Financial Report
Year ended June 30, 2016

Company Profile

Nippon Koei Co., Ltd. established in 1946, specializes in engineering
consulting and electric power engineering. Since its foundation, the Company
has adhered to a policy of contributing to society through technology.
Our engineering consulting services, provided by the Consulting
Administration Group, draws on the technical expertise of specialists in diverse
fields. Since our first overseas venture, a hydroelectric power project inMyanmar in 1954, we have participated in a broad variety of sophisticateddevelopment projects worldwide.
The Engineering Administration Group spearheads the Company’s electric
power engineering business. Here, we provide a complete engineering package,from surveys and designs to the installation of a wide range of equipment,
including power stations and substations, transmission lines, and end-user
equipment. We are active both in Japan and overseas.
Committed to responsible corporate citizenship, Nippon Koei and its
employees dedicate their efforts to creating comfortable living environmentsfor people around the world.

CONTENTS
Financial Highlights .................................................................................................................. 1
Consolidated Business Report for Fiscal Year Ended June 30, 2016 .......................................... 2
Consolidated Balance Sheet .................................................................................................... 12
Consolidated Statement of Income and Comprehensive Income ......................................... 14
Consolidated Statement of Changes in Equity ....................................................................... 15
Consolidated Statement of Cash Flows .................................................................................. 16
Notes to Consolidated Financial Statements ......................................................................... 17
Nonconsolidated Balance Sheet .............................................................................................. 52
Nonconsolidated Statement of Income .................................................................................. 54
Nonconsolidated Statement of Changes in Equity ................................................................ 55
Notes to Nonconsolidated Financial Statements ................................................................... 56
Corporate Information ............................................................................................................ 68
Significant Consolidated Subsidiaries .................................................................................... 70

Financial Highlights

Consolidated
Thousands of
U.S. Dollars

Millions of Yen
Years Ended June 30

2016

2015

2016

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

¥ 81,866¥81,840$796,168

Net income attributable to owner of the parent ....

1,824

4,261

17,739Yen

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

¥

23.82

U.S. Dollars¥ 56.01

2016

0.23

Thousands of
U.S. Dollars

Millions of Yen
As of June 30

$

2015

2016

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

¥100,990¥84,110$982,154

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

51,46052,982500,462

Nonconsolidated
Thousands of
U.S. Dollars

Millions of Yen
Years Ended June 30

2016

2015

2016

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

¥ 60,327¥60,471$586,696

Net income attributable to owner of the parent ....

1,678

5,714

16,319Yen

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

¥

21.92

U.S. Dollars¥ 75.11

2016

0.21

Thousands of
U.S. Dollars

Millions of Yen
As of June 30

$

2015

2016

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

¥ 83,674¥73,391$813,752

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

48,113

48,691

467,912

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 ¥102.83 to $1, theapproximate rate of exchange at June 30, 2016.

1

Consolidated Business Report for Fiscal Year Ended June 30, 2016
1. Overview of Performance and Cash Flows(1) Performance
During the fiscal year under review (from July 1, 2015 to June 30, 2016), the Japanese economy stayed on amoderate recovery path. The employment and income condition remained steady despite of some weakness inpersonal consumption, and capital investment was on a recovery trend in line with improved corporate
profitability. Meanwhile, there was heightened uncertainty over the future due to the sharp appreciation of the
yen and low stock prices following the Brexit decision in June.
With regard to the business environment of Nippon Koei Co., Ltd. (the “Company”) and its subsidiaries(together, the “Group”), the Domestic Consulting Operations is on a recovery trend due to the front-load
implementation of government budgets after April, despite a moderate decline in public investments.
Furthermore, the budget increased for local municipalities in accordance with regional revitalization policies,
while demand increased in areas including the maintenance and management businesses for facilities under thePlan for Extending the Lifespan of Infrastructure, preparation of facilities and the disaster prevention anddisaster mitigation business for the Tokyo Olympics. In the International Consulting Operations, the market
remained stable. Contributing factors included the maintenance of a certain volume of Official Development
Assistance (“ODA”) projects by Japan, on the back of the Japanese government’s strategy to export
infrastructure, development demand among emerging markets in Asia and other parts of the world, and strong
demand for private investment in development. In the Power Engineering Operations, increases were seen in theareas of investment aimed at putting distribution networks in place for electric power companies and demand
for renewal and new construction of hydroelectric power generation facilities taking advantage of the Feed-in
Tariff (“FIT”) Scheme. On the other hand, environment in terms of obtaining orders became severer because of
the intensified competition for orders at electric power companies, which constitute our major customer.
Under such circumstances, based on the Medium-Term Management Plan NK-AIM (from July 2015 to June2018), with the fundamental principles of “Sustainable growth of 3 core businesses” and “Generation andexpansion of new business,” the Group has been engaged in the three key challenges of “Further evolution of
global expansion” “Further expansion of business fields and improvement of profitability by intensifying existingcore businesses,” and “Demonstrating true merit of aggregated technologies for establishment of new businessdomains.” As companywide measures to realize these goals, the Group actively engaged in “Development of
next-generation core technologies, and further improvement of technical strengths and productivity,”“Strengthening of human resource recruitment and training,” and “Promotion of collaboration andenhancement of corporate governance.”
In particular, in line with the basic policy of “Generation and expansion of new business,” we made the UKarchitectural design company BDP HOLDINGS LIMITED into a wholly-owned subsidiary, developed and put
into operation the small-scale hydroelectric power generation business, deployed a dispersed power generation
business in the Philippines, decided to participate in Tigris Water Partnership, and actively made investments. In
addition, in order to enhance the corporate governance system through strengthening the supervisory functions
and ensuring transparency of the management system, and establishing a swift operational structure, the Group
formulated the Basic Policy on Corporate Governance and decided on an organizational reform including theestablishment of the Nominating and Compensation Advisory Committee.
As a result, for the fiscal year ended June 30, 2016, orders received were ¥84,828 million, the same level as theprevious fiscal year. Added with ¥16,251 million of the outstanding orders of BDP HOLDINGS LIMITED and its
subsidiaries (together, “BDP”) of which only the balance sheets have been consolidated from the current
consolidated fiscal year, orders received amounted to ¥101,079 million, up 15.4% year on year. Net sales were¥81,866 million, the same level as the previous fiscal year.
In terms of profit, operating income was ¥4,723 million, an increase of 4.9% year on year. Net income
attributable to owners of parent decreased by 57.2% year on year to ¥1,824 million as a result of a rebound fromthe gain on sales of property, plant and equipment that was recorded during the previous fiscal year.

Domestic Consulting Operations
In the Domestic Consulting Operations, amid a decline in consulting-related business for reconstruction

2

following the Great East Japan Earthquake, we expanded business domains and market share by defining
priority business areas, improved profitability through the restructuring of operational processes, and promoted
the active utilization of alliances. Specifically, for the priority business areas, we set 41 key businesses in theseven fields of “disaster prevention and disaster mitigation,” “maintenance and management,” “infrastructure
management,” “use of intellectual property,” “project management and construction management,”“environment and regional revitalization,” and “other businesses,” and executed strategies to expand market
share, strategies to establish competitive advantages, and strategies to create markets based on the level ofcompetitive strength in each of these businesses.
As a result of the above, orders received decreased by 2.1% year on year to ¥44,110 million, net sales decreasedby 2.6% year on year to ¥40,778 million, and ordinary income increased by 8.7% year on year to ¥2,965 million.

International Consulting Operations
In the International Consulting Operations, the Group established locally-based order receiving andconstruction systems in the four regions of Asia, the Middle East and North Africa, Sub-Saharan Africa, andLatin America, secured a stable business foundation through the expansion of share in ODA projects by Japan,
and expanded business scale in urban development business and Public-Private Partnership (“PPP”) business. In
particular, we focused on receiving orders from Japan International Cooperation Agency (“JICA”) project andlarge-scale yen loan projects while making efforts to further strengthen product management and production
structures in the railway consulting business.
As a result of the above, orders received decreased by 10.2% year on year to ¥25,937 million due to delays inconcluding large-scale projects and net sales increased by 9.4% year on year to ¥22,071 million. However, as aresult of the sharp appreciation of the yen at the end of the fiscal year, ordinary income decreased by 36.9% year
on year to ¥382 million.

Power Engineering Operations
In the Power Engineering Operations, in the face of intensifying competition due to reductions in capital
investment and repair costs among electric power companies that constitute our main customer, we worked toincrease cost competitiveness through thorough cost reductions, strengthen sales and marketing capabilities
through proposing cost reduction plans, enhance cooperation within the group (e.g. fusion and cooperation
among the business areas of consulting, products and construction), promote product and technology
development, and reinforce and expand the mechanical and electromechanical consulting division. In particular,
as a result of thorough cost reductions and their proposals, we worked to secure renewal demand for powertransmission equipment and capture renewal and new demand for hydroelectric power generation facilities
taking advantage of the FIT Scheme.
As a result of the above, orders received increased by 8.2% year on year to ¥14,717 million, net sales decreasedby 1.9% year on year to ¥17,523 million and ordinary income increased by 8.0% year on year to ¥3,024 million.

Urban & Spatial Development Operations
In the Urban & Spatial Development Operations, BDP became a consolidated subsidiary of the Company fromthe current consolidated fiscal year, consolidating only the balance sheets. The outstanding order of BDP at the
beginning of consolidation was ¥16,251 million.

Real Estate Leasing Operations
In the Real Estate Leasing Operations, due to the sale of real estate for leasing during the previous fiscal year,
net sales decreased by 37.3% year on year to ¥515 million and ordinary income decreased by 34.8% year on yearto ¥385 million.

(2) Cash Flows
Cash and cash equivalents at the end of the fiscal year under review was ¥9,401 million, a decrease of ¥2,272
million from the end of the previous fiscal year. The primary factors were as follows.
Net cash provided by operating activities was ¥380 million (a net inflow of ¥882 million during the previous
fiscal year). This cash inflow was primarily due to income before income taxes of ¥4,032 million and proceedsfrom the collection of notes and accounts receivable - trade, meanwhile it was partially offset by payments forhead office transfer cost.

3Net cash used in investing activities was ¥17,705 million (a net inflow of ¥2,702 million during the previous
fiscal year). This cash outflow was primarily due to the acquisition of stocks of BDP HOLDINGS LIMITED.
Net cash provided by financing activities was ¥15,199 million (a net outflow of ¥746 million during the previous
fiscal year). This cash inflow was primarily due to an increase in short-term borrowings.
(Reference) Trends in Cash Flow-related Indicators

Equity ratio (%) ...................................
Equity ratio
on market value basis (%) ................
Interest-bearing
debt-to-cash flow ratio (years) .........
Interest coverage ratio (times) ............

Fiscal Year
Ended March2013

Fiscal Period
Ended June2013

Fiscal Year
Ended June2014

Fiscal Year
Ended June2015

Fiscal Year
Ended June
2016

55.0

60.8

62.4

62.6

50.6

34.5

39.2

50.0

43.7

23.6

3.1
73.7

0.2
1,519.0

1.8
29.3

1.9
18.0

46.1
7.1

Notes: 1. All figures are calculated on the basis of consolidated financial figures.
2. Market capitalization is computed on the basis of the number of shares issued, excluding treasury stocks.
3. Cash flow here means operating cash flow.
4. Interest-bearing debt here comprises all debts included in the balance sheet on which interest is paid.
5.	Due to the change of the fiscal year-end, the consolidated fiscal period ended June 30, 2013 is an irregular 3-monthaccounting period. Accordingly, the interest-bearing debt-to-cash flow ratio and interest coverage ratio are based on cash
flows and interest payments for the 3-month period.

2. Production, New Orders and Sales(1) New Orders
Millions of yen%

2016
Reportable Segment
New Orders
Domestic ...................................................................
International .............................................................
Power Engineering ...................................................
Urban & Spatial Development (Note 1) ..................
Others .......................................................................
Total new orders .................................................
Outstanding Orders
Domestic ...................................................................
International .............................................................
Power Engineering ...................................................
Urban & Spatial Development (Note 1) ..................
Others .......................................................................
Total outstanding orders ..................................

Order Amount¥ 44,110
25,937
14,717
16,25164
101,079
28,53954,002
10,203
16,251
50¥109,045

Change fromthe previous fiscal year

(2.1)
(10.2)
8.2
112.0
15.4
2.0
5.0
3.0
699.7
22.1

Notes: 1.	This refers to the outstanding orders as of April 1, 2016 of BDP that became a consolidated subsidiary from the current
consolidated fiscal year.
2. The above amounts are exclusive of consumption taxes, etc.
3. The above amounts are for outside customers, and do not include inter-segment transactions or transfers.

4(2) Sales Performance
Millions of yen%

2016
Reportable Segment

Change fromthe previous fiscal year

Sales Amount

Domestic ...................................................................
International .............................................................
Power Engineering ...................................................
Real estate leasing ....................................................
Others .......................................................................
Total sales ..............................................................

¥ 40,778
22,071
17,523515
979¥ 81,866

(2.6)
9.4
(1.9)
(37.3)(14.2)
0.0

Notes: 1. Production status is not stated due to difficulties in defining consolidated group production performance.
2. Transactions between business segments are offset and eliminated.
3. Amounts above do not include consumption tax.
4. Sales to major customers as a proportion of total sales are given as follows.

Millions of yen%

Millions of yen

2016
Name of Customers
Ministry of Land, Infrastructure,
Transport and Tourism .....................
Tokyo Electric Power Company,
Incorporated .....................................
TEPCO Power Grid, Incorporated ......
Japan International
Cooperation Agency ..........................

Sales Amount

%

2015

Proportion ofsales¥ 13,604

16.6

8,148

10.0

7,643

9.3

Sales Amount

Proportion ofsales¥ 14,845

18.1

7,675

9.4

6,756

8.3

Notes: The trade name was changed from “Tokyo Electric Power Company, Incorporated” to “TEPCO Power Grid, Incorporated” dueto the transition to a holding company system through a company reorganization on April 1, 2016. Power transmission anddistribution business of “Tokyo Electric Power Company, Incorporated” became “TEPCO Power Grid, Incorporated.”
For the period from July 1, 2015, to March 31, 2016, sales results of the Group for “Tokyo Electric Power Company,
Incorporated” amounted to ¥6,569 million was included in “TEPCO Power Grid, Incorporated” in the table above.

3. Future Challenges(1) Management Policy
To achieve further increases in corporate value, the Group formulated a new Long-Term Management Strategy(spanning six years from July 2015 to June 2021) in February 2015.
The Group, under the mission of realizing the value contained in the management philosophy of “Act withintegrity & Contribute to society through technology and engineering,” has defined the specific goals of theGroup in the Group Vision of “To provide services that are of value in building safe and reliable social
infrastructure and comfortable living space.”
Under the Long-Term Management Strategy, based on the Group Vision, the Group will continue the fusion of
consulting and engineering to evolve into a global company. Accordingly, the Group has defined its businesstargets for the fiscal year ending June 30, 2021, to be net sales of ¥140 billion, operating income of ¥14 billion,
and a return on equity (“ROE”) of 10%.
With a view to realizing its long-term management strategy, the Group has identified the three-year period from
July 2015 to June 2018 as an important one for making strides toward the future, and it has produced and is
progressing its Medium-Term Business Plan NK-AIM (the “AIM” in the title standing for Advancing in the world,Intensify in Japan and demonstrating Merit).

5

From the term ending June 2017, which is the second year of the Medium-Term Management Plan NK-AIM, thegroup will tackle the three focus themes of “further progressing global development,” “further expanding
business scope and raising profitability through intensification of the core businesses,” and “demonstrating thetrue value of comprehensive technological capacity with a view to creating new business domains.’ These are in
addition to the fundamental policy directions of “sustained growth of the three core businesses,” “creation andexpansion of new business operations,” and “autonomy and collaboration.”
As whole-of-company measures to realize these, the group will proactively advance “development of nextgeneration core technologies and further rises in productivity,” “enhancing securing and training personnel
resources” and “promoting collaboration and strengthening corporate governance.”
In terms of quantitative targets, the group is adding an Urban & Spatial Development Operations as new
business segment comprised of BDP and Kisho Kurokawa Architect & Associates Co., Ltd., and the June 2018
quantitative targets have been revised to ¥115 billion for sales, ¥7.4 billion for operating income, and 7.5% for
ROE.
The key business strategy themes and whole-of-company initiatives under the Medium-Term Business Plan
NK-AIM are as follows.
a. Key strategic business challenges
In the Domestic Consulting Operations, the Company will expand its business domain and share by defining
priority businesses, proceed with restructuring of the operational processes for higher profitability, and enhance
active utilization of alliances.
In the International Consulting Operations, the Company will secure a stable business foundation throughexpansion of share in the Japanese ODA, expand its business scale in urban development business and PPP
business, and further strengthen its locally-based structures for order-receiving and construction.
In the Power Engineering Operations, the Company will increase cost competitiveness and strengthen sales andmarketing capabilities, enhance cooperation within the group (e.g. fusion and cooperation among the businessareas of consulting, products and construction), promote product and technology development, and reinforce
the mechanical and electromechanical consulting division.
With regard to new business, with a view to the growth of BDP and K. Kurokawa which comprise the Urban &Spatial Development Operations, the group will push forward with the continued expansion of its UK business,the expansion of its overseas bases, and group linkages in Japan and the Asian region. It will also seek to further
expand business through the transfer across all group companies of the Building Information Modeling (“BIM”)
technology owned by BDP. In other new business fields, it will seek to engage in market development by pushingmicro-hydro and thermal energy projects and participating in planning for the privatization of water supply,
highways and ports, in the form of an asset holding business.
b. Companywide measures to support its growth
To pursue the “development of next-generation core technologies and further rises in productivity,” the groupwill work to develop technology that gives consideration to global environmental change, develop coretechnologies for next-generation smart society, improve technical services, raise project management to a higher
level, and ensure quality and improve productivity by improving production processes. The group will regard its
internal human resources as human treasures as it works on retaining and training its talent.
In order to “secure human treasures and strengthen training,” the group will work on developing hiring
practices that cater to diverse ways of working such as hirings that are limited to particular workplaces and midyear recruitment of candidates who have been studying overseas, restructuring the company training system,
optimizing the allocation of resources, and revamping the performance appraisal and salary systems.
In pursuit of “promoting collaboration and strengthening corporate governance,” the group will work tostrengthen the provisions for whole-of-company marketing functions, the provisions for workplaces especiallywith regard to the refurbishment of the head office building, and oversight functions under the management
structure. It will also work to ensure transparency and to firmly establish an agile system for the execution oftasks.

6

(2) Basic Policy Governing Corporate Decision-Makers on Financial Affairs and Operations
Our basic policy governing corporate decision-makers on financial affairs and operations (“GovernancePrinciples”) is as detailed below.
a. Governance Principles
The Company believes that the people who control the assets and the commercial decisions of the Company ought tobe people who understand the sources of the Company’s corporate value and who make it possible for the Company
to continually raise its corporate value and through it the profits that are shared by the stockholders. As an entity
whose shares are listed on securities exchanges, the Company respects the free trading of its shares in the markets,and does not as a rule deny even large-scale buying of the Company’s stock by specific persons, provided that it isattributable to the growth and surety of the Company’s corporate value and through it the profits that are shared by
the stockholders. The Company believes that whether or not the selling of the Company’s shares happens in response
to a large-scale act of purchasing is a decision which should ultimately be left up to our shareholders.
However, it cannot be said for certain that there are no individuals among those attempting to carry out a large-scale
act of purchasing of shares of the Company who do not contribute to the corporate value of the Company, andfurthermore to the common interest of shareholders when looking at the purposes and goals of said action; suchindividuals would include those who bring forth a tangible infringement upon the corporate value of the Company
and furthermore the common interest of shareholders, individuals presenting the threat of coercing shareholders to
conduct the sale of shares, individuals presenting the threat of destroying relationships of trust existing between
clients, employees, business partners, and other related parties, individuals whose conditions for purchase do notentail a sufficient reflection of the corporate value of the Company, and individuals who do not provide information
sufficient enough for shareholders to make a decision.
The Company was founded in 1946. Since then, the Company has been expanding on businesses relating to theestablishment of social capital, with our construction consulting business and electric power engineering businessconstituting predominant businesses. As a company with an extremely high level communality and one with a greatsocial mission, there is a need for us to conduct sustainable development going forward as well. Moreover, theCompany possesses branding power backed by a rich collection of experience and track records, and has acquired ahigh level of trust with clients such as the government, regional public organizations, and others. Our technologicalprowess is something supported by the high level of specialization of employees within the Group, business partners,
and other related individuals, as well as by our broad-ranging know-how. In the managing of the Company, it is anecessity to expand business while simultaneously maintaining and developing relationships of trust cultivatedbetween domestic and overseas clients, employees, business partners and other related entities, but only aftersufficiently understanding that the source from which the corporate value of the Company comes is constituted bythose aspects. The Company believes that only through such efforts would one then be able to begin contributing to
the improvement of our corporate value and to the interest of shareholders.
In view of these circumstances, when it comes to individuals attempting to carry out large-scale acts of purchasing, amechanism is necessary which entails allowing for said acts of purchasing to commence only after a certain period ofassessment has passed, for the purpose of judging the necessity of consideration regarding opinions formed by theboard of directors of the company and regarding alternative solutions, as well as consideration regarding the
invoking of countermeasures, by means of the providing of necessary information beforehand that is sufficientenough for shareholders to make a decision. Moreover, the Company believes that including with respect to the above
example, individuals attempting to conduct large-scale acts of purchasing which do not contribute to the corporate
value of the Company and furthermore the common interest of shareholders without understanding the source of theCompany’s corporate value, are individuals unsuited to control decisions on company financial administration andbusiness policy, and that it is necessary for us to secure the corporate value of the Company and furthermore thecommon interests of shareholders by taking substantial and necessary countermeasures against large-scale acts ofpurchasing conducted by individuals attempting to conduct large-scale acts of purchasing which do not contribute to
the corporate value of the Company and furthermore the common interest of shareholders.

7b. An overview of special initiatives which contribute to the realization of effective utilization of
resources, the formation appropriate corporate grouping, and other such basic policies(a) Strategic business promotion based on mid-to-long term plans
Initiatives concerning strategic business promotion based on mid-to-long term plans of the Company are as
described in the above item titled “(1) Management Policy”.
(b) Strengthening of corporate governance frameworks
In order to further increase the corporate value of the Group, the Company has made the basic mindset
comprise of the strengthening of supervisory functions together with the securing of transparency, theestablishment of a speedy operational execution framework, and the endeavoring toward enhancement ofcorporate governance.
In terms of institutional design, the Company has chosen a company with a board of company auditors (as wellas one with a board of directors and one with a board of accounting auditors). Moreover, the Company has
established a committee for advisory on appointments, compensation and other matters which includes
independent directors as comprising members, and together with increasing fairness and transparency inmanagement, has separated management monitoring and supervisory functions from operational executivefunctions, in an effort to bring about the clarification of responsibility and increasing in the speed of decision
making.
c. Overview of initiatives serving to prevent control by unsuitable individuals in the context of the Basic
PolicyAs an initiative serving to prevent the control of decisions on financial administration and business policy of theCompany by unsuitable individuals in the context of the Basic Policy in item a. above, the Company has set up a
policy for responses to large-scale acts of purchasing for shares of the Company (“Takeover Defense Measure”).
Here is an overview of the Takeover Defense Measure. Large-scale purchasers attempting to carry out large-scale
acts of purchasing, such as that of shares for the purpose of controlling a ratio of more than 20% of the voting
rights of specific shareholder groups, or more specifically large-scale acts of purchasing where the result would
be the acquiring of a ratio of more than 20% of the voting rights of specific shareholder groups, would be
subject to; (a) the provision of necessary and sufficient information to the board of directors beforehand,including the submission of letters of intent, and (b) the commencement of large-scale acts of purchasing taking
place after a certain period of assessment by the board of directors at the Company has passed.
The Takeover Defense Measure introduced at the Company by means of a resolution passed at a board of
directors meeting held in May 2006. The measures continued after a partial amendment took place resulting
from a resolution passed at a board of directors meeting held in June 2007. After that, the measure wascontinued after obtaining approval for partial amendments by shareholders through a resolution at the 63rd
Ordinary General Meeting of Shareholders in June 2008, a resolution at the 66th Ordinary General Meeting of
Shareholders in June 2011, a resolution at the 69th Ordinary General Meeting of Shareholders in September
2013, and a resolution at the 72nd Ordinary General Meeting of Shareholders in September 2016.
Details on Takeover Defense Measures can be found in their entirety on online at our website (https://www.nkoei.co.jp/).
d. Board of Directors’ decision concerning the measures described in b. and c. above and the reason
The measures described in b. above are in line with the Governance Principles described in a. above, since they
were implemented for the purpose of enhancing corporate value and carried out in the common interests of ourshareholders. These measures emphasize protecting the interests of our shareholders over protecting thecorporate directors from being replaced.
The measures described in c. above (the Policy on Substantial Acquisition of Shares) are in line with theGovernance Principles described in a. above. It protects the interests of our shareholders over protecting thecorporate directors from being replaced in the following ways:(a)	T he Policy on Substantial Acquisition of Shares meets the three basic requirements set forth in the
Guidelines Regarding Takeover Defense for the Purposes of Protection and Enhancement of Corporate Value

8and Shareholders’ Common Interests published by the Ministry of Economy, Trade and Industry (METI) andthe Ministry of Justice on May 27, 2005. It also incorporates a June 30, 2008, report entitled “Proper Role of
Takeover Defense Measures in Light of Changes in Various Environments” published by METI’s Corporate
Value Study Group.
(b)	T he Policy enables our shareholders to make an informed decision on whether a takeover would be
beneficial, prevents any apparent infringement on the Company’s corporate value and is in the best interestof the Company and its shareholders.
(c)	The Rules on Substantial Acquisition of Shares and the necessary conditions for taking countermeasures arereasonable in light of our aim to maintain and enhance the Company’s corporate value and protect theinterests of its shareholders.
(d)	The Rules on Substantial Acquisition of Shares and the necessary conditions for taking countermeasures areconcrete and clear enough to make it possible for the shareholders, investors and potential bidders to makefair predictions about the future.
(e)	The policy was enacted by a vote of the shareholders at a shareholders’ meeting. The Company’s Board of
Directors can convene a shareholders’ meeting to verify the shareholders’ intentions to implement a
countermeasure or not. Decisions about whether to maintain, rescind or alter the policy, made in the form ofa resolution to be voted on at a general shareholders’ meeting, will ensure that the wishes of the shareholders
are reflected in company policy.
(f)	The policy establishes objective and clear conditions for taking countermeasures. It also establishes priorconditions needed to implement countermeasures, requiring that the Company’s Board of Directors consult
its independently established ad hoc committee in advance concerning the initiation of countermeasures.
Only after carefully considering the recommendations of the committee will the Board make its final
decision on implementing counter-takeover measures. The Policy on Substantial Acquisition of Shares
ensures that all decisions of the Board regarding countermeasures are objective and reasonable.
(g)	The policy empowers the ad hoc committee to seek the advice of independent experts at the Company’s
expense. The policy goes to such great lengths that it leaves no room for doubt about the fairness andobjectivity of the ad hoc committee’s recommendations.
(h)	The Policy on Substantial Acquisition of Shares is not intended to be a dead-hand takeover defense and may
be abolished subject to a vote at the Company’s shareholders’ meeting or at a Board of Directors’ meeting
comprised of directors elected at a shareholders’ meeting. It is not a slow-hand takeover defense either, since
the term of the Company’s Board members is one year.

4. Business Risks
The following are matters that could significantly affect the judgment of investors, from among matters related to
Overview of Performance and Cash Flows and Financial Section, etc. stated in the Consolidated Business Report.
Items related to future events within the text are the Group’s judgment as of June 30, 2015.

(1) Uneven Annual Distribution of Performance Results
The primary operations of the Group include the Domestic and International Consulting Operations, the PowerEngineering Operations, and Urban & Spatial Development Operations. In particular, the Domestic Consulting
Operations entail national and local government projects whose orders come in as a cluster toward the end of
their fiscal year (March). As a result, most of the Group’s sales tend to occur during the period from January
through March.

(2) Dependence on Major Customers
Our Domestic and International Consulting Operations highly rely on national and local government contracts
and projects based on the Japanese ODA budget for sales. Sales performance on the domestic front tends to beaffected by trends in government spending, while our international orders are a reflection of the Japanese ODA
budget.
Since a large percentage of our Power Engineering Operations are for TEPCO Power Grid, Incorporated, oursales performance is largely dictated by capital investments of TEPCO Power Grid, Incorporated.

9(3) Defect Liability for Deliverables
The Group has introduced ISO9001 Quality Assurance System under the management philosophy of “Act withintegrity & Contribute to society through technology and engineering,” to ensure that the Group will always
strive to secure and improve quality. If the Group assumes gross responsibility attributable to defects indeliverables it has delivered to a customer, the Group’s performance could be affected.

(4) Legal Restrictions
The Group strives for strict legal compliance and internal education under the “Code of Conduct” and is subject
to legal restrictions under the Antimonopoly Act, Construction Business Act, Act against Delay in Payment of
Subcontract Proceeds, Etc. to Subcontractors, etc. in Japan, and various relevant laws and regulations overseas.
If any situation entailing a potential breach of laws and regulations arises, the Group’s performance could be
affected.

5. Operationally Significant Contracts
The Group reports no operationally significant contracts.

6. Analysis of Financial Status, Management Performance and Cash Flow Status
Below is an analysis of the Group’s financial status and management performance as well as its cash flow status
for the consolidated fiscal year under review.

(1) Analysis of Financial Status
Total assets increased year-on-year by ¥16,880 million to ¥100,990 million. This is the result of increases in bothcurrent assets and investments and other assets, in amount of ¥1,333 million and ¥15,511 million, respectively.
The main factors for the increase in current assets were: receivables increased by ¥1,189 million, and inventories
increased by ¥833 million.
Investments and other assets were increased mainly due to consolidation of BDP. As a result, ¥10,313 million of
goodwill, and ¥5,695 million of intangible assets were recorded.
Liabilities increased year-on-year by ¥18,402 million to ¥49,530 million, mainly due to increases in current
liabilities, by ¥18,642 million, which was partially offset by a decrease in long-term liabilities, by ¥240 million.
The main factor for the increase in current liabilities was: short-term borrowings increased by ¥16,000 million.
The main factors for the decrease in long-term liabilities were: long-term debt decreased by ¥276 million anddeferred tax liabilities decreased by ¥194 million.
Equity decreased by ¥1,522 million to ¥51,460 million year-on-year.
The main factors for the decrease in equity were: unrealized loss on available-for-sale securities, increased by¥1,667 million, and accumulated other comprehensive income related to defined retirement benefit plans,decreased by ¥889 million.

(2) Performance Analysis
Net sales for the current fiscal year were ¥81,866 million, that was a ¥26 million increase year-on-year (0.0%increase).
Operating income for the current fiscal year were ¥4,723 million, that was a ¥221 million increase year-on-year(4.9% increase). The ratio of cost of sales to net sales was 72.7%, improved by 0.7 points year-on-year. The ratioof selling, general and administrative expenses to net sales was 21.5%, that was higher than the previous year by
0.4 points.
As a result, the ratio of operating income to net sales was 5.8%, improved by 0.3 points year-on-year.
The net of the other income and expenses resulted in an excess earning of ¥691 million, due primarily to foreign
currency exchange loss, ¥952 million, and head office transfer cost, ¥237 million.
Income before income taxes was ¥4,032 million, and net income attributable to owners of the parent, which wasafter subtracting current income taxes, differed income taxes and net income attributable to noncontrollinginterests from income before income taxes, was ¥1,824 million, decreased by ¥2,437 million year-on-year (57.2%
decrease).

10Basic net income per share for the current fiscal year was ¥23.82, which was a ¥32.19 decrease from the amountof ¥56.01 for the previous fiscal year.
BDP has been included in the scope of consolidation, and only the balance sheet was reflected in the
consolidated financial statements in the current fiscal year.

(3) Analysis of Cash Flow Status
An analysis of cash flow status for the fiscal year under review is provided in the section entitled “(2) Cash flows”
under “1. Overview of Performance and Cash Flows” in the Consolidated Business Report.

President:
Ryuichi Arimoto11

Co n s ol i d ated B a lanc e S h eet
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
June 30, 2016

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 7) .............................................
Deferred tax assets (Note 14) ..............................
Prepaid expenses and other current assets ........
Total current assets ............................................
PROPERTY, PLANT AND
EQUIPMENT (Notes 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 ...................

2016

¥

2015

2016

9,401

¥ 11,673$ 91,427

33
17,15721
16,178321
166,856

534
618
(9)
12,601
995
4,824
46,154

609
347
(12)
11,7681,423
2,814
44,821

5,193
6,010
(88)
122,548
9,677
46,916448,860

17,332
18,685
2,662
5,299
170
82
44,230(19,669)
24,561

17,333
17,869
2,693
2,672
270
251
41,088(16,563)
24,525

168,558
181,71725,88951,534
1,653
797
430,148(191,286)
238,862

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 6 and 17) ..............
Investments in and advances
to unconsolidated subsidiaries andassociated companies (Notes 10 and 17(5)(b)) ...
Trademarks ...........................................................
Goodwill (Note 5) .................................................
Receivables in bankruptcy ...................................
Deferred tax assets (Note 14) ..............................
Other assets ..........................................................
Allowance for doubtful accounts ........................
Total investments and other assets ...................

6,423

8,881

62,465

3,771
3,985
10,313
16
1,154
4,773
(160)
30,275

1,896

122
1,218
3,011
(364)
14,76436,67438,755100,297
156
11,223
46,418(1,556)294,432

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

¥ 100,990¥ 84,110$ 982,154

See notes to consolidated financial statements.

12

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short‑term borrowings (Note 11) .......................
Current portion of long-term debt (Note 11) .....
Payables:Trade notes .........................................................
Trade accounts ...................................................
Unconsolidated subsidiaries andassociated companies ......................................
Other ...................................................................
Income taxes payable ...........................................
Advances received ................................................
Accrued bonuses ..................................................
Allowance for anticipated project loss ................
Other current liabilities .......................................
Total current liabilities ......................................
LONG-TERM LIABILITIES:Long-term debt (Note 11) ....................................
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 ..................................

2016¥ 16,000
301

2016

2015

204

$155,604
2,927

424
4,556

465
3,983

4,124
44,308

139
1,801
809
8,182
2,137
59
8,700
43,108

132
2,992
1,509
8,655
2,844
111
3,571
24,466

1,352
17,515
7,868
79,572
20,783574
84,610419,237

1,307

1,583

12,711

46
34
2,555
1,917
563
6,422

59
34
2,129
2,111
746
6,662

447
331
24,84818,643
5,475
62,455

7,393
6,209
40,822

7,393
6,209
39,77071,89960,384
397,005¥

COMMITMENTS AND CONTINGENT
LIABILITIES (Notes 16, 18 and 19)
EQUITY (Notes 13 and 21):
Common stock,authorized, 189,580,000 shares; issued,
86,656,510 shares on June 30, 2016 and 2015 ...
Capital surplus .....................................................
Retained earnings ................................................
Treasury stock—at cost
9,816,140 shares on June 30, 2016
and 10,370,910 shares on June 30, 2015 ..........
Accumulated other comprehensive income:Unrealized (loss) gain on
available-for-sale securities .............................
Foreign currency translation adjustments .......
Defined retirement benefit plans ......................
Total ....................................................................
Noncontrolling interests ......................................
Total equity .........................................................

(3,020)(3,205)(29,370)

(8)
(302)
29
51,123337
51,460

1,659
(100)
918
52,644338
52,982(78)(2,937)282
497,185
3,277
500,462

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

¥100,990¥84,110$982,154

13

Consolidated Statement of Income and Comprehensive Income
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2016

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2016

2016

2015

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

¥81,866¥81,840$796,168

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

59,50622,36060,05521,785

578,711217,457

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

17,637
4,723

17,283
4,502

171,524
45,933

343
(59)

441
(48)

3,336
(574)

OTHER INCOME (EXPENSES):Interest and dividend income ..............................
Interest expense ...................................................
Gain on sales of property,
plant and equipment ..........................................
Gain on sales of investment securities ................
Foreign currency exchange (loss) gain ...............
Head office transfer cost .....................................
Other-net ...............................................................
Other (expenses) income-net ...........................

343
(952)
(237)
(129)
(691)

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

2,628
527
(549)
63
3,062

3,336
(9,258)(2,305)(1,255)(6,720)

4,032

7,564

39,213

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

1,508
671
2,179

2,374
892
3,266

14,666
6,526
21,192NET INCOME ....................................................

1,853

4,298

18,021NET INCOME ATTRIBUTABLE TO:
Owners of the parent ...........................................
Noncontrolling interests ......................................

1,824
29

4,261
37

17,739282(1,667)295(16,212)

(223)
(889)
(2,779)

176
76
1,187
1,734

(2,169)(8,646)(27,027)

OTHER COMPREHENSIVE (LOSS) INCOME (Note 20) :Unrealized (loss) gain on
available-for-sale securities ...............................
Deferred gain onderivatives under hedge accounting .................
Foreign currency translation adjustment ...........
Defined retirement benefit plans ........................
Total other comprehensive (loss) income .......
COMPREHENSIVE (LOSS) INCOME ..............

¥

(926)

¥ 6,032$ (9,006)

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

¥
¥

(934)
8

¥ 5,984¥48$ (9,083)$
77
U.S. Dollars(Note 1)Yen

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

14¥ 23.82
10.00¥ 56.01
10.00

$

0.23
0.10

Co n s ol i d ated S t atemen 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, 2016

Thousands

Millions of Yen
Accumulated Other Comprehensive Income

BALANCE, JUNE 30, 2014
(JULY 1, 2014, as previously reported) �����
Cumulative effect of accounting change �������
BALANCE, JULY 1, 2015 (as restated) ���������
Adjustment for newly consolidated subsidiaries ������
Net income attributable to owners of the parent ���Cash dividends, ¥7.50 per share ���������������������
Purchase of treasury stock ���������������������������������
Disposal of treasury stock ������������������������������
Net change in the year ������������������������������������
BALANCE, JUNE 30, 2015 �����������������������������
Net income attributable to owners of the parent ���Cash dividends, ¥10.00 per share �������������������
Purchase of treasury stock �����������������������������
Disposal of treasury stock ������������������������������
Net change in the year ������������������������������������
BALANCE, JUNE 30, 2016������������������������������

Outstanding
Number of
Shares ofCommon Stock

Common Stock

Capital Surplus

75,863¥7,393¥6,209¥36,367

75,863

7,393

6,209

35,722Retained
Earnings

Unrealized(Loss) Gain on
Available-forSale Securities

Deferred(Loss) Gain on
Derivatives
under Hedge
Accounting¥(3,344)¥ 1,365¥(176)¥ (14)¥(269)¥47,531(3,344)

1,365

(176)

(14)

(269)

Treasury
Stock

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans¥47,835

46,886304

47,190

214

55

(645)

366

(152)

4,261
(11)

445

150
6,209

39,770(3,205)

176

1,659

269
4,261

(579)

(579)

(11)

(11)

150
294

7,393

(645)

4,261

(579)
(22)

Total Equity

¥304

(645)

76,286

Noncontrolling
Interests

Total

150

66

1,187

1,723

(21)

1,702

(100)

918

52,644338

52,982

1,824

1,824

1,824

(772)

(772)

(772)

(21)

(9)

(9)

(9)

575

194

194

194

(1,667)
76,840¥7,393¥6,209¥40,822¥(3,020)(202)¥    (8)¥¥(302)¥(889)(2,758)(1)(2,759)29¥51,123¥337¥51,460

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

BALANCE, JUNE 30, 2015 �����������������������������
Net income attributable to owners of the parent �����Cash dividends, $0.10 per share ���������������������
Purchase of treasury stock �����������������������������
Disposal of treasury stock ����������������������������������
Net change in the year ���������������������������������������
BALANCE, JUNE 30, 2016 �����������������������������

Common Stock

Capital Surplus$71,899$60,384

Retained
Earnings$386,774

TreasuryStock$(31,169)

Unrealized(Loss) Gain on
Available-forSale Securities$ 16,134

Deferred(Loss) Gain on
Derivatives
under Hedge
Accounting

Foreign
Currency
Translation
Adjustments

$

$

(973)

DefinedRetirement
Benefit Plans$ 8,928$3,286$515,263

17,73917,739(7,508)(7,508)(7,508)

(88)

(88)

1,887

1,887
(16,212)$60,384$511,977

Total Equity

17,739(88)$71,899

Noncontrolling
Interests

Total$397,005$(29,370)$     (78)

(1,964)$$(2,937)$

1,887(8,646)(26,822)(9)(26,831)282$497,185$3,277$500,462

See notes to consolidated financial statements.

15

Co n s ol i d ated S t atemen t o f C as h Fl ow s
Nippon Koei Co., Ltd. and Consolidated Subsidiaries
Year ended June 30, 2016

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

OPERATING ACTIVITIES:

2016

Income before income taxes ....................................
Adjustments for:
Income taxes – paid ..............................................
Payments for head office transfer cost ................
Depreciation and amortization ............................
Gain on sales of property, plant and equipment ...
(Gain) loss on sales of investment securities ......
Head office transfer cost ......................................

¥

2015

4,032

¥ 7,564(2,679)
(668)
1,268
(2)
(343)
237

(1,610)1,408(2,628)
1
549

2016

FINANCING ACTIVITIES:$Net increase (decrease) in short-term borrowings ......
Repayments of long-term debt .................................
Purchase of treasury stock .......................................
Disposal of treasury stock ........................................
Dividends paid ..........................................................
Other—net .................................................................

¥16,000
(164)
(9)
194
(771)
(51)

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

39,213(26,054)(6,496)
12,332(19)(3,336)
2,305

Changes in assets and liabilities, net of effects
from newly consolidated subsidiaries:
Decrease (increase) in trade accounts receivable .....
Increase in inventories .......................................
Increase in trade accounts payable ....................
Decrease in net defined benefit liability ............
(Decrease) increase in advanced received .........
Other—net .............................................................
Net cash provided by operating activities .......

1,797
(906)
312
(889)
(394)
(1,385)380(2,668)(1,407)
929
(332)
741
(1,665)882

17,476(8,811)
3,034(8,646)(3,832)(13,470)
3,696

INVESTING ACTIVITIES:
Proceeds from sales of property,
plant and equipment ...............................................

4

5,095

39

(1,198)(1,256)(11,651)

Purchases of property, plant and equipment ..........
Proceeds from sales and redemption of
investment securities ..............................................
Purchases of investment securities ..........................
(Payment for) proceeds from purchase of newly consolidated
subsidiaries, net of cash acquired (Note 16) .........
Payments of loans receivable ...................................
Increase in other assets ............................................

891(2,182)

1,370(1,116)

8,665(21,221)(13,821)(1,411)
12

43
(793)
(641)

(134,413)(13,722)117

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

¥ (17,705)¥ 2,702$ (172,186)

See notes to consolidated financial statements.

16

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2016

2016

2015
(100)
(130)
(11)
150
(580)
(75)

$ 155,604(1,595)(88)
1,887(7,498)(496)

15,199(746)

147,814FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS ................

(146)

104

(1,420)NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................................

(2,272)

2,942(22,096)

CASH AND CASH EQUIVALENTS OF
NEWLY CONSOLIDATED SUBSIDIARIES,BEGINNING OF YEAR ..........................................

¥

266

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

11,673

8,465

113,523

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

¥ 9,401¥ 11,673$ 91,427

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, 2016

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 which ismore familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2015
consolidated financial statements to conform to the classifications used in 2016.
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 ¥102.83 to $1, the approximate rate of exchange at June 30, 2016. 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, 2016, include the accounts of theCompany and its 57 significant (14 in 2015) subsidiaries (together, the “Group”).
For the year ended June 30, 2016, the Company added BDP HOLDINGS LIMITED and its subsidiaries,
which include BUILDING DESIGN PARTNERSHIP LIMITED and 41 other companies, in the scope of
consolidation as a result of the acquisition of the stock of BDP HOLDINGS LIMITED at April 1, 2016.
It should be noted that for the current fiscal year, only the balance sheets of those subsidiaries have been
consolidated.
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 the cost of an acquisition over the fair value of the net assets of theacquired 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, and is scheduled to start amortizing fromthe next fiscal year.
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.	Business Combinations — In October 2003, the Business Accounting Council issued a Statement of
Opinion, “Accounting for Business Combinations,” and in December 2005, the Accounting Standards Boardof Japan (the “ASBJ”) issued ASBJ Statement No. 7, “Accounting Standard for Business Divestitures” andASBJ Guidance No. 10, “Guidance for Accounting Standard for Business Combinations and Business
Divestitures.”
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ
Statement No. 21, “Accounting Standard for Business Combinations.” Major accounting changes under therevised accounting standard are as follows: (1) The revised standard requires accounting for businesscombinations only by the purchase method. As a result, the pooling-of-interests method of accounting is no17

longer allowed. (2) The previous accounting standard required research and development costs to be charged
to income as incurred. Under the revised standard, in-process research and development costs (IPR&D)
acquired in the business combination are capitalized as an intangible asset. (3) The previous accounting
standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a
period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gainin profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets
acquired and all of the liabilities assumed have been identified after a review of the procedures used in thepurchase price allocation. The revised standard was applicable to business combinations undertaken on orafter April 1, 2010.
In September 2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business
Combinations,” revised ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business
Combinations and Business Divestitures,” and revised ASBJ Statement No. 22, “Accounting Standard forConsolidated Financial Statements.” Major accounting changes are as follows:(a) Transactions with noncontrolling interest - A parent’s ownership interest in a subsidiary might change if
the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrollinginterest is adjusted to reflect the change in the parent’s ownership interest in its subsidiary while theparent retains its controlling interest in its subsidiary. Under the previous accounting standard, any
difference between the fair value of the consideration received or paid and the amount by which thenoncontrolling interest is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the
consolidated statement of income. Under the revised accounting standard, such difference is accounted
for as capital surplus as long as the parent retains control over its subsidiary.
(b) Presentation of the consolidated balance sheet - In the consolidated balance sheet, “minority interest”
under the previous accounting standard is changed to “noncontrolling interest” under the revised
accounting standard.
(c) Presentation of the consolidated statement of income - In the consolidated statement of income, “netincome before minority interest” under the previous accounting standard is changed to “net income”
under the revised accounting standard, and “net income” under the previous accounting standard ischanged to “net income attributable to owners of the parent” under the revised accounting standard.
(d) Provisional accounting treatments for a business combination - If the initial accounting for a businesscombination is incomplete by the end of the reporting period in which the business combination occurs,
an acquirer shall report in its financial statements provisional amounts for the items for which theaccounting is incomplete. Under the previous accounting standard guidance, the impact of adjustments
to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss
in the year in which the measurement is completed. Under the revised accounting standard guidance,
during the measurement period, which shall not exceed one year from the acquisition, the acquirer shallretrospectively adjust the provisional amounts recognized at the acquisition date to reflect new
information obtained about facts and circumstances that existed as of the acquisition date and that would
have affected the measurement of the amounts recognized as of that date. Such adjustments shall berecognized as if the accounting for the business combination had been completed at the acquisition date.
(e) Acquisition-related costs - Acquisition-related costs are costs, such as advisory fees or professional fees,
which an acquirer incurs to effect a business combination. Under the previous accounting standard, theacquirer accounts for acquisition-related costs by including them in the acquisition costs of theinvestment. Under the revised accounting standard, acquisition-related costs shall be accounted for as
expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b)presentation of the consolidated balance sheet, (c) presentation of the consolidated statement of income, and(e) acquisition-related costs are effective for the beginning of annual periods beginning on or after April 1,
2015. Earlier application is permitted from the beginning of annual periods beginning on or after April 1,
2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated
statement of income. In case of earlier application, all accounting standards and guidance above, except for(b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement ofincome, should be applied simultaneously.

18

Either retrospective or prospective application of the revised accounting standards and guidance for (a)transactions with noncontrolling interest and (e) acquisition-related costs is permitted. In retrospective
application of the revised standards and guidance, the accumulated effects of retrospective adjustments forall (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in the pastshall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for theyear of the first-time application. In prospective application, the new standards and guidance shall be applied
prospectively from the beginning of the year of the first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c)presentation of the consolidated statement of income shall be applied to all periods presented in the
consolidated financial statements containing the first-time application of the revised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are
effective for a business combination which occurs on or after the beginning of annual periods beginning on
or after April 1, 2015. Earlier application is permitted for a business combination which occurs on or after
the beginning of annual periods beginning on or after April 1, 2014.
The Company applied the revised accounting standards and guidance for (a) transactions with
noncontrolling interest, (b) presentation of the consolidated balance sheet, (c) presentation of theconsolidated statement of income, and (e) acquisition-related costs above, effective July 1, 2015, and (d)provisional accounting treatments for a business combination above for a business combination which
occurred on or after July 1, 2015. The revised accounting standards and guidance for (a) transactions with
noncontrolling interest and (e) acquisition-related costs were applied prospectively.
With respect to (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated
statement of income, the applicable line items in the 2015 consolidated financial statements have been
accordingly reclassified and presented in line with those in 2016.
In the consolidated statement of cash flows for the year ended June 30, 2016, cash flows for purchases orsales of ownership interests in a subsidiary without a change in consolidation scope are presented underfinancing activities, and cash flows for acquisition-related costs are presented under operating activities.
As a result, there was no significant impact on the consolidated financial statements from these accountingchanges.
The Company acquired 100% of the shares of BDP HOLDINGS LIMITED on April 1, 2016, and accounted forthese acquisitions by the purchase method of accounting (see Note 5).

c.	Cash Equivalents — Cash equivalents are short-term investments that are readily convertible into cash andthat are exposed 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.

d.	Inventories — Work in process is stated at the lower of cost, mainly determined by the specificidentification cost method, or net selling value (see Note 7).

e.	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.

19

f.	Property, Plant and Equipment — In June 17, 2016, the ASBJ issued ASBJ Practical Issues Task Force(“PITF”) No. 32, “Practical Solution on a change in depreciation method due to Tax Reform 2016,” which
related to the revision of the Corporation Tax Act. The Company applied this PITF effective April 1, 2016, andchanged the depreciation method for structures acquired on or after April 1, 2016, from the decliningbalance method to the straight-line method.
As a result, there was no significant impact on the consolidated financial statements from this accountingchange.
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of theCompany and its consolidated domestic subsidiaries is computed substantially by the declining-balancemethod at rates based on the estimated useful lives of the assets, while the straight-line method is applied tobuildings acquired after April 1, 1998, structures acquired after April 1, 2016, and lease assets, as well asother equipment for rent. In addition, the straight-line method is principally applied to the property, plantand equipment of consolidated foreign subsidiaries. The range of useful lives is principally from 3 to 50 years
for buildings and structures, from 2 to 15 years for machinery and equipment, and from 2 to 20 years forfurniture and fixtures. The useful lives for lease assets are the terms of the respective leases.

g.	Long-Lived Assets — The Group reviews its long-lived assets for impairment whenever events or changes incircumstance 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 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.

h.	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.

i.	Retirement and Pension Plans — The Group has contributory defined benefit pension plans andunfunded retirement benefit plans for the benefit of its employees.
Effective April 1, 2000, the Group adopted a new accounting standard for retirement benefits and accounted
for the liability for retirement benefits based on the projected benefit obligations and plan assets at theconsolidated balance sheet date. The projected benefit obligations are attributed to periods on a straight-line
basis. Actuarial gains and losses are amortized on a straight-line basis over mainly 13 years within the
average remaining service period. Past service costs are amortized on a straight-line basis over mainly 13
years within the average remaining service period.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” andASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced theaccounting standard for retirement benefits that had been issued by the Business Accounting Council in 1998
with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial
amendments from time to time through 2009.
(a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to berecognized in profit or loss are recognized within equity (accumulated other comprehensive income),
after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for
retirement benefits) or asset (asset for retirement benefits).
(b) The revised accounting standard does not change how to recognize actuarial gains and losses and past
service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period nolonger than the expected average remaining service period of the employees. However, actuarial gains andlosses and past service costs that arose in the current period and have not yet been recognized in profit orloss are included in other comprehensive income, and actuarial gains and losses and past service costs
that were recognized in other comprehensive income in prior periods and then recognized in profit orloss in the current period, are treated as reclassification adjustments (see Note 12).

20

(c) The revised accounting standard also made certain amendments relating to the method of attributing
expected benefit to periods, the discount rate, and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods
beginning on or after April 1, 2013, and for (c) above are effective for the beginning of annual periods
beginning on or after April 1, 2014, or for the beginning of annual periods beginning on or after April 1,
2015, subject to certain disclosure in March 2015, both with earlier application being permitted from the
beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of thisaccounting standard to consolidated financial statements in prior periods is required.
The Group has applied the revised accounting standard and guidance for retirement benefits for (a) and (b)above, effective June 30, 2013, and for (c) above, effective July 1, 2014.
With respect to (c) above, the Group changed the method of attributing the expected benefit to periods froma straight-line basis to a benefit formula basis and the method of determining the discount rate from using
the period which approximates the expected average remaining service period to using a single weighted
average discount rate reflecting the estimated timing and amount of benefit payment, and recorded the effectof (c) above as of July 1, 2014, in retained earnings. As a result, retained earnings as of July 1, 2014,
decreased by ¥645 million.
Hitherto, retirement benefits for directors were provided at the amount that would be required if all directors
retired at the balance sheet date. However, the Group abolished benefit pension plans for directors. Thebalance in the consolidated balance sheet is the estimated amount for directors who have belonged to theGroup since the plans were effective.

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

k.	Asset Retirement Obligations — In March 2008, ASBJ issued ASBJ Statement No. 18, “AccountingStandard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard
for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined
as a legal obligation imposed either by law or contract that results from the acquisition, construction,
development and normal operation of a tangible fixed asset and is associated with the retirement of suchtangible 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 areasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be madein the period the asset retirement obligation is incurred, the liability should be recognized when a reasonableestimate 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 the amount 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 ofundiscounted cash flows are reflected as an adjustment to the carrying amount of the liability and thecapitalized amount of the related asset retirement cost.

l.	Employee Stock Ownership Plan — In December 2013, the ASBJ issued PITF No. 30, “Practical Solution
on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts.” This PITF is
effective for the beginning of annual periods beginning on or after April 1, 2014, with earlier application
permitted from the beginning of annual periods first ending after the date of issuance of this PITF, andapplied retrospectively.
In accordance with the PITF, 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 berecorded in capital surplus. At year-end, the entity shall record (1) the entity stock held by the Trust as
treasury stock in equity, (2) all other assets and liabilities of the Trust on a line-by-line basis, and (3) aliability/asset for the net of (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.

21

The Group applied this PITF effective July 1, 2014, retrospectively. As the method previously used by theGroup is identical to those of the above PITF, there is no impact from this accounting change.

m.	Research and Development Costs — Research and development costs are charged to income as incurred.
n.	Leases — In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease
Transactions,” which revised the previous accounting standard for lease transactions. The revised accounting
standard for lease transactions was effective for fiscal years beginning on or after April 1, 2008.
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased
property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as
operating lease transactions if certain “as if capitalized” information was disclosed in the note to the lessee’s
financial statements. The revised accounting standard requires that all finance lease transactions becapitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the revised
accounting standard permits leases that existed at the transition date and do not transfer ownership of theleased property to the lessee to be measured at the amount of obligation under finance leases less interest
expense at the transition date and recorded as acquisition cost of lease assets.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted
for leases that existed at the transition date and do not transfer ownership of the leased property to the lessee
as acquisition cost of lease assets measured at the amount of obligation under finance leases at the transitiondate.
All other leases are accounted for as operating leases.

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

p.	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.

q.	Income Taxes — The provision for income taxes is computed based on the 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.

r.	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.

s.	Revenue Recognition — If the outcome of a construction contract can be estimated reliably, the contract
revenue is recognized by the percentage-of-completion method, which is measured by reference to thepercentage of total cost incurred to date to estimated total cost.
All other construction projects, except the aforementioned, are recorded using the completed-contract
method (including the partially completed-contract method).

t.	Derivatives and Hedging Activities — The Group uses derivative financial instruments to manage its
exposure to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by the Groupto reduce its exposure to fluctuations in foreign currency exchange rates. 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; and (2) for derivatives used
for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and22

effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives aredeferred until maturity of the hedged transactions.
Foreign exchange forward contracts are measured at fair value, but the unrealized gains/losses are deferred
until the underlying transactions are completed.

u.	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. The weighted-average number of shares of common stock for the years ended June 30, 2016 and2015 were 76,544,407 and 76,077,020, respectively.
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, 2016 and 2015.
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.

v.	Accounting Changes and Error Corrections — In December 2009, the ASBJ issued 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 are 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.
(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.

w. New Accounting Pronouncements
Tax Effect Accounting — On December 28, 2015, the ASBJ issued ASBJ Guidance No. 26, “Guidance on
Recoverability of Deferred Tax Assets,” which included certain revisions of the previous accounting andauditing guidance issued by the Japanese Institute of Certified Public Accountants. While the new guidancecontinues to follow the basic framework of the previous guidance, it provides new guidance for theapplication of judgment in assessing the recoverability of deferred tax assets.
The previous guidance provided a basic framework which included certain specific restrictions onrecognizing deferred tax assets depending on the company’s classification in respect of its profitability,
taxable profit and temporary differences, etc.
The new guidance does not change such basic framework but, in limited cases, allows companies torecognize deferred tax assets even for a deductible temporary difference for which it was specificallyprohibited to recognize a deferred tax asset under the previous guidance, if the company can justify, withreasonable grounds, that it is probable that the deductible temporary difference will be utilized against futuretaxable profit in some future period.
The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier

23

application is permitted for annual periods ending on or after March 31, 2016. The new guidance shall not beapplied retrospectively and any adjustments from the application of the new guidance at the beginning of thereporting period shall be reflected within retained earnings or accumulated other comprehensive income at
the beginning of the reporting period.
The Company expects to apply the new guidance on recoverability of deferred tax assets effective July 1,
2016, and is in the process of measuring the effects of applying the new guidance in future applicable
periods.

3. CHANGES IN PRESENTATION(1)	“Accrued expenses” (¥2,705 million ($26,307 thousand) in the current fiscal year and ¥1,952 million in theprevious fiscal year), which was presented separately in the consolidated balance sheet in the previous fiscal
year, is included in “Other current liabilities” due to its decreased materiality.
(2)	“Asset retirement obligations” (¥35 million ($340 thousand) in the current fiscal year and ¥34 million in theprevious fiscal year), which was presented separately in the consolidated balance sheet in the previous fiscal
year, is included in “Other long-term liabilities” due to its decreased materiality.
(3)	“Deposits received” (¥211 million ($2,052 thousand) in the current fiscal year and ¥469 million in theprevious fiscal year), which was presented separately in the consolidated balance sheet in the previous fiscal
year, is included in “Other long-term liabilities” due to its decreased materiality.
(4)	“(Gain) loss on sales of investment securities” (¥(343) million ($(3,336) thousand) in the current fiscal yearand ¥1 million in the previous fiscal year), which was included in “Other-net” under “Operating Activities” inthe consolidated statement of cash flows in the previous fiscal year, is presented separately due to its
increased materiality.
(5)	“Payments of loans receivable” (¥(1,411) million ($(13,722) thousand) in the current fiscal year and ¥(793)
million in the previous fiscal year), which was included in “Increase in other assets” under “Investing
Activities” in the consolidated statement of cash flows in the previous fiscal year, is presented separately due
to its increased materiality.
(6)	“Repayments of lease obligations” (¥(43) million ($(418) thousand) in the current fiscal year and ¥(53)
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” under “Financing Activities” due to its decreasedmateriality.

4. ADDITIONAL INFORMATION
Employee Stock Ownership Plan Trust (“ESOP”) — The Company maintains an Employee Stock
Ownership Plan 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 February 12, 2013, the Company resolved to introduce an
ESOP as a trust-type employee shareholding incentive plan to provide the Group’s employees with incentives
to improve medium- to long-term corporate value, enhance their welfare programs, and encourage capital
participation as shareholders, thereby increasing the morale of the employees and promoting continued
growth of the Group.
Under the trust-type employee shareholding incentive plan, the Company establishes the ESOP at a trustbank. The ESOP preliminarily acquires the total number of the Company’s common shares expected to beacquired by the employees’ stockholders association over five years in advance from the Company by thirdparty allotment using borrowings as funds.
Subsequently, the ESOP sells these Company shares to the employees’ stockholders association on acontinual basis. If the ESOP has accumulated gains on sale of the Company shares when the ESOP is
terminated, the ESOP’s proceeds equivalent to the accumulated gains are distributed to eligible beneficiaries.

24

The Company guarantees obligations for the ESOP’s borrowing of funds to acquire the Company’s common
stock. Therefore, if the ESOP has accumulated losses upon sale of the Company shares when the ESOP is
terminated, the ESOP’s outstanding debt equivalent to the accumulated losses is repaid by the Company inaccordance with a warranty clause included in the loan agreement, and there is no burden on the employees.
(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 ¥120 million ($1,167 thousand) and 355 thousand shares, respectively, for the year
ended June 30, 2016, and ¥313 million and 930 thousand shares, respectively, for the year ended June 30,
2015.
(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 ¥260 million ($2,529
thousand) and ¥390 million for the years ended June 30, 2016 and 2015, respectively.

5. BUSINESS COMBINATIONBusiness combination by acquisition for the year ended June 30, 2016, was as follows:(1) Outline of the business combinationa. Name of acquired company and its business outline
Name of the acquired company : BDP HOLDINGS LIMITED
Business outline :Architectural design businessb. Major reason for the business combination
For the reasons set forth below, the acquisition, will enable both the Group and BDP HOLDINGS LIMITEDand its subsidiaries (together, “BDP”) to significantly improve the value of services for our customers in themedium-to-long term.
(a) Further expansion of the scale of our business and profits
The integration of the Company and BDP will allow the Group to grow in size to a technical consulting
group with an estimated amount of sales in excess of ¥100 billion ($973 million) for the year ending June30, 2017, and will accelerate its business globalization. With an excellent track record in private sector
architectural projects of BDP, the Group will be able to utilize its experience and knowledge to gain acompetitive advantage in the spatial and regional development business. Particularly in the Asian markets
that are expected to experience a great deal of growth in the future, the Group will advance into thebusiness above, such as urban development, airport building and railway station building design, andindustrial park development.
(b) Procurement of architectural engineers and BIM skills
BDP is a leading company in the field of Building Information Modeling (“BIM”) not only in the United
Kingdom, but also in throughout Europe; approximately 70% of the design staff are skilled in theoperation of BIM software.
BIM will also become mandatory in Japan for customer needs related to design visualization andexpediting interference checks of architectural, structural, and facilities design. Though the Group has
only recently begun use of BIM, by sharing the BIM technology of BDP, including their human resources,
it will bring a significant competitive advantage for the Group.
(c) Expansion of the customer base and regional complementarity
For no duplication in customer of the Company and BDP, through the acquisition, the Group will be able
to combine both customers and services. The Company has long-term customer relationships with25

emerging countries, especially in the Asian region. By combination with an excellent track record, mainlyin the European region where BDP operates, the Group will be able to provide comprehensive technicalconsulting services that conflated civil engineering with architecture to a broader range of customers.
(d) Possibility of expansion in JapanThe Group will support BDP to expand its business in the field of architecture in Japan. By collaboration
with the Company, it is expected that BDP will be able to acquire refurbish projects that relate to publicbuildings such as cultural halls and theaters in addition to projects such as shopping malls and othercommercial facilities that are already proven.
c. Date of business combination
April 1, 2016d. Legal form of business combination
Share acquisition in consideration for cash
e. Name of the company after the combination
No changef. Ratio of voting rights acquired
100%
g. Basis for determining the acquirer
Determination of the acquirer is based on the fact that the Company acquired 100% of voting rights bymeans of share acquisition in consideration for cash.
(2) Acquisition cost of the acquired company and related details of each class of consideration
Millions of Yen

Consideration for acquisition—Cash ...................................................
Acquisition cost .............................................................................

2016¥16,453¥16,453

Thousands of
U.S. Dollars

2016$160,010$160,010(3) Major acquisition-related costs
Advisory fees and commissions to
the lawyers and financial institutions : ¥610 million ($5,932 thousand)(4) Amount of goodwill incurred, reasons for the goodwill incurred, and the method and period of amortization(a) Amount of goodwill incurred¥10,313 million ($100,297 thousand)(b) Reasons for the goodwill incurred
Goodwill is incurred from expected excess earnings power in the future arising from further businessdevelopment.
(c) Method and period of amortization

26

The goodwill is amortized on a straight-line basis over 20 years.

(5) The assets acquired and the liabilities assumed at the acquisition date are as follows:
Millions of Yen

2016¥ 7,662
217
5,695
13,574
7,434¥ 6,140

Current assets ........................................................................................
Property, plant and equipment .............................................................
Intangible assets ....................................................................................
Total assets acquired .............................................................................
Total liabilities assumed .......................................................................
Net assets acquired ......................................................................

Thousands of
U.S. Dollars

2016$ 74,515
2,111
55,385132,011
72,298$ 59,713(6) Pro forma information (unaudited)
If this business combination had been completed as of July 1, 2015, the beginning of the current fiscal year,
the impact on the consolidated statement of income for the year ended June 30, 2016, would be as follows:
Millions of Yen

Sales .......................................................................................................
Operating income .................................................................................
Income before income taxes .................................................................
Net income attributable to owners of the parent ................................

2016¥14,298
138
86
115
Yen

Per share of common stock:
Basic net income .................................................................................

Thousands of
U.S. Dollars

2016$139,052
1,342
836
1,118
U.S. Dollars¥  1.50$   0.01

Outline of the method of calculation for the impact above:
The estimated impact on the consolidated financial results was calculated based on the difference in sales
and profit information calculated assuming the business combination had been completed at the beginningof the fiscal year and it included in the consolidated financial results.
The information above is not necessarily indicative of actual future results, and also does not indicate actual
results of operation in the case that the business combination had been completed at the beginning of thecurrent fiscal year.

6. INVESTMENT SECURITIESInvestment securities as of June 30, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2016
Non-current:
Marketable equity securities ...............................
Government and corporate bonds ......................
Other .....................................................................
Total .................................................................

¥5,1191,235
69¥6,423

2015¥7,473
1,408¥8,881

2016$49,784
12,011
670$62,465
27

The costs and aggregate fair values of investment securities at June 30, 2016 and 2015, were as follows:
Millions of Yen

June 30, 2016

Unrealized
Gains

Cost

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

Unrealized
LossesFair
Value¥4,867
1,141

¥738
50

¥760
32

¥4,845
1,159¥6,008¥788¥792¥6,004

Millions of Yen

June 30, 2015

Unrealized
Gains

Cost

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

Unrealized
LossesFair
Value¥4,683
1,068¥2,294195¥36¥6,941
1,263¥5,751¥2,489¥36¥8,204

Thousands of U.S. Dollars
Unrealized
Gains

Unrealized
LossesFair
Value

June 30, 2016

Cost

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

$47,333
11,097$7,177486$7,391
311$47,119
11,272$58,430$7,663$7,702$58,391

The proceeds, realized gains and losses of the available-for-sale securities which were sold during theyears ended June 30, 2016 and 2015, were as follows:
Millions of Yen

June 30, 2016
Securities classified as:
Available-for-sale:
Equity securities ................................................
Debt securities ....................................................
Other ...................................................................
Total .................................................................

28

Proceeds

Realized Gains

Realized Losses

¥891

¥343

¥

¥891

¥343

¥

Millions of Yen

June 30, 2015

Proceeds

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

Realized Gains

Realized Losses¥1,140

¥18

¥20

48
¥1,188¥18¥20

Thousands of U.S. Dollars

June 30, 2016

Proceeds

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

Realized Gains

Realized Losses$8,665$3,336$$8,665$3,336$The carrying values of debt securities and other by contractual maturities for securities classified as availablefor-sale at June 30, 2016, were as follows:
Millions of Yen

Thousands of
U.S. Dollars

¥500
¥500

Due after 10 years ..................................................
Total .................................................................

$4,863$4,863

7. INVENTORIESInventories at June 30, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

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

2016
¥0
12,254347¥12,6012015¥011,399369¥11,7682016$
0119,173
3,375$122,548

8. INVESTMENT PROPERTYOn November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment Property and
Related Disclosures” and ASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property
and Related Disclosures.”
The 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 ¥385 million ($3,744 thousand) and¥591 million for the years ended June 30, 2016 and 2015, respectively.

29

In addition, the carrying amounts, changes in such balances and market prices of such properties are as follows:
Millions of Yen
Carrying AmountJune 30, 2015

¥3,378Decrease

Fair Value
June 30, 2016¥(48)

June 30, 2016

¥3,330¥6,784

Millions of Yen
Carrying AmountJune 30, 2014

¥6,045Decrease

Fair Value
June 30, 2015¥(2,667)

June 30, 2015

¥3,378¥6,900Thousands of U.S. Dollars
Carrying AmountJune 30, 2015

$32,852

Decrease$(467)

Fair Value
June 30, 2016

$32,385

June 30, 2016

$65,976

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, 2015, primarily represents sales of land and buildings for rental
apartments and stores for rent of ¥2,566 million. Furthermore, gain on sales of land and buildings for rental
apartments and stores for rent was ¥2,628 million. Decrease during the fiscal year ended June 30, 2016,
primarily represents depreciation of buildings of stores for rent.
3. Fair value of properties was measured by the Group in accordance with the Real-Estate Appraisal Standard.

9. REDUCTION ENTRY
In the case of acquisition of expenses by 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, 2016 and 2015, was
as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016
Buildings and structures .......................................
Machinery and equipment ....................................
Total .................................................................

2015
¥ 19
167
¥186

¥
147
¥147

2016
$ 185
1,624
$1,809

10. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATEDSUBSIDIARIES AND ASSOCIATED COMPANIESInvestments in and advances to unconsolidated subsidiaries and associated companies at June 30, 2016 and2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Investments ............................................................
Advances .................................................................
Total .................................................................
30

2016¥1,862
1,909¥3,771

2015
¥ 981
915
¥1,8962016$18,108
18,566$36,67411. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The annual interest rate applicable to the short-term borrowings was 0.474% at June 30, 2016.
Long-term debt at June 30, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2016
Unsecured loans from banks due seriallyto 2023 with interest rates ranging from
0.680% to 0.870% .................................................
Obligation under finance leases ............................
Total .................................................................
Less current portion ..............................................
Long-term debt, less current portion .........

2016

2015

¥1,526
82
1,608
(301)
¥1,307¥1,690
97
1,787
(204)
¥1,583$14,841797
15,638(2,927)$12,711

Annual maturities of long-term debt at June 30, 2016, for the next five years and thereafter were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Years Ending June 30

2017 .........................................................
2018 .........................................................
2019 .........................................................
2020 .........................................................
2021 .........................................................
2022 and thereafter .................................
Total ..................................................

Long-Term Debt

Lease Obligations

Long-Term Debt

Lease Obligations

¥ 266
266

136

¥34
25
13
6
3

$331
243
126
58
29

286

1

¥1,526¥82$ 2,587
2,587
4,240
1,323
1,323
2,781
$14,841

436
136

10

$797

The Group and five financial institutions have concluded overdraft contracts of ¥26,500 million ($257,719
thousand) and a commitment line contract by syndicated loan over three years for a maximum ¥10,000 million($97,253 thousand). In addition, the Group has concluded a commitment line with a financial institution inorder to procure the funds for the acquisition of stock of BDP HOLDINGS LIMITED. 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, 2016 and 2015, for directors are ¥46 million ($447 thousand)and ¥59 million, respectively. The retirement benefits for directors are paid subject to the approval of theshareholders.

31(1) The changes in defined benefit obligation for the years ended June 30, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016
Balance at beginning of year
(as previously reported) .......................................
Cumulative effect of accounting change ..............
Balance at beginning of year (as restated) ...........
Current service cost ...............................................
Interest cost ............................................................
Actuarial (gains) losses ..........................................
Benefit paid ............................................................
Balance at end of year ..................................

2016

2015

¥15,229
15,2291,096
105
46(1,223)¥15,253¥14,277985
15,262
1,099
105
(71)
(1,166)¥15,229$148,106
148,106
10,6591,021
447(11,894)$148,339(2) The changes in plan assets for the years ended June 30, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year .................................
Expected return on plan assets .............................
Actuarial (gains) losses ..........................................
Contributions from the employer .........................
Benefit paid ............................................................
Balance at end of year ..................................

2016¥13,832
277(1,228)1,491(1,010)¥13,3622015¥11,723
234
1,374
1,462
(961)
¥13,8322016$134,520
2,694(11,942)
14,500(9,823)$129,949(3)	The changes in defined benefit obligation under the simplified method for the years ended June 30, 2016 and2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

32

2016
¥ 731
57
(104)
(21)
¥ 663

2015
¥692
68
(29)
¥731

2016
$ 7,109554(1,011)(204)$ 6,448

(4)	Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets as of June 30, 2016 and 2015, was as follows:
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 ............................
Net liability arising from defined
benefit obligation ........................................

2016¥ 11,910(13,362)(1,452)
4,007

2015¥ 11,858(13,832)(1,974)4,103

2016$ 115,828(129,949)(14,121)38,969

2,555

2,129

24,848

2,555

2,129

24,848¥   2,555¥   2,129$   24,848(5) The components of net periodic benefit costs for the years ended June 30, 2016 and 2015, 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 ........................
Recognized transition obligation ..........................
Periodic benefit cost under simplified method ....
Others .....................................................................
Net periodic benefit costs ............................

2016¥1,096
105
(277)
(68)
28
57
34
¥ 975

2015
¥1,099
105
(234)
196
28
101
68
56
¥1,4192016$10,659
1,021(2,694)
(661)
272
554
331
$ 9,482(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, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Prior service cost ....................................................
Actuarial losses .......................................................
Recognized transition obligation ..........................
Total .................................................................

2016¥(28)
1,343¥1,315

2015
¥ 28
1,642
101
¥1,7712016$(272)
13,061$12,78933

(7)	Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of June 30, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2016
¥ 256
(297)
¥ (41)

2015¥ 283(1,639)¥(1,356)2016$ 2,490(2,889)$ (399)(8) Plan assets
a. Components of plan assets
Plan assets as of June 30, 2016 and 2015, consisted of the following:

2016
Debt investments ....................................................
Equity investments ................................................
Cash and cash equivalents .....................................
Others .....................................................................
Total .................................................................

2015

38%
40
20
2
100%

34%
46
17
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.
(9) Assumptions used for the years ended June 30, 2016 and 2015, are set forth as follows:

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

2016
Principally 0.7%
2.0
90.0

2015
Principally 0.7%
2.0
90.0

(10) Multiemployer pension plan
The Company and certain consolidated subsidiaries participate in a multi-employer 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 contributions to such multi-employer plan were ¥510 million ($4,960 thousand) and ¥562 million for theyears ended June 30, 2016 and 2015, respectively.
a. The funded status of the multi-employer plan as of June 30, 2016 and 2015, 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 ...................................................

34

2016
¥198,294

2015¥179,786

2016$1,928,461

198,590¥(296)

199,166¥(19,380)

1,931,340$(2,879)

The net balance above is mainly the result of by past service cost of ¥20,812 million ($202,402 thousand) for2016 and ¥22,129 million for 2015, surplus of ¥14,356 million ($139,616 thousand) for 2016, and ¥5,349
million for 2015, and a deficiency brought forward of ¥(6,160) million ($(59,908) thousand) for 2016 and¥2,600 million for 2015. Past service cost under the plan is amortized on a straight-line basis over 15 years, andthe special contributions of ¥280 million ($2,723 thousand) for 2016 and ¥280 million for 2015, which areutilized for such amortization, were expensed in the consolidated statement of income and comprehensive
income of the Group.
b. The contribution ratio of the Group in the multi-employer plan for the years ended June 30, 2016 and 2015,
was as follows:

2016
The contribution ratio of the Group in
the multi-employer plan ....................................

2015

13.1%

12.8%

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

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 and35

treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or
deducted directly from stock acquisition rights.

14. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, inthe aggregate, resulted in normal effective statutory tax rates of approximately 33.1% and 34.4% for the years
ended June 30, 2016 and 2015, respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax
assets and liabilities at June 30, 2016 and 2015, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016
Deferred tax assets:
Accrued bonuses ..................................................
Tax loss carryforwards .........................................
Liability for retirement benefits for directors.....
Net defined benefit liability..................................
Allowance for anticipated project loss ................
Loss on impairment of long-lived assets ............
Head office transfer cost .....................................
Overdepreciation ..................................................
Deferred relief on pension contributions ...........
Other .....................................................................
Less valuation allowance .....................................
Total .................................................................

2016

2015

¥  656
66
15
801
18
60
29
494
174
432
(489)
2,256

¥  915
91
20
703
37
67
87

230
645
(562)
2,233

Thousands of
U.S. Dollars

Millions of Yen

2016
Deferred tax liabilities:
Reserve for deferred gains on saleof property ..........................................................
Unrealized gain on available-for-salesecurities .............................................................
The valuation differencesby using the full fair value method ...................
Other .....................................................................
Total .................................................................
Net deferred tax assets .......................................

36

2016

2015

793

$ 6,380
642
146
7,790
175
584
282
4,804
1,692
4,201
(4,756)
21,940

839

7,712

790
1,182

49
2,024
¥  23268
6
1,703¥  53011,495477
19,684$ 2,256

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, 2016,
with the corresponding figures for 2015, 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 ...............................................
Income taxes for prior periods ..............................
Effect of reduction of income tax rates ondeferred tax assets and deferred tax liabilities ...
Other – net ..............................................................
Actual effective tax rate .........................................

2016
33.1%
3.4
2.0
13.6
(2.9)
1.5
2.5

2015
34.4%
1.8
1.1
5.5
(2.7)
2.2

1.2
(0.4)
54.0%

1.7
(0.8)
43.2%

New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year
beginning on or after July 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after July 1,
2018, to approximately 30.6%. The impact of this change on the consolidated financial statements is not
significant.
At June 30, 2016, certain subsidiaries have tax loss carryforwards aggregating approximately ¥549 million($5,339 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:
Years Ending June 30

2017 ........................................................................
2019 ........................................................................
2020 ........................................................................
2023 ........................................................................
2025 ........................................................................
Total .................................................................

Millions of Yen

Thousands of
U.S. Dollars

¥ 92
35
65
39
318
¥549

$

895
340
632
379
3,093
$5,33915. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥568 million ($5,524 thousand) and ¥595 million forthe years ended June 30, 2016 and 2015, respectively.

16. LEASES
LesseeThe minimum rental commitments under noncancelable operating leases at June 30, 2016 and 2015, were as
follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2016¥1,042
2,801¥3,843

2015
¥ 413
961
¥1,374

2016$10,134
27,240$37,37437

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. Although receivables inforeign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, the position,
net of a portion of payables in foreign currencies, is hedged by using forward foreign currency contracts.
Marketable and investment 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. Short-term borrowings are for the procurement of the funds for the acquisition ofstock of BDP HOLDINGS LIMITED.
Derivatives mainly include forward foreign currency contracts, which are used to manage exposure to market
risks from changes in foreign currency exchange rates of receivables and payables and investment securities.
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, 2016.
Market risk management
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations inforeign currency exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency
contracts.
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.

38

(4) Concentration of Credit Risk
23.1% of total receivables are from three major customers of the Group as of June 30, 2016.
(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, 2016

Carrying Amount

Fair Value

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

¥ 9,401
18,332
6,004¥33,737¥ 9,401
18,332
6,004¥33,737

Short-term borrowings ………………………………
Payables ………………………………………………
Total ………………………………………………

¥16,000
6,920¥22,920¥16,000
6,920¥22,920

Unrealized
Gain/Loss

¥

¥
¥
¥

Millions of Yen

June 30, 2015

Carrying Amount

Fair Value

Unrealized
Gain/Loss

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

¥11,673
17,1438,204¥37,020¥11,673
17,1438,204¥37,020¥¥Payables .................................................................
Total ................................................................

¥7,572¥7,572¥7,572¥ 7,572¥¥Thousands of U.S. Dollars

June 30, 2016

Carrying Amount

Fair Value

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

$ 91,427
178,283
58,390$328,100$ 91,427
178,283
58,390$328,100

Short-term borrowings ………………………………
Payables ………………………………………………
Total ………………………………………………

$155,604
67,299$222,903$155,604
67,299$222,903

Unrealized
Gain/Loss

$

$
$
$

Cash and cash equivalents and receivables
The carrying values of these financial instruments approximate fair value because of their short maturities.

39

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 6.
PayablesThe carrying values of these financial instruments approximate fair value because of their short maturities.
Derivatives
Fair value information for derivatives is included in Note 18.
(b) Carrying amount of financial instruments whose fair values cannot be reliably determined
Thousands of
U.S. Dollars

Millions of Yen

June 30, 2016 and 2015
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..............................................

2016

2015

2016

¥2,137¥1,512$20,783

¥ 145

¥ 145

$ 1,410The impairment loss on investments in equity instruments that do not have a quoted market price in an active
market for the year ended June 30, 2016, was ¥100 million ($973 thousand).
(6) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen

June 30, 2016
Cash and cash equivalents ...................
Receivables ...........................................
Investment securities
Available-for-sale securities with
contractual maturities .....................
Total ...............................................

Due in one
Year or Less

¥ 9,401
18,333¥27,734

Due after one Yearthrough five Years

Due after five Years
through ten Years

¥

¥

¥

¥

500
¥500

¥

Due afterten Years

Millions of Yen

June 30, 2015
Cash and cash equivalents ...................
Receivables ...........................................
Investment securities
Available-for-sale securities with
contractual maturities .....................
Total ...............................................

40

Due in one
Year or Less

Due after one Yearthrough five Years

Due after five Years
through ten Years

Due afterten Years¥11,673
17,143¥¥¥

¥28,816

¥

¥

500
¥500

Thousands of U.S. Dollars

June 30, 2016
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

$

$

$

$ 91,427
178,293

4,863$269,720$$

$4,863

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

18. DERIVATIVESThe Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange.
Foreign exchange forward contracts are utilized by the Group to reduce foreign currency exchange risk.
It is the Group’s policy to use derivatives only for the purpose of reducing risks, 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 amount.
Derivative Transactions to Which Hedge Accounting is Not Applied
Millions of Yen

June 30, 2016
Foreign currency forward contracts:
Selling British Pounds........................
Foreign currency forward contracts:
Buying U.S. Dollars ............................

Contract
AmountContract
Amount Due after
One Year

Fair
Value

Unrealized
Gain

¥

¥

¥

¥

¥

¥

¥

¥

Millions of Yen

June 30, 2015

Contract
AmountForeign currency forward contracts:
Selling British Pounds .......................
Foreign currency forward contracts:
Buying U.S. Dollars ............................

Fair
Value

Unrealized
Gain

¥691

¥(78)

¥(78)

¥658

¥ (4)

¥ (4)

Thousands of U.S. Dollars

June 30, 2016
Foreign currency forward contracts:
Selling British Pounds ......................
Foreign currency forward contracts:
Buying U.S. Dollars ............................

Contract
AmountContract
Amount Due after
One Year

Fair
Value

Unrealized
Gain

$

$

$

$

$

$

$

$

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.

41

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.

19. CONTINGENT LIABILITIESAt June 30, 2016, the Group had the following contingent liabilities:
Thousands of
U.S. Dollars

Millions of Yen

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

¥55

$535

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 due to liability for tort. The amount of the damages claimed, which includes a 5% per annum delinquency
charge, was ¥750 million ($7,294 thousand). In addition, Osaka Prefecture expanded its claim to ¥8,643 million($84,055 thousand), which also includes a 5% per annum delinquency charge, by a written petition for
amendment 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, NCC deposited the money for release from a provisional seizure of ¥750
million ($7,294 thousand), which is included in other assets under investments and other assets of theconsolidated balance sheet, in July 2014 with the Legal Affairs Bureau.

4220. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended June 30, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016
Unrealized (loss) gain on available-for-salesecurities:(Losses) gains arising during the year ................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................
Deferred gain on derivatives under hedge
accounting:
Gains (losses) arising during the year ................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................

2016

2015

¥(2,115)(343)(2,458)791¥(1,667)

¥722
(353)
369
(74)
¥295

$(20,569)(3,336)(23,905)
7,693$(16,212)

¥

$

¥

¥(87)
355
268
(92)
¥176

¥(223)¥76$(2,169)$

Foreign currency translation adjustments:
Adjustments arising during the year ...................
Reclassification adjustments to profit or loss ....
Amount before income tax effect ........................
Income tax effect ..................................................
Total .................................................................

(223)

76

(2,169)¥(223)¥76$(2,169)

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

¥(1,274)(41)(1,315)426¥(889)¥1,446
325
1,771
(584)
¥1,187$(12,390)(399)(12,789)
4,143$(8,646)

Total other comprehensive (loss) income ........

¥(2,779)¥1,734$(27,027)4321. SUBSEQUENT EVENTS
a. Change in the Number of Share Units and Share Consolidation
At the meeting of the Board of Directors held on August 12, 2016, the Company resolved to change the numberof Share Units, and will present a proposal concerning the share consolidation at the 72nd Ordinary General
Meeting of Shareholders to be held on September 29, 2016.
The share consolidation was approved at the Meeting of Shareholders. The outline is summarized as follows:(1) Change in the number of Share Units
a. Reason for change
Domestic stock exchanges in Japan announced the “Action Plan for Consolidating Trading Units,” which aims
to standardize trading units for common stock of listed domestic companies at 100 shares.
As a company listed on the Tokyo Stock Exchange, the Company respects the aim and decided to change thenumber of Share Units to 100 shares.
b. Details of the change
The Company will change the number of Share Units from 1,000 shares to 100 shares.
(2) Share consolidationa. Purpose of the share consolidation
Even after the change in the number of Share Units as mentioned in (1) above, the Company decided to
implement the share consolidation at a rate of one share for every five shares in order to adjust its investment
unit to an appropriate level, which is required by stock exchanges to be between ¥50 thousand and ¥500
thousand. The total number of authorized shares changed from 189,580,000 shares to 38,000,000 sharesaccording to the consolidation ratio.
b. Details of share consolidation(a) Class of stock to be consolidated:

Common stock(b) Consolidation method and ratio:
On January 1, 2017, the Company will consolidate every five shares into one share based on the number ofshares owned by shareholders listed in the register of shareholders as of December 31, 2016.
(c) Total number of authorized shares as of effective date:
38,000,000 shares
According to the Companies Act, the articles of incorporation stipulating the total number of authorizedshares shall be deemed to have changed from 189,580,000 shares to 38,000,000 shares on the effective dateof the share consolidation, January 1, 2017.
(d) Change in number of shares due to consolidation:
Total number of outstanding shares before share consolidation(as of June 30, 2016)
Change in number of shares due to share consolidation
Total number of outstanding shares after share consolidation

86,656,510 shares
69,325,208 shares
17,331,302 shares

Note: “Change in number of shares due to share consolidation” and “Total number of outstanding
shares after share consolidation” are theoretical numbers calculated based on the total number ofoutstanding shares before consolidation and the consolidation ratio.
(e) Treatment of fractional shares less than one share:
If any fractional shares less than one share are produced as a result of the share consolidation, theCompany will sell or purchase such shares in bulk in accordance with the Companies Act, and the44

proceeds from the transactions will be distributed to shareholders of fractional shares at the ratio of
fractional shares ownership.
(3) Schedule
Date of resolution by the Board of Directors
Date of resolution at the Ordinary General Meeting of Shareholders
Effective dateAugust 12, 2016
September 29, 2016
January 1, 2017 (planned)(4) Impact on per share information
Assuming that the share consolidation had been carried out at the beginning of the fiscal year ended June 30,
2015, per share information for the fiscal years ended 2016 and 2015 is as follows:Yen

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

2016¥3,326.56¥ 119.12

U.S. Dollars

2015¥3,450.46¥ 280.07

2016$32.35$ 1.16

Note: Diluted net income per share is not presented due to the absence of dilutive shares.

b. Appropriations of Retained Earnings
On August 12, 2016, the following appropriation of retained earnings at June 30, 2016, was resolved by the
Board of Directors:
Millions of Yen

Year-end cash dividends, ¥10 ($0.10) per share ...................

¥772

Thousands of
U.S. Dollars$7,508The total amount of the dividends above includes ¥4 million ($39 thousand) in dividends on the Company’s
shares owned by the ESOP.

22. 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 is required to reportfinancial and descriptive information about its reportable segments. Reportable segments are operating
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) Description of Reportable Segments
The Group’s reportable segments are those for which separate financial information is available and regular
evaluation by the Company’s management is being performed in order to decide how resources are allocatedamong the Group. Due to the acquisition of stock of BDP HOLDINGS LIMITED and inclusion of BDP
HOLDINGS LIMITED and its subsidiaries in the scope of consolidation, “Urban & Spatial Development” wasnewly added as a reportable segment. Therefore, the Group’s reportable segments consist of the Domestic,
International, Power Engineering, Urban & Spatial Development and Real Estate Leasing segments. Domestic
consists of consulting services in public and private sectors related mainly to infrastructure development inJapan. International consists of consulting services related mainly to development projects funded by Official
Development Assistance (“ODA”). Power Engineering consists of product manufacturing related to power
generation and distribution systems and engineering services related to construction and maintenance of public
and private electric power facilities. Urban & Spatial Development consists of urban planning and architectural45

design. Real Estate Leasing consists of transactions within the Group’s real estate leasing operation.
The segment information for the fiscal year ended June 30, 2015, is also disclosed using the new operating
segments.
(2) Methods of Measurement for the Amount of Sales, Profit (Loss), Assets, Liabilities and Other Items for Each
Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of
Significant Accounting Policies.”(3) Information about Sales, Profit (Loss), Assets, Liabilities and Other Items
Millions of Yen

2016
Reportable Segment

Sales
Sales to customers ........
Intersegment sales ........
Total ....................
Segment profit (loss) .....
Segment assets .............
Other:
Depreciation ................

Power
Urban & Spatial Real EstateEngineering Development
Leasing

Domestic

International¥40,778
408¥41,186¥22,07113¥22,084¥17,523
248¥17,771

2,965
18,893382
19,102

3,024
8,990

163

72

252

¥

Total

Others

Total

Reconciliations Consolidated¥80,887793¥81,680¥979 ¥ 81,866
3796¥982 ¥ 82,662

¥

¥

¥515
124
¥639

¥81,866(796)¥(796) ¥81,866

23,887

385
4,192

6,756
75,064(2,373)49,033

4,383
124,097(18)(23,107)

58

545

723

1,268

4,365
100,990
1,268

Amortization of goodwill ...
Interest income ............
Interest expense ............
Increase in property, plantand intangible assets .......

21

25

4

50

331

381

(267)

114

44

137

57

238

88

326

(267)

59

82

65

313

462

750

1,212

2

1,212

Millions of Yen

2015
Reportable Segment

Sales
Sales to customers ........
Intersegment sales ........
Total ....................
Segment profit (loss) .....
Segment assets .............
Other:
Depreciation ................

Power
Urban & Spatial Real EstateEngineering Development
Leasing

Domestic

International¥41,846371¥42,217¥20,174
23¥20,197¥17,858235¥18,093

2,728
18,153606
20,893

2,801
9,314
223

¥
¥
100

Total

Others

Total

¥821
124
¥945

¥80,699753¥81,452¥1,1412¥1,143¥81,840
755¥82,595

591
4,241

6,726
52,701(1,244)
37,773

5,482
90,474

572

836

1,408

¥

¥81,840(755)¥(755)¥81,840(5)(6,364)

5,477
84,110170

79

Amortization of goodwill ...
Interest income ............

233

47

27

44

4

3

78

231

309

(231)

78

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

46

129

53

6

234

46

280

(231)

49

Increase in property, plantand intangible assets ......

109

102

415

12

638

1,166

1,804

46

100

Reconciliations Consolidated

280

1,408

280

280

1,804

Thousands of U.S. Dollars

2016
Reportable Segment
Domestic

International

Power
Urban & Spatial Real EstateEngineering Development
Leasing

Sales
Sales to customers ........ $396,577
3,968Intersegment sales ........
Total .................... $400,545$214,646
126$214,772$170,416
2,412$172,828

Segment profit (loss) .....

$

Total

Total

OthersReconciliations Consolidated$786,647
7,712$794,359$  9,521 $ 796,168
29
7,741$  9,550 $ 803,909$$$ 5,008
1,206$ 6,214$796,168(7,741)$(7,741) $796,168

232,307

3,744
40,76865,704730,017(23,078)
42,626476,859 1,206,876(175)(224,722)

564

5,300

7,032

12,332

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

28,835
183,740

3,715
185,772

29,41087,43042,451
982,154

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

1,585

700

2,451

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

204

243

39

486

3,219

3,705

(2,596)

1,109Interest expense ............

428

1,332

554

2,314

856

3,170

(2,596)574

Increase in property, plantand intangible assets .......

797

632

3,045

4,493

7,294

11,787

12,332

Amortization of goodwill ...

19

11,787Note:
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, 2016 and 2015, 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 ....

2016
¥81,680
982
(796)

2015
¥81,452
1,143
(755)

2016
$794,359
9,550(7,741)¥81,866¥81,840$796,168

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 ...............................

2016¥ 6,756(2,373)
(18)
358

2015
¥ 6,726(1,244)
(5)
(975)

2016
$ 65,704(23,078)
(175)
3,482

¥ 4,723¥ 4,502$ 45,933

47

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 .............................................................

2016¥ 75,064
49,033(23,107)2015¥52,701
37,773(6,364)2016$ 730,017
476,859(224,722)¥100,990¥84,110$ 982,154

Other items
Millions of Yen

2016
Reportable
Segment

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

OthersReconciliations

¥545

¥723

50
238

331
88

462

750

Total

¥1,268¥(267)
(267)

114
59
1,212

Millions of Yen

2015
Reportable
Segment

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

OthersReconciliations

¥572
280
78
234

¥ 836

638

1,166

231
46

¥(231)
(231)

Total

¥1,408
280
78
49
1,804

Thousands of U.S. Dollars

2016
Reportable
Segment

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

Others$5,300$7,032

486
2,314

3,219
856

4,493

7,294

Reconciliations

Total$12,332$(2,596)(2,596)

1,109
574
11,787Note:
The main reconciling items of interest income and expense are eliminations of corporate interest in accounting
for control.

48

The information about geographical areas at June 30, 2016, was as follows:
Sales
Millions of Yen

2016
Japan

¥58,415

Asia¥13,880

Middle East

¥2,160Africa¥3,585

Latin
AmericaOther¥3,647

¥179

Total

¥81,866

Thousands of U.S. Dollars

2016
Japan

Asia

$568,101$134,987

Middle East

$21,007

Africa$34,865

Latin
AmericaOther$35,468$1,740Total$796,168

Note:
Sales are classified by country or region based on the location of customers.
The information about major customers at June 30, 2016, was as follows:
Millions of Yen

2016
Name of Customers

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

Sales

Related Segment Name

¥13,604
8,148
7,643

Domestic
Power Engineering
International

Thousands of U.S. Dollars

2016
Name of Customers

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

Sales$132,302
79,241
74,330Related Segment Name

Domestic
Power Engineering
InternationalNote:
The trade name was changed from “Tokyo Electric Power Company, Incorporated” to “TEPCO Power Grid,
Incorporated” due to the transition to a holding company system through company reorganization on April 1,
2016. Power transmission and distribution business of “Tokyo Electric Power Company, Incorporated” became“TEPCO Power Grid, Incorporated.”
For the period from July 1, 2015, to March 31, 2016, sales results of the Group for “Tokyo Electric Power
Company, Incorporated” amounting to ¥6,569 million ($63,885 thousand) were included in “TEPCO Power Grid,
Incorporated” in the table above.

49

The information about goodwill at June 30, 2016, was as follows:
Goodwill
Millions of Yen

2016
Reportable Segment
Domestic

Amortization of goodwill ……
Goodwill at June 30, 2016 ……

¥International

¥

Power
Urban & Spatial
Engineering Development¥¥
10,313

Real Estate
Leasing

¥

Total

¥
10,313

OthersElimination/
Corporate¥¥

OthersElimination/
Corporate

Consolidated¥
10,313Thousands of U.S. Dollars

2016
Reportable Segment

Amortization of goodwill ……
Goodwill at June 30, 2016 ……

50

Domestic

International

Power
Urban & Spatial
Engineering Development

Real Estate
Leasing

$

$

$

$

$
100,297Total$100,297$$Consolidated$100,297

51

Nonconsolidated Balance Sheet
Nippon Koei Co., Ltd.
June 30, 2016

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

ASSETS

2016

2015

2016

¥  3,241¥  8,155$  31,520

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

33

18

321

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

10,081

11,967

98,040Subsidiaries and associated companies ...........

597

755

5,806

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

420

242

4,085

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

(3)

(8)

(29)

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

2,060

1,607

20,034Inventories (Note 4) .............................................

8,284

8,237

80,564

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

603

1,099

5,864

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

1,892

1,884

18,400Total current assets ............................................

27,20833,956

264,605

Land ......................................................................

15,21915,219148,009

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

16,423

15,599159,718

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

2,355

2,344

22,903

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

2,180

2,162

21,201

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

73

251

710

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

122

122

1,187

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

36,37235,697353,728

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

(15,590)(14,815)(151,617)

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

20,782

20,882

202,111

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

6,320

8,772

61,464

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

25,696

6,963

249,900

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

3,820

2,970

37,150Allowance for doubtful accounts ........................

(152)

(152)

(1,478)

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

35,684

18,553

347,036

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

¥ 83,674¥ 73,391$ 813,752

CURRENT ASSETS:
Cash and cash equivalents ...................................
Receivables:

PROPERTY, PLANT AND
EQUIPMENT (Note 5):

INVESTMENTS AND OTHER ASSETS:

See notes to nonconsolidated financial statements.

52

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

LIABILITIES AND EQUITYCURRENT 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 ......................................
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 ..................................

2016

2015

2016

¥19,875291¥ 3,700
189$193,290
2,830

424
2,205
543
1,378
245
4,611
1,582
10
1,742
32,906

465
2,593
538
2,575
1,174
4,726
2,205
85
2,629
20,8794,124
21,444
5,281
13,401
2,383
44,843
15,38597
16,941
320,019

1,290
161
25
938
241
2,655

1,556
188
25
1,554
498
3,821

12,546
1,566
243
9,122
2,344
25,821

7,393

7,393

71,899

6,093
115

6,093
115

59,256
1,118

1,546
35,956

1,546
35,05015,035
349,681

COMMITMENTS AND CONTINGENT
LIABILITIES (Note 10)
EQUITY (Notes 8 and 11):
Common stock;authorized, 189,580,000 shares; issued,
86,656,510 shares on June 30, 2015 and 2016 ....
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
9,816,140 shares on June 30, 2016
and 10,370,910 shares on June 30, 2015 ..........
Total equity .........................................................

(40)

1,629

(387)

(2,950)48,113(3,135)
48,691(28,690)
467,912TOTAL ....................................................................

¥83,674¥73,391$813,75253

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, 2016

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2016

2015

2016

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

¥60,327¥60,471$586,696

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

43,84816,47944,25016,221

426,433
160,263

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

13,203
3,276

13,0303,191

128,403
31,860

569
(73)
(622)

2,607
(68)
286

5,534
(710)
(6,049)OTHER INCOME (EXPENSES):Interest and dividend income ..............................
Interest expense ...................................................
Foreign currency exchange (loss) gain ...............
Gain on sales of property,
plant and equipment ..........................................
Gain on sales of investment securities ................
Head office transfer cost .....................................
Other-net ...............................................................
Other (expense) income-net ............................

2,628
342
(237)
(40)
(61)

(549)
92
4,996

(2,305)

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

3,215

8,187

31,267

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

863
674
1,537

1,797
676
2,473

8,393
6,555
14,948NET INCOME .......................................................

¥ 1,678¥ 5,714$ 16,319

3,326

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.

54¥ 21.92
10.00

(389)
(593)

¥ 75.11
10.00

$

0.21
0.10

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, 2016

Thousands

Millions of Yen

Outstanding
Number of
Shares ofCommonStock

BALANCE, JUNE 30, 2014
(JULY 1, 2014, as previously
reported) ........................................

75,863

Capital Surplus

Retained Earnings

CommonStock¥7,393

Additional

Other

Paid-in
CapitalCapitalSurplus¥6,093¥115

Legal
Reserve¥1,546Comulative effect ofaccounting change ........................
BALANCE, JULY 1, 2014(as restated) ...................................

Unrealized(Loss) Gain

Deferred(Loss) Gainonon

Treasury

Total

Available-

Derivatives

Stock

EquityUnappropriatedfor-sale
Securities

under Hedge
Accounting¥30,497¥ 1,342¥(176) ¥(3,274) ¥43,536(582)
75,863

7,393

6,093

115

1,546

(582)

29,915

1,342

(176)

(3,274)42,954

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

5,714

5,714

Cash dividends, ¥7.50 per share ....

(579)

(579)

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

(22)

(11)

(11)

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

445

150

150

(3,135)

48,691287

Net change in the year ....................
BALANCE, JUNE 30, 2015 .............

76,286

7,393

6,093

115

1,546

35,050

176

1,629

463

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

1,678

1,678

Cash dividends, ¥10.00 per share .....

(772)

(772)

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

(21)

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

575

(9)
194
(1,669)Net change in the year ....................
BALANCE, JUNE 30, 2016 .............

76,840¥7,393¥6,093¥115¥1,546¥35,956¥   (40)(9)
194(1,669)¥ ¥(2,950) ¥48,113

Thousands of U.S. Dollars (Note 1)
Capital Surplus
CommonStock

BALANCE, JUNE 30, 2015

$71,899

Retained Earnings

Unrealized

Deferred(Loss) Gainon
Available-(Loss) Gainon
Derivatives

for-sale
Securities

under Hedge
Accounting

Additional

Other

Paid-in
CapitalCapitalSurplusReserve$59,256$1,118$15,035 $340,870 $ 15,842

Legal

Unappropriated$

Treasury
Stock

Total
Equity$(30,489) $473,531

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

16,31916,319Cash dividends, $0.10 per share ....

(7,508)(7,508)Purchase of treasury stock .............

(88)

(88)

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

1,887

1,887

(16,229)

Net change in the year ....................
BALANCE, JUNE 30, 2016 .............

$71,899$59,256$1,118$15,035 $349,681 $       (387)(16,229)$$(28,690) $467,912

See notes to nonconsolidated financial statements.

55

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, 2016

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 2015 nonconsolidated financial statements to conform to the classifications used in 2016.
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 ¥102.83 to $1,
the approximate rate of exchange at June 30, 2016. 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 andthat are exposed 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, reported in a separate component of equity; and (3) investments in subsidiaries andassociated companies 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 — In June 17, 2016, the Accounting Standards Board of Japan (the“ASBJ”) issued ASBJ Practical Issues Task Force (“PITF”) No. 32, “Practical Solution on a change indepreciation method due to Tax Reform 2016,” which related to the revision of the Corporation Tax Act. The
Company applied this PITF effective April 1, 2016, and changed the depreciation method for structures56

acquired on or after April 1, 2016, from the declining-balance method to the straight-line method.
As a result, there was no significant impact on the nonconsolidated financial statements from this accountingchange.
Property, plant and equipment are stated at cost. Depreciation of property, 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. The range of useful lives is principally from 3 to
50 years for buildings and structures, from 2 to 15 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 the respective leases.

f. Long-Lived Assets — The Company reviews its long-lived assets for impairment whenever events orchanges in circumstance 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.

Effective April 1, 2000, the Company adopted a new accounting standard for employees’ retirement benefits
and accounted for the liability for retirement benefits based on the projected benefit obligations and plan
assets at the balance sheet date. The projected benefit obligations are attributed to periods on a straight-line
basis. Actuarial gains and losses are amortized on a straight-line basis over 13 years within the averageremaining service period. Past service costs are amortized on a straight-line basis over 13 years within the
average remaining service period. Accounting treatments for unrecognized actuarial gains and losses andunrecognized past service costs in the nonconsolidated financial statements are different from those in the
consolidated financial statements.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” andASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced theaccounting standard for retirement benefits that had been issued by the Business Accounting Council in 1998
with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial
amendments from time to time through 2009.
(a)	Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to berecognized in profit or loss are recognized within equity (accumulated other comprehensive income),
after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for
retirement benefits) or asset (asset for retirement benefits).
(b)	The revised accounting standard does not change how to recognize actuarial gains and losses and past
service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period nolonger than the expected average remaining service period of the employees. However, actuarial gains andlosses and past service costs that arose in the current period and have not yet been recognized in profit orloss are included in other comprehensive income, and actuarial gains and losses and past service costs
that were recognized in other comprehensive income in prior periods and then recognized in profit orloss in the current period are treated as reclassification adjustments.
(c)	The revised accounting standard also made certain amendments relating to the method of attributing
expected benefit to periods, the discount rate, and expected future salary increases.
(d) Treatment in the nonconsolidated financial statements		In the nonconsolidated financial statements, the new requirements for (a) and (b) above would not beapplied, with the current requirements remaining applicable.

57

This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods
beginning on or after April 1, 2013, and for (c) above are effective for the beginning of annual periods
beginning on or after April 1, 2014, or for the beginning of annual periods beginning on or after April 1,
2015, subject to certain disclosure in March 2015, both with earlier application being permitted from the
beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of thisaccounting standard to nonconsolidated financial statements in prior periods is required.
The Company has applied the revised accounting standard and guidance for retirement benefits for (a) and(b) above effective June 30, 2013, and for (c) above, effective July 1, 2014.
With respect to (c) above, the Company changed the method of attributing the expected benefit to periods
from a straight-line basis to a benefit formula basis and the method of determining the discount rate fromusing the period which approximates the expected average remaining service period to using a single
weighted average discount rate reflecting the estimated timing and amount of benefit payment, and recorded
the effect of (c) above as of July 1, 2014, in retained earnings. As a result, retained earnings as of July 1, 2014,
decreased by ¥582 million ($4,749 thousand).
Hitherto, retirement benefits for directors were provided at the amount that would be required if all directors
retired at the balance sheet date. However, the Company abolished benefit pension plans for directors. Thebalance in the nonconsolidated balance sheet is the estimated amount for directors who have belonged to theCompany since when the plans were effective. Such amount is included in liability for retirement benefits inthe nonconsolidated balance sheets for the years ended June 30, 2016 and 2015, and is ¥14 million ($132
thousand) and ¥27 million, respectively.

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

j. Asset Retirement Obligations — In March 2008, the ASBJ issued ASBJ Statement No. 18, “AccountingStandard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard
for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined
as a legal obligation imposed either by law or contract that results from the acquisition, construction,
development and normal operation of a tangible fixed asset and is associated with the retirement of suchtangible 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 areasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be madein the period the asset retirement obligation is incurred, the liability should be recognized when a reasonableestimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset
retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related
fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense
through depreciation over the remaining useful life of 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 ofundiscounted cash flows are reflected as an adjustment to the carrying amount of the liability and thecapitalized amount of the related asset retirement cost.

k. Employee Stock Ownership Plan — In December 2013, the ASBJ issued ASBJ PITF No. 30, “Practical

Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts.” ThisPITF is effective for the beginning of annual periods beginning on or after April 1, 2014, with earlier
application permitted from the beginning of annual periods first ending after the date of issuance of this
PITF, and applied retrospectively.

In accordance with the PITF, 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 berecorded in capital surplus. At year-end, the entity shall record (1) the entity stock held by the Trust as
treasury stock in equity, (2) all other assets and liabilities of the Trust on a line-by-line basis, and (3) aliability/asset for the net of (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.
The Company applied this PITF effective July 1, 2014, retrospectively. As the method previously used by theCompany is identical to those of the above PITF, there is no effect from this accounting change.

58

The note regarding the transfer of treasury stock to the employees’ stockholders association is omitted in thissection because it is provided as additional information in the footnotes to the consolidated financial
statements.

l. Research and Development Costs — Research and development costs are charged to income as incurred.
m. Leases — In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease
Transactions,” which revised the previous accounting standard for lease transactions. The revised accounting
standard for lease transactions was effective for fiscal years beginning on or after April 1, 2008.

Under the previous accounting standard, finance leases that deemed to transfer ownership of the leased
property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as
operating lease transactions if certain “as if capitalized” information was disclosed in the notes to the lessee’s
financial statements. The revised accounting standard requires that all finance lease transactions becapitalized to recognize lease assets and lease obligations in the balance sheet. In addition, the revised
accounting standard permits leases that existed at the transition date and do not transfer ownership of theleased property to the lessee to be measured at the amount of obligation under finance leases less interest
expense at the transition date and recorded as acquisition cost of lease assets.
The Company applied the revised accounting standard effective April 1, 2008. In addition, the Company
accounted for leases that existed at the transition date and do not transfer ownership of the leased property
to the lessee as acquisition cost of lease assets measured at the amount of obligation under finance leases at
the transition date.
All other leases are accounted for as operating leases.

n. Accrued Bonuses — Bonuses to employees, directors and Audit & Supervisory Board members are accruedat 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 — If the outcome of a construction contract can be estimated reliably, the contract

revenue is recognized by the percentage-of-completion method, which is measured by reference to thepercentage of total cost incurred to date to estimated total cost.
All other construction projects, except the aforementioned, are recorded using the completed-contract
method (including the partially completed-contract method).

s. Derivatives and Hedging Activities — The Company uses derivative financial instruments to manage its

exposure to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by theCompany to reduce its exposure to fluctuations in foreign currency exchange rates. The Company does notenter 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 nonconsolidated statement of income; and (2) for derivatives used for hedging purposes, if
such derivatives qualify for hedge accounting because of high correlation and effectiveness between thehedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of thehedged transactions.

59Foreign exchange forward contracts are measured at fair value but the unrealized gains/losses are deferred
until the underlying transactions are completed.

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. The weighted-average number of shares of common stock for the years ended June 30, 2016 and2015, were 76,544,407 and 76,077,020, respectively.

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, 2016 and 2015.
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.

u. Accounting Changes and Error Corrections — In December 2009, the ASBJ issued 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 are 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 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.

3. CHANGE IN PRESENTATION(1) “Accrued expenses” (¥774 million ($7,527 thousand) in the current fiscal year and ¥1,376 million in theprevious fiscal year), which was presented separately in the nonconsolidated balance sheet in the previous
fiscal year, is included in “Other current liabilities” due to its decreased materiality.
(2) “Asset retirement obligations” (¥30 million ($292 thousand) in the long-term liabilities and ¥29 million in theprevious fiscal year), which was presented separately in the nonconsolidated balance sheet in the previous
fiscal year, is included in “Other long-term liabilities” due to its decreased materiality.
(3) “Deposit received” (¥211 million ($2,052 thousand) in the long-term liabilities and ¥469 million in theprevious fiscal year), which was presented separately in the nonconsolidated balance sheet in the previous
fiscal year, is included in “Other long-term liabilities” due to its decreased materiality.

4. INVENTORIESInventories at June 30, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Work in process ......................................................
Raw materials and supplies ...................................
Total .................................................................
60

2016¥7,938346¥8,2842015¥7,868369¥8,237

2016$77,199
3,365$80,564

5. REDUCTION ENTRY
In the case of acquisition of expenses by 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, 2016 and 2015, was
as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016

2015
¥ 19
167
¥186

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

¥
147
¥147

2016
$ 185
1,624
$1,809

6.	INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES AND
ASSOCIATED COMPANIESInvestments in and advances to subsidiaries and associated companies as of June 30, 2016 and 2015, were as
follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2016¥23,648
2,048¥25,696

2015¥5,8691,094¥6,963

2016$229,983
19,917$249,900

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, 2016, since market value andestimated future cash flows are not available.

7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings at June 30, 2016 and 2015, consisted of loans from a bank and consolidated
subsidiaries. The annual interest rates applicable to the short-term borrowings ranged from 0.474% to 0.684%
and 0.684% to 0.720% at June 30, 2016 and 2015, respectively.
Long-term debt at June 30, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2016
Unsecured loans from banks due seriallyto 2023 with interest rates ranging from
0.680% to 0.870% .................................................
Obligation under finance leases.............................
Total .................................................................
Less current portion...............................................
Long-term debt, less current portion .........

¥1,526
55
1,581
(291)
¥1,2902015¥1,690
55
1,745
(189)
¥1,5562016$14,841535
15,376(2,830)$12,54661

Annual maturities of long-term debt at June 30, 2016, for the five years and thereafter were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Years Ending June 30

2017 .........................................................
2018 .........................................................
2019 .........................................................
2020 .........................................................
2021 .........................................................
2022 and thereafter .................................
Total ..................................................

Long-Term Debt

Lease Obligations

Long-Term Debt

Lease Obligations

¥ 266
266
436
136
136
286
¥1,526¥25
14
7
5$ 2,587
2,587
4,240
1,323
1,323
2,781
$14,841

$243
136
68
49

3
1

¥55

29
10

$535

The Company and five financial institutions have concluded overdraft contracts of ¥26,500 million ($257,719
thousand) and a commitment line contract by syndicated loan over three years for maximum ¥10,000 million($97,253 thousand). In addition, the Company has concluded a commitment line with a financial institution inorder to procure the funds for the acquisition of stock of BDP HOLDINGS LIMITED. These commitment line
contracts included restrictive financial covenants for each financial institution.

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.

62

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.

9. INCOME TAXESThe Company is subject to Japanese national and local income taxes which, in the aggregate, resulted in normal
effective statutory tax rates of approximately 33.1% and 34.4% for the years ended June 30, 2016 and 2015,
respectively.
The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at June30, 2016 and 2015, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2016
Deferred tax assets:
Unrealized loss on available-for-salesecurities .............................................................
Accrued bonuses ..................................................
Liability for retirement benefits for directors ....
Liability for retirement benefits
for employees .....................................................
Allowance for anticipated project loss ................
Allowance for doubtful accounts ........................
Loss on impairment of long-lived assets ............
Head office transfer cost .....................................
Overdepreciation ..................................................
Investment in subsidiaries ...................................
Other .....................................................................
Less valuation allowance .....................................
Total .................................................................

2016

2015

¥    16
463
4
45
3
48
48
29
355
354
208
(705)
868

701
9

$     156
4,503
39

52
28
52
50
87
229
338
386
(635)
1,297

437
29
467
467
282
3,452
3,443
2,023
(6,856)
8,442¥

Thousands of
U.S. Dollars

Millions of Yen

2016

2016

2015

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

793

839

7,712

Unrealized gain on available-for-salesecurities .............................................................
Prepaid pension cost ............................................
Other .....................................................................
Total .................................................................
Net deferred tax assets .......................................

362
48
1,203
¥ (335)

776
133
4
1,752
¥ (455)

3,521
467
11,700$ (3,258)

63

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, 2016, with the corresponding
figures for 2015, was as follows:

Normal effective statutory tax rate .......................
Per capita levy of local tax .....................................
Expenses not deductible for tax purposes ............
Foreign income tax ................................................
Valuation allowance ...............................................
Income taxes for prior periods ..............................
Income not included for tax purposes ..................
Effect of reduction of income tax rates ondeferred tax assets and deferred tax liabilities ...
Other – net ..............................................................
Actual effective tax rate .........................................

2016
33.1%
2.6
2.2
8.6
3.4
3.2
(2.3)

2015
34.4%
1.0
0.9
2.4
2.2
(10.1)

(0.7)
(2.3)
47.8%

(0.1)
(0.5)
30.2%

New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year
beginning on or after July 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after July 1,
2018, to approximately 30.6%. The effect of this change on the nonconsolidated financial statements isimmaterial.

10. CONTINGENT LIABILITIESAt June 30, 2016, 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 .......................................................

¥55
7
33

Thousands of
U.S. Dollars

$535
68
321

11. SUBSEQUENT EVENTS
a. Change in the Number of Share Units and Share Consolidation
At the meeting of the Board of Directors held on August 12, 2016, the Company resolved to change the numberof Share Units, and will present the proposal concerning the share consolidation at the 72nd Ordinary General
Meeting of Shareholders to be held on September 29, 2016.
The share consolidation was approved at the Meeting of Shareholders. The outline is summarized as follows:(1) Change in the number of Share Units
a. Reason for change
Domestic stock exchanges in Japan announced the “Action Plan for Consolidating Trading Units” which aims
to standardize trading units for common stock of listed domestic companies at 100 shares.
As a company listed on the Tokyo Stock Exchange, the Company respects the aim and decided to change thenumber of Share Units to 100 shares.
b. Details of the change
The Company will change the number of Share Units from 1,000 shares to 100 shares.

64

(2) Share consolidationa. Purpose of the share consolidation
Even after the change in the number of Share Units as mentioned in (1) above, the Company decided to
implement the share consolidation at a rate of one share for every five shares in order to adjust its investment
unit to an appropriate level, which is required by stock exchanges to be between ¥50 thousand and ¥500
thousand. The total number of authorized shares changed from 189,580,000 shares to 38,000,000 sharesaccording to the consolidation ratio.
b. Details of share consolidation(a) Class of stock to be consolidated:

Common stock(b) Consolidation method and ratio:
On January 1, 2017, the Company will consolidate every five shares into one share based on the number ofshares owned by shareholders listed in the register of shareholders as of December 31, 2016.
(c) Total number of authorized shares as of effective date:
38,000,000 shares
According to the Companies Act, the articles of incorporation stipulating the total number of authorizedshares shall be deemed to have changed from 189,580,000 shares to 38,000,000 shares on the effective dateof the share consolidation, January 1, 2017.
(d) Change in number of shares due to consolidation:
Total number of outstanding shares before share consolidation(as of June 30, 2016)
Change in number of shares due to share consolidation
Total number of outstanding shares after share consolidation

86,656,510 shares
69,325,208 shares
17,331,302 shares

Note: “Change in number of shares due to share consolidation” and “Total number of outstanding
shares after share consolidation” are theoretical numbers calculated based on the total number ofoutstanding shares before consolidation and the consolidation ratio.
(e) Treatment of fractional shares less than one share:
If any fractional shares less than one share are produced as a result of the share consolidation, theCompany will sell or purchase such shares in bulk in accordance with the Companies Act, and theproceeds from the transactions will be distributed to shareholders of fractional shares at the ratio of
fractional shares ownership.
(3) Schedule
Date of resolution by the Board of Directors
Date of resolution at the Ordinary General Meeting of Shareholders
Effective dateAugust 12, 2016
September 29, 2016
January 1, 2017 (planned)(4) Impact on per share information
Assuming that the share consolidation had been carried out at the beginning of the fiscal year ended June 30,
2015, per share information for the fiscal years ended 2016 and 2015 is as follows:Yen

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

2016¥3,130.70¥ 109.62

U.S. Dollars

2015¥3,191.38¥ 375.57

2016$30.45$ 1.07

Note: Diluted net income per share is not presented due to the absence of dilutive shares.

65b. Appropriations of Retained Earnings
On August 12, 2016, the following appropriation of retained earnings at June 30, 2016, was resolved by the
Board of Directors:
Millions of Yen

Year-end cash dividends, ¥10 ($0.10) per share ...................

¥772

Thousands of
U.S. Dollars$7,508The total amount of the dividends above includes ¥4 million ($39 thousand) in dividends on the Company’s
shares owned by the Employee Stock Ownership Plan Trust.

66

67

Co rp orate In form atio n
B o a r d o f D i r e c t o r s , O ff i c e r s a n d A u d i t &Supervisory Board Members
Director and Chairman:
Noriaki Hirose

Stock Information
Shares authorized

189,580,000

Shares issued

86,656,510

Stockholders of minimum tradable stock unit

Director and President:
Ryuichi Arimoto*5,108

As of June 30, 2016

Director and Vice President:
Asao Yamakawa

Major Shareholders
Share owned

Percentage of
total owned

Director and Executive Vice President:
Akira Mizukoshi*
Noboru Takano*

The Bank of Tokyo-Mitsubishi
UFJ, Ltd.

3,699,263

4.27

Meiji Yasuda Life Insurance

3,529,522

4.07

Director and Senior Managing Executive Officer:
Hiroyuki Akiyoshi
Takashi Seki

The Koei Employees’
Stockholders Association

3,513,078

4.05

Japan Trustee Services Bank,
Ltd. (Trustee)

2,859,000

3.3

The Master Trust Bank ofJapan, Ltd. (trust a/c)

2,461,000

2.84

GOLDMAN, SACHS & CO.
REG

2,258,000

2.61

Mizuho Corporate Bank, Ltd.

1,910,634

2.2

Tsukishima Kikai Co.,Ltd

1,843,000

2.13

CBNY DFA INTL SMALL CAP
VALUE PORTFOLIO

1,714,000

1.98Japan Trustee Services Bank,
Ltd. (Trust Account No.9)

1,455,000

1.68

Director and Executive Officer:
Naoki Honjo
Hideyuki Sakunaka
Director:
Hiizu Ichikawa (Outside)
Kazumasa Kusaka (Outside)
Audit & Supervisory Board Member:
Toshiaki Shimizu
Izumi Arai (Outside)
Mineo Enomoto (Outside)
Senior Managing Executive Officer:
Takashi Karasaki
Yoshikimi Inoue
Masanao NishimuraManaging Executive Officer:
Haruyoshi Takura
Hiroyuki Kasahara
Takayasu Tsuyusaki
Executive Officer:
Masanobu Sakamoto
Shuichi Ueda
Yasushi Sugo
Noriaki Yoshida
Haruhiko Kanai
Kevin Tynes
Akimitsu Arai
Hitoshi Nagasaki
Hiroaki Shinya
Hiroshi Matsuda
Toshikazu Kambara
Hiroshi Yokota
Hiroyuki Yamate*Representative Directors

68

As of September 29, 2016

As of June 30, 2016
Besides the above, the Company owns 9,461,140 shares of treasury stock(10.92%)

Major Offices and Facilities

Major Businesses

Head Office
4 Kojimachi 5-chome, Chiyoda-ku,
Tokyo 102-8539, Japan

Consulting Administration

Kudan Office
1-14-6 Kudankita, Chiyoda-ku,
Tokyo 102-8539, Japan
Hanzomon Office
5 Kojimachi 2-chome, Chiyoda-ku,
Tokyo 102-0083, Japan
Domestic Branch Offices
Tokyo, Sapporo, Sendai, Fukushima, Niigata,
Nagoya, Osaka, Hiroshima, Shikoku, Fukuoka
Research Facility
Research and Development Center in Tsukuba
Science City, Ibaraki
Overseas Offices (Liaison Office)Jakarta, Manila, Hanoi(Ho Chi Minh), Bangkok(Vientiane, Phnom Penh), Yangon(Naypyidaw),
New Delhi, Dhaka,
Colombo, Middle East(Amman, Baghdad, Tunis,
Rabat, Cairo), Nairobi, Lima

Field of activity• Water Resources• Energy• Urban & Regional Development• Transportation• Agriculture & Rural Development• Environment• Climate Change• Information & Communication Technology• Geosphere Engineering• Project and Program Management•	Public Private Partnership/Private FinanceInitiative
Services•	Preliminary investigation, Planning, Feasibility
studies, Assessment, Detailed design,
Construction supervision , Operation andmaintenanceEngineering Administration
Field of activity•	Electrical and civil works for electric power
facilities (generation, transmission, substation,
distribution schemes and wiring of buildings)•	Electric power utilities (turbines, generators,
transformers, control deices andcommunications equipment)• Electric equipment and devices• Safety equipment•	Skin electric thermo-system heaters (SECTheaters)• Factory automation equipment
Services•	Surveys, Studies, Planning, Design, Construction,
Installation, Sale69

Si g ni f i cant C on solid ated S u b s i d i ari es
While mainly focused on engineering consulting, electrical power engineering, and power generation, the Nippon Koei
Group is also active in a wide range of related fields. The various businesses peripheral to the activities of Nippon Koei, themain company in the Group, are taken on by subsidiaries and associated companies located both at home and abroad.
These related companies, together with the principle corporation, make up the Nippon Koei Group.
The various firms maintain close cooperation based on relationships of interdependence that enhance the strength andcohesion of the Group as a whole.
As of June 2016, the total number of employees of the Group companies came to about 4,336.
The consolidated subsidiaries are as follows:

Domestic Consulting Operations
Tamano Consultants Co., Ltd.
This company is headquartered in the city of Nagoya and provides engineering consulting services centered on the Chubu
Region. The company boasts the most highly regarded urban and regional planning group in Japan.
Nippon Civic Consulting Engineers Co., Ltd.
This company provides consulting services centered on planning, design, and construction supervision of undergroundstructures such as urban tunnels. The company specializes in shield tunneling technology and the development of newunderground construction technology.
El Koei Co., Ltd.
This company conducts employment and staff supply for Nippon Koei Group. The company provides various fields ofqualified human resources to support the activity of the Group Companies.

International Consulting Operations
KRI International Corporation
This company has been established to enhance non-engineering consulting works of the Nippon Koei Group’s activities.
KRI provides the consulting services mainly in the fields of economic and industrial development including finance andmanagement, education and human resources development, and regional and community development.
Nippon Koei U.K. Co., Ltd.
This company provides engineering consulting services to enforce Nippon Koei’s overseas operation.
Nippon Koei Latin America-Caribbean Co., Ltd.
This company has been established to enhance Nippon Koei’s operation in Latin America and Caribbean and provides
consulting engineering and technical services for various development sectors in the region.
Nippon Koei LAC, Inc.
This company has been incorporated in Panama in order to promote further localization of Nippon Koei’s operation in
Latin America and Caribbean region.
Nippon Koei LAC do Brasil Ltda.
This company has been incorporated in Brasil in order to promote further localization of Nippon Koei’s operation in Latin
America.
Nippon Koei India Pvt. Ltd.
This company has been established to enhance Nippon Koei’s operation in India and provides consulting engineering andtechnical services for various development sectors focusing on projects in India and other developing countries.
Nippon Koei Vietnam International Co., Ltd.
This company has been established to enhance Nippon Koei’s operation in Vietnam and surrounding countries in the
Greater Mekong Subregion and provides consulting services for various development sectors in the region.
Philkoei International, Inc.
This company has been incorporated in the Philippines by Nippon Koei Co., Ltd. and Filipino investors and providing
consulting engineering and technical services for various development sectors focusing on projects in the Philippines andother overseas countries.
PT. Indokoei International
This company has been incorporated in Indonesia by Nippon Koei Co., Ltd. and Indonesian partner company and provides
the services of engineering and management consultancy to clients in Indonesia as well as overseas.

Power Engineering Operations
Koei System Inc.
This company develops software programs used in computer control applications, dispatches personnel, and provides
support and software development for office automation systems on a consignment basis.

70

Urban & Spatial Development Operations
BDP HOLDINGS LIMITEDBUILDING DESIGN PARTNERSHIP LIMITEDIn a bid to bolster urban space business, the Nippon Koei Group made BDP Holdings Limited (BDP) its wholly-owned
subsidiary in April 2016. BDP has engaged in architectural design, structural analysis, and facility design since its
foundation of 1961.

OthersNikki Corporation
This company conducts real estate management, leasing, and insurance services for Nippon Koei and other Group
companies. It also sells, imports, and exports electrical power equipment and rents and leases various goods.

71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

Printed in Japan