1-14-6 Kudan-kita Chiyoda-ku, Tokyo 102-8539, Japan
Telephone: +81 3 5276 2454 Facsimile: +81 3 5276 2656
http://www.n-koei.co.jp E-mail: info@n-koei.co.jp

Financial Report
Year ended June 30, 2018

Printed in Japan

Company Profile

Nippon Koei Co., Ltd. is Japan’s leading engineering consultant. In terms ofhuman resources, we have the largest number of engineers and specialists in
the industry capable of solving the most sophisticated and complex issues
which nations face. Our business activities cover five market areas: namely,
domestic infrastructure market, international infrastructure market, electric
power engineering market, urban & spatial development market, andparticipant in energy business.

CONTENTS
Financial Highlights .................................................................................................................. 1
Consolidated Balance Sheet ...................................................................................................... 2
Consolidated Statement of Income and Comprehensive Income ........................................... 4
Consolidated Statement of Changes in Equity ......................................................................... 5
Consolidated Statement of Cash Flows .................................................................................... 6
Notes to Consolidated Financial Statements ........................................................................... 7
Nonconsolidated Balance Sheet .............................................................................................. 40
Nonconsolidated Statement of Income .................................................................................. 42
Nonconsolidated Statement of Changes in Equity ................................................................ 43
Notes to Nonconsolidated Financial Statements ................................................................... 44
Significant Consolidated Subsidiaries .................................................................................... 56

Financial Highlights

Consolidated
Thousands of
U.S. Dollars

Millions of Yen

2018

2017

2018

Net sales ................................................................

¥106,024¥101,338$959,537

Net income attributable to owner of the parent ...

4,556

3,288

41,232Years Ended June 30

Yen

Net income per share ...........................................

¥294.12

U.S. Dollars¥213.39$2.66
Thousands of
U.S. Dollars

Millions of Yen

2018

2017

Total assets ...........................................................

¥114,507¥113,866$1,036,309

Equity ������������������������������������������������������������������

59,45054,874

538,033

As of June 30

2018

Nonconsolidated
Thousands of
U.S. Dollars

Millions of Yen
Years Ended June 30

2018

2017

2018

Net sales ................................................................

¥64,782¥61,734$586,289

Net income attributable to owner of the parent ...

2,921

2,302

26,435Yen

Net income per share ...........................................

¥188.56

U.S. Dollars¥149.38

Thousands of
U.S. Dollars

Millions of Yen
As of June 30

2018

$1.71

2017

2018

Total assets ...........................................................

¥96,402¥96,276$872,456

Equity ������������������������������������������������������������������

53,01250,793479,768

Notes: 1. Per share amounts are based on the weighted average number of shares outstanding during each year.
2.	The dollar amounts in this report represent translations of yen, for convenience only, at the rate of ¥110.495 to $1, theapproximate rate of exchange at June 30, 2018.

1

Co n s ol i d ated B alanc e S h eet
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
June 30, 2018

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 17) ..................
Receivables (Note 17):
Trade notes .........................................................
Trade accounts ...................................................
Unconsolidated subsidiaries andassociated companies ......................................
Other ...................................................................
Allowance for doubtful accounts ......................
Inventories (Note 6) .............................................
Deferred tax assets (Note 14) ..............................
Prepaid expenses and other current assets ........
Total current assets ............................................
PROPERTY, PLANT AND
EQUIPMENT (Notes 7, 8 and 9):
Land ......................................................................
Buildings and structures .....................................
Machinery and equipment ..................................
Furniture and fixtures .........................................
Lease assets ..........................................................
Construction in progress .....................................
Total ....................................................................
Accumulated depreciation ...................................
Net property, plant and equipment ...................

2018

2017

2018

¥15,233¥17,083$137,861

26
26,072

16
17,954235
235,956

117
474
(83)
8,169
994
4,256
55,258131408(7)11,984
1,234
5,995
54,798

1,059
4,290
(751)
73,931
8,996
38,518500,095

16,59817,153
3,895
5,008
154
2,958
45,766(18,142)
27,624

17,64916,151
2,614
4,988
177
253
41,832(17,296)
24,536150,215
155,238
35,25045,323
1,394
26,770414,190(164,188)
250,002

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 5 and 17) ..............
Investments in and advances
to unconsolidated subsidiaries andassociated companies (Notes 10 and 17(5)(b)) ....
Trademarks ...........................................................
Goodwill ...............................................................
Receivables in bankruptcy ...................................
Deferred tax assets (Note 14) ..............................
Asset for retirement benefits ...............................
Other assets ..........................................................
Allowance for doubtful accounts ........................
Total investments and other assets ...................

5,846

8,672

52,907

4,090
3,162
8,186
16
1,135
4,080
5,288
(178)
31,625

4,156
3,355
8,686
16
1,149
3,392
5,275
(169)
34,53237,01528,61774,085145
10,27236,92547,857(1,611)
286,212TOTAL ....................................................................

¥114,507¥113,866$1,036,309

2

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:Current portion of long-term debt (Note 11 and 17) ...
Payables:Trade notes .........................................................
Trade accounts ...................................................
Unconsolidated subsidiaries andassociated companies ......................................
Other ...................................................................
Income taxes payable ...........................................
Advances received ................................................
Unearned revenue ................................................
Accrued bonuses ..................................................
Allowance for anticipated project loss ................
Other current liabilities .......................................
Total current liabilities ......................................
LONG-TERM LIABILITIES:Long-term debt (Note 11 and 17) ........................
Provision for directors’
retirement benefits (Note 12) ............................
Allowance for environmental measures .............
Liability for retirement benefits (Note 12) .........
Deferred tax liabilities (Note 14) .........................
Other long-term liabilities ...................................
Total long-term liabilities ..................................

2018

2017

2018

¥2,072¥1,788$18,752

—
4,123

309
3,659

—
37,314

52
2,386
1,013
8,694
3,157
2,589
177
4,178
28,441

55
1,881
1,050
10,798
3,551
3,175
55
4,020
30,341471
21,594
9,168
78,682
28,571
23,431
1,602
37,811
257,396

18,96521,448

171,637

32
34
3,874
3,383
328
26,616

46
34
3,964
2,859
300
28,651290
308
35,06030,617
2,968
240,880

7,415
6,466
45,5297,393
7,241
43,45067,10758,518412,047

COMMITMENTS AND CONTINGENT
LIABILITIES (Notes 16, 18 and 20)
EQUITY (Notes 13 and 22.a):Common stock,authorized, 38,000,000 shares in 2018 and
38,000,000 shares in 2017; issued, 15,905,049
shares in 2018 and 17,331,302 shares in 2017 ...
Capital surplus .....................................................
Retained earnings ................................................
Treasury stock—at cost
364,422 shares in 2018
and 1,891,831 shares in 2017 ............................
Accumulated other comprehensive income:Unrealized gain on
available-for-sale securities .............................
Foreign currency translation adjustments .......
Defined retirement benefit plans ......................
Total ....................................................................
Noncontrolling interests ......................................
Total equity .........................................................

(1,180)(3,607)(10,679)

1,196(2,045)983
58,364
1,086
59,4501,017(1,814)828
54,508366
54,874

10,824(18,508)
8,896
528,205
9,828
538,033

TOTAL ....................................................................

¥114,507¥113,866$1,036,309

See notes to consolidated financial statements.

3Consolidated Statement of Income and Comprehensive Income
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2018

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2018

2017

2018

NET SALES ...........................................................

¥106,024¥101,338$959,537

COST OF SALES ...................................................
Gross profit ......................................................

73,66432,36070,40030,938

666,673
292,864

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 15) .....
Operating income ............................................

25,7986,562

25,473
5,465

233,477
59,387

446
(223)
(149)

420
(195)
41

4,036
(2,018)(1,348)

1,276

2

11,548

—
(833)

(226)
(106)

—
(7,539)

—
86
603

(433)
226
(271)

—
778
5,457

INCOME BEFORE INCOME TAXES ................

7,165

5,194

64,844

INCOME TAXES (Note 14):
Current .................................................................
Deferred ................................................................
Total income taxes ...........................................

1,833
723
2,556

1,866
5
1,871

16,5896,543
23,132NET INCOME .......................................................

4,609

3,323

41,712NET INCOME ATTRIBUTABLE TO:
Owners of the parent ...........................................
Noncontrolling interests ......................................

4,556
53

3,288
35

41,232480

OTHER COMPREHENSIVE INCOME (LOSS) (Note 21) :Unrealized gain on
available-for-sale securities ...............................
Foreign currency translation adjustment ...........
Defined retirement benefit plans ........................
Total other comprehensive income .................

177
(242)
155
90

1,026
(1,509)
800
317

1,602
(2,190)
1,403
815

COMPREHENSIVE INCOME .............................

¥4,699¥3,640$42,527

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Owners of the parent ...........................................
Noncontrolling interests ......................................

¥4,681¥18¥3,601¥39$42,364$163

OTHER INCOME (EXPENSES):Interest and dividend income ..............................
Interest expense ...................................................
Foreign currency exchange (loss) gain ...............
Gain on sales of property,
plant and equipment ..........................................
Loss on impairment oflong-lived assets (Note 7 and 23) ......................
Head office transfer cost .....................................
Loss on support to subsidiaries andassociates (Note 19) ...........................................
Other-net ...............................................................
Other expenses-net ..........................................

U.S. Dollars(Note 1)Yen

PER SHARE OF COMMON STOCK (Note 2.t):
Basic net income ..................................................
Cash dividends applicable to the year ................
See notes to consolidated financial statements.

4¥294.1275.00¥213.39
75.00

$2.66
0.68

Co n s ol i d ated S ta temen t o f C h an ges i n E q u i t y
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2018

Thousands

Millions of Yen
Accumulated Other Comprehensive Income

BALANCE, JULY 1, 2016 ���������������������������������������������������������
Adjustment for change in scope of consolidation ������������������
Net income attributable to owners of the parent��������������������Cash dividends, ¥75.00 per share ��������������������������������������������
Purchase of treasury stock ������������������������������������������������������
Disposal of treasury stock �������������������������������������������������������
Share Consolidation ����������������������������������������������������������������
Net change in the year �������������������������������������������������������������
BALANCE, JUNE 30, 2017 ������������������������������������������������������
Issuance of new shares ������������������������������������������������������������
Adjustment for change in scope of consolidation ������������������
Net income attributable to owners of the parent �������������������Cash dividends, ¥75.00 per share ��������������������������������������������
Purchase of treasury stock ������������������������������������������������������
Disposal of treasury stock �������������������������������������������������������
Retirement of treasury stock ���������������������������������������������������
Net change in the year �������������������������������������������������������������
BALANCE, JUNE 30, 2018 ������������������������������������������������������

Outstanding
Number of
Shares ofCommon Stock

Common Stock

Capital Surplus

76,840¥7,393¥6,209¥40,822¥(3,020)¥(8)¥(302)¥29¥51,123¥337¥51,460

—

—

312

112

—

—

—

—

424

—

424

Retained
Earnings

Unrealized
Gain (Loss) on
available-forsale securities

Treasury
Stock

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Noncontrolling
Interests

Total

Total Equity

—

—

—

3,288

—

—

—

—

3,288

—

3,288

—

—

—

(772)

—

—

—

—

(772)

—

(772)

(62)

—

—

—

(1,456)———(1,456)—(1,456)

330

—

720

—

869

—

—

—

1,589

—

1,589

(61,669)

—

—

—

—

—

—

—

—

—

—

—

—

1,025

(1,512)

799

312

29

—
341

15,439

7,393

7,241

43,450(3,607)1,017(1,814)828

54,508366

54,874

10

22

22

—

—

—

—

—

44

—

44

—

—

39

37

—

—

(21)

—

55

711

766

—

—

—

4,556

—

—

—

—

4,556

—

4,556

—

—

—

(1,192)

—

—

—

—

(1,192)—(1,192)

(6)

—

—

—

(26)

—

—

—

(26)

—

(26)

98

—

—

—

294

—

—

—

294

—

294

—

—

(836)

(1,323)

2,159

—

—

—

—

—

—

—

—

—

—

—

179

(209)

155

125

9

134

15,541¥7,415¥6,466¥45,528¥(1,180)¥1,196¥(2,044)¥983¥58,364¥1,086¥59,450

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

BALANCE, JUNE 30, 2017 ������������������������������������������������������
Issuance of new shares �������������������������������������������������������������������
Adjustment for change in scope of consolidation �����������������������
Net income attributable to owners of the parent �������������������Cash dividends, $0.68 per share ����������������������������������������������
Purchase of treasury stock ������������������������������������������������������
Disposal of treasury stock �������������������������������������������������������
Retirement of treasury stock ���������������������������������������������������
Net change in the year �������������������������������������������������������������
BALANCE, JUNE 30, 2018 ������������������������������������������������������

Retained
Earnings

Unrealized
Gain (Loss) on
available-forsale securities

Treasury
Stock

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Noncontrolling
Interests

Common Stock

Capital Surplus

Total$66,908$65,532$393,230$(32,644)$9,204$(16,417)$7,494$493,307$3,311$496,618

199

199

—

—

—

—

—

398

—

398

—

353

335

—

—

(191)

—

497

6,435

6,932

Total Equity——

41,234————

41,234—

41,234——(10,788)

—

—

—

—

(10,788)—(10,788)

—

—

—

(235)

—

—

—

(235)

—

(235)

—

—

—

2,661

—

—

—

2,661

—

2,661

—

(7,566)(11,973)

19,539

—

—

—

—

—

—

—

—

—

—

1,620

(1,891)

1,402

1,131

82

1,213

$67,107$58,518$412,038$(10,679)$10,824$(18,499)$8,896$528,205$9,828$538,033

See notes to consolidated financial statements.

5

Co n s ol i d ated S ta temen t o f C as h Fl ow s
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2018

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

OPERATING ACTIVITIES:
Income before income taxes ....................................
Adjustments for:
Income taxes – paid ..............................................
Depreciation and amortization ............................
Loss on impairment oflong-lived assets (Note 7 and 23) .......................
Amortization of goodwill ........................................
Gain on sales of property, plant and equipment ....
Gain on sales of investment securities ...................

2018

FINANCING ACTIVITIES:

2018

2017

¥7,165¥5,194$64,844(1,973)
1,668(1,503)
1,720(17,856)
15,096

—

226

—

474
(1,284)
(64)

623
(2)
(31)

4,290
(11,620)(579)

Changes in assets and liabilities, net of effects
from newly consolidated subsidiaries:
Increase in trade accounts receivable ................
Decrease in inventories ......................................
Increase (decrease) in trade accounts payable ...
(Decrease) increase in advanced received .........
Other—net .............................................................

(8,087)
3,797
160(2,079)
(379)

(316)
868
(1,098)
1,915(1,219)(73,189)
34,364
1,448(18,815)(3,431)

Net cash (used in) provided
by operating activities ....................................

(602)

6,377

(5,448)INVESTING ACTIVITIES:
Purchases of property, plant and equipment ..........

¥(3,323)¥(1,086)$(30,074)

Proceeds from sales of property,
plant and equipment ...............................................

2,339

—

21,168Proceeds from sales and redemption of
investment securities ..............................................

2,858

532

25,865Purchases of investment securities ..........................
Payments of loans receivable ...................................
Increase (decrease) in other assets ..........................

(1,592)
(791)
1,486

(1,519)(880)(1,220)(14,408)(7,159)13,450Net cash provided by (used in)investing activities ..........................................

977(4,173)8,842

6Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2018

2018

2017

Net decrease in short-term loans payable ...................
Proceeds from long-term loans payable ..................
Repayments of long-term loans payable .................
Purchase of treasury stock .......................................
Disposal of treasury stock ........................................
Dividends paid ..........................................................
Other—net .................................................................

¥——(2,100)(26)
294(1,193)(38)¥(16,000)
23,547(2,008)(1,456)
1,589
(773)
(53)

$—
—
(19,005)
(235)
2,661
(10,797)(345)

Net cash (used in) provided byfinancing activities ..........................................

(3,063)

4,846(27,721)

EFFECT OF EXCHANGE RATE CHANGE
ON CASH AND CASH EQUIVALENTS .................

(22)

(125)

(199)

NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................................

(2,710)

6,925(24,526)

INCREASE IN CASH AND CASH
EQUIVALENTS FROM NEWLYCONSOLIDATED SUBSIDIARIES ........................

860

757

7,783

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ..........................................

17,083

9,401

154,604

CASH AND CASH EQUIVALENTS,
END OF YEAR .........................................................

¥15,233¥17,083$137,861

See notes to consolidated financial statements.

N o tes to C on solid ated Fi n an c i al S t atemen t s
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2018

1.	B A S I S O F P R E S E N TAT I O N O F C O N S O L I D AT E D F I N A N C I A L
STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in
conformity with accounting principles generally accepted in Japan, which are different in certain respects as tothe application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been
made to the consolidated financial statements issued domestically in order to present them in a form that is morefamiliar to readers outside Japan. In addition, certain reclassifications have been made in the 2017 consolidated
financial statements to conform to the classifications used in 2018.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Nippon
Koei Co., Ltd. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S.
dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rateof ¥110.495 to $1, the approximate rate of exchange at June 30, 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.	Consolidation — The consolidated financial statements as of June 30, 2018, include the accounts of theCompany and its 62 significant (58 in 2017) subsidiaries (collectively, the “Group”).
MYANMAR KOEI INTERNATIONAL LTD., KOEI Energy Co., Ltd and DSI Co., Ltd. were added in the scopeof consolidation from the current fiscal year due to their increased materiality. The Company also acquired
additional interest in IRONMONT HYDRO PTE. LTD., making it and its consolidated subsidiary our wholly
owned subsidiaries as of the current consolidated fiscal year.
Under the control concept, those companies in which the Company, directly or indirectly, is able to exercise
control over operations are fully consolidated.
Investments in unconsolidated subsidiaries and associated companies are stated at cost. If the equity methodof accounting had been applied to the investments in these companies, the impact on the accompanying
consolidated financial statements would not be significant.
Goodwill represents the excess of cost of an acquisition over the fair value of the net assets of the acquired
subsidiaries at the date of acquisition.
Goodwill is amortized using the straight-line method over its useful life, which is estimated as a reasonable
period for which goodwill is expected to have an effect. In addition, the amortization period of goodwill
related to the acquisition of BDP HOLDINGS LIMITED is 20 years.
All significant intercompany balances and transactions have been eliminated in consolidation. All significant
unrealized profit included in assets resulting from transactions within the Group is also eliminated.

b.	Cash Equivalents — Cash equivalents are short-term investments that are readily convertible into cash andexposed to insignificant risk of changes in value.
Cash equivalents include time deposits and investment trusts, both of which mature or become due within
three months of the date of acquisition.

c.	Inventories — Work in process is stated at the lower of cost, mainly determined by the specificidentification cost method, or net selling value (see Note 6).

7d.	Investment Securities — Investment securities are classified and accounted for, depending on
management’s intent, as follows:(1) Held-to-maturity debt securities, which are expected to be held to maturity with the positive intent andability to hold to maturity, are reported at amortized cost; and (2) available-for-sale securities, which are notclassified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of
applicable taxes, in a separate component of equity.
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For
other-than-temporary declines in fair value, investment securities are reduced to net realizable value by acharge to income.

e.	Property, Plant and Equipment — Property, plant, and equipment are stated at cost. Depreciation ofproperty, plant and equipment of the Company and its consolidated domestic subsidiaries is computed
substantially by the declining-balance method at rates based on the estimated useful lives of the assets, while
the straight-line method is applied to buildings acquired after April 1, 1998, structures acquired after April 1,
2016, and lease assets, as well as other equipment for rent. In addition, the straight-line method is principally
applied to the property, plant, and equipment of consolidated foreign subsidiaries. The range of useful lives isprincipally from 3 to 63 years for buildings and structures, from 2 to 22 years for machinery and equipment,
and from 2 to 20 years for furniture and fixtures. The useful lives for lease assets are the terms of therespective leases.

f.	Long-Lived Assets — The Group reviews its long-lived assets for impairment whenever events or changes incircumstances indicate the carrying amount of an asset or asset group may not be recoverable. 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 the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.

g.	A llowance for Doubtful Accounts — The allowance for doubtful accounts is stated in amounts
considered to be appropriate based on the Group’s past credit loss experience and an evaluation of potential
losses in the receivables outstanding.

h.	R etirement and Pension Plans — The Group has contributory defined benefit pension plans andunfunded retirement benefit plans for the benefit of its employees.
The Group accounts for the liability for retirement benefits based on the projected benefit obligations andplan assets at the consolidated balance sheet date. The projected benefit obligations are attributed to periods
on a straight-line basis. Actual gains and losses and past service costs are amortized and recognized in profit
or loss over 13 years.
Hitherto, retirement benefits for directors were provided at the amount that would be required if all directors
retired at the consolidated balance sheet date. However, the Group terminated benefit pension plans for
directors. The balance in the consolidated balance sheet is the estimated amount for directors who havebelonged to the Group since the plans were effective.

i.	Allowance for Anticipated Project Loss — The Group has made a provision for anticipated losses on
uncompleted project contracts.

8j.	Asset Retirement Obligations — An asset retirement obligation is recorded for a legal obligation imposed
either by law or contract that results from the acquisition, construction, development, and normal operationof a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset
retirement obligation is recognized as the sum of the discounted cash flows required for the future asset
retirement and is 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 reasonable estimate of 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 theamount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation
over the remaining useful life of the asset. 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.

k.	Employee Stock Ownership Plan — In accordance with Practical Issues Task Force (“PITF”) No. 30,“Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. throughTrusts,” upon transfer of treasury stock to the employee stockownership trust (the “Trust”) by the entity, any
difference between the book value and fair value of the treasury stock is recorded in capital surplus. At yearend, the Company records (1) the Company stock held by the Trust as treasury stock in equity, (2) all otherassets and liabilities of the Trust on a line-by-line basis, and (3) a liability/asset for the net of (i) any gain orloss on delivery of the stock by the Trust to the employee shareholding association, (ii) dividends received
from the entity for the stock held by the Trust, and (iii) any expenses relating to the Trust.

l. Research and Development Costs — Research and development costs are charged to income as incurred.
m.	Leases — Finance lease transactions are capitalized to recognize lease assets and lease obligations in the
consolidated balance sheet. All other leases are accounted for as operating leases.

n.	Accrued Bonuses — Bonuses to employees, directors, and Audit & Supervisory Board members are
accrued at the end of the year to which such bonuses are attributable.

o.	A llowance for Environmental Measures — The Group has made a provision for the treatment of
Polychlorinated Biphenyl (“PCB”) Wastes based on the Act on Special Measures concerning Promotion of
Proper Treatment of PCB Wastes.

p.	Income Taxes — The provision for income taxes is computed based on pretax income included in the
consolidated statement of income and comprehensive 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 byapplying currently enacted income tax rates to the temporary differences.

9q.	Foreign Currency Transactions — All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidatedbalance sheet date. The foreign exchange gains and losses from translation are recognized in the
consolidated statement of income and comprehensive income.

r.	Revenue Recognition — During the progress of operation, the percentage-of-completion method is applied
when the extent of progress toward completion, total costs on and total revenue from the contract are
reliably estimated. The stage of completion is determined using the cost-to-cost method.

s.	Derivatives and Hedging Activities — The Group uses derivative financial instruments to manage its
exposures to fluctuations in foreign exchange and interest rates. Interest rate and currency swaps are utilized
by the Group to reduce the risks of foreign currency exchange and interest rate. The Group does not enter
into derivatives for trading or speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (1) all derivatives are recognized
as either assets or liabilities and measured at fair value; and gains or losses on derivative transactions arerecognized in the consolidated statement of income and comprehensive income; (2) for derivatives used forhedging purposes, if such derivatives qualify for hedge accounting because of high correlation andeffectiveness between the hedging instruments and the hedged items, gains or losses on derivatives aredeferred until maturity of the hedged transactions.
Interest rate and currency swaps that 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 is
recognized and included in interest expense or income.

t.	Per Share Information — Basic net income per share is computed by dividing net income attributable toshareholders of common stock by the weighted-average number of shares of common stock outstanding forthe period.
Diluted net income per share of common stock is not disclosed because the Group had no securities
outstanding that might dilute the per share information for the years ended June 30, 2018 and 2017.
Cash dividends per share presented in the accompanying consolidated statement of income andcomprehensive income are dividends applicable to the respective years, including dividends to be paid after
the end of the fiscal year.
On January 1, 2017, the Company effected a share consolidation at a rate of one share for every five commonshares based on the resolution of the 72nd Ordinary General Meeting of Shareholders held on September 29,
2016. To provide basic net income per share figures on a basis comparable to the year ended June 30, 2017,
the weighted-average number of shares of common stock has been restated to reflect the impact of the shareconsolidation for prior years.

u.	Accounting Changes and Error Corrections — Under ASBJ Statement No. 24, “Accounting Standard for
Accounting Changes and Error Corrections,” and ASBJ Guidance No. 24, “Guidance on Accounting Standard
for Accounting Changes and Error Corrections,” accounting treatments are required as follows:(1) Changes in Accounting Policies:
When a new accounting policy is applied following revision of an accounting standard, the new policy isapplied retrospectively unless the revised accounting standard includes specific transitional provisions, inwhich case the entity shall comply with the specific transitional provisions.
(2) Changes in Presentation:
When the presentation of consolidated financial statements is changed, prior-period consolidated financial
statements are reclassified in accordance with the new presentation.

10

(3) Changes in Accounting Estimates:
A change in an accounting estimate is accounted for in the period of the change if the change affects that
period only and is accounted for prospectively if the change affects both the period of the change and future
periods.
(4) Corrections of Prior-Period Errors:
When an error in prior-period consolidated financial statements is discovered, those statements are restated.

Changes in Accounting Policies
The Company and domestic subsidiaries had been applying the completed-contract method (including partial
completed-contract method) in principle to record the revenue from the contract relating to Domestic
Consulting Operations, International Consulting Operations and Power Engineering Operations. From contracts
started during the current fiscal year, the percentage-of-completion method is applied. Taking into considerationof the increasing opportunities to receive larger project orders under the government-led strategic exporting of
infrastructure systems and the expansion of the Group’s international operations such as the acquisition ofUnited Kingdom, architectural firms, the Company has determined that the percentage-of-completion method
would be more appropriate to present their operating results and financial conditions. Once the development intheir internal systems including accounting system were completed, the Company has decided to change theaccounting method relating to revenue from the contract.
As this change was made possible with the introduction of a new accounting system, using the percentage-ofcompletion method to calculate retroactively is practically impossible.
Furthermore, since the cumulative impact at the beginning of the current fiscal year cannot be calculated in thecase where the system is applied retrospectively, the balance at the end of the previous fiscal year is treated as
the balance at the beginning of the current fiscal year.
The Company applies the completion-contract method in principle to operational contracts concerning works inprocess that are included in the balance at the end of the previous consolidated fiscal year, and therefore, sales
shall be recorded for the quarter during which individual operations are completed.
As a result, compared with the previous accounting method, net sales increased by ¥11,338 million; gross profit,
operating income, ordinary income, and profit before income taxes all increased by ¥2,687 million; and net
income per share increased by ¥117.17 for the fiscal year ended June 30, 2018.
Impacts on segment information are stated in the relevant section.

New Accounting Pronouncements
1. Tax Effect Accounting	On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, “Partial Amendments to AccountingStandard for Tax Effect Accounting,” and ASBJ Guidance No. 26, “Implementation Guidance on
Recoverability of Deferred Tax Assets.” Accounting treatments are required as follows: (1) changes inhandling future taxable amount in individual financial statements and (2) clarification of handling on
recoverability of deferred tax assets in companies that are categorized as (type 1).
	The accounting standard and guidance are effective for annual periods beginning on or after July 2018.
	The Company expects to apply the accounting standard and guidance for annual periods beginning on orafter July 1, 2018, and is in the process of measuring the effects of applying the accounting standard andguidance in future applicable periods.
2. Accounting Standard for Revenue Recognition	On March 30, 2018, the ASBJ issued ASBJ Statement No. 29, “Accounting Standard for Revenue
Recognition,” and ASBJ Guidance No. 30, “Implementation Guidance on Accounting Standard for Revenue
Recognition.” The core principle of the standard and guidance is that an entity should recognize revenue todepict the transfer of promised goods or services to customers in an amount that reflects the consideration towhich the entity expects to be entitled in exchange for those goods or services. An entity should recognize
revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

11	The accounting standard and guidance are effective for annual periods beginning on or after July 1, 2021.
Earlier application is permitted for annual periods beginning on or after July 1, 2018.
	The Company expects to apply the accounting standard and guidance for annual periods beginning on orafter July 1, 2022, and is in the process of measuring the effects of applying the accounting standard andguidance in future applicable periods.

3. CHANGES IN PRESENTATION(1)	“Gain on sales of property, plant, and equipment” (¥1,276 million ($11,548 thousand) in the current fiscal
year and ¥2 million in the previous fiscal year), which was included in “Other income (expenses)” in the
consolidated statement of income and comprehensive income in the previous fiscal year, is presented
separately due to its increased materiality.
(2)	“Payments for head office transfer cost” (¥(218) million in the previous fiscal year), “Head office transfer
cost” (¥106 million in the previous fiscal year), and “Loss on support to subsidiaries and associates” (¥433
million in the previous fiscal year), which was presented separately in the consolidated statement of cash
flows in the previous fiscal year, is included in “Other -net” (¥(379) million ($(3,431) thousand) in the current
fiscal year) under “Operating Activities” due to its decreased materiality.
(3)	“Proceeds from sales of property, plant, and equipment” (¥2,339 million ($30,074 thousand) in the current
fiscal year and no recognition in the previous fiscal year) under “Investing Activities” in the consolidated
statement of cash flows, is presented separately due to its increased materiality.

4. ADDITIONAL INFORMATION
Employee Stock Ownership Plan (“ESOP”) Trust — The Company maintains an ESOP for a part of its
employees’ welfare programs which includes transfers of the Company’s own stock to the employees’
stockholders association through a trust.
(1) Overview of the transaction
At a meeting of the Board of Directors held on May 15, 2017, the Company resolved to reintroduce an ESOP
as a disposition-type employee shareholding incentive plan to provide the Group’s employees with incentives
to improve corporate value and enhance their welfare programs.
The Company also resolved to dispose of a part of treasury stock that the Company owns to an accountestablished in Trust & Custody Services Bank, Ltd. (the “Trust Account E”) by “third-party” allotment en bloc.
The ESOP is an incentive plan that distributes the profit of stock price rise for all the employees who join
“Nippon Koei Group employees’ stockholders association” (the “Employees’ Stockholders Association”). To
initiate the ESOP, the Company concluded the “Stock Benefit Trust (disposition-type ESOP) Agreement;” thetrust established pursuant to the role of the agreement shall be referred to as the “ESOP Trust,” whereby theCompany is to act as administrator and the role of trustee is assigned to Mizuho Trust & Banking Co., Ltd.
(the “Trustee”). The Trustee also concluded an agreement with Trust & Custody Services Bank, Ltd., underwhich the Trustee is to re-entrust management of security and other asset of the ESOP Trust to Trust &Custody Services Bank, Ltd.
The Trust Account E acquires shares of the Company that the Employees’ Stockholders Association is
expected to obtain over the five years after the trust is set up, and periodically sells its holdings to the
Employees’ Stockholders Association. If, by the time of the ESOP Trust’s termination, gains equivalent tocapital gains on sales of shares are accumulated within the ESOP Trust through sales of Company’s shares by
the Trust Account E to the Employees’ Stockholders Association, then those gains will be distributed as
residual assets to the Employees’ Stockholders Association enrollees who meet the requirements for eligible
beneficiaries. Furthermore, to guarantee funds borrowed by the Trustee that enable the Trust Account E toacquire Company’s shares, the Company is to repay any such remaining borrowings pursuant to a guarantee
agreement, in the event that there are any remaining borrowings equivalent to losses on sales of shares due
to a downturn in the price of Company’s shares up until termination of the ESOP Trust.
(2) The Company’s shares remaining in the ESOP
Shares of the Company remaining in the ESOP are recognized at the ESOP’s book value thereof (excluding
the amount of ancillary expenses) as treasury stock under net assets. The book value and number of shares ofsuch treasury stock were ¥1,087 million ($9,838 thousand) and 358 thousand shares, respectively, for the year
ended June 30, 2018.

12

(3) Book value of borrowings posted through the application of the gross price method
Book value of borrowings posted through the application of the gross price method was ¥1,073 million($9,711 thousand) for the year ended June 30, 2018.

5. INVESTMENT SECURITIESInvestment securities as of June 30, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2018
Noncurrent:
Marketable equity securities ...............................
Government and corporate bonds ......................
Other .....................................................................
Total .................................................................

2018

2017

¥5,077533
236¥5,846$45,948
4,824
2,135$52,907¥7,599738
335¥8,672The costs and aggregate fair values of investment securities at June 30, 2018 and 2017, were as follows:
Millions of Yen

June 30, 2018
Securities classified as:
Available-for-sale:
Equity securities ..................................
Debt securities ......................................
Other .....................................................
Total ..................................................

Cost¥2,863568
236¥3,667

Unrealized
Gains

Unrealized
Losses¥1,778——¥1,778

¥16
35
—
¥51

Fair
Value

¥4,625533
236¥5,394

Millions of Yen

June 30, 2017
Securities classified as:
Available-for-sale:
Equity securities ..................................
Debt securities ......................................
Other .....................................................
Total ..................................................

Cost¥5,369568
336¥6,273

Unrealized
Gains¥1,65424—¥1,678

Unrealized
Losses

¥204
—
—
¥204

Fair
Value

¥6,819592
336¥7,747

Thousands of U.S. Dollars

June 30, 2018

Cost

Securities classified as:
Available-for-sale:
Equity securities ..................................
Debt securities ......................................
Other .....................................................
Total ..................................................

$25,9115,141
2,135$33,187

Unrealized
Gains$16,091——$16,091

Unrealized
Losses

$145
317
—
$462

Fair
Value

$41,857
4,824
2,135$48,816
13

The proceeds and realized gains and losses of the available-for-sale securities, which were sold during
the years ended June 30, 2018 and 2017, were as follows:
Millions of Yen

June 30, 2018

Proceeds

Securities classified as:
Available-for-sale:
Equity securities ................................................
Debt securities ....................................................
Other ...................................................................
Total .................................................................

Realized Gains¥2,733

Realized Losses

¥437
—
—
¥437

—

—
¥2,733

¥373
—
—
¥373

Millions of Yen

June 30, 2017

Proceeds

Securities classified as:
Available-for-sale:
Equity securities ................................................
Debt securities ....................................................
Other ...................................................................
Total .................................................................

Realized Gains

¥2
530
—
¥532

Realized Losses

¥1
30
—
¥31

¥—
—
—
¥—

Thousands of U.S. Dollars

June 30, 2018
Securities classified as:
Available-for-sale:
Equity securities ................................................
Debt securities ....................................................
Other ...................................................................
Total .................................................................

Proceeds

Realized Gains$24,734——$24,734$3,955——$3,955

Realized Losses$3,376——$3,376

6. INVENTORIESInventories at June 30, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2018
Merchandise ...........................................................
Work in process ......................................................
Raw materials and supplies ...................................
Total .................................................................

14

¥6
7,943
220
¥8,1692017¥0
11,728256¥11,984

2018$54
71,886
1,991$73,931

7. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of June 30, 2018. As a result, no impairment loss wasrecognized. The Group recognized an impairment loss of ¥226 million as loss on impairment of long-lived assets
for assets to be disposed and idle assets in 2017. The carrying amount of the assets to be disposed were written
down to the recoverable amount, which is zero, because they are to be demolished for redevelopment. The
carrying amount of the idle assets was written down to the memorandum value because future cash flows are
not expected.

8. INVESTMENT PROPERTYThe Group owns some rental properties, such as office buildings and land in the Tokyo metropolitan area. The
net of rental income and operating expenses for those rental properties was ¥404 million ($3,656 thousand) and¥401 million for the fiscal years ended June 30, 2018 and 2017, respectively.
In addition, the carrying amounts, changes in such balances, and market prices of such properties are as follows:
Millions of Yen
Carrying AmountJune 30, 2017

Fair Value

Decrease¥2,326

June 30, 2018¥(26)

June 30, 2018

¥2,300¥5,241Millions of Yen
Carrying AmountJune 30, 2016

Decrease¥3,330Fair Value
June 30, 2017¥(1,004)

June 30, 2017

¥2,326¥5,242Thousands of U.S. Dollars
Carrying AmountJune 30, 2017

$21,051

Decrease

Fair Value
June 30, 2018$(236)$20,815

June 30, 2018

$47,432

Notes:
1. Carrying amount recognized in the consolidated balance sheets is net of accumulated depreciation andaccumulated impairment losses, if any.
2. Decrease during the fiscal year ended June 30, 2017, primarily represents removal of headquarters from rental
properties due to the launch of its reconstruction and transfer from rental properties to assets fordevelopment. Decrease during the fiscal year ended June 30, 2018, primarily represents depreciation ofbuildings of stores for rent.
3. Fair value of properties was measured by the Group in accordance with the Real-Estate Appraisal Standard.
4. During the fiscal year ended June 30, 2018, investment property under construction (¥1,071 million in the
consolidated balance sheet) is not included in the above table because it is difficult to measure their fair value
during an early phase of development.

15

9. REDUCTION ENTRY
In the case of the acquisition expenses of the Group that have been subsidized by the national government, theamount of such subsidies is offset against the acquisition cost of the corresponding property, plant, andequipment.
The amount of reduction entry by accounts under property, plant, and equipment at June 30, 2018 and 2017,
was as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018
Buildings and structures .......................................
Machinery and equipment ....................................
Total .................................................................

2017

¥19
167
¥186

¥19
167
¥186

2018
$172
1,511
$1,683

10. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATEDSUBSIDIARIES AND ASSOCIATED COMPANIESInvestments in and advances to unconsolidated subsidiaries and associated companies at June 30, 2018 and2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Investments ............................................................
Advances .................................................................
Total .................................................................

2018¥3,330760¥4,0902017¥1,8192,337¥4,1562018$30,137
6,878$37,015

11. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Long-term debt at June 30, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2018
Unsecured loans from banks due seriallyto 2026 with interest rates ranging from0.250% to 2.513% .................................................
Obligation under finance leases ............................
Total .................................................................
Less current portion ..............................................
Long-term debt, less current portion .........

16¥20,985
52
21,037(2,072)¥18,965

2017¥23,174
62
23,236(1,788)¥21,4482018$189,918
471
190,389(18,752)$171,637

Annual maturities of long-term debt at June 30, 2018, for the next five years and thereafter were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Years Ending June 30

Long-Term Debt

Lease Obligations

Long-Term Debt

Lease Obligations¥2,051
1,974
2,176
6,250
2,190
6,344
¥20,985

¥21
14
9
4
2
1
¥51

$18,562
17,865
19,69356,564
19,82057,414$189,918

$190
127
81
36
18
10
$462

2019 .........................................................
2020 .........................................................
2021 .........................................................
2022 .........................................................
2023 .........................................................
2024 and thereafter .................................
Total ..................................................

The Group and four financial institutions have entered into overdraft contracts and a commitment line contract
by syndicated loan over three years. These commitment line contracts included restrictive financial covenants
for each financial institution.

12. RETIREMENT AND PENSION PLANS
The Company and certain consolidated subsidiaries have severance payment plans for employees and directors.
Under most circumstances, employees terminating their employment are entitled to retirement benefits
determined based on the rate of pay at the time of termination, years of service, and certain other factors. Suchretirement 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 larger payments if thetermination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement
at certain specific ages prior to the mandatory retirement age.
The liabilities for retirement benefits at June 30, 2018 and 2017, for directors were ¥32 million ($290 thousand)and ¥46 million, respectively. The retirement benefits for directors are paid subject to the approval of theshareholders.
(1) The changes in defined benefit obligation for the years ended June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year .................................
Current service cost ...............................................
Interest cost ............................................................
Actuarial losses .......................................................
Benefits paid ...........................................................
Others .....................................................................
Balance at end of year ..................................

2018¥15,386
1,121
107
92
(1,050)62¥15,7182017¥15,253
1,096
106
69
(1,138)—¥15,3862018$139,246
10,145968
833(9,503)562$142,25117

(2) The changes in plan assets for the years ended June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year .................................
Expected return on plan assets .............................
Actuarial losses .......................................................
Contributions from the employer .........................
Benefits paid ...........................................................
Others .....................................................................
Balance at end of year ..................................

2018¥15,500
311
381
1,126
(814)
53
¥16,5572017¥13,362
267
1,225
1,528
(882)
—

¥15,500

2018$140,278
2,815
3,448
10,191(7,367)479$149,844(3)	The changes in defined benefit obligation under the simplified method for the years ended June 30, 2018 and2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year .................................
Periodic benefit cost ..............................................
Benefits paid ...........................................................
Others .....................................................................
Balance at end of year ..................................

2018
¥684
61
(112)
0
¥633

2017
¥663
58
(40)
3
¥684

2018
$6,190553(1,014)0$5,729(4)	The reconciliation between the liability recorded in the consolidated balance sheet and the balances ofdefined benefit obligation and plan assets as of June 30, 2018 and 2017, was as follows (including the benefit
plans for which the simplified method was applied):Thousands of
U.S. Dollars

Millions of Yen

Funded defined benefit obligation ........................
Plan assets ..............................................................
Total .................................................................
Unfunded defined benefit obligation ....................
Net liability arising from defined
benefit obligation .................................................
Liability for retirement benefits ............................
Asset for retirement benefits .................................
Net liability arising from defined
benefit obligation .......................................

18

2018
¥12,477(16,557)(4,080)3,874

2017¥12,167(15,553)(3,386)
3,958

2018$112,919(149,844)(36,925)
35,061(206)

572(1,864)

3,874
4,080

3,964
3,392

35,06036,924¥(206)¥572$(1,864)(5) The components of net periodic benefit costs for the years ended June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Service cost .............................................................
Interest cost ............................................................
Expected return on plan assets .............................
Recognized actuarial (gains) losses ......................
Amortization of prior service cost ........................
Periodic benefit cost under simplified method ....
Others .....................................................................
Net periodic benefit costs ............................

2018¥1,121
107
(311)
(91)
28
61
9
¥924

2017
¥1,096
106
(267)
(28)
26
58
36
¥1,0272018$10,145968(2,815)
(825)
253
552
84
$8,362(6) A mounts recognized in other comprehensive income (before income tax effect) in respect of defined
retirement benefit plans for the years ended June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018
Prior service cost ....................................................
Actuarial (gains) losses ..........................................
Total .................................................................

2017

¥(28)
(198)
¥(226)¥(28)(1,126)¥(1,154)2018$(253)(1,792)$(2,045)(7)	Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost ............................
Unrecognized actuarial (gains) losses ..................
Total .................................................................

2018
¥201
(1,621)¥(1,420)2017¥229(1,423)¥(1,194)2018$1,819(14,670)$(12,851)(8) Plan assets
a. Components of plan assets
Plan assets as of June 30, 2018 and 2017, consisted of the following:2018
Debt investments ....................................................
Equity investments ................................................
Cash and cash equivalents .....................................
Others .....................................................................
Total .................................................................

34%
44
19
3
100%

2017
34%
44
19
3
100%

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return, which are
expected currently and in the future from the various components of the plan assets.

19

(9) Assumptions used for the years ended June 30, 2018 and 2017, were set forth as follows:

Discount rate ..........................................................
Expected rate of return on plan assets .................
Lump-sum election rate .........................................

2018
Principally 0.7%
2.0
90.0

2017
Principally 0.7%
2.0
90.0

(10) Multiemployer pension plan
The Company and certain consolidated subsidiaries participate in a multiemployer plan for which the Company
cannot reasonably calculate the amount of plan assets corresponding to the contributions made by theCompany. Therefore, it is accounted for using the same method as a defined contribution plan.
The Ministry of Health, Labor and Welfare approved exemption of returning the previous portion for thesubstitution part of employees’ pension funds. With this, the system was transferred from employees’ pension
plan to corporate pension plan.
The contributions to such multiemployer plan were ¥512 million ($4,634 thousand) and ¥499 million for theyears ended June 30, 2018 and 2017, respectively.
a. The funded status of the multiemployer plan as of June 30, 2018 and 2017, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

Plan assets ............................................................
Sum of actuarial liabilities of pension planand minimum actuarial reserve ........................
Net balance ...................................................

2018¥75,0262017¥193,4852018$678,999

62,372¥12,654

190,067¥3,418564,478$114,521

The net balance above is mainly the result of past service cost of ¥(10,223) million ($(92,520) thousand) for2018 and ¥(19,253) million for 2017, and surplus carried forward of ¥22,877 million ($207,041 thousand) for
2018, and ¥22,671 million for 2017. Past service cost under the plan is amortized on a straight-line basis over
15 years, and the special contributions of ¥366 million ($3,312 thousand) for 2018 and ¥354 million for 2017,
which are utilized for such amortization, were expensed in the consolidated statement of income andcomprehensive income of the Group.
b. The contribution ratio of the Group in the multiemployer plan for the years ended June 30, 2018 and 2017,
was as follows:

2018
The contribution ratio of the Group in
the multiemployer plan ....................................

13.6%

The ratios above do not represent the actual actuarial liability ratio of the Group.

20

2017
13.1%

13. 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 theyear-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 of the directors being prescribed as one year rather than thenormal 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.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net assets after dividends must be maintained at
no less than ¥3 million.
(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 appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capital surplus), dependingon the equity account that was charged upon the payment of such dividends, until the aggregate amount of legal
reserve and additional paid-in capital equals 25% of the 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 theshareholders.
(c) Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stockby resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders, which is determined by a specific formula.
Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

2114. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in theaggregate, resulted in a normal effective statutory tax rate of approximately 30.9% for the years ended June 30,2018 and 2017.
The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax
assets and liabilities at June 30, 2018 and 2017, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018
Deferred tax assets:
Investment in subsidiaries ...................................
Accrued bonuses ..................................................
Net defined benefit liability .................................
Liability for retirement benefits for directors ....
Allowance for anticipated project loss ................
Overdepreciation ..................................................
Loss on impairment of long-lived assets ............
Deferred relief on pension contributions ...........
Tax loss carryforwards .........................................
Other .....................................................................
Less valuation allowance .....................................
Total .................................................................

2018

2017

¥47
604
700
5
54
142
85
—
16
620
(304)
1,969

¥47
889
800
15
17
139
140
39
21
466
(276)
2,297

$425
5,466
6,335
45
489
1,285
769
—
145
5,612
(2,751)
17,820

742

610

6,715

758

760

6,860

265

—

2,399

Deferred tax liabilities:
Net defined benefit asset .....................................
Reserve for deferred gains on saleof property ..........................................................
Reserve for special account for advanced
depreciation of property ....................................
Unrealized gain on available-for-salesecurities .............................................................
The valuation differencesby using the full fair value method ...................
Other .....................................................................
Total .................................................................

528

451

4,778

842
88
3,223

944
8
2,773

7,620
797
29,169Net deferred tax assets .......................................

¥(1,254)¥(476)$(11,349)

22

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying consolidated statement of income and comprehensive income for the year ended June 30, 2018,with the corresponding figures for 2017, is as follows:

Normal effective statutory tax rate .......................
Per capita levy of local tax .....................................
Expenses not deductible for tax purposes ............
Foreign income tax ................................................
Tax credit ................................................................
Valuation allowance ...............................................
Amortization of goodwill .......................................
Income taxes for prior periods ..............................
Effect of reduction of income tax rates ondeferred tax assets and deferred tax liabilities ...
Lower income tax rates
applicable to certain foreign subsidiaries ...........
Other – net ..............................................................
Actual effective tax rate .........................................

2018
30.9%
1.9
2.4
4.0
(3.2)
1.5
2.0
0.8

2017
30.9%
2.6
4.2
9.2
(5.2)
(4.3)
3.9
(1.7)

—

0.1

(1.0)
(3.6)
35.7%

(1.8)
(1.9)
36.0%

At June 30, 2018, certain subsidiaries have tax loss carryforwards aggregating approximately ¥135 million($1,222 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:
Millions of Yen

June 30, 2019 ..........................................................
June 30, 2020 ..........................................................
June 30, 2021 ..........................................................
June 30, 2022 ..........................................................
Total .................................................................

Thousands of
U.S. Dollars

¥41
31
60
3
¥135

$371
281
543
27
$1,222

15. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥913 million ($8,263 thousand) and ¥700 million forthe years ended June 30, 2018 and 2017, respectively.

16. LEASES
LesseeThe minimum rental commitments under noncancelable operating leases at June 30, 2018 and 2017, were as
follows:
Thousands of
U.S. Dollars

Millions of Yen

Due within one year ...............................................
Due after one year ..................................................
Total .................................................................

2018¥1,1483,351¥4,499

2017
¥961
3,016
¥3,9772018$10,390
30,327$40,71723

17. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policy for Financial Instruments
The Group uses financial instruments (mainly bank loans) based on its capital financing plan. Cash surpluses, ifany, are invested in low-risk financial assets. Derivatives are used not for speculative purposes, but to manage
exposure to financial risks as described in (2) below. To clarify the accountability for transactions, the Group set
up an investment committee that examines basic principles of transactions and each financial instrument.
(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. Receivables in foreign
currencies are exposed to the market risk of fluctuation in foreign currency exchange rates. Marketable andinvestment securities, mainly held-to-maturity securities and equity instruments of customers and suppliers of
the Group, are exposed to the risk of market price fluctuations.
Payment terms of payables, such as trade notes and trade accounts, are less than one year. Long-term debt andobligation under finance leases are principally for the procurement of the funds necessary for investments infacilities and equipment.
Foreign-currency-denominated loans are exposed to the market risks from changes in interest rates and foreign
currency exchange rates. A portion of foreign-currency-denominated loans is hedged by using interest rate andcurrency swaps as derivative financial instruments. Please see Note 18 for more details about derivatives.
(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 Group manages its credit risk from receivables on the basis of internal guidelines,
which include monitoring of payment terms and balances of major customers by each business administration
department to identify the default risk of customers at an early stage. With respect to held-to-maturity financial
investments, the Group manages exposure to credit risk by limiting investments to high-credit-rated bonds inaccordance with its internal guidelines.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of June 30, 2018.
Market risk management
The Group uses interest rate and currency swaps as derivative financial instruments to manage its exposure tofluctuations in foreign exchange rates and interest rates of foreign-currency-denominated loans.
Investment securities are managed by monitoring market values and the financial position of issuers on aregular basis.
The basic principles of derivative transactions have been approved by the investment committee based on theinternal guidelines, which prescribe the authority and the limits for each transaction by the corporate treasury
department. Reconciliation of the transaction and balances with customers is made, and the transaction data isreported to the chief financial officer on a monthly basis.
Liquidity risk management
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on its maturity
dates. The Group manages its liquidity risk by concluding commitment line and overdraft contracts, along withadequate financial planning by the corporate treasury department.

24

(4) Concentration of Credit Risk
37.0% of total receivables are from three major customers of the Group as of June 30, 2018.
(5) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is notavailable, another rational valuation technique is used instead.
(a) Fair value of financial instruments
Millions of Yen

June 30, 2018

Carrying Amount

Unrealized
Gain/Loss

Fair Value

Cash and cash equivalents …………………………
Receivables ……………………………………………
Investment securities ………………………………
Total ………………………………………………

¥15,233
26,606
5,394¥47,233¥15,233
26,606
5,394¥47,233

¥—
—
—
¥—

Long-term debt (Note) ………………………………
Total ………………………………………………

¥20,985¥20,985¥20,789¥20,789¥(196)¥(196)

Derivatives ……………………………………………

¥6

¥6

¥—

Millions of Yen

June 30, 2017

Carrying Amount

Fair Value

Unrealized
Gain/Loss

Cash and cash equivalents ....................................
Receivables ............................................................
Investment securities ............................................
Total ................................................................

¥17,083
18,502
7,747¥43,332¥17,083
18,502
7,747¥43,332

¥ —
—
—
¥ —

Long-term debt (Note) ………………………………
Total ………………………………………………

¥23,174¥23,174¥22,992¥22,992¥(182)¥(182)

Derivatives ……………………………………………

¥53

¥53

¥ —

Thousands of U.S. Dollars

June 30, 2018

Carrying Amount

Fair Value

Unrealized
Gain/Loss

Cash and cash equivalents …………………………
Receivables ……………………………………………
Investment securities ………………………………
Total ………………………………………………

$137,861
240,789
48,817$427,467$137,861
240,789
48,817$427,467$Long-term debt (Note) ………………………………
Total ………………………………………………

$189,918$189,918$188,144$188,144$(1,774)$(1,774)

Derivatives ……………………………………………

$54

$54

$

$

—
—
—
—

—

Note: Long-term debt includes its current portion, and does not include obligation under finance leases.

25

Cash and cash equivalents, receivables, and payables
The carrying values of these financial instruments approximate fair value because of their short maturities.
Investment securities
The fair values of investment securities are measured at the quoted market price of the stock exchange for theequity instruments and at the quoted price obtained from the financial institution for certain debt instruments.
Fair value information for investment securities by classification is included in Note 5.
Long-term debt
The fair value of the “fixed rate” long-term debt is computed by applying a discount rate to the total of theprincipal and interest. The discount interest rate is based on the assumed interest rate if similar new debt wasentered into. The fair value of the “floating rate” long-term debt is assumed as the carrying value because theinterest rate of the debt reflects the current market interest rate and the Company’s credit score is stable.
A portion of the long-term debt qualified for integrated accounting treatment (special treatment andappropriated treatment) for interest rate and currency swaps is calculated by discounting the total amount of
the principal and interest, with the relevant interest rate and currency swaps to which the special integrated
accounting treatment has been applied, based on the reasonably estimated interest rate if similar new debt isentered into.
Derivatives
Fair value information for derivatives is included in Note 18.
The fair value of the derivatives, including interest rate and currency swaps under integrated accounting
treatment, is included in the fair value of the long-term debt, because the swaps are accounted for as part of thelong-term debt.
(b) The carrying amount of financial instruments whose fair values cannot be reliably determined is as follows:
Thousands of
U.S. Dollars

Millions of Yen

June 30, 2018 and 2017
Investments in equity instruments that
do not have a quoted market pricein an active market .............................................
Investments in debt instruments that
do not have a quoted market pricein an active market .............................................

2018

2018

2017

¥3,783¥2,599$34,237

¥0

¥145

$0

The impairment loss on investments in equity instruments that do not have a quoted market price in an active
market for the years ended June 30, 2018 and 2017, was ¥154 million ($1,394 thousand) and ¥18 million,
respectively.

26

(6) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen

June 30, 2018
Cash and cash equivalents ...................
Receivables ...........................................
Investment securities
Available-for-sale securities with
contractual maturities .....................
Total ...............................................

Due in one
Year or Less

Due after one Yearthrough five Years

Due after five Years
through ten Years

Due afterten Years¥15,233
26,606

¥—
—

¥—

¥—

—

—

—
¥41,839

—
¥—

—

—

¥—

¥—

Millions of Yen

June 30, 2017
Cash and cash equivalents ...................
Receivables ...........................................
Investment securities
Available-for-sale securities with
contractual maturities .....................
Total ...............................................

Due in one
Year or Less

Due after one Yearthrough five Years

Due after five Years
through ten Years

Due afterten Years¥17,083
18,502

¥—
—

¥—
—

¥—
—

—
¥35,585

—
¥—

—
¥—

¥—

—

Thousands of U.S. Dollars

June 30, 2018
Cash and cash equivalents ...................
Receivables ...........................................
Investment securities
Available-for-sale securities with
contractual maturities .....................
Total ...............................................

Due in one
Year or Less

Due after one Yearthrough five Years

Due after five Years
through ten Years

Due afterten Years$137,861
240,789

$—
—

$—

$—

—

—

—
$378,650

—
$—

—

—

$—

$—

Please see Note 11 for annual maturities of long-term debt.

27

18. DERIVATIVESThe Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange rates
and interest rates. The derivatives used by the Group are interest rate and currency swaps.
It is the Group’s policy to use derivatives only for the purpose of reducing market risks associated with liabilities,
and not for trading or speculative purposes.
Because the counterparties to these derivatives are limited to highly reputable domestic banks, 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 authorization and credit limit amounts.
Derivative Transactions to Which Hedge Accounting is Not Applied
Millions of Yen

June 30, 2018

Transactions

Interest rate and currency swaps:(fixed-rate payment, floating-ratereceipt)(Japanese yen payment, U.S. dollars Off-market
receipt)transactions

Contract
Amount¥4,641

Contract
AmountDue after
One Year

Fair
Value

¥4,061

Unrealized
Gain

¥6

¥6

Millions of Yen

June 30, 2017

Transactions

Interest rate and currency swaps:(fixed-rate payment, floating-ratereceipt)(Japanese yen payment, U.S. dollars Off-market
receipt)transactions

Contract
Amount¥5,221

Contract
AmountDue after
One Year¥4,641

Fair
Value

¥53

Unrealized
Gain

¥53

Thousands of U.S. Dollars

June 30, 2018

Transactions

Interest rate and currency swaps:(fixed-rate payment, floating-ratereceipt)(Japanese yen payment, U.S. dollars Off-market
receipt)transactions

Contract
AmountContract
AmountDue after
One Year$42,002$36,753

Fair
Value

$54

Unrealized
Gain

$54

Notes:
1. T he fair value of derivative transactions is measured at the quoted price obtained from the financial
institution.
2. The contact amounts of derivatives, which are shown in the above table, do not represent the amounts
exchanged by the parties and do not measure the Group’s exposure to credit or market risk.

28

Derivative Transactions to Which Hedge Accounting is Applied
Millions of Yen

June 30, 2018
Interest rate and currency
swaps:(fixed-rate payment,
floating-rate receipt)(Japanese yen payment,
U.S. dollars receipt)

Hedge accounting method

Integrated treatment of interest
rate and currency swaps(Special treatment,
Appropriated treatment)

HedgedItem

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Long-term
debt¥3,094¥2,707(Note 1)Millions of Yen

June 30, 2017
Interest rate and currency
swaps:(fixed-rate payment,
floating-rate receipt)(Japanese yen payment,
U.S. dollars receipt)

Hedge accounting method

Integrated treatment of interest
rate and currency swaps(Special treatment,
Appropriated treatment)

HedgedItem

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Long-term
debt¥3,481¥3,094(Note 1)Thousands of U.S. Dollars

June 30, 2018
Interest rate and currency
swaps:(fixed-rate payment,
floating-rate receipt)(Japanese yen payment,
U.S. dollars receipt)

Hedge accounting method

Integrated treatment of interest
rate and currency swaps(Special treatment,
Appropriated treatment)

HedgedItem

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Long-term
debt$28,001$24,499(Note 1)

Notes:
1. The above interest rate and currency 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 is
recognized and included in interest expense or income. In addition, the fair value of such interest rate andcurrency swaps is included in that of long-term debt.
2. The contract amounts of derivatives which are shown in the above table, do not represent the amounts
exchanged by the parties and do not measure the Group’s exposure to credit or market risk.

2919. LOSS ON SUPPORT TO SUBSIDIARIES AND ASSOCIATES
Loss on support to subsidiaries and associates for the years ended June 30, 2018 and 2017, consisted of thefollowing:Thousands of
U.S. Dollars

Millions of Yen

2018
Bad debt expenses ..................................................
Subsidiary support costs .......................................

2018

2017
¥ —
—

¥373
60

$ —
—

20. CONTINGENT LIABILITIESAt June 30, 2018, the Group had the following contingent liabilities:
Thousands of
U.S. Dollars

Millions of Yen

Guarantees of bank loans related to employees ...................

¥30

$272

On June 19, 2014, Nippon Civic Consulting Engineers Co., Ltd. (“NCC”), a consolidated subsidiary of theCompany, was sued by Osaka Prefecture for damages resulting from a project related to designing a shieldtunnel under tort liability. The amount of the damages claimed, which includes a 5% per annum delinquency
charge, was ¥750 million ($6,679 thousand). In addition, Osaka Prefecture expanded its claim to ¥8,643 million($76,963 thousand), which also includes a 5% per annum delinquency charge, via a written petition for theamendment of the claim dated February 29, 2016. NCC has concluded that it did not engage in an illegal act in
the course of the project and intends to contest the claims brought forth by Osaka Prefecture in court.
Due to the court petition by Osaka Prefecture, a decision was made to execute a provisional seizure concerning
the said claims in June 2014. Therefore, in July 2014, NCC deposited the money for release from a provisional
seizure of ¥750 million ($6,679 thousand) with the Legal Affairs Bureau, which is included in other assets underinvestments and other assets in the consolidated balance sheet.

30

21. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended June 30, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018

2018

2017

Unrealized gain (loss) on available-for-salesecurities:
Gains (losses) arising during the year ................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................

¥193
61
254
(77)
177

¥1,508
(30)
1,478
(452)
¥1,026$1,747
552
2,299
(697)
$1,602Foreign currency translation adjustments:
Adjustments arising during the year ...................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................

¥(242)—(242)—¥(242)¥(1,509)—(1,509)—¥(1,509)$(2,190)—(2,190)—$(2,190)

Defined retirement benefit plans:
Adjustments arising during the year ...................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................

¥290
(64)
226
(71)
¥155

¥1,155
(1)
1,154
(354)
¥800

$2,625
(580)
2,045
(642)
$1,403

Total other comprehensive income ...................

¥90

¥317

$815

22. SUBSEQUENT EVENTS
a. Appropriations of Retained Earnings
On August 28, 2018, the following appropriation of retained earnings at June 30, 2018, was resolved by the
extraordinary Board of Directors’ meeting:Millions of Yen

Year-end cash dividends, ¥75 ($0.68) per share....................

¥1,192Thousands of
U.S. Dollars$10,788

The total amount of the dividends above includes ¥27 million ($244 thousand) in dividends on the Company’s
shares owned by “ESOP.”

31

b. Issuance of new shares as restricted stock compensation
The Company decided to issue new stocks as restricted stock compensation at the extraordinary Board of
Directors’ meeting held on September 27, 2018, as follows:
The Company aims to have the directors (not including outside directors; “Eligible Directors”) share benefits
and risks of stock price fluctuations with shareholders and further enhance their willingness to contribute toimproving stock prices and enhancing corporate value. Therefore, the Company decided, at the Board of
Directors held on August 14, 2017, to introduce a restricted stock compensation system (the “System”), which
will issue restricted stock to Eligible Directors.
Furthermore, the 73rd Annual General Meeting of Shareholders held on September 28, 2017, approved, under
the System, setting the total amount of monetary compensation claims payable to the Eligible Directors ascompensation related to restricted stock at a level where it does “not exceed an annual amount of ¥60 million.”
In addition, the total number of 50,000 shares, which are restricted stock to be allotted to Eligible Directors willbe the upper limit of the number of restricted shares to be allotted in each fiscal year, and the transfer restriction
period of restricted stock will be between one year to five years, determined by the Board of Directors.
(1) Payment date
October 26, 2018
14,495 shares of common stock of the Company(2) Class and number of shares to be issued¥3,095 per share(3) Issue price¥44,862,025(4) Total issue price of shares to be issued(5) Capitalization amount¥1,548 per share¥22,438,260(6) Total capitalization amount
Allotment of specified restricted stocks(7) Method of offer or allotment
In-kind contribution of monetary compensation claims(8) Method of contribution(9) Allottees, number thereof and
14,495 shares to nine directors of the company (excluding
outside directors)
number of shares to be allotted
October 26, 2018 to October 25, 2021
(10) Transfer restriction period(11) Other	Issue of new shares to be allotted is conditioned on the securities
registration statement taking effect in accordance with the
Financial Instruments and Exchange Act.

23. SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ
Guidance No. 20, “Guidance on Accounting Standard for Segment Information Disclosures,” an entity isrequired to report financial and descriptive information about its reportable segments. Reportable segments areoperating segments or aggregations of operating segments that meet specified criteria. Operating segments arecomponents of an entity about which separate financial information is available, and such information isevaluated regularly by the chief 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 is used internallyfor evaluating operating segment performance and deciding how to allocate resources to operating segments.
(1) Outline of reportable segments
Reportable segments of the Company are determined as segments whose separate financial information isaccessible from among the constituent units of the Company and are periodically used by the Board of Directors
to determine the allocation of management resources and to evaluate achievements.
The Company has business headquarters separated by type of products and services. Each businessheadquarters formulates a comprehensive strategy based on the products and services and engages in
conducting business activities. In line with the above, the Company is composed of segments divided byproducts and services, with each business headquarters serving as the foundation, and the six reportablesegments are “Domestic Consulting Operations,” “International Consulting Operations,” “Power Engineering
Operations,” “Urban & Spatial Development Operations,” “Energy Business Operations,” and “Real Estate
Leasing Operations.”

32

“Domestic Consulting Operations” engages in businesses within Japan, such as site surveying, planning,
evaluation/assessment, designing, construction management, operational advice in the fields of water resources
development, energy development, agricultural development, transportation, urban and regional development,
management of natural and social environment, etc.
“International Consulting Operations” engages in businesses outside of Japan, such as technical studies,planning, reviews, designing, construction supervision, operational advice in the fields of water resources
development, energy development, agricultural development, transportation, urban and regional development,social development, management of natural and social environment, etc.
“Power Engineering Operations” engages in manufacturing and sale of control devices and systems for power
generating and transforming stations, water turbines, power generators, voltage converters, electric powerrelated equipment such as line taps for power transmission and distribution networks. It also engages indesigning and implementation of various construction works for electric power and general electric facilities,
including construction for power generation/transformation/transmission/distribution and civil engineering.
“Urban & Spatial Development Operations” engages in urban and spatial development business that includes
urban planning and architectural design.
“Energy Business Operations” engages in research, development, design, construction, management, operation,
support, and system/technology development of power generation/energy management operations utilizing
distributed energy resources.
“Real Estate Leasing Operations” engages in the leasing of real estate within Japan.
In April 2018, we established the Energy Business Division with its business domains of electric power
generation and energy management using distributed energy and, therefore, added “Energy Business
Operations” to the reportable segments.
(2) Methods of Measurement for the Amount of Sales, Profit (Loss), Assets, Liabilities, and Other Items for Each
Reportable Segment
Accounting treatments for reportable business segments closely match those shown in Note 2, “Summary of
Significant Accounting Policies.”
Inter-segment sales are based on the third-party transaction prices.

a) Information regarding changes in reportable segments, etc.
As stated in “Changes in Accounting Policies,” the accounting policy for contracts started during the current
fiscal year was changed to the percentage-of-completion method (estimate of degree of completion is mainly
based on the cost-to-cost method). As a result of this change, compared with the previous accounting method,
net sales and segment profit increased by ¥3,575 million and ¥612 million for Domestic Consulting Operations,¥5,938 million and ¥1,523 million for International Consulting Operations, ¥1,639 million and ¥521 million forPower Engineering Operations, and ¥185 million and ¥32 million for others, respectively, for the fiscal year
ended June 30, 2018.

33

(3) Sales, Profit (Loss), Assets, Liabilities and Other Items
Millions of Yen

2018
Reportable Segment
Domestic International
Power
Urban & Spatial
Consulting Consulting Engineering Development

Sales
Sales to external customers ... ¥46,596430Intersegment sales ........
Total sales............ ¥47,026
Segment profit (loss) .....

EnergyBusiness

Real Estate
Leasing

Total

Others

Total

Reconciliations Consolidated¥28,89047¥28,937¥15,762270¥16,032¥13,040
27¥13,067

¥355
—
¥355

¥440 ¥105,083
165
939¥605 ¥106,022¥941 ¥106,024
1,030
1,969
¥1,971 ¥107,993¥— ¥106,024(1,969)—¥(1,969) ¥106,024

197
22,388

(53)
4,983

404
4,198

9,093
84,976(2,412)
6,681
40,265 125,241

40
6,721
(10,734) 114,507

Segment assets .............

4,141
19,6692,417
24,749

1,987
8,989

Other:
Depreciation ................

179

82

245

640

120

38

1,304

385

1,689

(21)

1,668

Amortization of goodwill ...

—

—

—

474

—

—

474

—

474

—

474

Interest income ............

22

55

4

42

3

0

126

322

448

(307)

141

Interest expense ............

54

152

53

166

42

—

467

63

530

(307)

223

Increase in property, plant,
and intangible assets .......

155

166

214

179

48

—

762

2,785

3,547

—

3,547

Millions of Yen

2017
Reportable Segment
Domestic International
Power
Urban & Spatial Real EstateConsulting Consulting Engineering Development
Leasing

Sales
Sales to external customers ...

Total

Others

Total

Reconciliations Consolidated¥43,516462¥43,978¥24,492
18¥24,510¥17,578236¥17,814¥14,34740¥14,387¥474 ¥100,407
150
906¥624 ¥101,313¥931 ¥101,338
3909¥934 ¥102,247¥— ¥101,338(909)—¥(909) ¥101,338

Segment assets .............

3,300
19,307

1,772
22,395

2,650
7,869

58
22,396

401
5,776

8,181
77,743(2,213)44,451

5,968
122,194(10)(8,328)

5,958
113,866

Other:
Depreciation ................

158

72

243

760

39

1,272

448

1,720

—

1,720

Amortization of goodwill ...

—

—

—

623

—

623

—

623

—

623

Interest income ............

22

39

4

47

0

112

316

428

(263)

165

Interest expense ............

52

137

53

155

—

397

61

458

(263)

195

Increase in property, plant,
and intangible assets .......

237

114

218

151

0

720

682

1,402

—

1,402

Intersegment sales ........
Total sales............
Segment profit (loss) .....

34

Thousands of U.S. Dollars

2018
Reportable Segment
Domestic International
Power
Urban & Spatial
Consulting Consulting Engineering Development

Sales
Sales to external customers ... $421,702
3,892Intersegment sales ........
Total sales............ $425,594
Segment profit (loss) .....

EnergyBusiness

Real Estate
Leasing

Total

Others

Total

Reconciliations Consolidated$261,460
425$261,885$142,649
2,444$145,093$118,014
244$118,258$3,213—$3,213$3,982
1,493$5,475$951,020
8,498$959,518$8,517
9,322$17,839$959,537
17,820$977,357$— $959,537(17,820)—$(17,820) $959,537

1,783
202,616(480)
45,097

3,656
37,99382,293769,049(21,829)
60,464364,405 1,133,454

362
60,826(97,145) 1,036,309

Segment assets .............

37,477
178,008

21,874
223,983

17,98381,352Other:
Depreciation ................

1,620

742

2,217

5,792

1,086

344

11,801

3,485

15,286(190)

15,096

Amortization of goodwill ...

—

—

—

4,290

—

—

4,290

—

4,290

—

4,290

Interest income ............

199

498

36

380

27

0

1,140

2,914

4,054

(2,778)1,276Interest expense ............

489

1,376

480

1,502

380

—

4,227

569

4,796

(2,778)2,018

Increase in property, plant,
and intangible assets .......

1,403

1,502

1,937

1,620

434

—

6,896

25,205

32,101—

32,101Note:
The differences between total amounts for reportable segments and amounts in the consolidated balance sheets
or consolidated statements of income and comprehensive income and the main details of these differences,which are related to difference adjustments at June 30, 2018 and 2017, were as follows:
Net sales
Thousands of
U.S. Dollars

Millions of Yen

Reportable segment total .......................................
Other net sales ........................................................
Elimination of intersegment transactions ............
Net sales in the consolidated statements
of income and comprehensive income ....

2018
¥106,022
1,971(1,969)2017¥101,313
934
(909)

2018
$959,518
17,839(17,820)¥106,024¥101,338$959,537

ProfitThousands of
U.S. Dollars

Millions of Yen

Reportable segment total .......................................
Other loss ................................................................
Elimination of intersegment transactions ............
Nonoperating items ...............................................
Operating income in the consolidated
statements of income andcomprehensive income ...............................

2018¥9,093(2,412)
40
(159)

2017
¥8,181(2,213)
(10)
(493)

2018
$82,293(21,829)362(1,439)¥6,562¥5,465$59,38735

Assets
Thousands of
U.S. Dollars

Millions of Yen

Reportable segment total .......................................
Other property ........................................................
Elimination of intersegment transactions ............
Total assets in the consolidated balance
sheets .............................................................

2018¥84,976
40,265(10,734)

2017¥77,743
44,451(8,328)

2018$769,049
364,405(97,145)¥114,507¥113,866$1,036,309

Other items
Millions of Yen

2018
Reportable
Segment

Depreciation ........................................
Amortization of goodwill ....................
Interest income ...................................
Interest expense ..................................
Increase in property, plant, andintangible assets ................................

OthersReconciliations

Total¥1,304
474
126
467

¥385
—
322
63

¥(21)
—
(307)
(307)

¥1,668
474
141
223

762

2,785

—

3,547

Millions of Yen

2017
Reportable
Segment

Depreciation ........................................
Amortization of goodwill ....................
Interest income ...................................
Interest expense ..................................
Increase in property, plant, andintangible assets ................................

OthersReconciliations

Total¥1,272
623
112
397

¥448
—
316
61

¥—
—
(263)
(263)

¥1,720
623
165
195

720

682

—

1,402

Thousands of U.S. Dollars

2018
Reportable
Segment

Depreciation ........................................
Amortization of goodwill ....................
Interest income ...................................
Interest expense ..................................
Increase in property, plant, andintangible assets .................................

OthersReconciliations

Total$11,801
4,290
1,140
4,227

$3,485—2,914
569$(190)—(2,778)(2,778)$15,096
4,290
1,276
2,018

6,896

25,205—

32,101Note:
The main reconciling items of interest income and expense are eliminations of corporate interest in accounting
for control.

36

The information about geographical areas at June 30, 2018, was as follows:
Sales
Millions of Yen

2018
Japan

Asia

¥62,314¥18,634

Middle East

¥1,796

Latin
America

Africa¥3,780Europe¥6,845

Total

Other

¥12,221¥434¥106,024

Thousands of U.S. Dollars

2018
Japan

Asia

$563,953$168,641

Middle East

$16,254

Latin
America

Africa$34,210Europe$61,949

Total

Other

$110,602$3,928$959,537

Note:
Sales are classified by country or region based on the location of customers.
The information about major customers at June 30, 2018, was as follows:
Millions of Yen

2018
Name of Customers

Sales

Ministry of Land, Infrastructure, Transport and Tourism ..
Japan International Cooperation Agency .............................
TEPCO Power Grid, Incorporated ........................................

Related Segment Name

¥16,187
13,781
5,606

Domestic Consulting
International Consulting
Power Engineering

Thousands of U.S. Dollars

2018
Name of Customers

Sales

Ministry of Land, Infrastructure, Transport and Tourism ..
Japan International Cooperation Agency .............................
TEPCO Power Grid, Incorporated ........................................

Related Segment Name

$146,495
124,72150,735

Domestic Consulting
International Consulting
Power Engineering

The information about goodwill at June 30, 2018, was as follows:
Goodwill
Millions of Yen

2018
Reportable Segment
Domestic International
Power
Urban & Spatial
Consulting Consulting Engineering Development

Amortization of goodwill ……
Goodwill at June 30, 2018 ……

¥—
—

¥—
—

¥—
—

EnergyBusiness

Real Estate
Leasing

¥—
—

¥—
—

¥474
8,186

Total

¥474
8,186

OthersElimination/
Corporate

Consolidated

¥—
—

¥—
—

¥474
8,186

OthersElimination/
Corporate

Consolidated

$—
—

$—
—

$4,29074,085

Thousands of U.S. Dollars

2018
Reportable Segment
Domestic International
Power
Urban & Spatial
Consulting Consulting Engineering Development

Amortization of goodwill ……
Goodwill at June 30, 2018 ……

$—
—

$—
—

$—
—

$4,29074,085

EnergyBusiness

Real Estate
Leasing

Total

$—
—

$—
—

$4,29074,085

37

38

39

Nonconsolidated Balance Sheet
Nippon Koei Co., Ltd.
June 30, 2018

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

ASSETS

2018

2018

2017

CURRENT ASSETS:¥6,484¥11,637$58,681

Trade notes .........................................................

26

16

235

Trade accounts ...................................................

16,44910,101

148,866

Subsidiaries and associated companies ...........

175

123

1,584

Other ...................................................................

187

160

1,693

Allowance for doubtful accounts ......................

(4)

(1)

(36)

Short-term loan receivables ................................

1,939

1,672

17,548Inventories (Note 3) .............................................

5,915

7,723

53,532

Deferred tax assets (Note 9) ................................

593

841

5,367

Prepaid expenses and other current assets ........

2,084

2,206

18,861

Total current assets ............................................

33,84834,478306,331Land ......................................................................

14,40815,458130,395

Buildings and structures .....................................

13,932

13,881126,087

Machinery and equipment ..................................

2,320

2,328

20,996

Furniture and fixtures .........................................

2,052

2,058

18,571

Construction in progress .....................................

2,913

253

26,363

Lease assets ..........................................................

93

116

842

Total ....................................................................

35,71834,094323,254

Accumulated depreciation ...................................

(13,761)(13,401)(124,539)

Net property, plant and equipment ...................

21,957

20,693

198,715

Investment securities ...........................................

5,729

8,553

51,848Investments in and advances tosubsidiaries and associated companies (Note 6) .....

29,46026,896

266,618

Other assets ..........................................................

5,503

5,808

49,804

Allowance for doubtful accounts ........................

(95)

(152)

(860)

Total investments and other assets ...................

40,597

41,105367,410TOTAL ....................................................................

¥96,402¥96,276$872,456

Cash and cash equivalents ...................................
Receivables:

PROPERTY, PLANT AND
EQUIPMENT (Note 4 and 5):

INVESTMENTS AND OTHER ASSETS:

40

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

LIABILITIES AND EQUITY

2018

2018

2017

CURRENT LIABILITIES:
Short-term borrowings (Note 7) .........................
Current portion of long-term debt (Note 7) .......
Payables:Trade notes .........................................................
Trade accounts ...................................................
Subsidiaries and associated companies ...........
Other ...................................................................
Income taxes payable ...........................................
Advances received ................................................
Accrued bonuses ..................................................
Allowance for anticipated project loss ................
Other current liabilities .......................................
Total current liabilities ......................................

¥5,7002,066¥5,6501,778$51,586
18,698

—
2,651
471
1,766
470
5,388
1,364
129
1,876
21,881

309
2,357
364
1,363
560
5,526
2,192
8
1,935
22,042—
23,992
4,263
15,983
4,254
48,762
12,344
1,167
16,978198,027

LONG-TERM LIABILITIES:Long-term debt (Note 7) ......................................
Liability for retirement benefits (Note 2.h) ........
Allowance for environmental measures .............
Deferred tax liabilities (Note 9) ...........................
Other long-term liabilities ...................................
Total long-term liabilities ..................................

18,964
116
25
2,164
240
21,50921,442
143
25
1,599
232
23,441

171,6281,050
226
19,585
2,172
194,661

7,415

7,393

67,107

6,114
—

6,093
835

55,333—

1,546
37,891

1,546
37,48613,992342,920COMMITMENTS AND CONTINGENT
LIABILITIES (Note 11)
EQUITY (Notes 8 and 12.a):Common stock;authorized, 38,000,000 shares in 2018and 38,000,000 shares in 2017;
issued, 15,905,049 shares in 2018
and 17,331,302 shares in 2017 ...........................
Capital surplus:
Additional paid-in capital ..................................
Other capital surplus .........................................
Retained earnings:
Legal reserve ......................................................
Retained earnings - unappropriated .................
Unrealized gain on
available-for-sale securities ..............................
Treasury stock—at cost
364,422 shares in 2018
and 1,891,831 shares in 2017 ...........................
Total equity .........................................................

1,156

977

10,462(1,110)53,012(3,537)50,793(10,046)
479,768

TOTAL ....................................................................

¥96,402¥96,276$872,456

See notes to nonconsolidated financial statements.

41

N o n conso lida ted S t atemen t o f I n c o me
Nippon Koei Co., Ltd.
Year ended June 30, 2018

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2018

2018

2017

NET SALES ...........................................................

¥64,782¥61,734$586,289

COST OF SALES ...................................................
Gross profit ......................................................

46,443
18,33944,384
17,350420,318
165,971

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ......................
Operating income ............................................

14,8603,479

14,3582,992

134,486
31,485OTHER INCOME (EXPENSES):Interest and dividend income ..............................
Interest expense ...................................................
Foreign currency exchange (loss) gain ...............
Gain on sales of property,
plant and equipment ..........................................

695
(228)
(107)

616
(208)
60

6,290
(2,063)
(968)

1,279

3

11,575

Loss on impairment oflong-lived assets (Note 4) ...................................

—

(224)

—

Head office transfer cost .....................................

(833)

(106)

(7,539)Loss on support to subsidiaries andassociates (Note 10) ...........................................
Other-net ...............................................................
Other income-net .............................................

—
166
972

(433)
358
66

—
1,502
8,797

INCOME BEFORE INCOME TAXES ................

4,451

3,058

40,282

INCOME TAXES (Note 9):
Current .................................................................
Deferred ................................................................
Total income taxes ...........................................

796
734
1,530

781
(25)
756

7,204
6,643
13,847NET INCOME .......................................................

¥2,921¥2,302$26,435
U.S. Dollars(Note 1)Yen

PER SHARE OF COMMON STOCK (Note 2.t):
Basic net income ..................................................
Cash dividends applicable to the year ................
See notes to nonconsolidated financial statements.

42¥188.56
75.00¥149.38
75.00

$1.71
0.68

N o n conso lida ted S t atemen t o f C h an ges i n E q u i t y
Nippon Koei Co., Ltd.
Year ended June 30, 2018

Thousands

Millions of Yen

Outstanding
Number of
Shares ofCommonStockCapital Surplus

Retained Earnings

Unrealized
Gain (loss)

CommonAdditional

Stock

Paid-in
Capitalon
Other Capital
Surplus

Legal
Reserve

Available-forUnappropriatedsale Securities

Treasury

Total

Stock

EquityBALANCE, JULY 1, 2016 ................

76,840¥7,393¥6,093¥115¥1,546¥35,956¥(40)¥(2,950)¥48,113

Net income ......................................

—

—

—

—

—

2,302

—

—

2,302

Cash dividends, ¥75.00 per share ...

—

—

—

—

—

(772)

—

—

(772)

Purchase of treasury stock ...............

(62)

—

—

—

—

—

—

(1,456)(1,456)

Disposal of treasury stock ..............

330

—

—

720

—

—

—

869

1,589

Share Consolidation .......................

(61,669)

—

—

—

—

—

—

—

—

Net change in the year ....................

—

—

—

—

—

—

1,017

—

1,017

BALANCE, JUNE 30, 2017 .............

15,439

7,393

6,093

835

1,546

37,486977(3,537)50,793Issuance of new shares ...................

10

23

21

—

—

—

—

—

44

Net income ......................................

—

—

—

—

—

2,921

—

—

2,921

Cash dividends, ¥75.00 per share .....

—

—

—

—

—

(1,192)——(1,192)

Purchase of treasury stock .............

(6)

—

—

—

—

—

—

(26)

(26)

Disposal of treasury stock ..............

98

—

—

—

—

—

—

294

294

Retirement of treasury stock ..........

—

—

—

(835)

—

(1,324)

—

2,159

—

Net change in the year ....................

—

—

—

—

—

—

179

—

179

BALANCE, JUNE 30, 2018 .............

15,541¥7,416¥6,114—¥1,546¥37,891¥1,156¥(1,110)¥53,013

Treasury
Stock

Total
EquityThousands of U.S. Dollars (Note 1)
Capital Surplus

Retained Earnings

Unrealized
Gain (loss)

CommonStock

Additional
Paid-in
Capital

Other
CapitalSurplus

Legal
Reserve

Unappropriatedon
Available-forsale Securities

BALANCE, JUNE 30, 2017 .............

$66,908$55,143$7,557Issuance of new shares ...................

208

190

—

—

—

—

—

398

Net income ......................................

—

—

—

—

26,436——26,436

Cash dividends, $0.68 per share ....

—

—

—

—

(10,789)——(10,789)

Purchase of treasury stock .............

—

—

—

—

—

—

(235)

(235)

Disposal of treasury stock ..............

—

—

—

—

—

—

2,661

2,661

Retirement of treasury stock ..........

——(7,557)—(11,982)—

19,539

—

—

—

1,620

—

1,620

Net change in the year ....................

—

—

—

BALANCE, JUNE 30, 2018 .............

$67,116$55,333—$13,992 $339,255$13,992 $342,920$8,842 $(32,011) $459,686$10,462 $(10,046) $479,777

See notes to nonconsolidated financial statements.

43

N o tes to No nco nso lid ated Fi n an c i al S t atemen t s
Nippon Koei Co., Ltd.
Year ended June 30, 2018

1.	B ASIS OF PRESENTATION OF NONCONSOLIDATED FINANCIAL
STATEMENTS
The accompanying nonconsolidated financial statements have been prepared from the accounts maintained by
Nippon Koei Co., Ltd. (the “Company”) in accordance with the provisions set forth in the Japanese Financial
Instruments and Exchange Act and its related accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards.
As consolidated statements of cash flows and certain disclosures are presented in the consolidated financial
statements of the Company, nonconsolidated statements of cash flows and certain disclosures are not presented
herein in accordance with accounting principles generally accepted in Japan.
Effective for the year ended March 31, 2014, the Japanese Financial Instruments and Exchange Act and its
related accounting regulations were amended to allow an entity to not disclose certain designated footnote
information in its nonconsolidated financial statements if the entity prepares and discloses consolidated
financial statements. Accordingly, the Company has omitted disclosure of certain footnote information in theaccompanying nonconsolidated financial statements.
In preparing these nonconsolidated financial statements, certain reclassifications and rearrangements have been
made to the Company’s nonconsolidated financial statements issued domestically in order to present them in aform, which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in
the 2017 nonconsolidated financial statements to conform to the classifications used in 2018.
The nonconsolidated financial statements are stated in Japanese yen, the currency of the country in which theCompany is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥110.495 to $1,
the approximate rate of exchange at June 30, 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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Nonconsolidation — The nonconsolidated financial statements do not include the accounts of subsidiaries.
Investments in subsidiaries and associated companies are stated at cost.

b. Cash Equivalents — Cash equivalents are short-term investments that are readily convertible into cash andexposed to insignificant risk of changes in value.

Cash equivalents include time deposits and investment trusts, both of which mature or become due within
three months of the date of acquisition.

c. Inventories — Work in process is stated at the lower of cost, mainly determined by the specificidentification cost method, or net selling value.

d. Investment Securities — Investment securities are classified and accounted for, depending on
management’s intent, as follows:(1) Held-to-maturity debt securities, which are expected to be held to maturity with the positive intent andability to hold to maturity, are reported at amortized cost; (2) available-for-sale securities, which are notclassified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of
applicable taxes, in a separate component of equity; and (3) investments in subsidiaries and associatedcompanies are reported at cost.
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For
other-than-temporary declines in fair value, investment securities are reduced to net realizable value by acharge to income.

e. Property, Plant and Equipment — Property, plant and equipment are stated at cost. Depreciation ofproperty, plant and equipment is computed substantially by the declining-balance method at rates based on
the estimated useful lives of the assets, while the straight-line method is applied to buildings acquired after
April 1, 1998, structures acquired after April 1, 2016, and lease assets, as well as other equipment for rent.

44

The range of useful lives is principally from 3 to 50 years for buildings and structures, 2 to 15 years formachinery and equipment, and 2 to 20 years for furniture and fixtures. The useful lives for lease assets are
the terms of the respective leases.

f. Long-Lived Assets — The Company reviews its long-lived assets for impairment whenever events orchanges in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. An
impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of theundiscounted future cash flows expected to result from the continued use and eventual disposition of theasset or asset group. The impairment loss would be measured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from thecontinued use and eventual disposition of the asset or the net selling price at disposition.

g. Allowance for Doubtful Accounts — The allowance for doubtful accounts is stated in amounts

considered to be appropriate based on the Company’s past credit loss experience and an evaluation ofpotential losses in the receivables outstanding.

h. Retirement and Pension Plans — The Company has a contributory defined benefit pension plan andunfunded retirement benefit plan for the benefit of its employees.

The Company accounts for the liability for retirement benefits based on the projected benefit obligations andplan assets at the nonconsolidated balance sheet date. The projected benefit obligations are attributed toperiods on a straight-line basis. Actual gains and losses and past service costs are amortized and recognizedin profit or loss over 13 years.
Hitherto, retirement benefits for directors were provided at the amount that would be required if all directors
retired at the nonconsolidated balance sheet date. However, the Company terminated benefit pension plansfor directors. The balance in the nonconsolidated balance sheet is the estimated amount for directors who
have belonged to the Company since the plans were effective.

i. Allowance for Anticipated Project Loss — The Company has made a provision for anticipated losses on
uncompleted project contracts.

j. Asset Retirement Obligations —An asset retirement obligation is recorded for a legal obligation imposed

either by law or contract that results from the acquisition, construction, development, and normal operationof a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset
retirement obligation is recognized as the sum of the discounted cash flows required for the future asset
retirement and is 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 reasonable estimate 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 theamount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation
over the remaining useful life of the asset. 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.

k. Employee Stock Ownership Plan —In accordance with Practical Issues Task Force (“PITF”) No. 30,“Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. throughTrusts,” upon the transfer of treasury stock to the employee stockownership trust (the “Trust”) by the entity,
any difference between the book value and fair value of the treasury stock shall be recorded in capitalsurplus. At year-end, the Company records (1) the Company’s stock held by the Trust as treasury stock inequity, (2) all other assets and liabilities of the Trust on a line-by-line basis, and (3) a liability/asset for the netof (i) any gain or loss on delivery of the stock by the Trust to the employee shareholding association, (ii)
dividends received from the entity for the stock held by the Trust, and (iii) any expenses relating to the Trust.

45

l. Research and Development Costs — Research and development costs are charged to income as incurred.
m. Leases — Finance lease transactions are capitalized to recognize lease assets and lease obligations in thenonconsolidated balance sheet. All other leases are accounted for as operating leases.

n. Accrued Bonuses — Bonuses to employees, directors, and Audit & Supervisory Board members are
accrued at the end of the year to which such bonuses are attributable.

o. Allowance for Environmental Measures — The Company has made a provision for the treatment of

Polychlorinated Biphenyl (“PCB”) Wastes based on the Act on Special Measures concerning Promotion of
Proper Treatment of PCB Wastes.

p. Income Taxes — The provision for income taxes is computed based on the pretax income included in thenonconsolidated statement of income. The asset and liability approach is used to recognize 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.

q. Foreign Currency Transactions — All short-term and long-term monetary receivables and payables

denominated in foreign currencies are translated into Japanese yen at the exchange rates at thenonconsolidated balance sheet date. The foreign exchange gains and losses from translation are recognizedin the nonconsolidated statement of income.

r. Revenue Recognition — During the progress of operation, the percentage-of-completion method is applied

when the extent of progress toward completion, total costs on and total revenue from the contract are
reliably estimated. The stage of completion is determined using the cost-to-cost method.

s. Derivatives and Hedging Activities — The Company uses derivative financial instruments to manage its
exposure to fluctuations in foreign exchange. Interest rate and currency swap are utilized by the Company toreduce its exposure to reduce the risks of foreign currency exchange rates and interest rates. The Company
does not enter into derivatives for trading or speculative purposes.

Derivative financial instruments are classified and accounted for as follows: (a) all derivatives are recognized
as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions arerecognized in the nonconsolidated statement of income; (b) for derivatives used for hedging purposes, if
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 hedgedtransactions.
Interest rate and currency swaps that 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 is
recognized and included in interest expense or income.

t. Per Share Information — Basic net income per share is computed by dividing net income attributable toshareholders of common stock with the weighted-average number of shares of common stock outstanding
for the period.

Diluted net income per share of common stock is not disclosed because the Company has nothing that might
dilute the per share information for the years ended June 30, 2018 and 2017.

46

Cash dividends per share presented in the accompanying nonconsolidated statement of income are dividends
applicable to the respective years, including dividends to be paid after the end of the fiscal year.
On January 1, 2017, the Company effected a share consolidation at a rate of one share for every five commonshares based on the resolution of the 72nd Ordinary General Meeting of Shareholders held on September 29,
2016. To provide basic net income per share figures on a basis comparable to the year ended June 30, 2017,
the weighted-average number of shares of common stock has been restated to reflect the impact of the shareconsolidation for prior years.

u. Accounting Changes and Error Corrections — Under ASBJ Statement No. 24, “Accounting Standard for
Accounting Changes and Error Corrections,” and ASBJ Guidance No. 24, “Guidance on Accounting Standard
for Accounting Changes and Error Corrections,” accounting treatments under this standard and guidance areas follows:(1) Changes in Accounting Policies:
When a new accounting policy is applied following revision of an accounting standard, the new policy isapplied retrospectively unless the revised accounting standard includes specific transitional provisions, inwhich case the entity shall comply with the specific transitional provisions.
(2) Changes in Presentation:
When the presentation of financial statements is changed, prior-period financial statements are reclassified
in accordance with the new presentation.
(3) Changes in Accounting Estimates:
A change in an accounting estimate is accounted for in the period of the change if the change affects that
period only and is accounted for prospectively if the change affects both the period of the change and future
periods.
(4) Corrections of Prior-Period Errors:
When an error in prior-period financial statements is discovered, those statements are restated.

Changes in Accounting Policies

The Company had been applying the completed-contract method (including partial completed-contract method)in principle to record the revenue from the contract relating to Domestic Consulting Operations, International
Consulting Operations and Power Engineering Operations. From contracts started during the current fiscal year,
the percentage-of-completion method is applied. Taking into consideration of the increasing opportunities toreceive larger project orders under the government-led strategic exporting of infrastructure systems and the
expansion of the Group’s international operations such as the acquisition of United Kingdom architecturalfirms, the Company has determined that the percentage-of-completion method would be more appropriate topresent their operating results and financial conditions. Once the development in their internal systems
including accounting system were completed, the Company has decided to change the accounting method
relating to revenue from the contract.
As this change was made possible with the introduction of a new accounting system, using the percentage-ofcompletion method to calculate retroactively is practically impossible.
Furthermore, since the cumulative impact at the beginning of the current fiscal year cannot be calculated in thecase where the system is applied retrospectively, the balance at the end of the previous fiscal year is treated as
the balance at the beginning of the current fiscal year.
The Company applies the completion-contract method in principle to operational contracts concerning works inprocess that are included in the balance at the end of the previous consolidated fiscal year, and therefore, sales
shall be recorded for the quarter during which individual operations are completed.
As a result, compared with the previous accounting method, net sales increased by ¥7,512 million, gross profit,
operating income, ordinary income, and profit before income taxes all increased by ¥1,640 million and net
income per share increased by ¥73.19 for the fiscal year ended June 30, 2018.

47

3. INVENTORIESInventories at June 30, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Work in process ......................................................
Raw materials and supplies ...................................
Total .................................................................

2018¥5,697218¥5,9152017¥7,469254¥7,723

2018$51,559
1,973$53,532

4. LONG-LIVED ASSETSThe Company reviewed its long-lived assets for impairment as of June 30, 2018. As a result, no impairment loss
was recognized. The Company recognized an impairment loss of ¥224 million as loss on impairment of longlived assets for assets to be disposed and idle assets in 2017. The carrying amount of the assets to be disposed
were written down to the recoverable amount, which is zero, because they are to be demolished forredevelopment. The carrying amount of the idle assets were written down to the memorandum value because
future cash flows are not expected.

5. REDUCTION ENTRY
In the case of the acquisition expenses of the Company that have been subsidized by the national government,
the amount of such subsidies is offset against the acquisition cost of the corresponding property, plant, andequipment.
The amount of reduction entry by accounts under property, plant, and equipment at June 30, 2018 and 2017,
was as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018
Buildings and structures .......................................
Machinery and equipment ....................................
Total .................................................................

2018

2017
¥19
167
¥186

¥19
167
¥186

$172
1,511
$1,683

6. 	INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES AND
ASSOCIATED COMPANIESInvestments in and advances to subsidiaries and associated companies as of June 30, 2018 and 2017, were as
follows:
Thousands of
U.S. Dollars

Millions of Yen

Investments ............................................................
Advances .................................................................
Total .................................................................

2018¥26,704
2,756¥29,460

2017¥24,456
2,440¥26,8962018$241,676
24,942$266,618

The value of the investment securities of subsidiaries and associated companies is measured at the originalacquisition costs, as their fair value cannot be reliably determined at June 30, 2018, since market value andestimated future cash flows are not available.

48

7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings at June 30, 2018 and 2017, consisted of loans from consolidated subsidiaries. The
annual interest rates applicable to the short-term borrowings ranged from 0.524% to 0.536% and 0.524% to0.684% at June 30, 2018 and 2017, respectively.
Long-term debt at June 30, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2018
Unsecured loans from banks due seriallyto 2026 with interest rates ranging from0.250% to 2.513% .................................................
Obligation under finance leases ............................
Total .................................................................
Less current portion ..............................................
Long-term debt, less current portion .........

2018

2017

¥20,98545
21,030(2,066)¥18,964¥23,174
46
23,220(1,778)¥21,442$189,919
407
190,326(18,698)$171,628

Annual maturities of long-term debt at June 30, 2018, for the five years and thereafter were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Years Ending June 30

2019 .........................................................
2020 .........................................................
2021 .........................................................
2022 .........................................................
2023 .........................................................
2024 and thereafter .................................
Total ..................................................

Long-Term Debt

Lease Obligations

Long-Term Debt

Lease Obligations¥2,051
1,974
2,176
6,250
2,190
6,344
¥20,985

¥16
13
9
4
2
1
¥45

$18,562
17,865
19,69356,564
19,82057,414$189,918

$145
118
81
36
18
9
$407

The Company and four financial institutions have entered into overdraft contracts and a commitment line contract bysyndicated loan over three years. These commitment line contracts included restrictive financial covenants for eachfinancial institution.

49

8. 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 theyear-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 of the directors being prescribed as one year rather than thenormal 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.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net assets after dividends must be
maintained at no less than ¥3 million.
(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 appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus),depending on the equity account that was charged upon the payment of such dividends, until the aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under theCompanies 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 undercertain 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 of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders, which is determined by a specific formula.
Under the Companies Act, stock acquisition rights are presented as a separate component of equity.
The Companies Act also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

50

9. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in theaggregate, resulted in a normal effective statutory tax rate of approximately 30.9% for the years ended June 30,2018 and 2017.
The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities at June30, 2018 and 2017, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018

2018

2017

Deferred tax assets:
Investment in subsidiaries ...................................
Allowance for doubtful accounts ........................
Accrued bonuses ..................................................
Liability for retirement benefits for employees .....
Liability for retirement benefits for directors ....
Allowance for anticipated project loss ................
Unrealized loss on available-for-sale securities ..
Overdepreciation ..................................................
Loss on impairment of long-lived assets ............
Other .....................................................................
Less valuation allowance .....................................
Total .................................................................

¥356
30
392
35
—
40
—
48
62
287
(555)
695

¥356
47
649
40
4
2
—
43
117
251
(475)
1,034

$3,222
272
3,548
317
—
362
—
434
561
2,597
(5,023)
6,290

Deferred tax liabilities:
Reserve for deferred gains onsale of property ..................................................

758

760

6,860

Reserve for special account for advanced
depreciation of property ....................................

265

—

2,399

Unrealized gain on available-for-salesecurities .............................................................
Prepaid pension cost ............................................
Other .....................................................................
Total .................................................................

510
728
5
2,266

431
597
4
1,792

4,616
6,589
44
20,508Net deferred tax assets .......................................

¥(1,571)¥(758)$(14,218)

51

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying nonconsolidated statement of income for the year ended June 30, 2018, with the corresponding
figures for 2017, is as follows:

Normal effective statutory tax rate .......................
Per capita levy of local tax .....................................
Expenses not deductible for tax purposes ............
Foreign income tax ................................................
Valuation allowance ...............................................
Special Tax Credit ..................................................
Income taxes for prior periods ..............................
Income not included for tax purposes ..................
Other – net ..............................................................
Actual effective tax rate .........................................

2018
30.9%
1.9
3.3
5.6
1.8
(4.4)

2017
30.9%
2.7
6.5
8.0
(7.5)
(7.7)
(2.9)
(4.7)
(0.6)
24.7%

—

(1.7)
(3.0)
34.4%

10. LOSS ON SUPPORT TO SUBSIDIARIES AND ASSOCIATES
Loss on support to subsidiaries and associates for the years ended June 30, 2018 and 2017, consisted of thefollowing:Thousands of
U.S. Dollars

Millions of Yen

2018
Bad debt expenses ..................................................
Subsidiary support costs .......................................

2018

2017
¥ —
—

¥373
60

$ —
—

11. CONTINGENT LIABILITIESAt June 30, 2018, the Company had the following contingent liabilities:
Millions of Yen

Guarantees of bank loans related to employees ..................................
Refundment bonds of subsidiaries ......................................................
Performance bond of a subsidiary .......................................................

52

¥30
64
75

Thousands of
U.S. Dollars

$272
579
679

12. SUBSEQUENT EVENTS
a. Appropriations of Retained Earnings
On August 28, 2018, the following appropriation of retained earnings at June 30, 2018, was resolved by the
extraordinary Board of Directors’ meeting:Millions of Yen

Year-end cash dividends, ¥75 ($0.68) per share ...................

¥1,192Thousands of
U.S. Dollars$10,788

The total amount of the dividends above includes ¥27 million ($244 thousand) in dividends on the Company’s
shares owned by “ESOP.”

b. Issuance of new shares as restricted stock compensation
The Company decided to issue new stocks as restricted stock compensation at the extraordinary Board of
Directors’ meeting held on September 27, 2018 as follows:
We aim to have the directors (not including outside directors; “Eligible Directors”) share benefits and risks ofstock price fluctuations with shareholders and further enhance their willingness to contribute to improving
stock prices and enhancing corporate value. Therefore, the Company decided, at the Board of Directors held on
August 14, 2017, to introduce a restricted stock compensation system (the “System”), which will issue restricted
stock to Eligible Directors.
Furthermore, the 73rd Annual General Meeting of Shareholders held on September 28, 2017, approved, under
the System, setting the total amount of monetary compensation claims payable to the Eligible Directors ascompensation related to restricted stock at a level where it does “not exceed an annual amount of ¥60 million.”
In addition, the total number of 50,000 shares, which are restricted stock to be allotted to Eligible Directors willbe the upper limit of the number of restricted shares to be allotted in each fiscal year, and the transfer restriction
period of restricted stock will be between one year to five years, determined by the Board of Directors.
(1) Payment date
October 26, 2018
14,495 shares of common stock of the Company(2) Class and number of shares to be issued(3) Issue price¥3,095 per share¥44,862,025(4) Total issue price of shares to be issued(5) Capitalization amount¥1,548 per share¥22,438,260(6) Total capitalization amount
Allotment of specified restricted stocks(7) Method of offer or allotment(8) Method of contribution
In-kind contribution of monetary compensation claims
14,495 shares to nine directors of the Company (excluding(9) Allottees, number thereof andoutside directors)
number of shares to be allotted
October 26, 2018 to October 25, 2021
(10) Transfer restriction period(11) Other	Issue of new shares to be allotted is conditioned on the securities
registration statement taking effect in accordance with the
Financial Instruments and Exchange Act.

53

54

55

Si g ni f i cant C on solid ated S u b s i d i ari es
The consolidated subsidiaries are as follows:

Domestic Consulting Operations
Tamano Consultants Co., Ltd.
Nippon Civic Consulting Engineers Co., Ltd.
El Koei Co., Ltd.

International Consulting Operations
Koei Research & Consulting Inc.
Nippon Koei Latin America-Caribbean Co., Ltd.
Nippon Koei LAC, Inc.
Nippon Koei LAC do Brasil Ltda.
Nippon Koei India Pvt. Ltd.
Nippon Koei Vietnam International Co., Ltd.
Philkoei International, Inc.
PT. Indokoei International
Myanmar Koei International Ltd.

Power Engineering Operations
Koei System Inc.

Urban & Spatial Development Division
BDP Holdings Limited
Building Design Partnership Limited

Energy Business Division
Koei Energy Co., Ltd.
Ironmont Hydro Pte. Ltd.
PT. Arkora Hydro (Equity method affiliate)

OthersNikki Corporation
DSI Co., Ltd.

56

1-14-6 Kudan-kita Chiyoda-ku, Tokyo 102-8539, Japan
Telephone: +81 3 5276 2454 Facsimile: +81 3 5276 2656
http://www.n-koei.co.jp E-mail: info@n-koei.co.jp

Financial Report
Year ended June 30, 2018

Printed in Japan