Consolidated Financial Statements 2018
As of and for the Year Ended February 28, 2018,
and Independent Auditor’s ReportI n d e p e n d e n t A u d i t o r ’s R e p o r t

To the Board of Directors of Furuno Electric Co., Ltd.:We have audited the accompanying consolidated balance sheet of Furuno Electric Co., Ltd.
(the “Company”) and its consolidated subsidiaries as of February 28, 2018, and the related
consolidated statements of income, comprehensive income, changes in equity, and cash flows
for the year then ended, and a summary of significant accounting policies and otherexplanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in Japan,
and for such internal control as management determines is necessary to enable thepreparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements basedon our audit. We conducted our audit in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free frommaterial misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the consolidated financial statements. The procedures selected depend on theauditor’s judgment, including the assessment of the risks of material misstatement of theconsolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Furuno Electric Co., Ltd. and its
consolidated subsidiaries as of February 28, 2018, and the consolidated results of theiroperations and their cash flows for the year then ended in accordance with accounting
principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in accordance with the basis
stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts arepresented solely for the convenience of readers outside Japan.

May 24, 20181

Consolidated Balance Sheets
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
February 28, 2018ASSETS

Thousands of
U.S. Dollars(Note 1)
2018

Millions of Yen
2018
2017

CURRENT ASSETS:
Cash and cash equivalents (Note 12)¥10,834

Short-term investments (Notes 3 and 12)579¥10,124 $100,903
81

5,392

Notes receivable—trade (Note 12)

2,839

3,698

26,441

Accounts receivable—trade (Note 12)

15,065

14,266140,309

Allowance for doubtful receivables (Note 12)
Inventories (Note 5)
Deferred tax assets (Note 10)
Other current assets

(342)

(327)

(3,185)25,446

24,779236,993

310

639

2,887

2,980

2,990

27,75457,71456,253

537,524

Land

3,447

3,441

32,103
125,128

Total current assets
PROPERTY, PLANT AND EQUIPMENT—NET (Notes 6 and 7):
Buildings and structures

13,435

13,244

Machinery and equipment

4,030

3,844

37,533

Furniture and fixtures

10,647

10,41899,161

Construction in progress
Total
Accumulated depreciation
Property, plant and equipment—net

38

67

353

31,59831,015294,290(22,366)(21,350) (208,307)

9,232

9,664

85,983INVESTMENTS AND OTHER ASSETS:
2,062

2,184

19,204

Investments in unconsolidated subsidiaries andassociated companies (Note 12)

Investment securities (Notes 4 and 12)

373

373

3,473

Goodwill

618

636

5,755

Asset for retirement benefits (Notes 2.k and 8)

408

319

3,799

Deferred tax assets (Note 10)

64

26

596

Insurance funds

674

686

6,277

Software (Note 6)

4,682

4,530

43,606

942

1,047

8,773

9,826

9,805

91,515

Other assets
Total investments and other assets
TOTAL¥76,773

See notes to consolidated financial statements.

2¥75,724 $715,032

LIABILITIES AND EQUITY

Millions of Yen
2018
2017

Thousands of
U.S. Dollars(Note 1)
2018

CURRENT LIABILITIES:
Short-term bank loans (Notes 7 and 12)¥ 2,566

Current portion of long-term debt (Notes 7 and 12)

159

Notes payable—trade (Note 12)¥ 4,997 $ 23,898
243

1,480

265

282

2,468

Accounts payable—trade (Note 12)

3,956

3,108

36,844

Electronically recorded obligations—operating (Note 12)

7,213

6,984

67,178

633

491

5,895

1,669

1,532

15,544
11,120

Income taxes payable
Accrued employees’ bonuses
Accrued product warranty costs

1,194

1,483

Other current liabilities

5,497

6,762

51,19623,15725,887

215,674

Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 7 and 12)

10,9809,640

102,263

Liability for retirement benefits (Notes 2.k and 8)—Employees

2,773

2,562

25,826

Deferred tax liabilities (Note 10)

516

504

4,805

Long-term accounts payable

157

157

1,462

Other long-term liabilities

629

650

5,858

15,056

13,515140,225

Total long-term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 13 and 14)
EQUITY (Note 9):
Common stock—authorized,
120,000 thousand shares; issued,

7,534

7,534

70,168

Capital surplus

31,894 thousand shares for both 2018 and 2017

10,074

10,074

93,825Retained earnings

22,536

21,367

209,891

(202)

(201)

(1,881)

689

832

6,417

2

(70)

18

Foreign currency translation adjustments(1,224)(2,190)(11,399)

Defined retirement benefit plans(1,209)(1,365)(11,260)

Total

38,201

35,981355,788

358

339

3,334

38,55936,321

359,122¥76,773¥75,724 $715,032

Treasury stock—at cost,
382 thousand shares in 2018 and 381 thousand shares in 2017
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting

Noncontrolling interests
Total equity
TOTAL

3

Consolidated Statement of Income
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands of
U.S. Dollars(Note 1)
2018

Millions of Yen
2018
2017

NET SALES¥79,050¥78,674 $736,239

COST OF SALES

50,81652,171

473,279

Gross profit

28,23326,503262,950

26,241

24,968244,397

1,992

1,534

18,552SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 11)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income

158

79

1,471

Interest expense

(118)

(134)

(1,099)Foreign exchange loss

(486)

(289)

(4,526)

Subsidy income

63

109

586

Gain on sales of property, plant and equipment

102

51

949

Gain on sales of investment securities

940

101

6

Loss on sales of property, plant and equipment

(1)

(6)

(9)

Loss on disposal of property, plant and equipment

(17)

(7)

(158)

Loss on impairment of long-lived assets (Note 6)

(58)

(48)

(540)

Surrender value of insurance

24

30

223

Other—net

240

142

2,235

Other income (expenses)—net

9

(66)

83

INCOME BEFORE INCOME TAXES

2,001

1,467

18,636

716

479

6,668

INCOME TAXES (Note 10):
Current
Deferred
Total income taxes
NET INCOME

24

(312)

223

740

167

6,892

1,260

1,300

11,735

23

37

214

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTSNET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT¥ 1,236

PER SHARE OF COMMON STOCK (Notes 2.r and 15):

Yen
2018

Basic net income¥ 39.25

Cash dividends applicable to the year

10.00

See notes to consolidated financial statements.

4¥ 1,262 $ 11,511

2017

U.S. Dollars
2018¥ 40.06 $   0.36
8.00

0.09

Consolidated Statements of Comprehensive Income
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands of
U.S. Dollars(Note 1)
2018

Millions of Yen
2018
2017

NET INCOME¥1,260¥1,300$11,735

OTHER COMPREHENSIVE INCOME:
(142)

361

(1,322)

Deferred gain (loss) on derivatives under hedge accounting

Unrealized (loss) gain on available-for-sale securities

72

(33)

670

Foreign currency translation adjustments

966(1,769)8,996

Defined retirement benefit plans

155

(43)

1,443

1,051

(1,485)

9,788¥2,311¥ (184)$21,523¥2,287¥ (222)$21,300

23

37

214

Total other comprehensive income (loss)
COMPREHENSIVE INCOME (LOSS)TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests
See notes to consolidated financial statements.

5Consolidated Statements of Changes in Equity
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands

Millions of Yen
Accumulated Other Comprehensive Income

Number of
Shares ofCommonStockCommonOutstanding Stock

BALANCE, MARCH 1, 2016
Changes in scope of consolidation
Net income attributable to owners of the parent
Cash dividends, ¥10.0 per share
Purchase of treasury stock
Net change in the year
BALANCE, FEBRUARY 28, 2017
Changes in scope of consolidation
Net income attributable to owners of the parent
Cash dividends, ¥8.0 per share
Purchase of treasury stock
Net change in the year

31,513BALANCE, FEBRUARY 28, 2018

31,511¥7,534

CapitalSurplusRetained
Earnings¥10,074¥20,082
337
1,262
(315)

(0)
31,512

Deferred Gain
Foreign
Unrealized (Loss) on
Derivatives Currency
Gain onDefinedTreasury Available-for- under Hedge Translation Retirement
Stock Sale Securities Accounting Adjustments Benefit Plans¥(201)

¥470

¥(36)

¥ (420)

361
832

(33)
(70)

(1,769)(2,190)10,074

21,367
184
1,236
(252)

(0)

(201)

(142)

72

¥10,074¥22,536¥(202)

¥689

¥ 2

Total
Equity

¥398

966

18

¥36,581
337
1,262
(315)
(0)
(1,544)36,321
184
1,236
(252)
(0)
1,069

¥(1,224)¥(1,209) ¥38,201¥358¥38,559

Noncontrolling
Interests

Total
Equity(0)¥7,534

Noncontrolling
Interests¥(1,321) ¥36,182
337
1,262
(315)
(0)
(43) (1,485)(1,365) 35,981
184
1,236
(252)
(0)
155
1,051

(0)
7,534

Total

(59)
339

Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Income

CommonStockCapitalSurplusRetained
Earnings

BALANCE, FEBRUARY 28, 2017
Changes in scope of consolidation
Net income attributable to owners of the parent
Cash dividends, $0.07 per share
Purchase of treasury stock
Net change in the year

$70,168$93,825 $199,003
1,713
11,511(2,347)BALANCE, FEBRUARY 28, 2018$70,168

Deferred Gain
Foreign
Unrealized (Loss) on
Derivatives Currency
Gain onDefinedTreasury Available-for- under Hedge Translation Retirement
Stock Sale Securities Accounting Adjustments Benefit Plans$(1,872)$7,748(1,322)$(651) $(20,396) $(12,713) $335,112
1,713
11,511(2,347)
(0)
670
8,996
1,443
9,788

$3,157 $338,278
1,713
11,511(2,347)
(0)
167
9,956

$6,417$ 18 $(11,399) $(11,260) $355,788$3,334 $359,122(0)$93,825 $209,891

See notes to consolidated financial statements.

6$(1,881)

Total

Consolidated Statements of Cash Flows
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended February 28, 2018

Millions of Yen
2018
2017

OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes—paidDepreciation and amortization
Gain on sales of investment securities
Loss on impairment of long-lived assets
Changes in assets and liabilities, net of effects from newly
consolidated subsidiaries:
Decrease in trade receivables(Increase) decrease in inventories
Decrease (increase) in asset for retirement benefits
Increase (decrease) in trade payables(Decrease) increase in accrued product warranty costs
Increase in liability for retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities¥ 2,001

Thousands of
U.S. Dollars(Note 1)2018

¥ 1,467 $ 18,636

(547)
3,225
(101)
58

(653)
2,924
(6)
48

(5,094)30,036
(940)
540

243
(407)
181
1,201
(295)
91
(508)
3,141
5,142

1,454
1,187
(321)
(1,414)
399
67
1,264
4,950
6,417

2,263
(3,790)
1,685
11,185(2,747)847(4,731)
29,25347,890INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment
Purchases of property, plant and equipment
Purchases of intangible assets
Proceeds from sales of investment securities
Increase in other assets
Net cash used in investing activities

228(1,295)(1,987)155(506)(3,404)152(1,613)(2,289)12(413)(4,152)

2,123(12,061)(18,506)
1,443(4,712)(31,703)

FINANCING ACTIVITIES:
Decrease in short-term bank loans—net
Proceeds from long-term debt
Repayments of long-term debt
Purchase of treasury stock
Dividends paid
Net cash used in financing activities(2,508)2,300(1,043)(0)(290)(1,542)(1,389)1,500(1,925)(1)(384)(2,201)(23,358)
21,421(9,714)(0)(2,700)(14,361)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
427
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
624
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
10,124
INCREASE IN CASH AND CASH EQUIVALENTS DUE TO NEW CONSOLIDATION86
CASH AND CASH EQUIVALENTS, END OF YEAR
¥10,834
See notes to consolidated financial statements.

7

(572)
3,976
(508)
5,811
10,441
94,290190
800¥10,124 $100,903

Notes to Consolidated Financial Statements
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Year Ended February 28, 2018

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Act and its related
accounting regulations and in accordance with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications andrearrangements have been made to the consolidated financial statements issued domestically inorder to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2017 consolidated financial statements toconform to the classifications used in 2018.
The consolidated financial statements are stated in Japanese yen, the currency of the country
in which Furuno Electric Co., Ltd. (the “Company”) is incorporated and operates. The translationsof Japanese yen amounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of ¥107.37 to $1, the approximate rate ofexchange at February 28, 2018. Such translations should not be construed as representations
that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
As permitted under the Financial Instruments and Exchange Act of Japan, figures less than
one million yen have been omitted. As a result, the totals shown in the accompanying
consolidated financial statements do not necessarily agree with the sum of the individual
amounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation—The consolidated financial statements as of February 28, 2018 include theaccounts of the Company and its 32 significant (31 in 2017) subsidiaries (together, the“Group”).
Under the control and influence concepts, those companies in which the Company, directly
or indirectly, is able to exercise control over operations are fully consolidated, and thosecompanies over which the Group has the ability to exercise significant influence are accounted
for by the equity method.
Investments in 4 (5 in 2017) unconsolidated subsidiaries and 2 (2 in 2017) associatedcompanies are stated at cost. If the equity method of accounting had been applied to theinvestments in these companies, the effect on the accompanying consolidated financial
statements would not be material.
Goodwill represents the excess of the cost of an acquisition over the fair value of the net
assets of the acquired subsidiary company at the date of acquisition. Goodwill is reported in
the balance sheet and is amortized using the straight-line method over reasonably estimatedperiods (mainly 18 years) in which economic benefits are expected to be realized.
All significant intercompany balances and transactions have been eliminated inconsolidation. All material unrealized profit included in assets resulting from transactions within
the Group is also eliminated.
The fiscal year-end dates of 26 consolidated subsidiaries are different from the consolidatedbalance sheet date of February 28 or 29. The fiscal year-end dates of FURUNO U.S.A., Inc.
and FURUNO PANAMA, S.A. are November 30 and 24 other subsidiaries’ fiscal year-end
dates are December 31.
FURUNO SHANGHAI CO., LTD., which was an unconsolidated subsidiary in the previous
fiscal year, has been newly included in the scope of consolidation from this fiscal year due toits increase in materiality. This was not applied retrospectively; the effects of this change on theretained earnings are recognized as “change in scope of consolidation” in the consolidated
statement of changes in equity.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements—Under Accounting Standards Board of Japan (“ASBJ”) Practical Issues
Task Force (“PITF”) No. 18, “Practical Solution on Unification of Accounting Policies Applied toForeign Subsidiaries for the Consolidated Financial Statements,” the accounting policies andprocedures applied to a parent company and its subsidiaries for similar transactions and events
under similar circumstances should in principle be unified for the preparation of the consolidated
financial statements. However, financial statements prepared by foreign subsidiaries in8

accordance with either International Financial Reporting Standards or generally accepted
accounting principles in the United States of America (Financial Accounting Standards Board
Accounting Standards Codification) tentatively may be used for the consolidation process,except for the following items that should be adjusted in the consolidation process so that net
income is accounted for in accordance with Japanese GAAP, unless they are not material;(a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions thathas been recorded in equity; (c) expensing capitalized development costs of research anddevelopment; (d) cancellation of the fair value model of accounting for property, plant andequipment and investment properties and incorporation of the cost model of accounting.
c. Business Combinations—Business combinations are accounted for using the purchasemethod. Acquisition-related costs, such as advisory fees or professional fees, are accounted foras expenses in the periods in which the costs are incurred. If the initial accounting for a businesscombination is incomplete by the end of the reporting period in which the business combination
occurs, an acquirer shall report in its financial statements provisional amounts for the items forwhich the accounting is incomplete. During the measurement period, which shall not exceed
one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts
recognized at the acquisition date to reflect new information obtained about facts andcircumstances that existed as of the acquisition date and that would have affected themeasurement of the amounts recognized as of that date. Such adjustments shall be recognized
as if the accounting for the business combination had been completed at the acquisition date.
The acquirer recognizes any bargain purchase gain in profit or loss immediately on theacquisition date after reassessing and confirming that all of the assets acquired and all of theliabilities assumed have been identified after a review of the procedures used in the purchaseprice allocation. A parent’s ownership interest in a subsidiary might change if the parent
purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrollinginterest is adjusted to reflect the change in the parent’s ownership interest in its subsidiary while
the parent retains its controlling interest in its subsidiary. Any difference between the fair value ofthe consideration received or paid and the amount by which the noncontrolling interest is
adjusted is accounted for as capital surplus as long as the parent retains control over its
subsidiary.
d. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into
cash and exposed to insignificant risk of changes in value. Cash equivalents include time
deposits, certificates of deposit, commercial paper and bond funds, all of which mature or
become due within three months of the date of acquisition.
e. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts
considered to be appropriate based on the companies’ past credit loss experience and anevaluation of potential losses in the receivables outstanding.
f. Inventories—Inventories are stated at the lower of cost, principally determined by the averagemethod, or net selling value.
g. Investment Securities—The Company and its domestic consolidated subsidiaries categorize
their existing securities as available-for-sale securities. Those securities with market prices arecarried at fair values prevailing at the balance sheet date, with net unrealized gains and losses,
net of related taxes, reported in a separate component of equity. The cost of securities sold ismainly calculated using the moving-average method.
Nonmarketable available-for-sale securities are stated at cost determined by the movingaverage method. For other-than-temporary declines in fair value, investment securities are
reduced to net realizable value by a charge to income.
h. Property, Plant and Equipment—Property, plant and equipment are carried at cost.
Depreciation of property, plant and equipment is computed principally by the declining-balancemethod, while the straight-line method is applied to building improvements and structuresacquired on or after April 1, 2016.
Accumulated depreciation as of February 28, 2018 and 2017 was ¥22,366 million ($208,307
thousand) and ¥21,350 million, respectively.

9i . Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever eventsor changes in circumstance indicate the carrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if the carrying amount of an asset or asset
group exceeds the sum of the undiscounted future cash flows expected to result from thecontinued use and eventual disposition of the asset or asset group. The impairment loss would
be measured as the amount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued use and eventual
disposition of the asset or the net selling price at disposition.
j . Product Warranty Costs—The Group establishes a liability for estimated product warranty
costs at the time of sale. Estimates for accrued product warranty costs are primarily based on
historical experience.
k. Retirement and Pension Plans—The Company and certain consolidated subsidiaries havelump-sum severance indemnity plans, defined contribution pension plans and contributory
funded defined benefit pension plans, which are pursuant to the Japanese Welfare Pension
Insurance Law.
The Company accounts for liabilities for retirement benefits based on the projected benefit
obligations and plan assets at the balance sheet date. The projected benefit obligations are
attributed to periods on a benefit formula basis. Actuarial gains and losses are amortized on astraight-line basis over 10 years within the average remaining service period of employees
commencing from the following year after incurrence. Past service costs are amortized on astraight-line basis over 10 years within the average remaining service period of employees.
Certain consolidated subsidiaries adopt a simplified method under which the retirement
benefit amount required to be paid if all the employees retired on the balance sheet date isconsidered as the projected benefit obligations in computing liabilities for retirement benefits andnet periodic benefit costs.
l . Asset Retirement Obligations—In March 2008, the ASBJ published the new accounting
standard for asset retirement obligations, ASBJ Statement No. 18, “Accounting Standard for
Asset Retirement Obligations,” and ASBJ Guidance No. 21, “Guidance on Accounting Standard
for Asset Retirement Obligations.” Under this accounting standard, an asset retirement
obligation is defined as a legal obligation imposed either by law or contract that results from theacquisition, construction, development, and normal operation of a tangible fixed asset and isassociated with the retirement of such tangible fixed asset. The asset retirement obligation isrecognized as the sum of the discounted cash flows required for the future asset retirement andis recorded in the period in which the obligation is incurred if a reasonable estimate can be
made. If a reasonable estimate of the asset retirement obligation cannot be made in the period
the asset retirement obligation is incurred, the liability should be recognized when a reasonableestimate of the asset retirement obligation can be made. Upon initial recognition of a liability for
an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying
amount of the related fixed asset by the amount of the liability. The asset retirement cost is
subsequently allocated to expense through depreciation over the remaining useful life of theasset. Over time, the liability is accreted to its present value each period. Any subsequent
revisions to the timing or the amount of the original estimate of undiscounted cash flows arereflected as an adjustment to the carrying amount of the liability and the capitalized amount of
the related asset retirement cost.
m. Research and Development Costs—Research and development costs are charged to income
as incurred.
n. Income Taxes—The provision for income taxes is computed based on the pretax income
included in the consolidated statements of income. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted income tax rates to the temporary
differences.

10

The Group files a tax return under the consolidated corporate-tax system, which allows
companies to base tax payments on the combined profits or losses of the parent company andits wholly owned domestic subsidiaries.
The Company applied ASBJ Guidance No. 26, “Guidance on Recoverability of Deferred Tax
Assets,” effective March 1, 2017.
o. Foreign Currency Transactions—All short-term and long-term monetary receivables andpayables denominated in foreign currencies are translated into Japanese yen at the exchange
rates at the balance sheet date. The foreign exchange gains and losses from translation arerecognized in the consolidated statements of income to the extent that they are not hedged byforward exchange contracts.
p. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated
foreign subsidiaries are translated into Japanese yen at the current exchange rate as of thebalance sheet date except for equity, which is translated at the historical rate. Differences arisingfrom such translation were shown as “Foreign currency translation adjustments” and also
allocated to “Noncontrolling interests” in a separate component of equity. Revenue and expense
accounts of foreign consolidated subsidiaries are translated into yen at the average exchange
rate.
q. Derivatives and Hedging Activities—The Group uses derivative financial instruments tomanage exposures to fluctuations in foreign currency exchange and interest rates. Interest rate
swaps are utilized to reduce the interest rate risks of long-term debt, and foreign currency
forward contracts are utilized to reduce the foreign currency exchange risks of trade receivables
in foreign currencies on export sales. The Group does not enter into derivatives for trading or
speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted
for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fairvalue, and gains or losses on derivative transactions are recognized in the consolidated
statements of income; and b) for derivatives used for hedging purposes, if such derivatives
qualify for hedge accounting because of high correlation and effectiveness between the hedging
instruments and the hedged items, gains or losses on derivatives are deferred until maturity of
the hedged transactions in principle.
Foreign currency forward contracts employed to hedge foreign exchange exposures forexport sales are measured at fair value and the unrealized gains/losses are recognized inincome. Forward contracts applied for forecasted (or committed) transactions are also measured
at fair value but the unrealized gains/losses are deferred until the underlying transactions arecompleted.
The 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
agreements are recognized and included in interest expense or income.
r . Per Share Information—Basic net income per share is computed by dividing net income
attributable to common shareholders by the weighted-average number of common shares
outstanding for the period.
Cash dividends per share presented in the accompanying consolidated statements of income
are dividends applicable to the respective fiscal years, including dividends to be paid after theend of the year.

113. SHORT-TERM INVESTMENTS
Short-term investments as of February 28, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Time deposits other than cash equivalents

¥579

¥81

$5,392

4. INVESTMENT SECURITIESInvestment securities as of February 28, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Non-current:
Marketable equity securities¥1,803¥1,942$16,792

Government and corporate bonds
Other
Total

100
159
¥2,062101
139¥2,184931
1,480$19,204

The carrying amounts and aggregate fair values of investment securities at February 28, 2018and 2017, were as follows:
February 28, 2018
Securities classified as:Millions of Yen
Unrealized
Unrealized
Gains
Losses

Cost

Fair
Value

Available-for-sale:
Equity securities

¥936

¥ 866

Debt securities
Other

65
44

34
28

¥0

100
72

Equity securities¥942¥1,001¥1¥1,942

Debt securities
Other

65
44

36
19

0

101
63

¥1,803February 28, 2017

Securities classified as:
Available-for-sale:February 28, 2018
Securities classified as:

Cost

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
LossesFair
Value

Available-for-sale:
Equity securities$8,717$8,065

Debt securities
Other

605
409

316
260

$16,792
$0

931
670

Available-for-sale securities whose fair value is not readily determinable as of February 28, 2018and 2017, were as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2018
2017
2018

Available-for-sale:
Equity securities

¥86

12

¥76

$800

5. INVENTORIESInventories at February 28, 2018 and 2017, consisted of the following:
Millions of Yen
2018
2017

Merchandise and finished products¥15,586

Thousands of
U.S. Dollars
2018¥15,767 $145,161

Work in process

3,848

2,735

35,838Raw materials and supplies

6,011

6,276

55,983

Total¥25,446¥24,779 $236,993

6. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of February 28, 2018 and 2017 and,as a result, recognized impairment losses of ¥58 million ($540 thousand) and ¥48 million,
respectively, as other expenses. These impairment losses primarily related to the long-lived
assets of the Marine Business due to continuing operating losses in the division for the year
ended February 28, 2018 and the System Products Division and the Avionics and Defense
Division due to continuing operating losses in the divisions and software for product development
purpose in the Marine Electronic Products Division due to a significant decline in expected sales
for the year ended February 28, 2017. Recoverable amounts of these assets were measured at
net selling prices determined by the estimated sales prices of the respective assets or theassessed value of long-lived assets for property tax purposes.

7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans at February 28, 2018 and 2017, consisted of notes to banks and bankoverdrafts. The weighted-average interest rates applicable to the short-term bank loans were0.43% and 0.24% at February 28, 2018 and 2017, respectively.
Long-term debt at February 28, 2018 and 2017, consisted of the following:
Millions of Yen
2018
2017

Loans from banks and insurance companies, due serially to 2028 with weighted¥11,140
average interest rates from 0.61% to 0.69% (2018) and from 0.72% to 0.86% (2017)
Less current portion(159)

Long-term debt, less current portion¥10,980

Thousands of
U.S. Dollars
2018¥9,883 $103,753(243)(1,480)¥9,640 $102,263

Annual maturities of long-term debt at February 28, 2018, were as follows:Year Ending February 28 or 29
2019

Millions of Yen

Thousands of
U.S. Dollars¥   159 $  1,480

2020

3,480

32,411

2021

4,000

37,254

2022

500

4,656

2023

1,300

12,1072024 and thereafter

1,700

15,833

Total¥11,140 $103,753

The carrying amounts of assets pledged as collateral for short-term bank loans of ¥12 million($111 thousand) at February 28, 2018, were as follows:
Land and buildings, net of accumulated depreciation
Total

13

Millions of Yen

Thousands of
U.S. Dollars¥122$1,136¥122$1,136

As is customary in Japan, the Company maintains substantial deposit balances with bankswith which it has borrowings. Such deposit balances are not legally or contractually restricted as
to withdrawal.
General agreements with respective banks provide, as is customary in Japan, that additional
collateral must be provided under certain circumstances if requested by such banks and thatcertain banks have the right to offset cash deposited with them against any long-term or shortterm debt or obligation that becomes due and, in the case of default and certain other specified
events, against all other debt payable to the banks. The Company has never been requested toprovide any additional collateral.

8. RETIREMENT AND PENSION PLANS
The Company and certain consolidated subsidiaries have severance payment plans for
employees. Under most circumstances, employees terminating their employment are entitled toretirement benefits determined based on the rate of pay at the time of termination, years ofservice and certain other factors. Such retirement benefits are made in the form of a lump-sum
severance payment from the Company or from certain consolidated subsidiaries and annuity
payments from a trustee. Employees are entitled to receive additional payments if the termination
is by voluntary retirement at earlier ages prior to the mandatory retirement age.
The Company and certain consolidated subsidiaries have contributory funded defined benefit
pension plans and unfunded retirement benefit plans for employees. Certain overseas
consolidated subsidiaries have defined retirement benefit plans or defined retirement contributionplans.
Certain consolidated subsidiaries adopt the simplified method in determining retirement benefit
obligations.
1. Defined benefit plans (including plans to which the simplified method is applied)(1)	The changes in defined benefit obligations for the years ended February 28, 2018 and2017, were as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Balance at beginning of year

¥16,636¥17,052 $154,940

Current service cost

519

515

4,833

Interest cost

165

169

1,536

Actuarial losses (gains)

115

(42)

1,071

(1,034)(1,099)(9,630)

38

41

353

Benefits paid
OthersBalance at end of year

¥16,441¥16,636 $153,124(2)	The changes in plan assets for the years ended February 28, 2018 and 2017, were as
follows:
Millions of Yen
2018
2017

Balance at beginning of year

¥14,393

Thousands of
U.S. Dollars
2018¥14,595 $134,050

Expected return on plan assets

336

853

3,129

Actuarial losses

(57)

(428)

(530)

Contributions from the employer

294

279

2,738

Benefits paid

(889)

(907)

(8,279)Balance at end of year

¥14,077

14¥14,393 $131,107

(3)	Reconciliations between the liabilities recorded in the consolidated balance sheet and thebalances of defined benefit obligations and plan assets were as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Funded defined benefit obligations¥13,668¥14,073 $127,298

Plan assets(14,077)(14,393) (131,107)

Total

(408)

(319)

(3,799)

2,773

2,562

25,826

Unfunded defined benefit obligations
Net liability arising from defined benefit obligations¥ 2,364¥ 2,243 $ 22,017
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Liability for retirement benefits¥2,773

Asset for retirement benefits
Net liability arising from defined benefit obligations¥2,562$25,826

(408)

(319)

(3,799)¥2,364¥2,243$22,017(4)	The components of net periodic benefit costs for the years ended February 28, 2018 and2017, were as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Service cost

¥519

¥515

$4,833

Interest cost

165

169

1,536

Expected return on plan assets

(336)

(853)

(3,129)

Recognized actuarial losses

369

359

3,436

Amortization of prior service cost

(40)

(16)

(372)

Periodic benefit cost calculated by the simplified method

38

41

353

OthersNet periodic benefit costs

31

24

288

¥747

¥239

$6,957(5)	Amounts recognized in other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans for the years ended February 28, 2018 and 2017, were as
follows:
Millions of Yen
2018
2017

Thousands of
U.S. Dollars
2018

Prior service cost

¥ (40)¥(16)

Actuarial gains (losses)

195

(26)

1,816

Total

¥155

¥(43)

$1,443$ (372)(6)	Amounts recognized in accumulated other comprehensive income (before income tax
effect) in respect of defined retirement benefit plans as of February 28, 2018 and 2017,
were as follows:
Millions of Yen
2018
2017

Unrecognized prior service cost

¥ (197)¥ (237)

Thousands of
U.S. Dollars
2018$ (1,834)

Unrecognized actuarial losses

1,406

1,602

13,094

Total¥1,209¥1,365$11,26015

(7)	Plan assets
a. Components of plan assets
Plan assets as of February 28, 2018 and 2017, consisted of the following:
2018

2017

Debt investments

37%

40%

Equity investments

21

22

Cash and cash equivalents

00General account assets of life insurance

37

38

Other

5

Total

100%

100%

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined by considering the long-term
rates of return which are expected currently and in the future from the various
components of the plan assets.
(8)	Assumptions used for the years ended February 28, 2018 and 2017, were set forth asfollows:
2018

2017

Discount rate

1.0%

1.0%

Expected rate of return on plan assets

2.3%

5.9%

Expected rate of salary increase

2.8%

2.8%

2. Defined contribution plans
The amount of required contribution to the defined contribution plans of the Company andconsolidated subsidiaries for the years ended February 28, 2018 and 2017 was ¥288 million($2,682 thousand) and ¥287 million, respectively.

9. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The
significant provisions in the Companies Act that affect financial and accounting matters are
summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in
addition to the year-end dividend upon resolution at the shareholders’ meeting. Additionally,for companies that meet certain criteria including (1) having a Board of Directors, (2) having
independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service ofthe directors being prescribed as one year rather than the normal two-year term by its articles
of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind)at any time during the fiscal year if the company has prescribed so in its articles ofincorporation. However, the Company does not meet all the above criteria.
Semiannual interim dividends may also be paid once a year upon resolution by the Boardof Directors if the articles of incorporation of the company so stipulate. The Companies Act
provides certain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the shareholders,
but the amount of net assets after dividends must be maintained at no less than ¥3 million.

16

(b) Increases/decreases and transfer of common stock, reserve and surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriatedas a legal reserve (a component of retained earnings) or as additional paid-in capital (acomponent of capital surplus), depending on the equity account charged upon the paymentof such dividends until the aggregate amount of legal reserve and additional paid-in capitalequals 25% of common stock. Under the Companies Act, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation. The Companies Act also
provides that common stock, legal reserve, additional paid-in capital, other capital surplus
and retained earnings can be transferred among the accounts within equity under certain
conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose ofsuch treasury stock by resolution of the Board of Directors. The amount of treasury stock
purchased cannot exceed the amount available for distribution to the shareholders which isdetermined by a specific formula. Under the Companies Act also provides that companies
can purchase both treasury stock acquisition rights and treasury stock.

10. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income
taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately
30.8% and 33.0% for the years ended February 28, 2018 and 2017, respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted indeferred tax assets and liabilities at February 28, 2018 and 2017, are as follows:
Thousands of
U.S. Dollars
2018

Millions of Yen
2018
2017

Deferred tax assets:
Unrealized profit¥1,311¥1,133$12,210

Liability for retirement benefits

374

288

3,483

Loss on impairment of long-lived assets

100

112

931

Inventories

827

827

7,702

Investment securities

193

204

1,797

Accrued bonuses

396

390

3,688

Accrued product warranty costs

348

440

3,241

3,350

3,616

31,200Tax loss carryforwards
Other

546

521

5,075

(7,042)(6,814)(65,586)

¥ 407

¥ 720

$ 3,790¥   61¥   63$   568

Unrealized gain on available-for-sale securities

240

223

2,235

Undistributed earnings of overseas subsidiaries

223

206

2,076

Less valuation allowance
Total
Deferred tax liabilities:
Accelerated depreciation in overseas subsidiaries

Other
Total
Net deferred tax (liabilities) assets

17

25

67

232

¥ 550

¥ 560

$ 5,122¥ (143)¥ 160$ (1,331)

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates
reflected in the accompanying consolidated statements of income for the years ended February
28, 2018 and 2017, is as follows:
2018

2017

Normal effective statutory tax rate

30.8%

33.0%

Expenses not deductible for income tax purposes

5.6

6.0

Per capita inhabitant tax

1.4

1.9

Lower income tax rates applicable to income in certain foreign countries(3.3)(11.2)

Nontaxable dividends and other income

(1.1)

(0.4)

Undistributed earnings of overseas subsidiaries

0.8

(0.6)

Adjustment to deferred tax assets due to a change in tax rate

(0.3)

23.5

Valuation allowance for deferred tax assets

14.8(48.7)

Other—net(11.7)

7.9

Actual effective tax rate

37.0%

11.4%

As the Federal Tax Reform Act of the United States of America was enacted on December 22,
2017, the corporate income tax rate was changed from the fiscal year beginning on or afterJanuary 1, 2018. Accordingly, the effective statutory tax rate used for calculations of deferred tax
assets and deferred tax liabilities of U.S. subsidiaries principally changed from 35.3% to 22.3%.
The effects of this change on the consolidated financial statements for the year ended
February 28, 2018 were immaterial.
At February 28, 2018, the Company and certain subsidiaries have tax loss carryforwards
aggregating approximately ¥12,748 million ($118,729 thousand) which are available to be offset
against taxable income of such subsidiaries in future years. These tax loss carryforwards, if not
utilized, will expire as follows:Year Ending February 28 or 29
2019

Millions of Yen

Thousands of
U.S. Dollars

2020
2021
2022
2023
2024 and thereafter¥12,748 $118,729

Total¥12,748 $118,729

11. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥4,470 million ($41,631 thousand)and ¥4,253 million for the years ended February 28, 2018 and 2017, respectively.

18

12. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group policy for financial instruments
The Group raises necessary funds to support its principal business plans to produce and sellmarine electronic equipment and industrial electronic equipment. Cash surpluses, if any, areinvested in low-risk financial assets. Short-term bank loans are used to fund ongoing
operations. Derivatives are not used for speculative purposes, but to manage exposure tofinancial risks as described below.
(2) Nature and extent of risks arising from financial instruments
Trade receivables, such as notes receivable and accounts receivable, are exposed tocustomer credit risk.
Foreign currency denominated trade receivables arising from global activities are exposed tothe market risk of fluctuations in foreign currency exchange rates.
Investment securities, mainly equity instruments of customers and suppliers of the Group
held for business or capital alliance purposes, are exposed to the risk of market pricefluctuation.
Payment terms of trade payables, such as notes payable and accounts payable, are lessthan one year. Certain trade payables arising from import of raw materials, which aredenominated in foreign currencies, are exposed to the market risk of fluctuations in foreign
currency exchange rates.
Maturities of bank loans, mainly for the purpose of financing necessary working funds, areless than nine years after the balance sheet date. Certain bank loans, which are denominatedin foreign currencies, are exposed to the market risk of fluctuations in foreign currency
exchange rates and in variable interest rates. Those risks are mitigated by using derivatives
such as interest rate swaps.
Derivatives mainly include forward foreign currency contracts, which are used to mitigate themarket risk of fluctuations in foreign currency exchange rates to which receivables andpayables denominated in foreign currencies are exposed. In addition, interest rate swaps areused to avoid or mitigate the market risks from changes in interest rates. For hedging
instruments and hedged items concerning hedge accounting and hedging policies and hedge
effectiveness, please see Note 2.q “Derivatives and Hedging Activities” under “SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES.”(3) Risk management for financial instruments
Credit Risk Management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service
debt according to the contractual terms.
The Company manages its credit risk from trade receivables by monitoring payment terms
and balances of major customers and identifying the default risk of counterparties at an earlystage in accordance with the credit control policy. The consolidated subsidiaries have similar
control policies pursuant to the Company’s credit control policy. Derivatives are entered intowith only high-credit rating financial institutions and, accordingly, credit risk arising fromdefault of the counterparties is kept at a minimum. The maximum credit risk exposure offinancial assets as of the consolidated balance sheet date is represented by their carrying
values exposed to credit risk.
Market Risk Management (foreign exchange risk and interest rate risk)
The Group hedges foreign currency trade receivables and payables against market risk fromfluctuations in foreign currency exchange rates identified by currency and by month using
principally forward foreign currency contracts. Such foreign exchange risk is hedged
principally by forward foreign currency contracts. In addition, the Group utilizes interest rate
swaps to mitigate the risk from changes in interest rates associated with bank loans.
Investment securities are managed by monitoring market values and financial position ofissuers on a regular basis and continuously reviewing the holding status by taking into
consideration the relationship with the counterparties.
Derivative transactions are executed and controlled based on internal guidelines, whichprescribe the transaction limits and procedures of the finance department of each company,
and the positions are identified on a regular basis. In addition, the responsible division of theCompany is informed of the status of transactions by each Group company on a regularbasis to control and confirm the positions.

19Liquidity Risk Management
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in fullon maturity dates.
The Group manages its liquidity risk by preparing and updating the financial plans of the
Accounting Department based on the reports from each division.
(4) Fair values of financial instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted
price is not available, other rational valuation techniques are used instead. Please see Note 13
for fair value information for derivatives.
(a) Fair value of financial instruments
Millions of Yen

February 28, 2018
Cash and cash equivalents

Carrying Amount

Fair Value¥10,834¥10,834

Short-term investments

579

579

Notes receivable—trade

2,839

Accounts receivable—trade

15,065

Allowance for doubtful receivables(342)

Total receivables—trade17,562

Unrealized Gains

17,562

Investment securities:
Available-for-sale securities

1,976

1,976

Total assets¥30,953¥30,953

Notes payable—trade

¥265

¥265

3,956

3,956

Accounts payable—trade
Electronically recorded obligations—operating
Total payables—trade
Short-term bank loans
Long-term debt, including current portion
Total liabilities
Derivatives (*1)

20

7,213

7,213

11,435

11,435

2,566

2,566

11,14011,217¥77¥25,141¥25,219¥77¥(15)¥(15)

Millions of Yen

February 28, 2017
Cash and cash equivalents

Carrying Amount

Unrealized Gains¥10,12481

Short-term investments

81

Notes receivable—trade

3,698

Accounts receivable—trade

14,266

Allowance for doubtful receivables

Fair Value¥10,124(327)

Total receivables—trade

17,63817,638Investment securities:
Available-for-sale securities

2,108

2,108

Total assets¥29,952¥29,952

Notes payable—trade

¥282

¥282

Accounts payable—trade

3,108

3,108

Electronically recorded obligations—operating

6,984

6,984

10,376

10,376

Short-term bank loans

4,997

4,997

Long-term debt, including current portion

9,883

9,990

¥106

¥25,257¥25,364¥106¥(62)¥(62)

Total payables—trade

Total liabilities
Derivatives (*1)

Thousands of U.S. Dollars

February 28, 2018
Cash and cash equivalents

Carrying Amount

Short-term investments

Fair Value$100,903$100,903

5,392

5,392

Notes receivable—trade26,441

Accounts receivable—trade140,309

Allowance for doubtful receivables(3,185)

Total receivables—trade

163,565

163,565

18,403

18,403

Total assets$288,283$288,283

Notes payable—trade$2,468$2,468

Accounts payable—trade

36,84436,844

Electronically recorded obligations—operating

67,17867,178106,500

106,500

Unrealized Gains

Investment securities:
Available-for-sale securities

Total payables—trade
Short-term bank loans

23,89823,898Long-term debt, including current portion

103,753

104,470$717$234,152$234,879$717$(139)$(139)Total liabilities
Derivatives (*1)

*1 Net receivables or payables arising from derivative transactions to which hedge accounting is not applied and deferral hedge
accounting is applied are presented in a net amount and net payables are presented in parentheses.

21Assets:
Cash and cash equivalents, short-term investments and notes receivable and accounts
receivable—trade
The fair values of these items are determined using their carrying amounts, since the fair values
approximate their carrying amounts as these amounts are settled in a short period of time.
Investment securities
The fair values of investment securities are measured at the quoted market prices of the stock
exchange for equity securities, and at the quoted market prices of the exchanges or the quoted
prices obtained from financial institutions for debt securities.
Liabilities:
Notes payable and accounts payable—trade, electronically recorded obligations—operating andshort-term bank loans
The fair values of these items are determined using their carrying amounts, since the fair values
approximate their carrying amounts as these amounts are settled in a short period of time.
Long-term debt, including current portion
The fair values of long-term debt are measured at the discounted present value of aggregatedamounts of principal and interest payables using the interest rate that would be applied to similartransactions newly arranged.
The fair values of long-term debt with floating interest rates hedged using interest rate swaps
qualifying for hedge accounting are measured at the discounted present value of aggregatedamounts of principal and interest payables which are accounted for together with the swaps
using the reasonably estimated interest rate that would be applied to similar transactions to be
newly arranged or at the values presented by the financial institutions.
Derivatives
Please see Note 13 “DERIVATIVES.”
The fair values of interest rate swaps which are accounted for together with the long-term debt
as the hedged item are included in the fair values of the relevant long-term debt, if they qualify forhedge accounting.
(b) Financial instruments whose fair value cannot be reliably determined
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2018
2017
2018

February 28
Unlisted equity securities¥449$4,284

Millions of Yen
Due in One Year Due after One Year Due after Five Yearsor Less
through Five Years through Ten Years

Due after
Ten Years¥460(5) Maturity analysis for financial assets and securities with contractual maturities
February 28, 2018
Cash and cash equivalents¥10,834

Short-term investments

579

Notes receivable—trade

2,839

Accounts receivable—trade

15,065Investment securities:
Available-for-sale securities with contractual maturities:Debt securities—other
Total

¥100
¥29,319

22¥100

Thousands of U.S. Dollars
Due in One Year Due after One Year Due after Five Yearsor Less
through Five Years through Ten Years

February 28, 2018
Cash and cash equivalents

Due after
Ten Years$100,903

Short-term investments

5,392

Notes receivable—trade26,441

Accounts receivable—trade140,309

Investment securities:
Available-for-sale securities with contractual maturities:Debt securities—other
Total

$931
$273,065$931

Please see Note 7 for annual maturities of long-term debt.

13. DERIVATIVESThe Group enters into foreign currency forward contracts to hedge foreign exchange risk
associated with certain assets and liabilities denominated in foreign currencies. The Group also
enters into interest rate swap contracts to manage its interest rate exposures on certain liabilities.
All derivative transactions are entered into to hedge interest and foreign currency exposuresincorporated within the Group’s business. Accordingly, market risk in these derivatives is basicallyoffset by opposite movements in the value of hedged assets or liabilities.
Because the counterparties to these derivatives are limited to major international financial
institutions, the Group does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the Group have been made in accordance with internal
policies which regulate the authorization and credit limit amount.
Derivative transactions to which hedge accounting is not applied at February 28, 2018 and2017(1) Hybrid financial instruments
Contract
AmountFebruary 28, 2018
Debt including embedded derivatives:

Long-term debt, cancelable before maturity¥1,000Contract
AmountFebruary 28, 2017
Debt including embedded derivatives:

Long-term debt, cancelable before maturity¥1,800Contract
AmountFebruary 28, 2018
Debt including embedded derivatives:

Long-term debt, cancelable before maturity$9,313

Millions of Yen
Contract AmountDue after One Year Fair Value¥1,000¥(5)Millions of Yen
Contract AmountDue after One Year Fair Value¥1,800¥(15)

Thousands of U.S. Dollars
Contract AmountDue after One Year Fair Value$9,313$(46)

Unrealized
Loss

¥(5)

Unrealized
Loss

¥(15)

Unrealized
Loss

$(46)

(Note 1) The fair values are determined using the prices obtained from financial institutions.
(Note 2) The fair value of debt, including embedded derivatives, is determined by accounting for embedded derivatives of hybrid
financial instruments separately.
(Note 3) The contract amount presents the principal of the debt, including embedded derivatives and does not present the market
risk volume exposed to derivative transactions.

23

Derivative transactions to which hedge accounting is applied at February 28, 2018 and2017(1) Currency-related derivatives
February 28, 2018
Foreign currency forward contracts:
Selling EUR

Hedged Item

Forecasted
transactions
denominated inforeign currency

February 28, 2017
Foreign currency forward contracts:
Selling USD

Hedged Item

Forecasted
transactions
denominated inforeign currency

Millions of Yen
Contract
Contract AmountAmountDue after One Year

¥403

¥420

Millions of Yen
Contract
Contract AmountAmountDue after One Year

¥195

Forecasted
transactions
denominated inforeign currency

Fair Value¥215

Thousands of U.S. Dollars
Contract
Contract Amount
Hedged Item
AmountDue after One Year

February 28, 2018
Foreign currency forward contracts:
Selling EUR

Fair Value$3,753

Fair Value$3,911(2) Interest-related derivatives
February 28, 2018
Interest rate swaps:
Receivable floating rate/Payable fixed rate

Hedged Item

Long-termdebtLong-term
debt

Receivable floating rate/Payable fixed rate

February 28, 2017
Interest rate swaps:
Receivable floating rate/Payable fixed rate

Hedged Item

Long-termdebtLong-term
debt

Receivable floating rate/Payable fixed rate

Millions of Yen
Contract
Contract AmountAmountDue after One Year

¥2,600¥2,600Note 2¥2,000¥2,000¥(15)

Millions of Yen
Contract
Contract AmountAmountDue after One Year

Long-termdebtLong-term
debt

Receivable floating rate/Payable fixed rate

Fair Value¥1,600¥1,600Note 2¥3,000¥3,000¥(50)

Thousands of U.S. Dollars
Contract
Contract Amount
Hedged Item
AmountDue after One Year

February 28, 2018
Interest rate swaps:
Receivable floating rate/Payable fixed rate

Fair Value

Fair Value$24,215$24,215

Note 2$18,627$18,627$(139)(Note 1) The fair values are determined using the prices obtained from the financial institutions.
(Note 2) The fair values of interest rate swaps, which are accounted for together with the long-term debt as the hedged item, areincluded in the fair values of the relevant long-term debt, if they qualify for hedge accounting.

2414. CONTINGENT LIABILITIESAt February 28, 2018, the Group had the following contingent liabilities:
Millions of Yen

Thousands of
U.S. Dollars

Guarantees of bank loans of its customers

¥43

$400

Guarantees of customers’ account payables—trade

13

121

¥57

$530

Total

15. NET INCOME PER SHARE
The financial data for the computation of basic net income per share for the years ended
February 28, 2018 and 2017, is as follows:
Thousands ofMillions of Yen
SharesNet Income Attributable
Weightedto Owners of the Parent Average Shares

Yen

U.S. Dollars
EPS

Year ended February 28, 2018:
Basic earnings per share (EPS)
Net income available to common shareholders¥1,236

31,512¥39.25¥1,26231,512¥40.06$0.36

Year ended February 28, 2017:
Basic earnings per share (EPS)
Net income available to common shareholders

Diluted EPS is not disclosed because the Company did not issue dilutive securities for the years
ended February 28, 2018 and 2017.

16. SUBSEQUENT EVENTSAppropriations of Retained Earnings
The following appropriation of retained earnings at February 28, 2018, was approved at theCompany’s shareholders’ meeting held on May 24, 2018:
Year-end cash dividends, ¥6.00 ($0.05) per share

25

Millions ofYen

Thousands of
U.S. Dollars¥189$1,76017. SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” andASBJ Guidance No. 20, “Guidance on Accounting Standard for Segment Information
Disclosures,” an entity is required to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of operating
segments that meet specified criteria. Operating segments are components of an entity about
which separate financial information is available and such information is evaluated regularly by thechief operating decision maker in deciding how to allocate resources and in assessing
performance. Generally, segment information is required to be reported on the same basis as isused internally for evaluating operating segment performance and deciding how to allocate
resources to operating segments.
1. Description of reportable segments
The Group’s reportable segments are those for which separate financial information isavailable and regular evaluation by the Company’s management is being performed inorder to decide how resources are allocated among the Group.
The principal business of the Group is manufacturing and sales of marine equipment,
industrial electronics equipment, wireless LAN system and handy terminals. The Company
consists of divisions separated by product and service, and each division designs
comprehensive strategies for its products and services and develops relevant businessactivities. Each subsidiary develops business activities from a management perspective
within the Group. Accordingly, the Group consists of business segments by product andservice, which are the “Marine” business, the “Industrial” business, and the “Wireless LAN/
Handy Terminal” business, as the reportable segments.
The major products in the “Marine” business are navigation equipment, fishingequipment and radio communication equipment, etc. The major products in the “Industrial”
business are medical equipment, ITS equipment, GPS equipment, and avionics electronicequipment, etc. The major products in the “Wireless LAN/Handy Terminal” business arewireless LAN system and handy terminals, etc.
2.	Methods of measurement for the amounts of sales, profit, assets, liabilities and other items
for each reportable segment
The accounting policies of each reportable segment are consistent with those disclosed
in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.”
Segment profit corresponds to the figure based on “operating income” in the
consolidated statement of income.
Intersegment sales or transfers are based on the arm’s-length price.
3. Information about sales, profit, assets, liabilities and other items:
Millions of Yen
2018
Reportable Segment
Wireless LAN/
Industrial Handy Terminal

Marine

Total

Other
(Note 1)

Total

Reconciliations Consolidated(Note 2)
(Note 3)

Sales:
Sales to external customers ¥63,405 ¥11,876Intersegment sales
or transfers

052¥3,450 ¥78,731
206

258

¥ 318 ¥79,050
499¥79,050758 ¥  (758)

Total¥63,405 ¥11,928¥3,657 ¥78,990¥ 818 ¥79,808 ¥  (758) ¥79,050

Segment profit¥   777 ¥   599

¥ 569 ¥ 1,946¥   43 ¥ 1,990 ¥     2 ¥ 1,992

Segment assets

44,978

11,428

1,789

58,1971,125

59,322

17,45076,773

Depreciation

2,609

203

85

2,898

55

2,954

270

3,225

Increase in property,
plant and equipment
and intangible assets

2,461

325

171

2,958

22

2,981

55

3,036

Other:

26

Millions of Yen
2017
Reportable Segment
Wireless LAN/
Industrial Handy Terminal

Marine

Total

Other
(Note 1)

Total

Reconciliations Consolidated(Note 2)
(Note 3)

Sales:
Sales to external customers ¥61,106 ¥14,206
Intersegment sales
or transfers

081¥3,158 ¥78,471
180

262

¥ 203 ¥78,674
656¥78,674919 ¥  (919)

Total¥61,106 ¥14,288¥3,338 ¥78,733¥ 859 ¥79,593 ¥  (919) ¥78,674

Segment profit¥   257 ¥   661

¥ 360 ¥ 1,280¥ 146 ¥ 1,427 ¥   106 ¥ 1,534

Segment assets

44,606

11,2001,622

57,4291,119

58,54817,17575,724

Depreciation

2,091

207

62

2,360

54

2,414

509

2,924

Increase in property,
plant and equipment
and intangible assets

3,104

129

72

3,306

58

3,364

499

3,863

Other:

Thousands of U.S. Dollars
2018
Reportable Segment
Wireless LAN/
Industrial Handy Terminal

Marine

Total

Other
(Note 1)

Total

Reconciliations Consolidated(Note 2)
(Note 3)

Sales:
Sales to external customers $590,528 $110,608 $32,131 $733,268 $ 2,961 $736,239
Intersegment sales
or transfers

0

484

1,918

2,402

4,647

$736,239

7,059 $ (7,059)

Total$590,528 $111,092 $34,059 $735,680 $ 7,618 $743,298 $ (7,059)$736,239

Segment profit$  7,236 $  5,578 $ 5,299 $ 18,124 $   400 $ 18,534 $     18 $ 18,552

Segment assets

418,906 106,435

16,662 542,022

10,477 552,500 162,522 715,032

Other:
Depreciation

24,2991,890

791

26,990512

27,5122,514

30,036

Increase in property,
plant and equipment
and intangible assets

22,920

3,026

1,592

27,549204

27,763512

28,276

Notes:
1.	“Other” is a business segment which is not included in reportable segments and includes the electromagnetic environmental
testing business and other businesses.
2. The nature of “Reconciliations” is as follows:(1)	“Reconciliations” of “Segment profit” includes general and administrative expenses of the head office administration
departments which do not belong to any reportable segment.
(2)	“Reconciliations” of “Segment assets” includes assets of the head office administration departments, which do not belong to
any reportable segment, mainly consisting of common use assets, investments and other assets.
(3)	“Reconciliations” of “Increase in property, plant and equipment and intangible assets” includes capital investments, which do
not belong to any reportable segment.
3. Segment profit is reconciled with operating income in the consolidated statement of income.

27

Other Related Information:
1. Information by product and service
Information by product and service is omitted since similar information is disclosed in thesegment information.
2. Information by geographic region(1) Sales
Millions of Yen
2018
Japan

¥31,258

North America¥7,873

EuropeAsia¥19,105¥17,645

Other Regions¥3,167

Total¥79,050

Millions of Yen
2017
Japan

¥33,555

North America¥7,547

EuropeAsia¥16,886¥17,438

Other Regions¥3,247

Total¥78,674

Thousands of U.S. Dollars
2018
Japan

$291,124

North America$73,325

Europe$177,936

Asia$164,338

Other Regions$29,496

Total$736,239

Note: Sales are classified by country or region based on the location of customers.

(2) Property, plant and equipment
Millions of Yen
2018
Japan

¥7,060

North America¥503

EuropeAsia¥965

Other Regions

¥703

Total

¥9,232Millions of Yen
2017
Japan

¥7,416

North America¥533

EuropeAsia¥968

Other Regions

¥745

Total

¥9,664

Thousands of U.S. Dollars
2018
Japan

$65,753

North America$4,684

EuropeAsia$8,987$6,547

Other Regions

Total$85,983

3. Information by major customer
Information by customer is omitted, since there is no customer to whom net sales
accounts for more than 10% of total net sales recorded in the consolidated statement ofincome.

28

4. Information about loss on impairment of long-lived assets
Millions of Yen
2018

MarineLoss on impairment

Reportable Segment
Wireless LAN/
Industrial Handy Terminal

¥58

Total

Other

Total

¥58

¥58

Reconciliations Consolidated¥58

Millions of Yen
2017

MarineLoss on impairment¥11

Reportable Segment
Wireless LAN/
Industrial Handy Terminal

¥37

Total

Other

Total

¥48

¥48

Reconciliations Consolidated¥48

Thousands of U.S. Dollars
2018

MarineLoss on impairment

Reportable Segment
Wireless LAN/
Industrial Handy Terminal

$540

Total

Other

$540

Total

$540

Reconciliations Consolidated$540

5. Information about amortization and unamortized balance of goodwill
Millions of Yen
2018

MarineReportable Segment
Wireless LAN/
Industrial Handy Terminal

Total

Other

Total

Reconciliations Consolidated

Amortization

¥ 33

¥ 31

¥ 64

¥ 64

¥ 64

Unamortized balance

498

119

618

618

618

Millions of Yen
2017

MarineReportable Segment
Wireless LAN/
Industrial Handy Terminal

Total

Other

Total

Reconciliations Consolidated

Amortization

¥ 62

¥  5

¥ 67

¥ 67

¥ 67

Unamortized balance

485

150

636

636

636

Thousands of U.S. Dollars
2018

MarineReportable Segment
Wireless LAN/
Industrial Handy Terminal

Amortization

$ 307

$ 288

$ 596

$ 596

$ 596

Unamortized balance

4,638

1,108

5,755

5,755

5,755

29

Total

Other

Total

Reconciliations Consolidated

Subsidiaries
As of February 28, 2018

Consolidated Subsidiaries

EquityOwnership (%)

Country

Company Name

Main BusinessJapan

KYORITSU RADIO SERVICE CO., LTD.
FURUNO KYUSHU HANBAI CO., LTD.
FURUNO KANSAI HANBAI CO., LTD.
FURUNO SYSTEMS CO., LTD.
FURUNO LIFEBEST CO., LTD.
LABOTECH INTERNATIONAL CO., LTD.

Clearing of communication charges
Sales and services of marine electronic equipment
Sales and services of marine electronic equipment
Sales of industrial electronic products
Insurance agent and leasing of marine electronic equipment
EMC and environmental test laboratory

100
100
100
100
100
100

U.S.A.

FURUNO U.S.A., INC.
eRide, INC.

Sales and services of marine electronic equipment
Patent management

100
100

U.K.

FURUNO (UK) LTD.
FURUNO LEASING LTD.

Sales and services of marine electronic equipment
Leasing and sales of marine electronic equipment

100
100

Germany

FURUNO DEUTSCHLAND GmbH

Sales and services of marine electronic equipment

100

Holland

FURUNO EUROPE B. V.

Logistic services for Europe

100

Denmark

FURUNO DANMARK A/SSales and services of marine electronic equipment

100

FURUNO BROADBAND SERVICE CENTER ApS Sales of airtime for Fleet Broad and VSAT equipment

100

SwedenFURUNO SVERIGE AB

Sales and services of marine electronic equipment

100

PolandFURUNO POLSKA Sp. zo. o.

Sales and services of marine electronic equipment

100

RussiaFURUNO EURUS LLCSales and services of marine electronic equipment

100

FranceFURUNO FRANCE S.A.S.

Sales and services of marine electronic equipment

100

Italy

FURUNO ITALIA S.R.L.

Sales and services of marine electronic equipment

100

Spain

FURUNO ELECTRIC HOLDING ESPAÑA, S.A. Holding of shares
FURUNO ESPAÑA, S.A.
Sales and services of marine electronic equipment

100
70

NorwayFURUNO NORGE A/SSales and services of marine electronic equipment

100

GreeceFURUNO HELLAS S.A.

Sales and services of marine electronic equipment

100

CyprusFURUNO (CYPRUS) LTD

Sales and services of marine electronic equipment

100

Finland

FURUNO FINLAND OYSales and services of marine electronic equipment

100

China

FURUNO HONG KONG CO., LTD.
FURUNO CHINA CO., LIMITEDFURUNO SHANGHAI CO., LTD.

Manufacturing of marine electronic equipment
Sales and services of marine electronic equipment
Sales and services of marine electronic equipment

100
100
100

Singapore

FURUNO SINGAPORE PTE LTD

Sales and services of marine electronic equipment

100

PanamaFURUNO PANAMA, S.A.

Sales and services of marine electronic equipment

100

Indonesia

PT.FURUNO ELECTRIC INDONESIA

Sales and services of marine electronic equipment

100

Korea

FURUNO KOREA CO., LTD.

Sales and services of marine electronic equipment

100

Unconsolidated Subsidiaries

EquityOwnership (%)

Country

Company Name

Main BusinessJapan

FURUNO SOFTECH CO., LTD.
NOVELUCK CO., LTD.

Software development and service
Software development and service

100
60

China

FURUNO SOFTECH (DALIAN) CO., LTD.
FUNOTEC (DALIAN) CO., LTD.

Software development and service
Sales, services and manufacturing of medical equipment

80
100

30

F i v e - Ye a r S u m m a r y
FURUNO ELECTRIC CO., LTD. and Consolidated Subsidiaries
Years ended the last day of February

2014

2015

Millions of Yen
2016

2017

2018

Thousands of
U.S. Dollars(Note 1)
2018

¥75,667¥85,967¥89,720¥78,674¥79,050$736,239

Operating income

1,493

1,799

2,911

1,534

1,992

18,552

Income before income taxes and minority interests

2,335

50

3,348

1,467

2,001

18,636

Net income (loss)

(660)

(910)

2,624

1,262

1,236

11,511(20.92)(28.85)

83.27

40.06

39.25

0.37

For the year:
Net sales:

Per share of common stock (Notes 2) (yen and U.S. dollars):
Basic net income (loss)

8.00

8.00

10.00

8.00

10.00

Weighted average number of shares outstanding (thousands)

Cash dividends applicable to the year

31,54531,52331,51331,51231,512

Research and development cost

5,237

4,539

4,786

4,253

4,470

41,631

Capital expenditure

1,479

1,675

1,794

1,613

1,295

12,061

Depreciation and amortization

2,039

2,587

2,721

2,924

3,225

30,036

Net cash provided by operating activities

1,209

2,914

1,258

6,417

5,142

47,890Net cash used in investing activities(2,794)(3,975)(2,612)(4,152)(3,404)(31,703)

Net cash provided by (used in) financing activities

3,230(2,227)(2,811)(2,201)(1,542)(14,361)

Total assets¥80,075¥83,796¥78,464¥75,724¥76,773$715,032

Interest-bearing debt

15,477

13,663

16,736

14,881

13,706

127,652

Shareholders’ equity

36,70336,861

36,18235,981

38,201355,788

Number of employees

2,815

2,930

2,905

2,894

2,920

North America¥ 7,978¥ 8,303¥ 8,567¥ 7,547¥ 7,873$ 73,325

Europe17,062

19,61019,62816,886

19,105

177,936

Asia

18,14322,926

24,647

17,43817,645

164,338

At year-end:

Overseas sales:

Other

3,308

3,723

3,933

3,247

3,167

29,496

Total

46,49154,562

56,777

45,11847,791

445,105(0.9)%(1.1)%

2.92%

1.60%

1.56%

Key ratio (%):
Return on sales
Return on assets

3.1

3.5

4.10

1.90

2.40

Return on equity

(1.9)

(2.5)

7.18

3.50

3.33

Debt equity ratio

42.0

37.1

46.26

41.36

35.88

Equity ratio

45.8

44.0

46.10

47.50

49.80

Note: 1. U.S. dollar amounts have been converted from Japanese yen, for convenience only, at the rate of ¥107.37=U.S. $1, the approximate rate of exchange
prevailing at February 28, 2018.
2. See Note 2.s and Note 16 of the Notes to the Consolidated Financial Statements.

31

FURUNO ELECTRIC CO., LTD.
9-52 Ashihara-cho, Nishinomiya, 662-8580, Japanwww.furuno.co.jp