Financial Review

Consolidated Operating Results, Consolidated Financial Position, and Consolidated Cash Flow for Fiscal
2015 (from June 1, 2015 to May 31, 2016) are as follows:

Results of Operation
Orders received
YoY +2.1%

Orders received increased 2.1% compared with the previous fiscal year to 39,890 million yen due to an increasein orders received in the Transportation Systems segment and the Information Equipment Systems segment, despite a decrease in orders in the Industrial Systems segment.

Net sales
YoY +0.3%

Net sales increased 0.3% compared with the previous fiscal year to 39,746 million yen, mainly due to an in-

Profit/Loss
Net income
attributable toowners of the parent
YoY -19.5%

From a profit perspective, operating income increased 2.7% compared with the previous fiscal year to 1,638 million yen, main-crease in the Industrial Systems segment.

ly due to increased revenue in the Industrial Systems segment. However, ordinary income decreased 27.4% compared with theprevious fiscal year to 1,492 million yen due to the recording of foreign exchange losses of 418 million yen caused by a progressively stronger yen. As a result, net income attributable to owners of the parent decreased 19.5% to 889 million yen.

Financial Position
AssetsTotal assets
50,233 million yen

Total assets as of May 31, 2016 stood at 50,233 million yen, a decrease of 2,807 million yen compared with the end of the previous fiscal year. The de-Liabilities
Total liabilities
26,556 million yen

Total liabilities as of May 31, 2016 stood at 26,556 million yen, a decrease of 1,589 million yen compared with the end of the previous fiscal year. De-

Net assets
Total net assets
23,676 million yen

Net assets as of May 31, 2016 stood at 23,676 million yen, a decrease of 1,218 million yen compared with thecrease in total assets was largely attributable to a decrease of 2,930 million yen in investment securities, which was partly due to a fall in the market priceof held listed securities, in addition to a decrease of 1,169 million yen in cash on hand and in banks, despite an increase of 924 million yen in inventories.
spite increases of 881 million yen in trade notes and accounts payable and 257 million yen in accrued expenses, the decrease in total liabilities waslargely attributable to decreases in debts of 1,118 million yen, deferred tax liabilities of 982 million yen, and income taxes payable of 398 million yen.
end of the previous fiscal year. This decrease was largely attributable to a 1,847 million yen decrease in unrealized holding gain on available-for-sale securities, despite an increase of 600 million yen from retained earnings.

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
1,135 million yen
Cash flow frominvesting activities
Net cash used ininvesting activities
937 million yen
Cash flow fromfinancing activities
Net cash used infinancing activities
1,341 million yen

Net cash provided by operating activities amounted to 1,135 million yen. Principal cash inflows were income before income taxes at 1,404 million yen, an increase of 972 million yen in trade notes and accounts payable andan increase of 274 million yen in accrued expenses.
Net cash used in investing activities totaled 937 million yen, and mainly comprised funds used in for the purchase of property, plant and equipment at 451 million yen, as well as funds used in for the purchase of intangible
assets at 336 million yen.

Net cash used in financing activities was 1,341 million yen. Major cash outflows were repayment of long-term
debt at 794 million yen and cash dividends paid at 295 million yen.

Toyo Denki Seizo Report 201632

TOYO DENKI SEIZO K.K.
Consolidated Balance Sheets

As of

May 31,
2016

May 31,
2015(Millions of yen)

May 31,
2016(Thousands of
U.S. dollars)(Note 3)

AssetsCurrent assets:
Cash on hand and in banks (Notes 18 and 20)¥2,401¥3,571$21,645

Trade notes and accounts receivable (Notes 4 and 18)

13,790

14,233

124,302

966

606

8,703

7,320

6,395

65,982

Deferred tax assets (Note 13)

518

660

4,666

Other current assets

529

169

4,769

Allowance for doubtful accounts

(3)

(40)

(25)

25,521

25,594230,042

Electronically recorded receivables (Note 18)
Inventories (Note 5)

Total current assets

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

2,635

2,738

23,749Machinery and vehicles

715

862

6,446

Land

289

289

2,610

Construction in progress

269

227

2,426

Other

453

487

4,079

4,361

4,603

39,31017,396

20,327

156,808

Deferred tax assets (Note 13)

55

7

499

Intangible assets

544

349

4,906

2,369

2,174

21,348

Allowance for doubtful accounts

(12)

(13)

(112)

Total investments and other assets

20,352

22,844

183,449

Total assets (Note 22)¥50,234¥53,041$452,801

Total property, plant and equipment

Investments and other assets (Note 7):
Investment securities (Notes 7, 18 and 19)

Other

33

As of

May 31,
2016

May 31,
2015(Millions of yen)

LIABILITIES AND NET ASSETS
Current liabilities:
Trade notes and accounts payable (Notes 4 and 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)
Reserve for ecological countermeasures
Other
Total current liabilities

May 31,
2016(Thousands of
U.S. dollars)(Note 3)

¥3,743
5,278¥5,116
3,023$33,736
47,573

1,018

1,784

9,173

254
1,250
37
928
295
—
781
13,584

652
992
41
928
301
65
1,077
13,9792,289
11,268
335
8,368
2,659
—
7,042
122,443

7,288
1,637
3,853
158
37
12,973

7,640
2,619
3,726
141
41
14,167

65,693
14,75334,727
1,424
340
116,937

Net assets (Notes 10 and 17):
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity¥4,998
3,178
9,299
(176)
17,299¥4,998
3,178
8,698
(172)
16,702$45,055
28,642
83,818(1,581)
155,934

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

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

8,317
260
(384)
8,193
24,89558,313
2,344(3,170)57,487
213,421

Total liabilities and net assets¥50,234¥53,041$452,801

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 201634

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 gain (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,
2016

May 31,
2015(Millions of yen)

May 31,
2016(Millions of yen)
Shareholders’ equity(Thousands of
U.S. dollars)(Note 3)

¥39,746
30,627
9,119¥39,61730,3359,282$358,267
276,067
82,200

7,480
1,639

7,686
1,596

67,427
14,773

233
(127)
76
70
(418)
20
(146)
1,493
(88)
1,405

204
(138)
50
8
364
(27)
461
2,057
(42)
2,015

2,102
(1,149)689
629(3,768)177(1,320)13,453(793)
12,660

369
146
515
890
—
¥890

954
(45)
909
1,106
—
¥1,106

3,324
1,316
4,640
8,020
—
$8,020

See notes to consolidated financial statements.

Balance as of June 1, 2014

Retainedearnings¥4,998¥3,178¥7,511¥(168) ¥15,519

371

371

¥(26)

¥166

¥(299)¥3,831

Total net
assets¥19,350
371

4,998

3,178

7,882

(168)

15,890

3,990

(26)

166

(299)

3,831

19,721

Cash dividends paid

—

—

(290)

—

(290)

—

—

—

—

—

(290)

—

—

1,106

—

1,106

—

—

—

—

—

1,106

Purchase of treasury stock

—

—

—

(4)

(4)

—

—

—

—

—

(4)

Balance as of May 31, 2015——
¥4,998——¥3,178—816¥8,698——(4)812¥(172) ¥16,702

4,327
4,327
¥8,317

26
26
¥—

94
94
¥260

(85)
(85)
¥(384)

4,362
4,362¥8,193

4,362
5,174
¥24,895

Balance as of June 1, 2015

¥4,998¥3,178¥8,698¥(172) ¥16,702¥8,317¥—¥260¥(384)¥8,193¥24,895

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

Changes 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)

—
—
¥4,998——¥3,178—601¥9,299——(4)597¥(176) ¥17,299(1,848)(1,848)¥6,469

—
—
¥—

1
1
¥261

32
32
¥(352)Net changes in items
other than those inshareholders’ equity

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

Other comprehensive income (loss) (Note 14):
Unrealized holding gain (loss) on securities
Deferred gain on hedging instruments
Translation adjustments
Retirement benefits liability adjustments
Share of other comprehensive income (loss) of affiliates accounted for by theequity method
Total other comprehensive income (loss)¥3,990

Capitalsurplus

Total
Deferred
Retirement accumulated
loss
benefitsotheron hedging Translation
liability comprehensive
instruments adjustments adjustments
incomeNet income attributable toowners of the parent

Balance as of May 31, 2016

Net income

Unrealized
holding
gain onsecurities

Changes during the year

Total changes during the year

For the Years Ended

Treasury
stock

Total
shareholders’equityCommonstock

Cumulative effects ofchanges in accounting
policies
Restated balance as ofJune 1, 2014

Accumulated other comprehensive income(1,815)(1,815)(1,815)(1,218)¥6,378 ¥23,677(Thousands of U.S. dollars) (Note 3)
Shareholders’ equity

May 31,
2016

May 31,
2015(Millions of yen)

¥890

May 31,
2016(Thousands of
U.S. dollars)(Note 3)

¥1,106$8,020(1,848)
—
49
32

4,327
26
(11)
(85)

(16,657)
—
440
285

(48)
(1,815)

105
4,362

(434)
(16,366)

Comprehensive income (loss)¥(925)¥5,468$(8,346)

Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests¥(925)—¥5,468—$(8,346)—

Balance as of June 1, 2015

Accumulated other comprehensive income
Total
Deferred
Retirement accumulated
loss
benefitsotheron hedging Translation
liability comprehensive
instruments adjustments adjustments
incomeCommonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityUnrealized
holding
gain onsecurities$45,055$28,642$78,404$(1,549) $150,552$74,970$—$2,338

Total net
assets$(3,455) $73,853 $224,405

Changes during the year
Cash dividends paid——

(2,606)—(2,606)

—

—

—

—

—

(2,606)

Net income attributable toowners of the parent

—

—

8,020

—

8,020

—

—

—

—

—

8,020

Purchase of treasury stock

—

—

—

(32)

(32)

—

—

—

—

—

(32)

—
—
$45,055——$28,642—5,414$83,818

—
—
(32)
5,382
$(1,581) $155,934(16,657)(16,657)$58,313

—
—
$—

6
6
$2,344

Net changes in items
other than those inshareholders’ equity
Total changes during the year
Balance as of May 31, 2016

285 (16,366) (16,366)
285 (16,366) (10,984)$(3,170) $57,487 $213,421

See notes to consolidated financial statements.

See notes to consolidated financial statements.

35

Toyo Denki Seizo Report 201636

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,
2016

May 31,
2015(Millions of yen)

Operating activities
Income before income taxes
Depreciation and amortization(Reversal of) provision for allowance for doubtful accounts
Provision for accrued employees’ bonuses(Decrease) increase in reserve for ecological countermeasures
Increase (decrease) in liability for retirement benefits
Interest and dividends income
Interest expenses
Loss 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
Impairment loss
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 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
Financing activities
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 (used in) provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 20)

37

May 31,
2016(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.

¥1,405
851
(37)
0
(65)
116
(233)
127
12

¥2,015
882
6
13
21
(106)
(204)
139
—

$12,660
7,669
(336)
7
(587)
1,048
(2,102)
1,149
105

(3)
(957)
972
1
(206)
274
—
(87)
2,170
242
(131)
(1,145)
1,136(1,926)
737
2,765
171
(15)
(2,803)
31
391
2,117
220
(140)
(682)
1,515

(31)
(8,629)8,762
9(1,856)
2,475
—
(784)
19,5592,181(1,184)(10,319)
10,237(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, 2016, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 6 and 2 (6and 2 in 2015). 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.

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

(830)
(127)
(14)
—
—
(18)
(989)

(4,071)(3,031)(121)
174(1,773)375(8,447)(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.

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

(115)
1,500
(1,073)
(4)
(288)
(1)
19
28
573
2,998
¥3,571(2,230)—(7,157)(32)(2,662)(9)(12,090)(243)(10,543)
32,188$21,645(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 201638

(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
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 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 ¥1 million ($9 thousand) and ¥171 million is included in cost of sales forthe years ended May 31, 2016 and 2015, 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.
(o) 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.
(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.

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
Revised Implementation Guidance on Recoverability of Deferred Tax Assets
On March 28, 2016, the ASBJ issued “Revised Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance
No. 26).
(1) Overview
Regarding the treatment of the recoverability of deferred tax assets, a review was conducted following the framework of the
JICPA Audit Committee Report No. 66 “Auditing Treatment on Determining the Recoverability of Deferred Tax Assets,” wherebycompanies are categorized into five categories and deferred tax assets are calculated based on each of these categories.
a. Treatment of companies that do not satisfy any of the category requirements for (Category 1) through (Category 5)
b. Category requirements for (Category 2) and (Category 3)c. Treatment related to future deductible temporary differences which cannot be scheduled in companies that qualify as(Category 2)
d. Treatment related to the reasonable estimable period of future pre-adjusted taxable income in companies that qualify as(Category 3)
e. Treatment in cases that companies that satisfy the category requirements for (Category 4) but qualify as (Category 2) or(Category 3)(2) Scheduled date of adoption
The Company expects to adopt the revised implementation guidance from the beginning of the fiscal year ending May 31, 2017.
(3) Effect of adopting revised implementation guidance
The Company is currently evaluating the effect of adopting the revised implementation guidance on its consolidated financial
statements.
2. Accounting Changes
The Company and its domestic subsidiaries adopted “Revised Accounting Standard for Business Combinations” (ASBJ Statement
No. 21 of September 13, 2013), “Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22 ofSeptember 13, 2013), “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7 of September 13, 2013),
etc. effective from June 1, 2015. As a result, under these revised accounting standards, the presentation method of net income wasamended, and the reference to “minority interests” was changed to “non-controlling interests.” In order to reflect these changes in
the presentation, the related amounts in the previous comparative financial information were reclassified to conform to such changes
in the current fiscal year presentation.

Toyo Denki Seizo Report 201640

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 ¥110.94=U.S.$1, the approximate rate of exchange prevailing at May 31, 2016. Thistranslation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.
4. Notes Receivable and Payable
As May 31, 2015 fell 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,
2016

May 31,
2015(Millions of yen)¥——

Notes receivable
Notes payableMay 31,
2016(Thousands of
U.S. dollars)

¥184
20

$—
—

5. Inventories
Inventories as of May 31, 2016 and 2015 were as follows:

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

May 31,
2016

May 31,
2015(Millions of yen)

¥1,491
3,172
2,657¥7,320

May 31,
2016(Thousands of
U.S. dollars)¥1,2832,962
2,150¥6,395$13,438
28,592
23,952$65,982

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:

May 31,
2016

May 31,
2015(Millions of yen)

¥4
68
¥72

Merchandise and finished products
Work in process

May 31,
2016(Thousands of
U.S. dollars)

¥172
21
¥193

$35
615
$650

Buildings and structures
Machinery and vehicles
Other
Accumulated depreciation

41

May 31,
2016

May 31,
2015(Millions of yen)¥7,1726,729
3,281
17,182(13,380)¥3,802¥7,058
6,793
3,273
17,124(13,037)¥4,087

May 31,
2016(Thousands of
U.S. dollars)$64,645
60,651
29,578
154,874(120,600)$34,274

May 31,
2016

May 31,
2015(Millions of yen)¥851

May 31,
2016(Thousands of
U.S. dollars)¥882$7,669

Accumulated depreciation of property, plant and equipment amounted to ¥13,380 million ($120,600 thousand) and ¥13,037
million as of May 31, 2016 and 2015, respectively.
7. Investments and Other Assets
Investments in unconsolidated subsidiaries and affiliates included in “Investment securities” as of May 31, 2016 and 2015 were as
follows:

As of

May 31,
2016

May 31,
2015(Millions of yen)

¥1,390

May 31,
2016(Thousands of
U.S. dollars)¥1,174$12,527

8. Short-Term Borrowings and Long-Term Debt
As of May 31, 2016 and 2015, 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,
2016

May 31,
2015(Millions of yen)

¥666
352
¥1,018

May 31,
2016(Thousands of
U.S. dollars)

¥990
794
¥1,784$6,0003,173$9,173

The annual weighted average interest rates applicable to short-term borrowings and current-portion of long-term debt as of May
31, 2016 were 1.415% and 1.535%, respectively.
As of May 31, 2016 and 2015, long-term debts were as follows:

As of

May 31,
2016

May 31,
2015(Millions of yen)

Long-term debt, excluding current portion, serially due from 2017 through 2020

¥7,288

May 31,
2016(Thousands of
U.S. dollars)¥7,640$65,693

The annual weighted average interest rate applicable to long-term debt as of May 31, 2016 was 1.258%.
The maturities of long-term debt are summarized as follows:

Years ended May 31

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

As of

For the Years Ended

Investments in capital

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 ¥(205) million ($(1,850) thousand) and ¥191 million for theyears ended May 31, 2016 and 2015, respectively. These amounts were included in “Cost of sales.”As ofDepreciation of property, plant and equipment for the years ended May 31, 2016 and 2015 were as follows:

2017
2018
2019
2020
2021 and thereafter(Millions of yen)(Thousands of
U.S. dollars)

¥352
4,002
3,182
72
32
¥7,640$3,173
36,074
28,682649
288$68,866

Toyo Denki Seizo Report 201642

The assets pledged as collateral for short-term borrowings of ¥858 million ($7,731 thousand) and long-term debt of ¥1,248
million ($11,249 thousand) as of May 31, 2016 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)¥1,643558
355
158¥2,714$14,806
5,030
3,203
1,429
$24,468

For the Years Ended
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(Millions of yen)(Thousands of
U.S. dollars)¥1,643558
355¥2,556$14,806
5,030
3,203$23,039Retirement benefit obligation as of June 1
Cumulative effect of changes in accounting policies
Restated balance as of June 1
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Retirement benefit obligation as of May 31

May 31,
2016

May 31,
2015(Millions of yen)

¥3,726
—
3,726
287
14
10
(184)
¥3,853¥4,045
(576)
3,469
257
50
364
(414)
¥3,726

As of

As of

May 31,
2015(Millions of yen)

Prior service cost
Actuarial loss
Unamortized net retirement benefit obligation at transition
Total

May 31,
2015(Millions of yen)

¥287
14
70
—
—
¥371

May 31,
2016(Thousands of
U.S. dollars)

¥257
50
31
(39)
269
¥568

$2,583129
632——$3,344

May 31,
2016(Thousands of
U.S. dollars)

Unrecognized prior service cost
Unrecognized actuarial loss
Unamortized net retirement benefit obligation at transition
Total$33,583—
33,5832,583
129
95(1,663)$34,727

May 31,
2016

May 31,
2016

May 31,
2015(Millions of yen)

¥—
60
—
¥60

May 31,
2016(Thousands of
U.S. dollars)¥(39)(332)
269¥(102)

$—
537
—
$537

Retirement benefits liability adjustments included in accumulated other comprehensive income (before tax effect) as of May 31,
2016 and 2015 are as follows:

As of

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of
May 31, 2016 and 2015 for the Company’s and the consolidated subsidiaries’ defined benefit plans:

May 31,
2016

May 31,
2016

Retirement benefits liability adjustments included in other comprehensive income (before tax effect) as of May 31, 2016 and 2015
are as follows:

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, 2016 and 2015 are as follows:

For the Years Ended

The components of retirement benefit expenses for the years ended May 31, 2016 and 2015 are as follows:

May 31,
2016

May 31,
2015(Millions of yen)

¥—
507
—
¥507

May 31,
2016(Thousands of
U.S. dollars)

¥—
567
—
¥567

$—
4,573
—
$4,573Major actuarial assumptions (weighted average) used in accounting for the above plans as of May 31, 2016 and 2015 were as
follows:

For the Years Ended
Discount rate

May 31,
2016
0.4%

May 31,2015
0.4%

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¥115 million ($1,039 thousand) and ¥113 million for the years ended May 31, 2016 and 2015, respectively.

(Thousands of
U.S. dollars)

Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,853
3,853¥3,726
3,726$34,727
34,727

Liability for retirement benefits
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,853
3,853¥3,726
3,726$34,727
34,727

Note: The plan adopting the simplified method is included.

43

Toyo Denki Seizo Report 201644

11. Selling, General and Administrative Expenses
The main components of “Selling, general and administrative expenses” for the years ended May 31, 2016 and 2015 were as follows:

10. Net Assets
Information regarding changes in net assets for the years ended May 31, 2016 and 2015 is as follows:a. Shares issued and outstanding/ Treasury stock

May 31,2016

For the Years Ended

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

8,741 shares(Millions of yen)

¥1,966
37
392
196
(37)
868

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,
2016

Type of shares

Increase

Decrease(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

474,527

10,210—484,737

For the year ended May 31, 2016

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$2,606

¥6.00

$0.05

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

Cut-off date

Effective dateCut-off date

Effective date

May 31, 2015 August 28, 2015

For the year ended May 31, 2015
Resolution
Annual general meetingof the shareholders on
August 27, 2014

Special gains:
Gain on sales of intangible assets (land leasehold right)
Special losses:
Impairment loss (Note)
Provision of reserve for ecological countermeasures
Removal expenses for property, plant and equipment
Loss on sales of investment securities
Other
Total

Location
Hiratsuka Plant of the Company(Hiratsuka city, Kanagawa Pref.)1) Dividends paid

Type of shares

Type of shares
Common stock¥290¥1,882
41
397
313
6
898

$17,723
335
3,532
1,771
(336)
7,828

May 31,
2015

May 31,
2016(Thousands of
U.S. dollars)

¥—

¥13

$—

—
—
(72)
(12)
(4)
¥(88)

(31)
(24)
—
—
—
¥(42)

—
—
(650)
(105)
(38)
$(793)

Note: The Group recognized no impairment loss for the year ended May 31, 2016.
The Group recognized an impairment loss on the following assets for the year ended May 31, 2015:

10,210 sharesb. Dividends

Resolution
Annual general meetingof the shareholders on
August 27, 2015

(Thousands of
U.S. dollars)(Millions of yen)

For the year ended May 31, 2015

Number ofshares as of
May 31, 2015

May 31,
2016

12. Special Gains (Losses), Net
The components of “Special gains (losses), net” for the years ended May 31, 2016 and 2015 were as follows:

For the Years Ended

Number ofshares as ofJune 1, 2014

May 31,
2015

Use

Type

Plant

Buildings and structures(Millions of yen)

¥31

In determining an impairment loss, the Group is grouping assets based on the minimum unit generating cash flows independently
from other assets or asset groups.
For the year ended May 31, 2015, the Group reduced the carrying amount of an asset group expected to be removed at the time ofrepairing and expansion of Hiratsuka Plant down to the recoverable amount and recognized such reduced amount as an impairment
loss in an amount of ¥31 million under “Special losses.”
In calculating the recoverable amount, it is measured by the value in use based on the future cash flows, but the discount rate is
not considered, because the removal will be conducted in the near future and the monetary effect is immaterial.

¥6.00 May 31, 2014 August 28, 2014

2) Dividends with the cut-off date in the year ended May 31, 2016 and the effective date in the year ending May 31, 2017
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 29,
August 26, 2016
stock
2016
¥289
$2,606 earnings¥6.00$0.05 201645

Toyo Denki Seizo Report 201646

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 33.1% and 35.6% for the years
ended May 31, 2016 and 2015, 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 years ended May 31, 2016 and 2015 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%

May 31,
2015
35.6%

2.0
(1.1)
1.9
(11.4)
(1.8)
7.0
5.6
1.4
36.7%

1.4
(1.5)
1.4
(0.4)
(0.9)
2.4
7.9
(0.8)
45.1%

The significant components of deferred tax assets and liabilities as of May 31, 2016 and 2015 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,
2016

May 31,
2015(Millions of yen)

May 31,
2016(Thousands of
U.S. dollars)

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

¥193
1,209
309
100
345
587
2,743
(774)
1,969

$1,375
10,690
2,632
948
2,809
4,043
22,497(6,159)16,338(2,857)(19)(2,876)¥(1,064)(3,919)(2)(3,921)¥(1,952)(25,755)(171)(25,926)$(9,588)

Adjustments of deferred tax assets and liabilities due to a change in the income tax rate:
The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No. 15 of 2016) and the “Act for Partial Amendment of the Local
Tax Act, etc.” (Act No. 13 of 2016) were enacted at the Diet on March 29, 2016. As a result, the effective statutory tax rate used tomeasure the Company’s deferred tax assets and liabilities was reduced from 32.3% to 30.9% for the temporary differences expected
to be realized or settled in the years beginning June 1, 2016 and 2017 and to 30.6% for the temporary differences expected to berealized or settled in the years beginning on and after June 1, 2018. The effect of the announced reduction of the effective statutory
tax rate was to decrease deferred tax assets, net of deferred tax liabilities, and retirement benefits liability adjustments by ¥66 million($596 thousand) and ¥8 million ($74 thousand), respectively and increase unrealized holding gain on securities and income taxes –deferred by ¥154 million ($1,386 thousand) and ¥79 million ($716 thousand), respectively.

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, 2016 and 2015:

For the Years Ended

May 31,
2016

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¥(2,921)
11(2,910)1,062(1,848)¥6,050—
6,050(1,723)
4,327$(26,333)
105(26,228)
9,571(16,657)

Deferred gain on hedging instruments:
Amount arising during the year
Amount before tax effectTax effect
Deferred gain on hedging instruments

—
—
—
—

40
40
(14)
26

—
—
—
—

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

49
49
49

(11)
(11)
(11)

440
440
440

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

(10)
70
60
(28)
32

(364)
261
(103)
18
(85)

(95)
632
537
(252)
285

(48)

105

(434)

(48)
¥(1,815)105¥4,362(434)$(16,366)

Share of other comprehensive income (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)(Millions of yen)

May 31,
2016(Thousands of
U.S. dollars)

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.
In addition, finance leases that do not transfer ownership of the leased property to the lessee and whose lease inception was onor before May 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.
16. Contingent Liabilities
As of May 31, 2016 and 2015, 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.

47

May 31,
2015

May 31,
2016

May 31,
2015(Millions of yen)

¥ 30
169

May 31,
2016(Thousands of
U.S. dollars)

¥196
200

$273
1,525

Toyo Denki Seizo Report 201648

17. Amounts Per Share

For the Years Ended
Net income:Basic

May 31,
2016

May 31,
2015(Yen)

May 31,
2016(U.S. dollars)¥18.47¥22.94

$0.17

As of

May 31,
2016

May 31,
2015

May 31,
2016

Net assets¥491.41(Yen)(U.S. dollars)¥516.61$4.43

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 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

May 31,
2016

May 31,
2015(Millions of yen)

¥890
—
890

May 31,
2016(Thousands of
U.S. dollars)¥1,106—
1,106$8,020—8,020(Thousand shares)

Average number of shares of common stock during the year

48,18548,195

18. Financial Instruments
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(t) “Derivative financial instruments.”

49(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, 2016 and 2015 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, 2016

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*¥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
¥—

Toyo Denki Seizo Report 201650

As of May 31, 2016

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*2. Financial instruments for which it is extremely difficult to determine the fair value$21,645
124,302
8,703
151,051$305,701$21,645
124,302
8,703
151,051$305,701

$—
—
—
—
$—

$33,736
47,5736,000
68,866$156,175$383$33,736
47,5736,000
69,626$156,935
$383

$—
—
—
760
$760
$—

As of May 31, 2016

Fair value

Difference

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*¥639

May 31,
2016(Thousands of
U.S. dollars)¥642$5,757

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.
3. Redemption schedule for receivables and securities with maturities at May 31, 2016 and 2015 are as follows:

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¥2,398
12,942966¥16,306

¥—
848
—
¥848

¥—
—
—
¥—

¥—
—
—
¥—

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Thousands of U.S. dollars)¥3,571
14,233606
19,685¥38,095¥3,571
14,233606
19,685¥38,095

¥—
—
—
—
¥—

¥5,116
3,023
990
8,434
¥17,563¥(22)¥5,116
3,023
990
8,484
¥17,613¥(22)

¥—
—
—
(50)
¥(50)¥—*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.

51

May 31,
2015(Millions of yen)

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

As of May 31, 2015

May 31,
2016

As of

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

As of May 31, 2015

$21,611
116,661
8,703$146,975

$—
7,641
—
$7,641

$—
—
—
$—

$—
—
—
$—

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¥3,568
12,539606¥16,713

¥—
1,694
—
¥1,694

¥—
—
—
¥—

¥—
—
—
¥—

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

19. Securities
Information regarding securities classified as available-for-sale securities
Available-for-sale securities

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

Toyo Denki Seizo Report 201652

As of May 31, 2016

Carrying value Acquisition cost

Unrealized
Gain (Loss)

Hedging policies(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$150,928$150,928$66,851$66,851$84,077$84,077

$123
$123
$151,051

$132
$132
$66,983

$(9)
$(9)
$84,068

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.

Available-for-sale securities

As of May 31, 2015

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¥19,685¥19,685¥7,449¥7,449¥12,236¥12,236¥—¥—¥19,685¥—¥—¥7,449¥—¥—¥12,236

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.

Stock:
Sales proceeds
Gain on sales
Loss on sales

May 31,
2016

May 31,
2015(Millions of yen)

¥19
—
12

May 31,
2016(Thousands of
U.S. dollars)

¥—
—
—

$174
—
105

20. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash flows for the years ended May 31, 2016 and 2015 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

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.
Types and purpose of derivative transactions
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.
Derivative transactions to which hedge accounting is not applied:
Currency-related derivatives:

As of May 31, 2016

Contract amount

Maturing after
one year

Fair value

Unrealized gain
(loss)(Millions of yen)

Forward foreign exchange contracts:
Sold:
USD

As of May 31, 2016

¥486
Contract amount

¥—

¥43

Maturing after
one year

Fair value¥43
Unrealized gain
(loss)(Thousands of U.S. dollars)

Forward foreign exchange contracts:
Sold:
USD

$4,377$—$383

Maturing after
one year

Fair value$383

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

Information regarding available-for-sale securities soldFor the Years Ended

21. Derivative Transactions

May 31,
2016

May 31,
2015(Millions of yen)

¥2,401¥2,401

May 31,
2016(Thousands of
U.S. dollars)¥3,571¥3,571$21,645$21,645

As of May 31, 2015

Contract amount

Unrealized gain
(loss)(Millions of yen)

Forward foreign exchange contracts:
Sold:
USD

¥596

¥—

¥(22)

¥(22)

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, 2016

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

As of May 31, 2016

Notional amount
Major hedged
Maturing after
item
Contract amount
one year¥7,360¥7,128Note

Fair value(Thousands of U.S. dollars)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixed53

Long-term debt

$66,342$64,251

Note

Toyo Denki Seizo Report 201654

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.

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

As of May 31, 2015

Transportation
Systems

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

¥7,889¥7,360For the year ended May 31, 2016
Reportable segments

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.

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.

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

Industrial
Systems

Other(Note)

Segment profit
Segment assets
Other items:
Depreciation
Capital expenditures

Adjustments

Consolidated¥26,758¥12,027¥955¥6¥39,746¥—¥39,74630
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

¥550
¥470

¥151
¥126

¥20
¥12

¥1
¥0

¥722
¥608

Adjustments

Consolidated$8,605$59$358,267$—$358,267

Segment profit
Segment assets

272
241,464$26,722$176,720

34
108,445$9,193$72,423

—
8,605
$862
$5,294

5,377
5,436
$284
$5,127

5,683
363,950$37,061$259,564(5,683)(5,683)$(22,288)$193,237—
358,267$14,773$452,801

Other items:
Depreciation
Capital expenditures$4,957$4,231$1,358$1,137

$182
$110

$6
$1

$6,503$5,479$1,166$2,659$7,669$8,138

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

For the year ended May 31, 2015
Reportable segments(Millions of yen)

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

Total$108,411

Transportation
Systems
Total

Other
(Note)$241,192

For the year ended May 31, 2016
Transportation
Systems

Information
Equipment
Systems(Thousands of U.S. dollars)

Reportable segments
Information
Equipment
Systems

Industrial
Systems

¥129
¥295

¥851
¥903

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¥26,870¥11,613¥1,128¥6¥39,617¥—¥39,617

Segment profit
Segment assets

41
26,911¥3,118¥18,335

2
11,615¥848¥8,175

—
1,128
¥71
¥801

588
594
¥59
¥587

631
40,248¥4,096¥27,898

(631)
(631)
¥(2,500)¥25,143—
39,617¥1,596¥53,041

Other items:
Depreciation
Capital expenditures

¥546
¥554

¥161
¥205

¥26
¥22

¥1
¥1

¥734
¥782

¥148
¥187

¥882
¥969

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, 2016
and 2015 are summarized as follows:

For the Years Ended

May 31,
2016

Japan
China
Other
Consolidated¥27,094
8,375
4,277¥39,746

May 31,
2015(Millions of yen)

May 31,
2016(Thousands of
U.S. dollars)¥24,547
11,634
3,436¥39,617$244,226
75,48738,554$358,267

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

55

Toyo Denki Seizo Report 2016

56

Major customer information(3) Effect on per share information
Per share information for the year ended May 31, 2016 would have been as follows, assuming the share consolidation had been
undertaken at June 1, 2015:
Net assets per share: ¥2,457.05 ($22.15)
Net income per share: ¥92.33 ($0.83)

Major customer information for the year ended May 31, 2016 is as follows:
Customer
Meiji Sangyo Co., Ltd.

Segment
Transportation Systems

Major customer information for the year ended May 31, 2015 is as follows:
Customer
Segment
Meiji Sangyo Co., Ltd.
Transportation Systems(Millions of yen)(Thousands of
U.S. dollars)¥5,506$49,626

b. Resolution regarding share repurchase and buyback of shares
At the meeting of the Board of Directors held on July 25, 2016, the Company resolved to acquire its own shares pursuant to Article
156 of the Companies Act of Japan applicable in lieu of Paragraph 3, Article 165 of the same act.

(Millions of yen)

¥5,489

Information regarding an impairment loss on fixed assets by reportable segments
Impairment loss on fixed assets by reportable segments for the years ended May 31, 2016 and 2015 is summarized as follows:

For the Years Ended
Transportation Systems
Industrial Systems
Information Equipment Systems
Reportable segment total
Other
Adjustments
Consolidated

May 31,
2016

May 31,
2015(Millions of yen)

May 31,
2016(Thousands of
U.S. dollars)

¥—
—

¥31
—

$—
—

—

—

—

—
—
—
¥—

31
—
—
¥31

—
—
—
$—

(1) Reason for the share repurchase
To implement capital policy in response to changes in the business and market environment and to return profits to shareholders(2) Type of shares to be acquired:
Common stock(3) Total number of shares to be acquired: Up to 1,000,000 shares(4) Total value of shares to be acquired:
Up to ¥300 million ($2,704 thousand)From July 26 to September 21, 2016
(5) Acquisition schedule:(6) Method of acquisition:
Open market purchase using a trust(7) Result of acquisition:
Total number of shares acquired:
952,000 shares
Total value of shares acquired:¥299,860 thousand		
($2,703 thousand)Acquisition of own shares pursuant to the resolution was terminated on August 12, 2016.

23. Significant Subsequent Eventsa. Share consolidation
At the meeting of the Board of Directors held on July 12, 2016, the Company resolved to submit the matter of the share consolidation(five shares into one share) to the 155th annual general meeting of the shareholders scheduled to be convened on August 26, 2016
and this proposal was approved at the meeting of the shareholders.
(1) Purpose of share consolidation
All securities exchanges in Japan announced an Action Plan for Consolidating Trading Units and under this action plan, trading
units of shares (number of shares per share unit) for all domestic listed companies are to be uniformly set at 100 shares.
In light of the intent of this plan, and as a company listed on the Tokyo Stock Exchange, the Company decided to change thenumber of shares per share unit from 1,000 to 100 and also to undertake a share consolidation under which every 5 shares will beconsolidated into 1 share to achieve the desirable share unit price level quoted by the stock exchanges, namely between ¥50,000
and ¥500,000.
(2) Particulars of the consolidation(i) Type of shares to be consolidated: Common stock(ii) Consolidation method and ratio:	Shares held by shareholders recorded in the latest register of shareholders as of November
30, 2016 will be consolidated at the ratio of 5 shares to 1 share on December 1, 2016.
(iii) Number of shares reduced through consolidation:
Outstanding shares before consolidation (as of May 31, 2016) 48,675,000 shares
Number of shares reduced through consolidation
38,940,000 shares
Outstanding shares after consolidation
9,735,000 shares
Note: The number of shares reduced through consolidation and the outstanding shares after consolidation are theoreticalvalues calculated by multiplying the number of outstanding shares before consolidation by the share consolidation ratio.

57

Toyo Denki Seizo Report 2016

58

Report of Independent Auditors59