45(Yen)(U.S. dollars)¥384.14$3.95

Diluted net income per share is omitted since there is no dilution of equity.
The bases for calculation are as follows:
Basic net income per share

For the Years Ended
Net income
Net income not attributable to common shareholders
Net income attributable to common stock

May 31,
2014

May 31,
2013(Millions of yen)

¥644
—
644

May 31,
2014(Thousands of
U.S. dollars)

¥722
—
722

$6,339—
6,339(Thousand shares)

Average number of shares of common stock during the year

48,206

19. Financial Instruments

48,214

As noted in Note 2, the Company applied the Accounting Standard for Retirement Benefits, etc. and followed the provisional treatment
set out in Paragraph 37 of the Accounting Standard for Retirement Benefits. As a result, net assets per share decreased by ¥6.20 ($0.06)
as of May 31, 2014.

(2) Types of financial instruments and related risk
Trade receivables—trade notes and accounts receivable—are exposed to credit risk in relation to customers.
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 (t) “Derivative financial instruments.”(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 22, Derivative
Transactions are not necessarily indicative of the actual market risk involved in derivative transactions.

49

Toyo Denki Seizo Report 201450

Estimated Fair value of Financial Instruments

As of May 31, 2013

Carrying value

Fair value

Difference(Millions of yen)

Carrying value of financial instruments on the consolidated balance sheets as of May 31, 2014 and 2013 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, 2014

Carrying value

Fair value

Difference(Millions of yen)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Investment securities
Total assets
Liabilities
4) Trade notes and accounts payable
5) Short-term borrowings
6) Bonds payable
7) Long-term debt
Total liabilities
8) Derivative transactions*

As of May 31, 2014

¥ 2,998
12,806
13,621¥29,425¥ 2,998
12,806
13,621¥29,425¥———¥—¥ 5,286915—
8,007¥14,208¥ (40)¥ 5,286915—
8,020¥14,221¥ (40)¥———(13)¥ (13)¥—

Fair value

Difference

Carrying value(Thousands of U.S. dollars)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Investment securities
Total assets
Liabilities
4) Trade notes and accounts payable
5) Short-term borrowings
6) Bonds payable
7) Long-term debt
Total liabilities
8) Derivative transactions*$ 29,488
125,964
133,988$289,440$ 29,488
125,964
133,988$289,440

$ —
—
—
$ —

$ 51,993
9,000—
78,763$139,756$ (397)$ 51,993
9,000—
78,889$139,882$ (397)

$ —
—
—
(126)
$(126)$ —*Derivative transactions are presented in a net amount of receivables and payables and net payables are shown in parenthesis.

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Investment securities
Total assets
Liabilities
4) Trade notes and accounts payable
5) Short-term borrowings
6) Bonds payable
7) Long-term debt
Total liabilities
8) Derivative transactions¥ 1,302
13,384
12,618¥27,304¥ 1,302
13,384
12,618¥27,304¥———¥—¥ 4,647
3,180
120
6,529
¥14,476¥ —¥ 4,647
3,180
121
6,494
¥14,442
¥ —

¥—
—
(1)
35
¥ 34
¥—

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 and trade notes and accounts receivable
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 20“Securities”.
Liabilities:
Trade notes and accounts payable and short-term borrowings
Since these items are settled in a short period of time, their carrying value approximates fair value.
Bonds payable
The fair value of bonds payable is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new bonds were
issued.
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.
2. Financial instruments for which it is extremely difficult to determine the fair value

As ofUnlisted equity securities

May 31,
2014

May 31,
2013(Millions of yen)¥642

May 31,
2014(Thousands of
U.S. dollars)¥700$6,313

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.

51

Toyo Denki Seizo Report 201452

3. Redemption schedule for receivables and securities with maturities at May 31, 2014 and 2013 are as follows:

As of May 31, 2014

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

As of May 31, 2014

¥ 2,995
10,933¥13,928¥ —1,873¥1,873

¥—
—
¥—

¥—
—
¥—

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(2) Impairment of investment securities
No impairment loss on investment securities was recognized for the year ended May 31, 2014.
(3) No securities classified as available-for-sale securities were sold for the year ended May 31, 2014
As of May 31, 2013
(1) Information regarding securities classified as available-for-sale securities
Available-for-sale securities(Thousands of U.S. dollars)

Cash on hand and in banks
Trade notes and accounts receivable

As of May 31, 2013

$ 29,461
107,540$137,001$ —18,424$18,424

$—
—
$—

$—
—
$—

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years¥ 1,299
12,095¥13,394¥ —1,289¥1,289(Millions of yen)

Cash on hand and in banks
Trade notes and accounts receivable

¥—
—
¥—

¥—
—
¥—

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

(Millions of yen)

Securities whose carrying value exceeds their acquisition cost:
Stock
Subtotal
Securities whose acquisition cost exceeds their carrying value:
Stock
Subtotal
Total¥12,083¥12,083¥6,777¥6,777¥5,306¥5,306¥ 535¥ 535¥12,618

¥ 575
¥ 575
¥7,352¥ (40)¥ (40)¥5,266

Note: 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.

For the Year ended May 31, 2013

Sales proceeds

Gain on sales

Loss on sales(Millions of yen)

(1) Information regarding securities classified as available-for-sale securities

Stock

Available-for-sale securities

Carrying value Acquisition cost

Unrealized
Gain (Loss)(Millions of yen)

As of May 31, 2014

Unrealized
Gain (Loss)(3) Sales of securities classified as available-for-sale securities and the aggregate gain and loss for the year ended May 31, 2013

As of May 31, 2014

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

Carrying value Acquisition cost(2) Impairment of investment securities
No impairment loss on investment securities was recognized for the year ended May 31, 2013.

20. Securities

As of May 31, 2014

As of May 31, 2013¥13,228¥13,228¥6,962¥6,962¥6,266¥6,266¥ 393¥ 393¥13,621

¥ 405
¥ 405
¥7,367¥ (12)¥ (12)¥6,254

Carrying value Acquisition cost

¥127

¥72

¥—

21. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash flows for the years ended May 31, 2014 and 2013 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,
2014

May 31,
2013(Millions of yen)

¥2,998¥2,998

May 31,
2014(Thousands of
U.S. dollars)¥1,302¥1,302$29,488$29,488

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$130,123$130,123$68,479$68,479$61,644$61,644$ 3,865$ 3,865$133,988$ 3,987$ 3,987$72,466$ (122)$ (122)$61,522

Note: 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.

53

Toyo Denki Seizo Report 20145422. Derivative Transactions
Hedging policies
The Company utilizes interest rate swaps for the purpose of hedging its exposure to fluctuations in interest rates. However, based oninternal 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.
Types and purpose of derivative transactions

23. 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.

The Company primarily uses interest rate swaps to hedge against the adverse impact of fluctuations in interest rates on interestbearing debt.
There is no derivative transaction to which hedge accounting is not applied.

Interest-related derivatives:

Major hedged
item

Notional amount
Maturing within Maturing after
one year
one year

Fair value(Millions of yen)Interest rate swaps accounted for by the normal method:
Receive/floating and pay/fixedInterest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixed

As of May 31, 2014

Transportation

Industrial

Information
Equipment

Other(Note)

Total

Adjustments

Consolidated(Millions of yen)

Derivative transactions to which hedge accounting is applied:

As of May 31, 2014

For the year ended May 31, 2014
Reportable segments

Long-term debt

¥1,500¥1,500Long-term debt

¥7,152¥6,389Major hedged
item

Notional amount
Maturing within Maturing after
one year
one year¥(40)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers¥22,198¥10,925¥1,829¥ 6¥34,958¥—¥34,958

Segment profit
Segment assets

35
22,233¥ 2,374¥17,199

1
10,926¥ 537¥ 7,923

—
1,829
¥ 348
¥ 731

490
496
¥ 41
¥525

526
35,484¥ 3,300¥26,378

(526)
(526)
¥ (2,224)¥18,375—
34,958¥ 1,076¥44,753

Other items:
Depreciation
Capital expenditures

¥
¥

¥
¥

¥
¥

¥ 0
¥ 2

¥
¥

¥
¥

175
80

¥ 1,001¥ 612

Adjustments

Consolidated

Note 2

Fair value

594
392

208
121

24
17

826
532

(Thousands of U.S. dollars)Interest rate swaps accounted for by the normal method:
Receive/floating and pay/fixedInterest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixed

As of May 31, 2013

Long-term debt

$14,755$14,755

Long-term debt

$70,352$62,847

Major hedged
item

Notional amount
Maturing within Maturing after
one year
one yearLong-term debt

¥5,789¥4,988Transportation

Industrial

Information
Equipment

Other(Note)

Total(Thousands of U.S. dollars)

Fair value
Note 2

Notes: 1. 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.
2. 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.

55

Reportable segments

Note 2(Millions of yen)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixed

For the year ended May 31, 2014$(397)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers$218,358$107,462$17,988$61$343,869$—$343,869

Segment profit
Segment assets

348
218,706$ 23,357$169,18213
107,475$ 5,279$ 77,941—
17,988$ 3,426$ 7,190

4,818
4,879
$ 403
$5,164

5,179
349,048$ 32,465$259,477(5,179)(5,179)$ (21,879)$180,742—
343,869$ 10,586$440,219

Other items:
Depreciation
Capital expenditures$ 5,839$ 3,859$ 2,049$ 1,188$$$$$ 8,126$ 5,237$ 1,717$785$ 9,843$ 6,022

232
170

6
20

Toyo Denki Seizo Report 2014

56

Report of Independent Auditors

For the year ended May 31, 2013
Reportable segments
Transportation

Industrial

Information
Equipment

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¥17,325¥11,543¥1,701¥ 6¥30,575¥—¥30,575

Segment profit
Segment assets

37
17,362¥ 1,914¥16,680

2
11,545¥ 434¥ 8,614

—
1,701
¥ 265
¥ 823

545
551
¥ 41
¥525

584
31,159¥ 2,654¥26,642

(584)
(584)
¥ (2,153)¥15,722—
30,575¥ 501¥42,364

Other items:
Depreciation
Capital expenditures

¥
¥

¥
¥

¥
¥

¥ 0
¥—

¥
¥

¥
¥

¥ 1,144¥ 1,296

691
792

239
159

28
29

958
980

186
316

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

Geographical information
Net sales to third parties by countries or areas grouped according to geographical classification for the years ended May 31, 2014
and 2013 are summarized as follows:

For the Years Ended

May 31,
2014

Japan
China
Other
Consolidated¥25,3997,1192,440¥34,958

May 31,
2013(Millions of yen)

¥23,341
5,495
1,739¥30,575

May 31,
2014(Thousands of
U.S. dollars)$249,838
70,02624,005$343,869

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

Major customer information
Major customer information for the years ended May 31, 2014 and 2013 is omitted since there was no customer to whom sales
exceeds 10% of net sales recorded in the accompanying consolidated statements of income.

57

Toyo Denki Seizo Report 201458

Reference Data for Management Indices

798
719

665

2012

913

2011

950
1,296
2012

612

1,307

1,142

2011

Research and development costs (Unit: Million yen)
917

1,144

2010

1,000

1,145

Depreciation and amortization (Unit: Million yen)
1,169

(Unit: Million yen)

2,073

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

FY 2009

2010

2011

2012

2013

2012

468

-1,199FY 2009

2010

2011

2012

Net sales by region 
Japan

China

Others

59

2010

2011

2013

(Unit: Million yen)Overseas net sales ratio

FY 2009

2010

2011

2012

2013

Japan

28,35827,83525,20023,34025,398China*

4,873

8,110

10,081

5,495

7,118

Others

2,198

1,947

3,289

1,738

2,440

Total

35,42937,89338,57030,57534,957

Overseas net sales
ratio

20.0%

26.5%

34.7%

23.7%

27.3%

*Reported classified as Asia from fiscal 2009 to fiscal 2010.

FY 20092013

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

-1,457-3,345

2012

2011

2013

-2,148-1,643
1,069-1,328
2011

2010

-753

3,621
2,495
673
2010

FY 2009

Cash flows from investing activities (Unit: Million yen)
FY 2009

FY 2009

2013

155

2013

2,563

2010

836

FY 200920122013