ANNUALREPORT
Year ended March 31, 2016

2016

DENYO CO., LTD. and Consolidated Subsidiaries

PROFILE
Since its establishmentin, Denyo has been a pioneer in outdoor

1948

power sources, developing and manufacturing many original
products, including engine-driven generators, enginedriven welders and engine-driven air compressors. Without
contenting ourselves with our current market positionor technical expertise, we have boldly taken on new R&D
challenges and, as a result, we now command a 65% share of
the domestic market for engine-driven generators, our main
product. The Denyo Group comprises the Company and its
ten subsidiaries and one affiliate, along with its production
facilities in Southeast Asia and the U.S., and R&D center inJapan.

P.T. Dein Prima Generator 40th Anniversary
In January 2016, P.T. Dein Prima Generator (“Dein”), the Denyo
Group’s production base in Indonesia, held a ceremony tomark the 40th anniversary of its establishment. The ceremony
was attended by many dignitaries, customers, Dein staff andother stakeholders.
Dein was established as the Denyo Group’s first overseas
plant in January 1976. Since then, Dein has served as the
Denyo Group’s production base in Southeast Asia, supplying
high quality generators mainly to the Indonesian market.
In August 2014, the DCA-25ESK engine-driven generator
manufactured by Dein was certified by MURI* after setting
a new record for continuous generator operation that wasmore than double Indonesia’s previous record. Through thisand other achievements, the high quality of Dein products has
been recognized both inside and outside of Indonesia.
Together with Denyo Vietnam Co., Ltd., which commenced
production of finished generator products in March 2015, Dein
will continue to play an important role in the Denyo Group’s
Asia strategy.
* MURI stands for Museum Rekor Dunia Indonesia (Indonesia Records Museum), which is therecognized authority for records certification in Indonesia.

CONTENTS

1

2

4

6

Consolidate
Financial Highlights

To OurShareholders

Review ofOperations

Overview of
Product Segment

7

8

32

33

37

Consolidated
Financial
Statements

Financial Review

Independent
Auditor’s ReportCompany Data

Investor
Information

Years ended March 31, 2016

CONSOLIDATED FINANCIAL HIGHLIGHTS
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2014

2016

Net Sales...................................................................

¥ 50,420¥ 52,267¥ 49,832$ 447,421

Total Assets...............................................................

66,994

67,32461,518594,502

Total Net Assets.........................................................

50,812

49,19544,324450,904

Operating Income.......................................................

4,097

5,349

5,407

36,358Net Income*...............................................................

3,137

3,858

3,726

27,841Per Share Data

Yen

U.S. Dollars

Total Net Assets.........................................................

¥2,285.62¥ 2,215.29¥1,990.19$ 20.28

Net Income*...............................................................

146.79179.38165.21

1.30

Cash Dividends..........................................................

30.00

28.00

24.00

0.27

Note: Transaction into U.S. dollars has been made, solely for the reader’s convenience, at the rate of ¥112.69 to U.S.$1, prevailing on the Tokyo Foreign Exchange Market on March 31, 2016.

Net Sales

Net Income*¥ million¥ million

1

3,137

2016

50,4202016

2015

52,267

2015

3,858

2014

3,726

49,832

2014
2013

47,6722013

2012

48,1072012

Total Assets

Total Net Assets¥ million¥ million

3,399
2,855

2016

66,994

2016

50,812

2015

67,3242015

49,195

2014
2013
2012

61,51855,71551,916

2014
2013
2012

44,32440,15335,899* Net Income attributable to owners of the parent.

DENYO CO., LTD. and Consolidated Subsidiaries

2

Shoichi Shiratori,
PresidentYears ended March 31, 2016

In fiscal

2016(ended March 31, 2016), the Japanese economic outlook was uncertain due to the decelerationof the Chinese economy and the appreciation of the yen since the start of the year, despite signs of an improvement in corporate
earnings and the employment and income situation. Meanwhile, the global economy remained generally firm, despite signs of adeceleration in emerging economies partly due to the effects of the falling oil price.
Regarding the business environment surrounding the Denyo Group, in Japan, public investment was trending downward, despite
firm construction demand in areas such as construction work to address aging infrastructure and redevelopment construction
work in the Tokyo Metropolitan area, and a cautious stance toward capital investment was also seen in some parts of theprivate sector due to concerns over the economic outlook. Meanwhile, overseas, demand remained firm in Asian markets andMiddle and Near East markets.
Under these circumstances, the Denyo Group actively launched new products and also worked to expand sales overseas.
However, consolidated net sales were ¥50,420 million (US$447,421 thousand), down 3.5% year on year. Profitability was
negatively affected by factors such as decline in shipments of products with comparatively high profit margins and higher fixed
costs at the Vietnam Plant, and consolidated operating income was ¥4,097 million (US$36,358 thousand), a 23.4% decrease
year on year, consolidated ordinary income was ¥4,495 million (US$39,886 thousand), down 21.9% year on year, and profit
attributable to owners of the parent was ¥3,137 million (US$27,841 thousand), falling 18.7% year on year.
The year-end dividend was an ordinary dividend of ¥16 (US$0.14) per share, which together with the interim dividend of ¥14(US$0.12) per share, made the total payout for the year ¥30 (US$0.27) per share, a ¥2 (US$0.02) increase from the previous
year.
Regarding the future business outlook, domestic construction demand in areas such as redevelopment in the Tokyo Metropolitan
area and construction work related to the Tokyo Olympics is expected to remain firm, but given destabilizing factors such as theimpact on the world economy of deceleration in China and resource-rich countries and oil price and exchange rate fluctuations,the outlook remains uncertain.
Under these conditions, the Denyo Group will concentrate on providing products and services that match customer needsin domestic and overseas markets and work to expand sales channels, while at the same time also focusing on improving
production efficiency.
We would like to take this opportunity to express our sincere gratitude to our shareholders for their continued patronage andsupport.

June 29, 2016

Shoichi Shiratori, President

3

DENYO CO., LTD. and Consolidated Subsidiaries

REVIEW OF OPERATIONS
Simul Generator for simultaneous
three-phase and single-phase output
Denyo developed the new Simul Generator, a three-phase/single-phase
three-wire system that is able to simultaneously output three-phase andsingle-phase power, and started sales of the two models: DCA-60LSIE-D(60kVA 3-phase) and DCA-45LSKE-D (45kVA 3-phase) in August 2015 andOctober 2015 respectively.
With previous Denyo generators, when powering three-phase machinery
such as water pumps and compressors and single-phase gadgets suchas the lighting and air-conditioning of temporary offices, users had toswitch between three-phase and single-phase output, also were only able
to use one or the other. Users had to install both a three-phase generator
and a single-phase generator in order to use both simultaneously.
The Simul Generator uses a three-phase/single-phase independent
windings system and can simultaneously supply three-phase and singlephase power, making it adaptable to a wide range of worksites without
any switchover operation.

4

The Simul Monitor, developed with the Simul Generator, has a number
display and power gauge that clearly indicate power generation status,
making it easy for users to check how much power they have left.
The Simul Generator is also equipped as standard with an Eco-base. The
oil guard at the base on the unit stops any fuel spillages or oil leaks during
refueling, making the Simul Generator safe to use even in places where
there are strict installation criteria such as rivers and ports.

LP Gas Standby Generating Set For
Emergency Equipment LEG-40SSGF
Denyo’s LEG-40SSGF LP Gas Standby Generating Set for emergency
equipment received a certificate of compliance with the Fire Service Act
of Japan in August 2015. This is the first time that the Nippon Engine
Generator Association, which is a registered certifying agency for private
power generating equipment under the provisions of the Enforcement
Rules of the Fire Service Act, approved for a certificate of compliancewith the Fire Service Act for an LP gas standby generating set.
When a large-scale disaster occurs, and lifelines such the electricity andgas supply are cut off and it will take time for them to be restored, LP gas
is used as fuel for cooking, hot water supply, heating, etc. at temporary
housing and evacuation centers because it is a form of energy that can beused at a comparatively early stage. Fueled by LP Gas, Denyo’s LEG Power
series of LP Gas Standby Generating Sets has earned the trust of manycustomers and, since its launch in 2011 to the present, we have shipped
more than 1,100 sets.
Now that the LEG Power series includes a product that has been approved
for a certificate of compliance with the Fire Service Act, our sets will start
to be used as emergency power sources for firefighting equipment suchas sprinklers and fire hydrants and we hope that this will lead to further
expansion in demand.

Simul Monitor

Years ended March 31, 2016

Small-sized Engine-driven
Welder/Generator GAW-190ES
In October 2015, Denyo launched GAW-190ES, which increased the
maximum welding current of our gasoline engine-driven welders from
185A to 190A, enabling more powerful, stable welding.
Our previous model (in the same class) was well received by the industry
because it is small and lightweight and, with a maximum welding currentof 185A, enables stable welding of welding rods up to 4.0 mm in diameter,
and it is one of our core products. The new product GAW- 190ES increased
the maximum welding current by 5A to 190A, enabling more powerful,stable welding, while as a generator, it increased the inverter alternating
current from 3.0kVA to 3.5kVA.
GAW- 190ES is also equipped as standard with an automatic idling stopfunction so that the engine automatically cuts off if welding stops formore than a set amount of time. This helps save fuel and also reduces
CO2 emissions, making the GAW- 190ES an eco-friendly product. It isalso possible to switch between “constant current characteristic,” where
the welding current stays the same even if the arc length changes, and“drooping characteristic,” that enables adjustment of bead width, depth
and drooping through subtle allowances with a switch so that users
can adjust the gradient of droop characteristics according to use or
preference.
As a leader manufacturer of engine-driven welders, Denyo will continue todevelop welders that meet the needs of its customers.

Denyo Manufacturing Corporation
20th Anniversary
Established in 1995, Denyo Manufacturing Corporation (“DMC”), theDenyo Group’s production base in Kentucky in the US, celebrated its 20th
anniversary and also produced its 60,000th generator.
In August 2015, DMC held a ceremony to commemorate its 20th
anniversary. The ceremony was attended by the Mayor of the City ofDanville and other dignitaries, DMC staff and other Denyo related people.
Denyo began making inroads into the North American market in 1982
and, later, established DMC in Danville, Kentucky, in response to steady
growth in sales volume and exchange rate fluctuations. Since then, DMC
has played an important role as the Denyo Group’s production base in
North America.
DMC has also won recognition for its environmental efforts, winning
the Kentucky Manufacturer of the Year award for its contribution to theenvironment and the community, as well as being selected as a company
that contributes to the environment and winning the MVP2 Award (Most
Valuable Pollution Prevention Award). Moving forward, DMC will continue
contributing to the environment and the community and supplying
generators to the North American market, a key market for the Denyo
Group, aiming to make another leap forward.

5

DENYO CO., LTD. and Consolidated Subsidiaries

OVERVIEW OF PRODUCT SEGMENT
Business performance by product category and domestic market share
ENGINE GENERATORSIn the engine generators segment, shipments of mediumand large-sized generators to the Asian and Middle andNear East markets were firm in overseas business, but
sales to major leasing and rental companies decreased indomestic business, resulting in segment sales of ¥38,295
million (US$339,825 thousand), down 4.5% year on year.

65 %
65 %
Domestic market share (Mobile type)6

ENGINE WELDERS

ENGINE COMPRESSORSIn the engine welders segment, growth in shipments ofproducts such as TIG welders was offset by decline inshipments of small-sized welders in domestic business.
Also in overseas business, shipments to European
markets were sluggish. As a result, segment sales were
¥5,101 million (US$45,263 thousand), falling 8.2% year on
year.

In the compressors segment, shipments to the leasing
and rental industry, which is the main customer in thissegment, declined in domestic business, resulting insegment sales of ¥1,105 million (US$9,803 thousand),decreasing 2.0% year on year.

55 %
55%
Domestic market share20%
20%
Domestic market share

OTHER PRODUCTS
In the other products segment, sales were ¥5,920 million (US$52,529 thousand), up 7.5% year on year, mainly due to growthin sales of self-propelled lifters and parts incidental to products, etc.
Note: Above domestic share is five year mean by our investigation

Years ended March 31, 2016

CONSOLIDATEDFINANCIALSTATEMENTS
forthe Year Ended March 31, 2016, and Independent Auditor’s Report

7

DENYO CO., LTD. and Consolidated Subsidiaries

FINANCIAL REVIEW
BUSINESS ENVIRONMENT AND RESULTS
In fiscal 2016 (ended March 31, 2016), the Japanese economic
outlook was uncertain due to the deceleration of the Chinese
economy and the appreciation of the yen since the start of the year,
despite signs of an improvement in corporate earnings and theemployment and income situation. Meanwhile, the global economy
remained generally firm, despite signs of deceleration in emerging
economies partly due to the effects of the falling oil price.
Regarding the business environment surrounding the Denyo
Group, in Japan, public investment was in a downward trend, despite
firm construction demand in areas such as construction work toaddress aging infrastructure and redevelopment construction workin the Tokyo Metropolitan area, and a cautious stance on capital
investment was also seen in some parts of the private sector due toconcerns over the economic outlook. Meanwhile, overseas, demandremained firm in Asian markets and Middle and Near East markets.
Under these circumstances, the Denyo Group actively launched
new products and also worked to expand sales overseas. However,consolidated net sales were ¥50,420 million (US$447,421 thousand),down 3.5% year on year. Profitability was negatively affected byfactors such as decline in shipments of products with comparatively
high profit margins and higher fixed costs at the Vietnam Plant,
and consolidated operating income was ¥4,097 million (US$36,358
thousand), a 23.4% decrease year on year, consolidated ordinary
income was ¥4,495 million (US$39,886 thousand), down 21.9% year
on year, and net income attributable to owners of the parent was¥3,137 million (US$27,841 thousand), falling 18.7% year on year.

SEGMENT INFORMATION

8

Sales by product are as follows.

Information by geographical area is as follows.

In the engine generators segment, shipments of medium- and largesized generators to the Asian and Middle and Near East markets
were firm in overseas business, but sales to major leasing and rental
companies decreased in domestic business, resulting in segment
sales of ¥38,295 million (US$339,825 thousand), down 4.5% year on
year.

(Japan)In Japan, shipments of generators grew overall, with increased
shipments of generators to the Asian and Middle and Near East
markets, but some portion of shipments of equipment generators to
the domestic market was affected by apparent caution over buying
caused by concerns about the economic outlook and construction
work delays which had occurred due to shortages of construction
materials and labor. As a result, sales were ¥38,005 million(US$337,253 thousand), down 0.3% year on year, and operating
income was ¥2,683 million (US$23,812 thousand), down 17.3%.

In the engine welders segment, growth in shipments of products
such as TIG welders was offset by decline in shipments of smallsized welders in domestic business. Also in overseas business,
shipments to European markets were sluggish. As a result, segment
sales were ¥5,101 million (US$45,263 thousand), falling 8.2% year
on year.
In the compressors segment, shipments to the leasing and rental
industry, which is the main customer in this segment, declined indomestic business, resulting in segment sales of ¥1,105 million(US$9,803 thousand), decreasing 2.0% year on year.
In the other products segment, sales were ¥5,920 million(US$52,529 thousand), up 7.5% year on year, mainly due to growthin sales of self-propelled lifters and parts incidental to products, etc.

(U.S.)In the U.S., shipments of generators to the rental market declined,
resulting in sales of ¥7,308 million (US$64,848 thousand), down
18.6% year on year, and operating income of ¥777 million (US$6,898
thousand), falling 34.4% year on year.
(Asia)In Asia, demand for generators for the construction of airports,
ports and other infrastructure and demand for equipment generators
among companies was firm. However, demand for the developmentof resources was weak. As a result, sales were ¥4,586 million(US$40,694 thousand), down 2.6% year on year. Operating income
was ¥241 million (US$2,138 thousand), falling 65.8% year on
year, partly due to higher fixed costs associated with the start ofproduction of finished generator products at the Vietnam Plant.
(Europe)
In Europe, shipments of generators grew, resulting in sales of ¥521
million (US$4,626 thousand), rising 8.8% year on year, and operating
income of ¥16 million (US$146 thousand), up 144.7%.

Net Income per Share

Cash Dividends per Share

Equity Ratio

(¥)

(¥)

(%)

149.00165.21179.3822.00

123.82

2012

28.00

146.79
2013

2014

2015

2016

30.00

24.00

67.6

70.4

69.6

70.3

72.9

2012

2013

2014

2015

2016

18.00

2012

2013

2014

2015

2016

Years ended March 31, 2016

FINANCIAL POSITION(Assets)
Total assets at the end of the fiscal year under review were ¥66,994
million (US$594,502 thousand), a decrease of ¥330 million (US$2,926
thousand) from the end of the previous fiscal year.
Current assets at the end of the fiscal year under review were¥42,247 million (US$374,894 thousand), an increase of ¥1,391
million (US$12,341 thousand) from the end of the previous fiscal
year. This was mainly due to an increase in cash and deposits of¥569 million (US$5,052 thousand) and an increase in securities of¥400 million (US$3,549 thousand).
Non-current assets at the end of the fiscal year under review
were ¥24,748 million (US$219,608 thousand), down ¥1,720 million(US$15,267 thousand) from the end of the previous fiscal year.
This was mainly due to a decrease in investments in securities of¥1,534 million (US$13,615 thousand) reflecting the revaluation ofstockholdings.
(Liabilities)
Total liabilities at the end of the fiscal year under review were¥16,182 million (US$143,597 thousand), decreasing ¥1,947 million(US$17,277 thousand) from the end of the previous fiscal year.
Current liabilities at the end of the fiscal year under review
were ¥12,455 million (US$110,529 thousand), down ¥941 million(US$8,350 thousand) from the end of the previous fiscal year. Thiswas mainly due to a decrease in notes and accounts payable-tradeof ¥186 million (US$1,649 thousand) and a drop in short-term loans
payable or ¥400 million (US$3,548 thousand).
Non-current liabilities at the end of the fiscal year under review
were ¥3,727 million (US$33,069 thousand), decreasing ¥1,006
million (US$8,927 thousand) from the end of the previous fiscal year.
This was mainly due to a reduction in deferred tax liabilities of ¥618
million (US$5,484 thousand).
(Net assets)
Net assets at the end of the fiscal year under review was ¥50,812
million (US$450,904 thousand), an increase of ¥1,617 million(US$14,351 thousand) from the end of the previous fiscal year.
This is mainly due to profit attributable to owners of the parent of¥3,137 million (US$27,841 thousand) and a ¥1,020 million (US$9,054
thousand) decrease in valuation difference on available-for-salesecurities.

CASH FLOWS
The status of cash flows and the factors affecting cash flows in thefiscal year under review are as follows.
Cash flows from operating activities
Net cash provided by operating activities was ¥2,973 million(US$26,382 thousand), a decrease of ¥2,105 million (US$18,683
thousand) from the previous fiscal year. This mainly reflected profit
before income taxes of ¥4,805 million (US$42,642 thousand), andan increase in notes and accounts receivable-trade of ¥213 million(US$1,896 thousand) and an increase in inventories of ¥398 million(US$3,530 thousand) and income taxes paid of ¥1,530 million(US$13,580 thousand).
Cash flows from investing activities
Net cash used in investing activities was ¥775 million (US$6,880
thousand), a decrease of ¥1,867 million (US$16,565 thousand)from the previous fiscal year. This mainly reflected ¥1,046 million(US$9,285 thousand) in payments for the purchase of property, plantand equipment such as buildings and machinery and transportationequipment.
Cash flows from financing activities
Net cash used in financing activities was ¥1,181 million (US$10,483
thousand), a decrease of ¥607 million (US$5,390 thousand) from theprevious fiscal year. This mainly reflected repayments of long-termloans payable of ¥400 million (US$3,550 thousand) and dividends
paid of ¥667 million (US$5,918 thousand).
As a result, consolidated cash and cash equivalents (hereinafter“cash”) were ¥11,746 million (US$104,229 thousand) at the endof the fiscal year under review, increasing ¥969 million (US$8,600
thousand) from the end of the previous fiscal year, mainly due toprofit before income taxes of ¥4,805 million (US$42,642 thousand).

DIVIDENDS
Denyo recognizes the importance of returning profits to shareholders,
while investing in equipment and research & development tostrengthen and maintain product competitiveness and striving to
improve profitability and strengthen the financial structure. Ourpolicy is to distribute profits based on comprehensive considerationof a wide range of factors including business performance and thepayout ratio.

Based on this policy, for fiscal 2016, we paid an interim dividendof ¥14 (US$0.12) per share and, for the year-end dividend, giventhat large-scale capital investment is expected to settle down fora time following a period of brisk activity, we decided to pay an
ordinary dividend of ¥16 (US$0.14) per share, resulting in a total
annual dividend of ¥30 (US$0.27) per share, which is an increaseof ¥2 (US$0.02) over the previous year. As a result, the consolidated
dividend payout ratio was 20.4%.

Return on
Average Shareholders’ Equity

Return on Average Assets (ROA)

(%)

(%)

8.4

9.1

9.1

8.6
5.9

6.3

6.4

10.7
6.0

6.5
2012

2013

2014

2015

2016

Price Earnings Ratio

8.3

10.0

8.2
7.9

4.7
2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

9

DENYO CO., LTD. and Consolidated Subsidiaries

DENYO CO., LTD. AND SUBSIDIARIES· YEAR ENDED MARCH 31, 2016

CONSOLIDATED BALANCE SHEETS
Thousands of U.S.
Dollars (Note 1)

Millions of Yen
ASSETS

2016

2015

2016

¥ 11,746¥ 10,776$ 104,229

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

5,737

6,349

50,910Trade accounts..............................................................................

10,84010,62896,192

Associated companies (Note 20)....................................................

2,738

2,198

24,301Other.............................................................................................

143

177

1,267

Allowance for doubtful receivables..................................................
Inventories (Note 5).................................................................................
Deferred tax assets (Note 11)..................................................................
Prepaid expenses and other current assets...............................................

(26)
10,338
517
214

(43)
10,062
575
134

(228)
91,742
4,589
1,892

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

42,24740,856374,894

CURRENT ASSETS:
Cash and cash equivalents (Note 14).......................................................
Receivables (Note 14):

PROPERTY, PLANT AND EQUIPMENT:10Land.......................................................................................................

4,855

4,863

43,085

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

12,35912,072

109,671

Machinery and equipment (Note 13).........................................................

6,703

5,722

59,480Furniture and fixtures...............................................................................

1,706
26

1,684
1,079

15,138233

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

25,649(10,231)

25,420(9,613)

227,607(90,785)

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

15,41815,807

136,822

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

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4 and 14)....................................................

7,716

9,326

68,473

Investments in associated companies (Note 6).........................................

697

621

6,182

Deferred tax assets (Note 11)..................................................................
Other assets............................................................................................

59
857

58
656

527
7,604

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

9,329

10,66182,786TOTAL...............................................................................................................

¥ 66,994¥ 67,324$ 594,502

See notes to consolidated financial statements.

Years ended March 31, 2016

Thousands of U.S.
Dollars (Note 1)

Millions of Yen
LIABILITIES AND EQUITY

2016

2015

2016

CURRENT LIABILITIES:
Short-term bank loans (Notes 7 and 14)...................................................
Current portion of long-term debt (Notes 7 and 14)...................................
Payables (Note 14):

¥ 233
4

¥ 233
400

$ 2,06732

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

2,095

1,817

18,591

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

7,907

8,375

70,169

Associated companies...................................................................

18

14

157

Other.............................................................................................
Accrued income taxes (Note 11)..............................................................
Accrued expenses..................................................................................
Provision for product warranties..............................................................
Other current liabilities............................................................................

122
393
1,319
122
242

145
519
1,530
90
273

1,080
3,489
11,702
1,078
2,164

Total current liabilities.......................................................................................

12,455

13,396

110,529

Other long-term liabilities.........................................................................

1,135
441
1,577
574

1,215
471
2,195
852

10,075
3,912
13,991
5,091

Total long-term liabilities...................................................................................

3,727

4,733

33,069issued, 22,859,660 shares in 2016 and 22,859,660 shares in 2015....
Capital surplus........................................................................................
Retained earnings....................................................................................
Treasury stock—at cost, 1,484,961 shares in 2016 and 1,491,904 shares in2015 (Note 3)..........................................................................................
Accumulated other comprehensive income:

1,955
1,779
42,344

1,955
1,754
39,873

17,347
15,791
375,756(1,381)(1,359)(12,256)

Unrealized gain on available-for-sale securities................................

3,014

4,034

26,747

LONG-TERM LIABILITIES:Long-term debt (Notes 7 and 14)..............................................................
Liability for retirement benefits (Note 9)...................................................
Deferred tax liabilities (Note 11)...............................................................

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 13, 15 and 16)
EQUITY (Note 10):
Common stock—authorized, 97,811,000 shares;

Deferred gain on derivatives under hedge accounting.......................
Foreign currency translation adjustments........................................

1
1,142
1

1,087
(9)

10,1395

Noncontrolling interests..........................................................................

48,854
1,958

47,336
1,859

433,529
17,375

Total equity.......................................................................................................

50,812

49,195450,904

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

¥ 66,994¥ 67,324$ 594,502

Defined retirement benefit plans......................................................
Total....................................................................................

11

DENYO CO., LTD. and Consolidated Subsidiaries

DENYO CO., LTD. AND SUBSIDIARIES· YEAR ENDED MARCH 31, 2016

CONSOLIDATED STATEMENT OF INCOME ANDCOMPREHENSIVE INCOME
Thousands of U.S.
Dollars (Note 1)

Millions of Yen

NET SALES (Note 19)................................................................................
COST OF SALES.......................................................................................
Gross profit............................................................................
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 12)...............
Operating income....................................................................
OTHER INCOME (EXPENSES):Interest and dividend income.............................................................
Interest expense.............................................................................
Gain on sale of property, plant and equipment......................................
Loss on sale or disposal of property, plant and equipment......................
Gain on sale of investment securities (Note 4)......................................
Foreign exchange (loss) gain.............................................................
Equity in earnings of associated companies.........................................
Rent income...................................................................................
Commitment fee.............................................................................
Other—net......................................................................................

12

Other income—net...................................................................
INCOME BEFORE INCOME TAXES.......................................................................
INCOME TAXES (Note 11):
Current..........................................................................................
Deferred........................................................................................
Total income taxes..................................................................
NET INCOME—(Forward)...........................................................................
NET INCOME ATTRIBUTABLE TO:
Owners of the parent.......................................................................
Noncontrolling interests...................................................................
NET INCOME...........................................................................................
OTHER COMPREHENSIVE (LOSS) INCOME (Note 17):
Unrealized (loss) gain on available-for-sale securities............................
Deferred (loss) gain on derivatives under hedge accounting....................
Foreign currency translation adjustments............................................
Defined retirement benefit plans.........................................................
Share of other comprehensive loss in associates..................................
Total other comprehensive (loss) income....................................
COMPREHENSIVE INCOME........................................................................
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent.......................................................................
Noncontrolling interests...................................................................

2016

2015

2016

¥ 50,420
38,263¥ 52,267
39,155$ 447,421
339,541

12,157
8,060

13,112
7,763

107,880
71,522

4,097

5,349

36,358

175
(43)
312
(2)

181
(42)
1
(3)
300
104
61
56
(7)
54

1,553
(379)
2,772
(17)

(10)
92
83
(7)
108
708

705

6,284

4,805

6,054

42,642

1,383
21

1,863
131

12,273
189

1,404

1,994

12,462¥ 3,401¥ 4,060$ 30,180

3,137
264

3,858
202

27,841
2,339

3,401

4,060

30,180(1,017)
(1)
(27)
10
(3)

826
1
992
(27)

(9,025)
(10)
(234)
87
(29)

(1,038)

1,792(9,211)¥2,363¥ 5,852$ 20,969¥ 2,182
181¥ 5,458394$ 19,365
1,604

Yen
PER SHARE OF COMMON STOCK:
Basic net income (Note 18)...............................................................
Cash dividends applicable to the year.................................................

See notes to consolidated financial statements.

(88)
821
739
(62)
945

¥ 146.79
30.00

U.S. Dollars¥ 179.38
28.00$ 1.300.27

Years ended March 31, 2016

· YEAR ENDED MARCH 31, 2016

DENYO CO., LTD. AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGESIN EQUITY
Thousands

Millions of Yen
Accumulated Other Comprehensive Income

BALANCE, APRIL 1, 2014(as previously reported).
Cumulative effect ofaccounting change...
BALANCE, APRIL 1, 2014(as restated)...................
Net income attributableto owners of the parent..
Cash dividends, ¥28 pershare............................
Purchase of treasury
stock............................
Selling of treasury stock.
Retirement of treasury
stock............................
Net change in the year...
BALANCE,MARCH 31, 2015...........
Net income attributableto owners of the parent..
Cash dividends,¥30 per share................
Purchase of treasury
stock............................
Selling of treasury stock.
Disposal of treasury
stock............................
Net change in the year...
BALANCE,MARCH 31, 2016...........

Unrealized Deferred Gain
Defined
Foreign(Loss) on
Gain onCurrency Retirement
Available- Derivatives
for-Sale under Hedge Translation Benefit
Securities Accounting Adjustments Plans

Number of
Shares ofCommonStockCommon Capital
Outstanding
Stock Surplus

Retained
Earnings

Treasury
Stock21,515 ¥ 1,955 ¥ 1,754¥ 38,458¥ (2,861)¥ 3,208

¥ 288

¥ 18

(103)
21,515

1,955

1,754

38,355(2,861)

3,208

288

18

Noncontrolling
Interests
Total Equity

Total¥ 42,820¥ 1,504 ¥ 44,324

(103)

(103)

42,717

1,504

44,221

3,858

3,858

3,858

(559)

(559)

(559)

(150)

(281)

(281)

(281)

3

2

2

2

(1,781)

21,368

1,955

1,754

39,873

1,781(1,359)

826

¥1

799

(27)

1,599

355

1,954

4,034

1

1,087

(9)

47,336

1,859

49,195

3,137

3,137

3,137

(666)

(666)

(666)

(1)

(2)

(2)

(2)

8

5

5

5

25

(25)
(1,020)21,375 ¥ 1,955 ¥ 1,779¥ 42,344¥ (1,381)(1)¥ 3,01455¥ 1,14210(956)¥ 1 ¥ 48,854

99

(857)

¥ 1,958 ¥ 50,812

Thousands of U.S.Dollars (Note 1)
BALANCE,MARCH 31, 2015...........
Net income attributableto owners of the parent..
Cash dividends,$0.27 per share..........
Purchase of treasury
stock.........................
Selling of treasury
stock.........................
Disposal of treasury
stock.........................
Net change in the year...
BALANCE,MARCH 31, 2016...........
See notes to consolidated financial statements.

$ 17,347 $ 15,569 $ 353,833 $ (12,063) $ 35,801

222

$ 10

$ 9,638$ (81) $ 420,054$ 16,500 $ 436,554

27,841

27,841

27,841(5,918)(5,918)(5,918)

(12)

(12)

(12)

41

41

41

(222)
(9,054)$ 17,347 $ 15,791 $ 375,756 $ (12,256) $ 26,747

(10)

501
$ 10,139

86(8,477)$ 5 $ 433,529

875(7,602)$ 17,375 $ 450,904

13

DENYO CO., LTD. and Consolidated Subsidiaries

DENYO CO., LTD. AND SUBSIDIARIES· YEAR ENDED MARCH 31, 2016

CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of U.S.
Dollars (Note 1)

Millions of Yen
2016

2015

2016

OPERATING ACTIVITIES:¥ 4,805¥ 6,054$ 42,642(1,530)
1,284
(311)
(92)

(2,422)999
2(61)(13,580)
11,398(2,755)(821)

Other—net..................................................................................................

(214)
(398)
11
(54)
1
(15)
(24)
(490)

932
(1,470)
14
1,260
2
(15)
60
(277)

(1,896)(3,530)
99
(481)
12
(133)
(217)
(4,356)

Total adjustments..................................................................

(1,832)(976)(16,260)

Net cash provided by operating activities................................

2,973

5,078

26,382369(1,046)2(2,611)
396
(371)
(7)
15

3,270
(9,285)

Income before income taxes..................................................................................
Adjustments for:
Income taxes paid......................................................................................
Depreciation and amortization....................................................................
(Gain) loss on sale or disposal of property, plant and equipment—net................
Equity in earnings of associated companies................................................
Changes in assets and liabilities, net of effects:(Increase) decrease in trade notes and accounts receivable..............
Increase in inventories.....................................................................
Decrease in interest and dividend receivable.....................................
(Decrease) increase in trade notes and accounts payable..................
Increase in interest payable.............................................................
Decrease in provision for allowance for doubtful accounts................
(Decrease) increase in liability for retirement benefits.......................

14

INVESTING ACTIVITIES:....................................................................................................
Proceeds from sales of property, plant and equipment............................................
Purchases of property, plant and equipment...........................................................
Proceeds from sales of securities..........................................................................
Purchases of securities.........................................................................................
Investment in loans receivable...............................................................................
Collections of loans receivable...............................................................................
Increase in time deposit.........................................................................................
Decrease in time deposit.......................................................................................
Other—net.............................................................................................................
Net cash used in investing activities.......................................
FORWARD........................................................................................................................
FINANCING ACTIVITIES:...................................................................................................
Decrease in short-term loans—net..........................................................................
Repayment of long-term debt.................................................................................
Proceeds from sales of treasury stock....................................................................
Purchases of treasury stock ..................................................................................
Dividends paid.......................................................................................................

(2)
(11)
12
(242)
242
(97)

(66)

(20)
(98)
106
(2,148)
2,148
(853)

(775)

(2,642)(6,880)¥ 2,198¥ 2,436$ 19,502

(400)
3

(476)
(400)

(3,550)29

Other—net.............................................................................................................

(667)
(117)

(280)
(559)
(74)

(5,918)(1,044)

Net cash used in financing activities............................................................

(1,181)(1,789)(10,483)

(47)

297

(419)

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

970
10,776

944
9,832

8,600
95,629CASH AND CASH EQUIVALENTS, END OF YEAR..................................................................

¥ 11,746¥ 10,776$ 104,229

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS.....
NET INCREASE IN CASH AND CASH EQUIVALENTS............................................................

See notes to consolidated financial statements.

Years ended March 31, 2016

DENYO CO., LTD. AND SUBSIDIARIES· YEAR ENDED MARCH 31, 2016

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL 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 accordance with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements ofInternational 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 is more familiar to readers outside Japan.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Denyo Co., Ltd. (the “Company”)
is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenienceof readers outside Japan and have been made at the rate of ¥112.69 to $1, the approximate rate of exchange at March 31, 2016. Suchtranslations 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 March 31, 2016, include the accounts of the Company and its 10
subsidiaries, including mainly “Denyo Kosan Co., Ltd.,” “Nishinihon Generator Mfg. Co., Ltd.,” “Denyo America Corporation,” “Denyo
Manufacturing Corporation,” “Denyo Asia Pte. Ltd.,” “Denyo United Machinery Pte. Ltd.,” “Denyo Europe B.V.,” “Denyo Vietnam Co.,
Ltd.” and “P.T. Dein Prima Generator” (together, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control
over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence areaccounted for by the equity method.
The investment in “New Japan Machinery Corporation,” an associated company, is accounted for by the equity method.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included
in assets resulting from transactions within the Group is also eliminated.
“Denyo America Corporation,” “Denyo Manufacturing Corporation,” “Denyo Asia Pte. Ltd.,” “Denyo United Machinery Pte. Ltd.,” “Denyo
Europe B.V.,” “Denyo Vietnam Co., Ltd.” and “P.T. Dein Prima Generator” and one other subsidiary were consolidated using the financial
statements as of December 31 because the difference between the fiscal year end date of the subsidiaries and that of the Company does
not exceed three months. Significant transactions between December 31 and March 31 are reflected in the accompanying consolidated
financial statements.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—In May 2006, the
Accounting Standards Board of Japan (the “ASBJ”) issued ASBJ Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements” which was subsequently
revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards in otherjurisdictions. PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries
for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated
financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial
Reporting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards
Board Accounting Standards Codification) tentatively may be used for the consolidation process, except for the following items thatshould be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they
are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded inequity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value
model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.
c. Business Combinations—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 for Consolidated Financial Statements.” Major accountingchanges are as follows:(a) 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.
(b) Presentation of the consolidated statement of income and comprehensive income—In the consolidated statement of income andcomprehensive income, “net income 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 is changed to “net income
attributable to owners of the parent” under the revised accounting standard.
The Company applied the revised accounting standards and guidance above, effective April 1, 2015.

15

DENYO CO., LTD. and Consolidated Subsidiaries

With respect to (a) presentation of the consolidated balance sheet and (b) presentation of the consolidated statement of income
and comprehensive income, the applicable line items in the 2015 consolidated financial statements have been accordingly reclassified
and presented in line with those in 2016.
d. Cash and Cash Equivalents—Cash and cash equivalents include cash on hand, bank deposits able to be withdrawn on demand andshort-term investments with an original maturity of three months or less and that are exposed to a minor risk of fluctuations in value.
e. Marketable and Investment Securities—Marketable and investment securities are classified and accounted for depending on
management’s intent. Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicabletaxes, reported 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 a charge to income.
f. 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 of potential losses in the receivables outstanding.
g. Inventories—Inventories are stated at the lower of cost, determined by the first-in, first-out method for finished products and work inprocess, and by the average method for raw materials, or net selling value.
h. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of theCompany and its consolidated domestic subsidiaries is computed by the declining-balance method based on the estimated useful livesof the assets, while the straight-line method is applied to buildings of the Company and its consolidated domestic subsidiaries after
April 1, 1998, and all property, plant and equipment of consolidated foreign subsidiaries. The range of useful lives is principally from 7
to 47 years for buildings and structures, and from 2 to 11 years for machinery and equipment.
i. Provision for Product Warranties—The provision for product warranties is recorded to provide for future potential costs, such as costs
related to after-sales services within the warranty period based on past experience.
j. Accrued Bonuses—Accrued bonuses to employees are provided for at the estimated amounts that the Company and its domestic
subsidiaries are obligated to pay to employees after the fiscal year-end, based on services provided during the current period.
k. Retirement and Pension Plans—The Company, its domestic subsidiaries and a certain foreign subsidiary maintain defined benefit
pension plans. Some foreign subsidiaries maintain defined contribution pension plans.

16

Accrued severance indemnities are accrued based on an estimated retirement benefit obligation, considering the estimated fairvalue of plan assets at the balance sheet date.
The unrecognized actuarial gains and losses are amortized on a straight line basis over a period of 5 years from the year incurred.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25,“Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement benefits that had
been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and 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 be recognized 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 orloss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service
period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have notyet been recognized in profit or loss 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 or loss in the current period
shall be 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.
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 ofannual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, all with earlier application being permitted
from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting
standard to consolidated financial statements in prior periods is required.
The Company applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March 31,
2014, and for (c) above, effective April 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, the method of determining the discount rate from using the period which approximates the expected averageremaining service period to using a single weighted average discount rate reflecting the estimated timing and amount of benefit payment
and the method of estimating expected future salary increases from salary increases “expected to be certain” to salary increases“expected,” and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As a result, retained earnings as of April 1, 2014,
decreased by ¥103 million.

Years ended March 31, 2016l. Employee Stockownership Plan—In December 2013, the ASBJ issued PITF No. 30, “Practical Solution on Transactions of Delivering theCompany’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,
and applied retrospectively.
In accordance with the PITF, upon transfer of treasury stock to the employee stockownership trust (the “Trust”) by the entity, any
difference between the book value and fair value of the treasury stock shall be recorded in capital surplus. At-year-end, the entity shallrecord (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) a liability/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 April 1, 2014, retrospectively. As a result, other current liabilities as of March 31, 2014, increased by¥42 million and liability for retirement benefits, capital surplus, retained earnings and treasury stock as of March 31, 2014, decreasedby ¥139 million, ¥1 million, ¥76 million and ¥142 million, respectively, as compared to those previously reported.
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 theprevious accounting standard for lease transactions.
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 notes to the lessee’s financial statements. The revised accounting standard requires that
all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, therevised accounting standard permits leases that existed at the transition date and do not transfer ownership of the leased property to
the lessee to continue to be accounted for as operating lease transactions.
The Company applied the revised accounting standard effective April 1, 2008.
All other leases are accounted for as operating leases.
o. Bonuses to Directors and Audit & Supervisory Board Members—Bonuses to directors and Audit & Supervisory Board members are
accrued at the end of the year to which such bonuses are attributable.
p. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidated statement ofincome and comprehensive 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 aretranslated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation
are recognized in the accompanying consolidated statement of income and comprehensive income.
r. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese
yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences
arising from such translation are shown as “Foreign currency translation adjustments” under accumulated other comprehensive income
in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese
yen at the average exchange rate.
s. Derivatives and Hedging Activities—The Group uses derivative financial instruments to manage its exposures to fluctuations inforeign exchange, interest rates and raw material costs. Foreign exchange forward contracts, currency swaps, interest rate swaps andcommodity swaps are utilized by the Group to reduce the risk of fluctuation of foreign currency exchange, interest rate and raw material
costs. The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments are classified and accounted for as follows: (a) all derivatives, except for those that qualify for hedge
accounting, are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions arerecognized in the income statement and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting
because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives
are deferred until maturity of the hedged transactions.
Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but
the differential paid or received under the swap agreements is recognized and included in interest expense.
The commodity swaps which qualify for hedge accounting are measured at market value at the balance sheet date and the unrealized
gains or losses are deferred until maturity as deferred gain (loss) on derivatives under hedge accounting as a separate component ofequity.
t. Per Share Information—Basic net income per share is computed by dividing net income attributable to common shareholders by theweighted average number of common shares outstanding for the period, retroactively adjusted for stock splits.
Cash dividends per share presented in the accompanying consolidated statement of income and comprehensive income are
dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year.
u. Consumption Taxes—Consumption taxes are not included in sales, cost of sales and selling, general and administrative expenses, etc.

17

DENYO CO., LTD. and Consolidated Subsidiaries

v. New Accounting Pronouncement
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 and auditing guidance issued by the Japanese Institute of Certified
Public Accountants. While the new guidance continues to follow the basic framework of the previous guidance, it provides new guidance
for the application of judgment in assessing the recoverability of deferred tax assets.
The previous guidance provided a basic framework which included certain specific restrictions on recognizing 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 to recognize deferred tax assets
even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the previous
guidance, if the company can justify, with reasonable grounds, that it is probable that the deductible temporary difference will be utilizedagainst future taxable profit in some future period.
The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier application is permitted
for annual periods ending on or after March 31, 2016. The new guidance shall not be applied retrospectively and any adjustments fromthe application of the new guidance at the beginning of the reporting 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 April 1, 2016, and is in the process
of measuring the effects of applying the new guidance in future applicable periods.
3. STOCK GRANTING TRUST (“J-ESOP” and “BBT”)
The Company has introduced a Stock Granting Trust (“J-ESOP”) for the purpose of enhancing the benefits package to employees andproviding incentives for raising corporate value.
The Company grants employees points according to their continued services and results, and when the employees retire, the Company delivers
to them its own stock (or pays an equivalent amount in cash) corresponding to the number of their accumulated points through the Trust.
The Company has introduced a new stock compensation plan for directors called the “Board Benefit Trust (BBT)” since September
1, 2015. The Company grants its directors points according to the Company’s business results, etc., and the Company delivers to thedirectors who have beneficiary rights its own stock corresponding to the number of their accumulated points determined on a given dateevery year through the Trust.

18

These Trusts held treasury stock as follows which was included in the balance sheet of the Company:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

Treasury stock............................................................................................

¥ 552

¥ 478

(number of shares (thousands of shares))...................................................

(826)

(793)

2016
$ 4,898

4. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

¥ 6,563¥ 8,162$ 58,238

Nonmarketable equity securities........................................................

130
1,023

141
1,023

1,155
9,079

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

¥ 7,716¥ 9,326$ 68,472

Non-current:
Marketable equity securities..............................................................
Marketable trust fund investments and other......................................

The cost and aggregate fair values of marketable and investment securities at March 31, 2016 and 2015, were as follows:Years ended March 31, 2016

Millions of Yen
March 31, 2016

Cost

Unrealized Gains Unrealized Losses

Securities classified as available-for-sale:
Equity securities..................................................

¥ 2,240

Trust fund investments and other.........................

150¥ 4,378

Fair Value¥ 55¥ 6,56320

130March 31, 2015
Securities classified as available-for-sale:
Equity securities..................................................

¥ 2,238¥ 5,924

Trust fund investments and other.........................

157

2¥ 8,162¥ 18

141

Thousands of U.S. Dollars
March 31, 2016

Cost

Securities classified as available-for-sale:
Equity securities..................................................

$ 19,879

Trust fund investments and other.........................

1,335

Unrealized Gains Unrealized Losses$ 38,849

Fair Value$ 490$ 58,238

180

1,155

The information of available for sale securities which were sold during the years ended March 31, 2016 and 2015, is as follows:
Millions of Yen
March 31, 2016

Proceeds

Realized
Gains

Realized
Loss

Available-for-sale—Equity securities............................................................

19

March 31, 2015
Available-for-sale—Equity securities............................................................

¥ 396

¥ 300
Thousands of U.S. Dollars

March 31, 2016

Proceeds

Realized
Gains

Realized
Loss

Available-for-sale—Equity securities............................................................
5. INVENTORIESInventories at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Finished products.......................................................................................

¥ 5,696¥ 5,214$ 50,552

Work in process..........................................................................................

1,103

894

9,786

Raw materials and supplies........................................................................

3,539

3,954

31,404

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

¥ 10,338¥ 10,062$ 91,742

6. INVESTMENTS IN ASSOCIATED COMPANIESInvestments in associated companies at March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Investments—New Japan Machinery Corporation.........................................

¥ 697

¥ 621

$ 6,182

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

¥ 697

¥ 621

$ 6,182DENYO CO., LTD. and Consolidated Subsidiaries

7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Shor-term bank loans at March 31, 2016 and 2015, consisted of bank overdrafts. The weighted-average interest rate applicable to theshort-term bank loans was 0.8% at March 31, 2016 and 2015.
Long-term debt, excluding finance leases (see Note 13), at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Obligations under finance leases.................................................................

¥ 1,12712¥ 1,60312$ 10,000
106

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

1,139

1,615

10,106

Less current portion...................................................................................

(4)

(400)

(31)

Long-term debt, less current portion............................................................

¥ 1,135¥ 1,215$ 10,075

Millions of Yen

Thousands of
U.S. Dollars

2021 and thereafter...................................................................................................................

¥ 1,127$ 10,000

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

¥ 1,127$ 10,000

Unsecured loans from banks, with interest rates at 3.4% (2016) and ranging
from 1.5% to 3.5% (2015)............................................................................

Annual maturities of long-term debt at March 31, 2016, were as follows:Year Ending March 31
2017.........................................................................................................................................
2018.........................................................................................................................................
2019.........................................................................................................................................
2020.........................................................................................................................................

20

8. COMMITMENT LINE CONTRACTS
In order to raise funds efficiently, the Company has entered into a commitment line contract with four financial institutions, of which
Mizuho Bank, Ltd. is the arranger. The contract provided the Company with a commitment line of ¥3,000 million ($26,622 thousand) as
of March 31, 2016. The Company had no borrowings outstanding under the agreement as of March 31, 2016.
9. RETIREMENT AND PENSION PLANS
The Company has a defined benefit pension plan and domestic subsidiaries also participate in the same plan. A certain foreign subsidiary
has its own defined benefit pension plan and other foreign subsidiaries have defined contribution plans. In addition, the Company anddomestic subsidiaries have a stock granting retirement plan.
The projected benefit obligation of a certain domestic subsidiary is calculated using a simplified method, which is permitted for small
companies in accordance with the accounting standard for retirement benefits.
(1) The changes in defined benefit obligation for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

¥ 2,734¥ 2,520159$ 24,267

Others...........................................................................................

2,734
166
21
8
(151)
(13)

2,679
194
21
49
(212)
3

24,2671,469
191
70(1,339)(116)

Balance at end of year............................................................................

¥ 2,765¥ 2,734$ 24,542

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 losses............................................................................
Benefits paid.................................................................................

Years ended March 31, 2016

(2) The changes in plan assets for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016
Balance at beginning of year..................................................................
Expected return on plan assets....................................................
Actuarial gains (losses)...............................................................

2015

2016

¥ 2,355¥ 2,350$ 20,902

31

31

272

13

(4)

119

Contributions from the employer..................................................
Benefits paid...............................................................................

177

172

1,572

(147)

(199)

(1,308)Others.........................................................................................

(2)

5

(16)

Balance at end of year...........................................................................

¥ 2,427¥ 2,355$ 21,541(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation andplan assets
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Plan assets.........................................................................................

¥ 2,649
2,427¥ 2,616
2,355$ 23,511
21,541

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

222

261

1,970

Unfunded defined benefit obligation.....................................................
Liability for stock granting retirement...................................................

116
103

118
92

1,031
911

Net liability arising from defined benefit obligation................................

¥ 441

¥ 471

$ 3,912Funded defined benefit obligation.........................................................

Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Liability for retirement benefits..............................................................

¥ 441

¥ 471

$ 3,912Net liability arising from defined benefit obligation.................................

¥ 441

¥ 471

$ 3,912(4) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Service cost.........................................................................................

¥ 165

¥ 194

$ 1,469

Interest cost.........................................................................................

21

21

191

Expected return on plan assets.............................................................

(31)

(31)

(272)

Recognized actuarial losses..................................................................
Stock granting cost..............................................................................

2
39

32

21
344

Net periodic benefit costs.....................................................................

¥ 196

¥ 216

$ 1,753(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans forthe years ended
March 31, 2016 and 2015
Thousands of
U.S. Dollars

Millions of Yen
2016
Actuarial losses (gains)........................................................................

¥ 14

2015
¥ (41)

2016
$ 128

21

DENYO CO., LTD. and Consolidated Subsidiaries(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans as ofMarch 31, 2016 and 2015
Thousands of
U.S. Dollars

Millions of Yen
2016
Unrecognized actuarial losses (gains)...................................................

2015
¥1

2016

¥ (14)$8(7) Plan assetsa.

Components of plan assets
Plan assets as of March 31, 2016 and 2015, consisted of the following:
2016

2015

Others.................................................................................................................................

98.8%
1.2

98.3%
1.7

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

100.0%

100.0%

General account managed by a life insurance company.........................................................

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.

22(8) Assumptions used for the years ended March 31, 2016 and 2015, were set forth as follows:
2016

2015

Discount rate.......................................................................................................................

Mainly 0.60%

Mainly 0.60%

Expected rate of return on plan assets..................................................................................

Mainly 1.25%

Mainly 1.25%

Expected rate of future salary increase.................................................................................

Mainly 1.90%

Mainly 1.90%

10. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:a.

Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon
resolution at the shareholders’ meeting. Additionally, for companies that meet certain criteria including (1) having a Board of Directors,(2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribedas one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except
for dividends-in-kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company
meets all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to a certain
limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporationof the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchaseof treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.

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 ofretained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon
the payment of such dividends, until the aggregate amount of the legal reserve and additional paid-in capital equals 25% of thecommon 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 andretained earnings can be transferred among the accounts within equity under certain conditions upon resolution of the shareholders.

Years ended March 31, 2016c.

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 theBoard of Directors. The amount of treasury stock purchased cannot exceed the amount 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 componentof equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisitionrights.

11. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted
in normal effective statutory tax rates of approximately 33.1% and 35.6% for the years ended March 31, 2016 and 2015, respectively.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at
March 31, 2016 and 2015, are as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016
Deferred tax assets:
Accrued bonuses..............................................................................
Provision for product warranties.......................................................
Accrued enterprises taxes.................................................................
Unrealized gain on sale of inventory..................................................
Unrealized gain on sale of property...................................................
Liability for retirement benefits..........................................................
Loss on revaluation of investment securities.....................................
Tax loss carryforwards.....................................................................
Other...............................................................................................

2015

2016

¥ 183
41
37
99
21
135
24
98
276
(156)

¥ 221
29
45
75
20
142
25
70
292
(131)

$ 1,622
362
329
881
193
1,196
212
867
2,452
(1,386)

758

788

6,728

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

346
1,298
114

366
1,886
98

3,075
11,5201,008

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

1,758

2,350

15,603Net deferred tax liabilities...........................................................................

¥ (1,000)¥ (1,562)$ (8,875)

Less valuation allowance..................................................................
Total.............................................................................
Deferred tax liabilities:
Reserve for deferred gains on sales of property.................................
Unrealized gain on available-for-sale securities..................................

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying
consolidated statement of income and comprehensive income for the year ended March 31, 2016, with the corresponding figures for2015, is as follows:
2016
Normal effective statutory tax rate..............................................................

2015
33.1%

35.6%

Expenses not deductible for income tax purposes........................................

1.2

1.4

Income not recognizable for income tax purposes.......................................

(1.7)

(0.3)

Per capita portion of inhabitants' taxes........................................................

0.6

0.9

Tax credits.................................................................................................

(2.9)

(2.9)

Lower income tax rates applicable to income in certain foreign countries.....

(0.1)

(1.7)

Valuation allowance...................................................................................

0.2

(0.7)

Other—net..................................................................................................

(1.2)

0.2
0.4

Actual effective tax rate..............................................................................

29.2%

32.9%

Effect of reduction of income tax rates on deferred tax assets......................

23

DENYO CO., LTD. and Consolidated Subsidiaries

New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after
April 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after April 1, 2017, to approximately 30.6%. The effect of thischange was immaterial.
At March 31, 2016, some subsidiaries have tax loss carryforwards aggregating approximately ¥394 million ($3,501 thousand) which
are available to be offset against taxable income of such subsidiaries in future years. These tax loss carryforwards, if not utilized, will
expire as follows:
Millions of Yen

Thousands of
U.S. Dollars

2018.........................................................................................................................................

¥ 77

$ 685

2019.........................................................................................................................................
2020 and thereafter...................................................................................................................

29
288

261
2,555

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

¥ 394$ 3,501

Year Ending March 31

12. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥467 million ($4,142 thousand) and ¥535 million for the years ended March
31, 2016 and 2015, respectively.
13. LEASESThe Group leases certain vehicles.
Lease payments under finance leases for the years ended March 31, 2016 and 2015, were ¥3 million ($29 thousand) and ¥1 million,
respectively.
Obligations under finance leases were as follows:
Thousands of
U.S. Dollars

Millions of Yen

24

2016
Due within one year.....................................................................................

2015

2016

Due after one year.......................................................................................

¥4
8

¥3
9

$ 31
75

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

¥ 12

¥ 12

$ 106

14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policy for Financial Instruments
The Group invests cash surpluses in low-risk financial assets. Bank loans are used to fund its ongoing operations. Derivatives are used,
not for speculative purposes, but to manage exposure to financial risks as described in Note 15.
(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables such as trade notes and trade accounts are exposed to customer credit risk. Receivables in foreign currencies are exposedto the market risk of fluctuation in foreign currency exchange rates.
Investment securities, mainly equity instruments of customers and suppliers of the Company, are exposed to the risk of market
price fluctuations.
Payment terms of payables, such as trade notes and trade accounts, are almost less than six months. Payables in foreign
currencies are exposed to the market risk of fluctuation in foreign currency exchange rates.
Maturities of bank loans are less than six years after the balance sheet date. Although a part of such bank loans is exposed tomarket risks from changes in variable interest rates, those risks are mitigated by using derivatives of interest rate swaps.
Derivatives mainly include interest rate swaps, commodity swaps, forward foreign currency contracts and currency swap contracts,
which are used to manage exposure to market risks from changes in interest rates of bank loans, from changes in raw material(copper) prices, and from changes in foreign currency exchange rates of receivables and advances. Please see Note 15 for moredetails 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

Years ended March 31, 2016

terms. The Company manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment
terms and balances of major customers by the Sales Planning department to identify the default risk of customers at an early stage.
Each consolidated subsidiary also manages its credit risk from receivables by an equivalent method.
Market risk management (foreign exchange risk and interest rate risk)
Foreign currency receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange
rates. The Group reduces such foreign exchange risk by balancing foreign currency trade receivables and payables. Forward foreign
currency contracts and currency swap contracts are used for some foreign currency trade receivables and advances.
Interest rate swaps are used to manage exposure to market risks from changes in interest rates of loan payables and commodity
swaps are used to manage exposure to market risks from changes in raw material (copper) prices.
The Company continuously reviews portfolios of securities by periodically monitoring fair values of each security and the financial
condition of the issuer as well as market conditions and the relationship with the issuer.
In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies whichprescribe the authority and the limit for each transaction. The transaction data is reported to the management meeting on a monthly
basis.
Liquidity risk management
Liquidity risk comprises the risk that the Company cannot meet its contractual obligations in full on maturity dates. The Company
manages its liquidity risk by holding adequate volumes of liquid assets, along with adequate financial planning by the corporate
treasury department.
(4) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, other rational
valuation techniques are used instead. Additionally, notional amounts of derivative transactions, which are presented in Note 15,“Derivatives,” do not indicate market risk of derivative transactions. Also, please see Note 15 for the details of fair value for derivatives.
(a) Fair value of financial instruments
Millions of Yen
March 31, 2016

Carrying Amount

Fair Value

Unrealized Loss

Cash and cash equivalents...................................................................

¥ 11,746¥ 11,746

Receivables.........................................................................................
Investment securities..........................................................................

19,432
6,693

19,432
6,693

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

¥ 37,871¥ 37,871

Short-term bank loans.........................................................................

¥ 233

¥ 233

Payables.............................................................................................
Long-term debt....................................................................................

10,142
1,139

10,142
1,268¥ (129)Total...................................................................................................

¥ 11,514¥ 11,643¥ (129)Derivatives..........................................................................................

¥ (441)¥ (441)

Cash and cash equivalents...................................................................

¥ 10,776¥ 10,776

Receivables.........................................................................................
Investment securities..........................................................................

19,3098,303

19,3098,303

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

¥ 38,388¥ 38,388

Short-term bank loans.........................................................................

¥ 233

¥ 233

Payables.............................................................................................
Long-term debt....................................................................................

10,351
1,615

10,351
1,664¥ (49)

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

¥ 12,199¥ 12,248¥ (49)

Derivatives..........................................................................................

¥ (707)¥ (707)

March 31, 2015

25

DENYO CO., LTD. and Consolidated Subsidiaries

Thousands of U.S. Dollars
March 31, 2016

Carrying Amount

Fair Value

Unrealized Loss

Cash and cash equivalents...................................................................

$ 104,229$ 104,229

Receivables.........................................................................................
Investment securities..........................................................................

172,442
59,393

172,442
59,393

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

$ 336,064$ 336,064

Short-term bank loans.........................................................................

$ 2,067$ 2,067

Payables.............................................................................................
Long-term debt....................................................................................

89,998
10,10689,998
11,254$ (1,148)

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

$ 102,171$ 103,319$ (1,148)

Derivatives..........................................................................................

$ (3,910)$ (3,910)

Cash and Cash Equivalents
The carrying values of cash and cash equivalents approximate fair value because of their short maturities.
Investment Securities
The fair values of investment securities are measured at the quoted market price of the stock exchange for the equity instruments.
Receivables and Payables
The carrying values of receivables and payables approximate fair value because of their short maturities.
Short-Term Bank Loans and Long-Term Debt
The carrying values of short-term bank loans approximate fair value because of their short maturities.

26

The fair values of long-term debt that includes the current portion of long-term debt are determined by discounting the cash
flows related to the debt at the Group’s assumed corporate borrowing rate.
Derivatives
Fair value information for derivatives is included in Note 15.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

¥ 1,023¥ 1,023$ 9,080

Investments in equity instruments that do not have a quoted market
price in an active market......................................................................
(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen
March 31, 2016

Due in One Year or Due after One Year Due in One Year or Due after One YearLess
through Five Years
Less
through Five Years

Cash and cash equivalents..........................................

¥ 11,746

Receivables................................................................

19,432$ 104,229
172,442¥ 79

Investment securities.................................................
Total..........................................................................

Thousands of U.S. Dollars¥ 31,178

¥ 79

$ 703
$ 276,671$ 703

Please see Note 7 for annual maturities of long term debt and Note 13 for obligations under finance leases.

15. DERIVATIVESThe Group enters into derivatives, in the normal course of business, to reduce the exposure to fluctuations in foreign exchange rates,
raw material prices and interest rates. The primary derivative instruments used by the Company are foreign currency forward contracts,
currency swap contracts, commodity swaps and interest rate swaps.

Years ended March 31, 2016

It is the Group’s policy to use derivatives only for the purpose of reducing market risks associated with assets and liabilities.
Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate
any losses arising from credit risk.
Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorizationand credit limit amount.
Derivative Transactions to Which Hedge Accounting Is Not Applied
Millions of Yen
March 31, 2016

Contract AmountContract Amount Due after One Year

Fair Value

Unrealized Gain/
Loss

Foreign currency forward contracts—
Selling U.S.$........................................................

¥ 1,016¥ 1,016

¥ (9)

¥ (9)

1,227

1,227

(430)

(430)

¥ 1,016¥ 1,016¥ (48)¥ (48)

1,414

1,414

(661)

(661)

Currency swap contracts—
Selling U.S.$........................................................
March 31, 2015
Foreign currency forward contracts—
Selling U.S.$........................................................
Currency swap contracts—
Selling U.S.$........................................................

Thousands of U.S. Dollars
March 31, 2016

Contract AmountContract Amount Due after One Year

Foreign currency forward contracts—
Selling U.S.$........................................................

Fair Value

Unrealized Gain/Loss$ 9,016$ 9,016$ (85)$ (85)

10,891

10,891(3,824)(3,824)Currency swap contracts—
Selling U.S.$........................................................
Derivative Transactions to Which Hedge Accounting Is Applied
Millions of Yen / Thousands of U.S. Dollars
Contract AmountContract Amount Due after One Year

March 31, 2016

Hedged Item

Interest rate swaps(fixed rate payment, floating rate receipt).......................

Long-term debt

$ 10,000

Inventories¥ 27

Long-term debt

400

Long-term debt

$ 10,000Fair Value$ 10,000March 31, 2015
Commodity swaps(fixed price payment, quoted price receipt).....................
Interest rate swaps(fixed rate payment, floating rate receipt)........................
Interest rate swaps(fixed rate payment, floating rate receipt)........................

¥2$ 10,000

The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market
value, but the differential paid or received under the swap agreements is recognized and included in interest expense or income. In
addition, the fair value of such interest rate swaps in Note 14 is included in that of hedged items (i.e., long-term debt).
The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.
The contract or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by theparties and do not measure the Group’s exposure to credit or market risk.

27

DENYO CO., LTD. and Consolidated Subsidiaries

16. CONTINGENT LIABILITIESAt March 31, 2016, the Group had the following contingent liabilities:
Millions of Yen

Thousands of
U.S. Dollars

¥3

$ 35

Export trade bill discounted......................................................................................................
17. OTHER COMPREHENSIVE (LOSS) INCOME

The components of other comprehensive (loss) income, including reclassification adjustments and tax effects for the years ended March
31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

¥ (1,605)¥ 1,283(299)$ (14,242)

Income tax effect..............................................................................

(1,605)
588

984
(158)

(14,242)
5,217

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

¥ (1,017)¥ 826$ (9,025)

Deferred (loss) gain on derivatives under hedge accounting:(Losses) gains arising during the year................................................

¥ (3)

¥2

$ (30)

Unrealized (loss) gain on available-for-sale securities:(Losses) gains arising during the year................................................
Reclassification adjustments to profit or loss......................................
Amount before income tax effect.......................................................

28

Reclassification adjustments to profit or loss......................................
Amount before income tax effect.......................................................

2

15

(1)

2
(1)

(15)
5

¥ (1)

¥1

$ (10)

Adjustments arising during the year...................................................

¥ (27)¥ 992$ (234)

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

¥ (27)¥ 992$ (234)¥ 14¥ (41)$ 127

Income tax effect..............................................................................

14
(4)

(41)
14

127
(40)

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

¥ 10¥ (27)$ 87

Share of other comprehensive income in associates—
Losses arising during the year............................................................

¥ (3)$ (29)

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

¥ (3)$ (29)

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

¥ (1,038)

Income tax effect..............................................................................
Total.................................................................................................
Foreign currency translation adjustments—

Defined retirement benefit plans:
Adjustments arising during the year...................................................
Amount before income tax effect.......................................................

¥ 1,792$ (9,211)

Years ended March 31, 201618. NET INCOME PER SHARE
Basis for the computation of net income per share (“EPS”) for the years ended March 31, 2016 and 2015, is as follows:
Thousands ofSharesMillions of Yen
Net Income
Attributable to
Owners of the
ParentYear Ended March 31, 2016
Basic EPS—Net income available to common shareholders..

Yen

Weighted-Average
SharesU.S. Dollars

EPS¥ 3,137

21,373¥ 146.79¥ 3,858

21,506¥ 179.38$ 1.30Year Ended March 31, 2015
Basic EPS—Net income available to common shareholders..

As noted in Note 2.l, the Company applied PITF No. 30, “Practical Solution on Transactions of Delivering the Company’s Own Stock to
Employees etc. through Trusts” effective April 1, 2014. In calculating the number of weighted-average shares above, the number of sharesthat are held by the Trust (810 thousand shares in 2016 and 794 thousand shares in 2015) is reflected.
19. 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 report financial and descriptive information about
its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified
criteria. Operating segments are components of an entity about which separate financial information is available and such information 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 internally for evaluating operating segment performanceand 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 theCompany’s management is being performed in order to decide how resources are allocated among the Group. Therefore, geographic
segments of the Group consist of Japan, United States of America, Asia and Europe. Japan includes the Company, “Denyo Kosan Co.,
Ltd.” and “Nishinihon Generator Mfg. Co., Ltd.” United States of America mainly includes “Denyo Manufacturing Corporation.” Asia
mainly includes “Denyo United Machinery Pte. Ltd.” Europe consists of “Denyo Europe B.V.”(2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets 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 and Other Items
Millions of Yen
2016
Reportable Segment

Japan

UnitedStates ofAmerica

Asia

Sales to external customers................. ¥ 38,005
5,385Intersegment sales or transfers............

¥ 7,308400¥ 4,586
2,937¥ 521 ¥ 50,420
4
8,726¥ (8,726)

Total............................................................. ¥ 43,390¥ 7,708¥ 7,523¥ 525 ¥ 59,146¥ (8,726)¥ 50,420

Segment profit...............................................

¥ 2,683

¥ 777

¥ 241

¥ 17

¥ 3,718¥ 379¥ 4,097

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

55,7895,491

12,248606

74,134(7,140)66,994

567
697

121

596

1,284
697

1,284
697

702

26

397

1,125

1,125

EuropeTotal

Reconciliations Consolidated

Sales:¥ 50,420

Other:
Depreciation and amortization.............
Investments in associated companies..
Increase in property, plant andequipment and intangible assets..........

29

DENYO CO., LTD. and Consolidated Subsidiaries

Millions of Yen
2016
Reportable Segment
Japan

UnitedStates ofAmerica

Asia

Sales to external customers................. ¥ 38,101
4,675Intersegment sales or transfers............

¥ 8,981368¥ 4,706
2,911¥ 479 ¥ 52,267
4
7,958¥ (7,958)

Total............................................................. ¥ 42,776¥ 9,349¥ 7,617¥ 483 ¥ 60,225¥ (7,958)¥ 52,267

Segment profit...............................................

¥ 3,245¥ 1,185¥ 705¥7¥ 5,142¥ 207¥ 5,349

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

56,336

5,989

12,219459

75,003(7,679)67,324

520
621

100

379

660

52

1,818

EuropeTotal

Reconciliations Consolidated

Sales:¥ 52,267

Other:
Depreciation and amortization..............
Investments in associated companies...
Increase in property, plant andequipment and intangible assets...........

1

999
621

999
621

2,531

2,531

Millions of Yen
2016
Reportable Segment
Japan

30

UnitedStates ofAmerica

Asia

EuropeTotal

Reconciliations Consolidated

Sales:
Sales to external customers.................. $ 337,253 $ 64,848
3,550Intersegment sales or transfers............. 47,789$ 40,694
26,060$ 4,626 $ 447,421
32
77,431$ (77,431)

Total............................................................. $ 385,042 $ 68,398$ 66,754$ 4,658 $ 524,852$ (77,431)$ 447,421

Segment profit............................................... $ 23,812$ 6,898$ 2,138$ 146 $ 32,994$ 3,364$ 36,358

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

495,063

48,724

108,691

5,382

657,860(63,358)594,502

5,035
6,182

1,074

5,287

2

11,3986,182

11,398
6,182

6,233

227

3,523

2

9,985

9,985

$ 447,421

Other:
Depreciation and amortization..............
Investments in associated companies...
Increase in property, plant andequipment and intangible assets...........
Related Information(1) Information about Products and Services
Information about products and services for the years ended March 31, 2016 and 2015, is omitted since sales to external customers in asingle product line (generators, welders, compressors, and other related products) accounted for more than 90% of the total consolidated
sales.
(2) Information about Geographical Areas
Sales to external customers and property, plant and equipment by geographical areas for the years ended March 31, 2016 and 2015, aresummarized as follows:
Millions of Yen
2016
Japan

North andCentralAmerica

Asia

Other Areas

Total

Sales to external customers................................................................... ¥ 30,115¥ 9,776¥ 6,922¥ 3,607¥ 50,420

850

5,124

1

15,418Property, plant and equipment................................................................

9,443

Years ended March 31, 2016

Millions of Yen
2015
Japan

North andCentralAmerica

Asia

Other Areas

Total

Sales to external customers................................................................... ¥ 31,468¥ 11,234¥ 6,619¥ 2,946¥ 52,267

945

5,463

1

15,807

Property, plant and equipment................................................................

9,398

Thousands of U.S. Dollars
2016
Japan

North andCentralAmerica

Asia

Other Areas

Total

Sales to external customers................................................................... $ 267,240$ 86,754$ 61,421$ 32,006$ 447,421

7,545

45,4748

136,822

Property, plant and equipment................................................................

83,795

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

(3) Information about Major Customers
Sales to major customers for the years ended March 31, 2016 and 2015, are summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen
Name of Customers
Multiquip Inc. .........................................................

2016

2015

2016

Related Segment¥ 7,308¥ 8,981$ 64,848

United States ofAmerica

20. RELATED-PARTY TRANSACTIONSThe Company sold its products to New Japan Machinery Corporation, an associated company.
The transactions were made under usual terms and conditions.
The transactions with the associates for the years ended March 31, 2016 and 2015, and related balances at March 31, 2016 and 2015,
were mainly as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2016

Transactions—Sales................................................

¥ 3,427¥ 2,923$ 30,412

Balances:
Trade notes receivable.....................................

¥ 1,918¥ 1,666$ 17,016

Trade accounts receivable...............................

803

515

7,124

21. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2016, was approved at the Company’s Board of Directors’ meeting held on
May 20, 2016:

Year-end cash dividends, ¥16 ($0.14) per share......................................

Millions of Yen

Thousands of
U.S. Dollars¥ 356$ 3,15931

DENYO CO., LTD. and Consolidated Subsidiaries

To
the Board of Directorsof Denyo Co., Ltd.:We have audited the accompanying consolidated balance sheet of Denyo Co., Ltd. and its subsidiaries as of March 31, 2016, and the related
consolidated statements of income and comprehensive income, changes in equity, and cash flows for the year then ended, and a summaryof significant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit inaccordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the consolidated financial statements are free from material misstatement.

32

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Denyo Co., Ltd. and its subsidiaries as of March 31, 2016, and the consolidated results of their operations and their cash flows forthe year then ended in accordance with accounting principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely
for the convenience of readers outside Japan.
June 29, 2016

Deloitte Touche Tohmatsu LLCYears ended March 31, 2016

COMPANY DATACOMPANY OUTLINE(AS OF MARCH 31, 2016)

Company Name

Denyo Co., Ltd.

Established

July 2, 1948

Head Office

2-8-5, Nihonbashi-horidomecho,
Chuo-ku, Tokyo 103-8566, Japan
Tel: 81-3-6861-1111 / Fax: 81-3-6861-1181

Paid-in Capital¥1,954,833,520 (U.S.$17,347,001)

Authorized Shares

97,811,000

Issued Shares

22,859,660

Shareholders

4,756

Financial Year

April 1 to March 31

Employees

529 (1,165 consolidated)

Branch and Sales Offices

26

33

BOARD OF DIRECTORS ANDCORPORATE AUDITORS(AS OF JUNE 29, 2016)

Chairman

Shigeru Koga

President

Shoichi Shiratori

Representative Director

Yoji Eto

Director & Executive Advisor

Hideaki Kuboyama

Director

Teruo Yashiro
Yasuo Mizuno
Toshiaki Tanaka
Haruhito Takada*
Reiko Asahina*

Audit & Supervisory Board
MemberToru Masui
Masaru Sugiyama
Akira Yamada*
Yoshio Takeyama*
Asterisk* indicates an external director or external audit & supervisory board
member.

DENYO CO., LTD. and Consolidated Subsidiaries

EXECUTIVE OFFICERS

34

Executive Vice President

Yoji EtoManaging Executive Officer

Teruo Yashiro

Chief Executive
Production Division

Managing Executive Officer

Yasuo Mizuno

Chief Executive
Sales Division

Senior Executive Officer

Toshiaki Tanaka

Chief Executive
Development Division,
General Manager
Patent Administration Department
Development Division

Senior Executive Officer

Yoshito Yamaguchi

Chief Executive
Quality Management Division

Senior Executive Officer

Toshiya Tozawa

Chief Executive
Administration Division

Senior Executive Officer

Satoru Kato

General Manager
Sales Planning Department
Sales Division

Senior Executive Officer

Yasuhiro Yamada

General Manager
International Sales Department I
Sales Division

Senior Executive Officer

Fumitoshi Arimitsu

General Manager
Sales Promotion Department
Sales Division

Executive Officer

Makoto Tanabe

General Manager
General Affairs Department,
Finance Department
Administration Division

Executive Officer

Kenichi Hamanosono

General Manager
Sales Department II
Sales Division

Executive Officer

Sampei Sato

General Manager
Development Department
Development Division

Executive Officer

Kensaku Moriyama

General Manager
East Japan Sales Department
Sales Division

Executive Officer

Chiyoki Kimura

General Manager
West Japan Sales Department
Sales Division

Executive Officer

Michio Nonaka

General Manager
Production Management Department
Production Division

Executive Officer

Toshiaki Shimazu

General Director
Denyo Vietnam Co., Ltd.

Executive Officer

Toru Hiroi

Chairman & CEO
Denyo Manufacturing Corporation

Years ended March 31, 2016

BUSINESS LINES
Manufacture and sales of:Generators

Engine-driven Generators
Stand-by Generating Sets
General-use Generating Sets
AC Generators

Welders

Engine-driven Welders
Welding Generators
Welding Jigs
Automatic Welding Equipment

Compressors

Engine-driven Air Compressors
Motor-driven Air Compressors

Other Products

Water-related Equipment
Self-propelled Lifters
Construction-related Machinery
Repair Parts

PLANTS AND R&D CENTER
Fukui Plant

Wakasa-cho, Fukui Prefecture

Shiga Plant

Konan, Shiga Prefecture

Laboratory & Training Center

Sakado, Saitama Prefecture

35

Fukui Plant

Laboratory & Training Center

DENYO CO., LTD. and Consolidated Subsidiaries

DENYO GROUP COMPANIES
Denyo Kosan Co., Ltd.
2-8-5, Nihonbashi-horidomecho, Chuo-ku, Tokyo 103-8566, Japan
Paid-in Capital: ¥50 million
Business: Services and sales of industrial electrical machinery and parts
Nishinihon Generator Mfg. Co., Ltd.
140, Chichika, Karatsu, Saga 847-0831, Japan
Paid-in Capital: ¥50 million
Business: Manufacture and sales of industrial electrical machinery
Denyo America Corporation
1450 Minor Road, Danville, Kentucky 40422 U.S.A
Paid-in Capital: US$ 5 million
Business: Sales of parts for industrial electrical machinery
Denyo Manufacturing Corporation
1450 Minor Road, Danville, Kentucky 40422 U.S.A
Paid-in Capital: US$ 6 million
Business: Manufacture and sales of industrial electrical machinery to the U.S. market
Denyo Asia Pte. Ltd.
No.9 Neythal Road, Singapore 628614
Paid-in Capital: ¥600 million
Business: Sales of industrial electrical machinery
Denyo United Machinery Pte. Ltd.
No.9 Neythal Road, Singapore 628614
Paid-in Capital: S$ 3 million
Business: Sales, leasing and rental of industrial electrical machinery

36

Denyo Europe B.V.
Molensteyn 48, 3454 PT De Meern, The Netherlands
Paid-in Capital: €4 million
Business: Sales of industrial electrical machinery
Denyo Vietnam Co., Ltd.
Plot A3, Thang Long Industrial Park II, Yen My, Hung Yen, Vietnam
Paid-in Capital: US$ 10 million
Business: Manufacture and sales of industrial electrical machinery
P.T. Dein Prima Generator
JL. Raya Bekasi Km.28, Medan Satria, Bekasi 17132 Jawa Barat, Indonesia
Paid-in Capital: Rp 13,563 million
Business: Manufacture and sales of industrial electrical machinery to the Indonesia market
New Japan Machinery Corporation
3-6-5, Shinyokohama, Kohoku-ku, Yokohama, Kanagawa 222-0033, Japan
Paid-in Capital: ¥495 million
Business: Sales and rental service of industrial electrical machineryYears ended March 31, 2016

INVESTORINFORMATIONHead Office

2-8-5, Nihonbashi-horidomecho, Chuo-ku, Tokyo 1038566, Japan
Tel: 81-3-6861-1111
Fax: 81-3-6861-1181

Financial Year

April 1 to March 31

Common Stock

Authorized shares: 97,811,000
Issued shares: 22,859,660(Included 610,138 shares of Company’s own stock)

Stock Listing

Tokyo Stock Exchange,
First Section (Code: 6517)

Shareholders

4,756Transfer Agency

Tokyo Securities Transfer Agent Co., Ltd.
6F Kanda Nishiki-cho 3-chome Building
3-11, Kanda Nishiki-cho, Chiyoda-ku, Tokyo 101-0054,
Japan

MAJOR SHAREHOLDERS
Shareholders

37

Shares held (thousands)

Voting right ratio (%)

Kyuei Corporation

1,600

7.19

Mizuho Bank, Ltd.

1,109

4.98

The Dai-ichi Life Insurance Co., Ltd.

872

3.92

Trust & Custody Services Bank, Ltd.
(Trust Account)

826

3.71

Japan Trustee Services Bank, Ltd.
(Trust Account)

601

2.70

Denyo Shin-eikai Group

587

2.63

Tsurumi Manufacturing Co., Ltd.

543

2.44

The Bank of Tokyo-Miusubishi UFJ, Ltd.

540

2.42

KUBOTA Corporation

500

2.25

State Street Bank and Trust Company
505103460

2.07

http://www.denyo.co.jp- Head Office -2-8-5, Nihonbashi-horidomecho, Chuo-ku, Tokyo 103-8566, Japan- Tel 81-3-6861-1111- Fax 81-3-6861-1181