Consolidated Financial Statements
KYUDENKO CORPORATION
Year ended March 31, 2018with Independent Auditor’s Report

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Financial Statements
Year ended March 31, 2018

Contents
Consolidated Financial Statements
Independent Auditor’s Report ............................................................................................1
Consolidated Balance Sheet ...............................................................................................2
Consolidated Statement of Income .....................................................................................4
Consolidated Statement of Comprehensive Income ............................................................5
Consolidated Statement of Changes in Net Assets..............................................................6
Consolidated Statement of Cash Flows ..............................................................................8
Notes to Consolidated Financial Statements ..................................................................... 10

Independent Auditor’s Report

The Board of Directors
KYUDENKO CORPORATION
We have audited the accompanying consolidated financial statements of KYUDENKOCORPORATION and its consolidated subsidiaries, which comprise the consolidated balance sheet
as at March 31, 2018, and the consolidated statements of income, comprehensive income, changes in
net assets, and cash flows for the year then ended and a summary of 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 designingand operating such internal control as management determines is necessary to enable the preparationand fair presentation of the 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 in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin 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. The purpose of an audit of the consolidated financial statements is
not to express an opinion on the effectiveness of the entity’s internal control, but in making these risk
assessments the auditor considers internal controls relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide 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 KYUDENKO CORPORATION and its consolidated
subsidiaries as at March 31, 2018, and their consolidated financial performance and cash flows forthe year then ended in conformity with accounting principles generally accepted in Japan.
Convenience Translation
We have reviewed the translation of these consolidated financial statements into U.S. dollars,presented for the convenience of readers, and, in our opinion, the accompanying consolidated
financial statements have been properly translated on the basis described in Note 1.

June 26, 2018
Fukuoka, Japan

1

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Balance Sheet
March 31, 2018
March 31,2017
2018
(Millions of yen)
AssetsCurrent assets:
Cash on hand and in banks (Notes 17, 19 and 22)
Notes receivable, accounts receivable on completed
construction contracts and other accounts receivable(Notes 3, 19 and 24)
Short-term investments (Notes 19 and 20)
Costs of uncompleted construction contracts
Merchandise
Raw materials and supplies
Deferred tax assets (Note 14)
Other current assets (Note 17)
Allowance for doubtful accounts (Note 19)
Total current assets

Fixed assets:
Property and equipment:
Buildings and structures (Notes 4 and 17)
Machinery, vehicles, tools, furniture and fixtures(Notes 4 and 17)
Leased assets
Land (Note 17)
Construction in progress
Accumulated depreciation
Total property and equipment

Intangible assets:
Goodwill (Notes 5 and 23)
Other intangible assets
Total intangible assets

Investments and other assets:
Investments in securities (Notes 17, 19 and 20)
Investments in unconsolidated subsidiaries andaffiliates (Notes 17 and 19)
Long-term loans receivable (Note 17)
Asset for retirement benefits (Note 7)
Deferred tax assets (Note 14)
Other (Note 17)
Allowance for doubtful accounts
Total investments and other assets
Total fixed assets
Total assets2

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

¥ 30,314¥ 35,189$

331,229

106,204
1
6,679
687
4,108
3,415
6,766
(6)
158,172

127,610
26
6,826
897
5,444
3,755
2,906
(17)
182,640

1,201,155
251
64,254
8,445
51,25135,35027,358(165)
1,719,131

64,92065,757

618,956

35,305
5,999
28,385
4,604(53,453)
85,76239,515
6,345
28,484
1,718(56,657)
85,164

371,944
59,727
268,114
16,177(533,297)
801,622

1,175
975
2,150

500
943
1,443

4,706
8,876
13,58336,99037,954357,253

9,637
576
241
3,401
4,167
(892)
54,393
142,306¥ 300,478

10,671
932
353
2,433
4,628
(1,119)55,905
142,513¥ 325,153

100,4438,778
3,331
22,90843,564(10,537)
526,219
1,341,425$ 3,060,556

March 31,
2017
2018
(Millions of yen)
Liabilities
Current liabilities:
Notes payable, accounts payable on construction
contracts and other accounts payable (Notes 3 and 19)
Short-term borrowings (Notes 17 and 22)
Current portion of long-term debt (Notes 6, 17 and 19)
Convertible bond-type bonds with share subscription
rights (Notes 6 and 19)
Lease obligations (Note 6)
Income taxes payable (Note 14)
Advances received on uncompleted construction
contracts (Note 24)
Provision for loss on construction contracts
Other current liabilities (Notes 13 and 14)
Total current liabilities
Long-term liabilities:
Convertible bond-type bonds with share subscription
rights (Notes 6 and 19)
Long-term debt (Notes 6, 17 and 19)
Lease obligations (Note 6)
Provision for retirement benefits for directors andaudit and supervisory board members
Liability for retirement benefits (Note 7)
Other long-term liabilities (Notes 8 and 14)
Total long-term liabilities
Total liabilities

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

¥ 80,636
14,8396,548¥ 98,738
400
7,184$ 929,394
3,765
67,623

–
849
6,083

13
899
6,239

122
8,468
58,730

9,611
207
5,986
124,745

6,918
–
9,832
130,226

65,125–92,546
1,225,776

1,860
9,707
2,322

–
8,983
2,597

–
84,561
24,453233
17,471
2,634
34,230158,975

406
15,746
3,053
30,787161,014

3,827
148,213
28,739289,795
1,515,572

11,632
11,907
119,700(8)
143,232

12,555
12,853
139,809(8)
165,209

118,176
120,983
1,315,977(79)
1,555,057

3,097
(185)
167
(6,430)(3,351)
1,622
141,503¥ 300,478

4,261
(570)
306
(7,757)(3,759)2,689
164,139¥ 325,153

40,112(5,370)2,888(73,017)(35,387)
25,314
1,544,984$ 3,060,556

Commitments and contingencies (Note 16)
Net assets (Note 9)
Shareholders’ equity:
Common stock:
Authorized – 250,000,000 shares
Issued – 70,134,971 and 71,158,510 shares in2017 and 2018, respectively
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity
Accumulated other comprehensive loss
Unrealized holding gain on securities
Unrealized loss on hedging instruments
Translation adjustments
Retirement benefit liability adjustments (Note 7)
Total accumulated other comprehensive loss
Non-controlling interests
Total net assets
Total liabilities and net assets

See accompanying notes to consolidated financial statements.

3

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Income
Year ended March 31, 2018Year ended March 31,
2017
2018
2018
(Thousands of
U.S. dollars)(Millions of yen)
(Note 1)
Net sales (Note 23):
Construction contracts (Note 10)
Other
Total net sales
Cost of sales (Notes 11 and 13):
Construction contracts
Other
Total cost of sales
Gross profit:
Construction contracts
Other
Total gross profit
Selling, general and administrative expenses(Notes 12 and 13)
Operating income (Note 23)
Non-operating income (expenses):
Interest income
Dividend income
Interest expenses
Equity in earnings of affiliates
Gain on investments in partnership
Rent income
Insurance and dividend income
Foreign exchange loss
Extra retirement payments
Provisions of allowance for doubtful accounts of a
subsidiary
Other, net
Ordinary income
Extraordinary income (loss):
Gain on sales of property and equipment
Impairment loss on fixed assets (Notes 5 and 23)
Loss on disposal and sales of fixed assets
Gain on sales of investments in securities (Note 20)
Impairment loss on investments in securities
Loss on sales of a subsidiary’s shares
Gain on bargain purchase (Note 23)
Gain on liquidation of subsidiary
Loss on valuation of an utility right
Profit before income taxes
Income taxes (Note 14):
Current
DeferredProfitProfit attributable to:Non-controlling interests
Owners of parent¥ 328,915
12,855
341,771¥ 346,403
14,468360,872$ 3,260,570
136,191
3,396,762

279,412
10,407
289,820292,664
11,547304,2122,754,750
108,694
2,863,445

49,503
2,448
51,95153,7382,921
56,659505,820
27,497533,317

21,21930,732

21,932
34,726

206,444326,872

80
783
(397)
6
188
328
396
(73)
(41)

83
564
(411)
310
641
326
606
–
(88)

790
5,312
(3,870)
2,919
6,035
3,070
5,704
–
(832)

(121)
304
32,187(151)
733
37,342(1,421)
6,907
351,488

50
–
(142)
37
(96)
(42)
–
–
–
31,995

516
(831)
(318)
263
(7)
–
183
0
(1)
37,1484,860(7,823)(2,994)
2,483
(69)
–
1,731
7
(18)
349,665

9,650
41
22,303

10,856789
25,502102,186
7,429
240,0485¥ 22,297

206¥ 25,296

1,946$ 238,102

See accompanying notes to consolidated financial statements.

4

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Comprehensive Income
Year ended March 31, 2018Year ended March 31,
2017
2018
2018
(Millions of yen)(Thousands of
U.S. dollars)(Note 1)
¥ 22,303¥ 25,502$ 240,048

ProfitOther comprehensive income (loss) (Note 15):
Unrealized holding gain on securities
Unrealized gain (loss) on hedging instruments
Translation adjustments
Retirement benefit liability adjustments
Share of other comprehensive income (loss) ofaffiliates accounted for by the equity method
Total other comprehensive income (loss)
Comprehensive income

964
31
(190)
954

1,161
(172)
153
(1,327)

10,937(1,626)
1,442(12,490)

23
1,783¥ 24,086

(211)
(396)
¥ 25,106(1,993)(3,730)$ 236,318

Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests¥ 24,128¥(42)¥ 24,888¥
218$ 234,263$ 2,054

See accompanying notes to consolidated financial statements.

5

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Changes in Net Assets
Year ended March 31, 2018
Total
Unrealized

Retirement

accumulated

Treasury

Total

Unrealized

loss onbenefit

other

Non-

CommonCapitalRetainedstock,

shareholders’holding gain

hedging

Translation

liability

comprehensive

controlling

Total

stock

surplusearnings

at costequityon securities

instruments

adjustments

adjustments

loss

interests

net assets

Balance at April 1, 2016

¥ 7,901¥ 7,891¥ 101,173¥ (611)¥ 116,355¥ 2,117¥ (234)¥ 319¥ (7,384)¥ (5,182)¥ 2,026¥ 113,199

Issuance of new shares

3,730

3,726

–

–

7,457

–

–

–

–

–

–

7,457

(3,742)–(3,742)

–

–

–

–

–

–

(3,742)

22,297–22,297

–

–

–

–

–

–

22,297(Millions of yen)

Cash dividends paid–

Profit attributable toowners of parent for theperiod––Purchase of treasury
stock

–

–

(4)

(4)

–

–

–

–

–

–

(4)

Disposal of treasury stock

–

71

–

608

680

–

–

–

–

–

–

680

–

–

4

–

4

–

–

–

–

–

–

4

–

217

–

–

217

–

–

–

–

–

–

217

–

–

(32)

–

(32)

–

–

–

–

–

–

(32)

Increase in retained
earnings due to merger
Purchase of shares of
consolidated
subsidiaries
Decrease in retained
earnings due to changein accounting period ofsubsidiaries
Net changes in items
other than those in
–

–

–

–

–

979

49

(152)

954

1,830

(404)

1,426

Net changes during the year

3,730

4,015

18,527603

26,877

979

49

(152)

954

1,830

(404)

28,303

Balance at April 1, 2017

11,632

11,907

119,700(8)

143,232

3,097

(185)

167

(6,430)(3,351)

1,622

141,503

Issuance of new shares

922

921

–

–

1,844

–

–

–

–

–

–

1,844

Cash dividends paid––

(5,645)(5,645)

–

–

–

–

–

–

(5,645)––25,296–25,296

–

–

–

–

–

–

25,296

–

–

446

–

446

–

–

–

–

–

–

446

shareholders’ equity

Profit attributable toowners of parent for theperiodIncrease in retained
earnings resulting fromincrease in investment
in equity method
affiliate
Purchase of treasury
stock

–

–

–

(7)

(7)

–

–

–

–

–

–

(7)

Disposal of treasury stock

–

(4)

–

7

3

–

–

–

–

–

–

3

–

28

–

–

28

–

–

–

–

–

–

28

–

–

10

–

10

–

–

–

–

–

–

10

Purchase of shares of
consolidated
subsidiaries
Increase in retained
earnings due to changein accounting period ofa subsidiary
Net changes in items
other than those inshareholders’ equity

–

–

–

–

–

1,164

(384)

139

(1,327)

(407)

1,067

659

Net changes during the year

922

945

20,108(0)

21,976

1,164

(384)

139

(1,327)

(407)

1,067

22,635

Balance at March 31, 2018

¥ 12,555¥ 12,853¥ 139,809(8)¥ 165,209¥ 4,261¥ (570)¥ 306¥ (7,757)¥ (3,759)¥ 2,689¥ 164,139¥6

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Changes in Net Assets (continued)
Year ended March 31, 2018
Total
Unrealized

Retirement

accumulated

Treasury

Total

Unrealized

loss onbenefit

other

Non-

CommonCapitalRetainedstock,

shareholders’holding gain

hedging

Translation

liability

comprehensive

controlling

Total

stock

surplusearnings

at costequityon securities

instruments

adjustments

adjustments

loss

interests

net assets

Balance at April 1, 2017

$ 109,495$ 112,078$ 1,126,703$ (76)$ 1,348,201$ 29,151$ (1,747)$ 1,574$ (60,527)$ (31,549)$ 15,268$ 1,331,920

Issuance of new shares

8,680

8,672

–

–

17,356

–

–

–

–

–

–

17,356––(53,135)–(53,135)

–

–

–

–

–

–

(53,135)––

238,102–

238,102

–

–

–

–

–

–

238,102

–

–

4,204

–

4,204

–

–

–

–

–

–

4,204

(Thousands of U.S. dollars) (Note 1)

Cash dividends paid
Profit attributable toowners of parent for theperiodIncrease in retained
earnings resulting fromincrease in investment
in equity method
affiliate
Purchase of treasury
stock

–

–

–

(69)

(69)

–

–

–

–

–

–

(69)

Disposal of treasury stock

–

(38)

–

66

28

–

–

–

–

–

–

28

–

266

–

–

266

–

–

–

–

–

–

266

102

–

102

–

–

–

–

–

–

102

Purchase of shares of
consolidated
subsidiaries
Increase in retained
earnings due to changein accounting period ofa subsidiary–

Net changes in items
other than those in
–

–

–

–

–

10,960(3,623)

1,314(12,490)(3,838)10,046

6,207

Net changes during the year

8,680

8,904

189,274(3)

206,855

10,960(3,623)

1,314(12,490)(3,838)10,046

213,063

Balance at March 31, 2018

$ 118,176$ 120,983$ 1,315,977$ (79)$ 1,555,057$ 40,112$ (5,370)$ 2,888$ (73,017)$ (35,387)$ 25,314$ 1,544,984

shareholders’ equity

See accompanying notes to consolidated financial statements.

7

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Cash Flows
Year ended March 31, 2018
2017
2018
(Millions of yen)

Cash flows from operating activities
Profit before income taxes
Depreciation and amortization
Impairment loss on fixed asset
Increase in allowance for doubtful accounts
Decrease in liability for retirement benefits andprovision for retirement benefits for directors andaudit and supervisory board members
Increase (decrease) in provision for loss on
construction contracts
Loss on valuation of an utility rightGain on investments in partnership
Interest and dividend income
Interest expenses
Foreign exchange loss (gain)
Equity in earnings of affiliates
Gain on sales of property and equipment, net
Loss on disposal of fixed assets
Impairment loss on investments in securities
Gain on sales of investments in securities
Loss on sales of a subsidiary’s shares
Gain on bargain purchase
Gain on liquidation of subsidiary
Increase in notes and accounts receivable oncompleted construction contracts(Increase) decrease in costs of uncompleted
construction contracts
Increase in inventories
Increase in notes and accounts payable on
construction contracts
Decrease in advances received on uncompleted
construction contracts
Increase in long-term accounts payable(Decrease) increase in consumption taxes, net
Other, net
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities

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

¥ 31,995
5,449
–
142

¥ 37,148
5,512
831
107

$ 349,665
51,887
7,823
1,011(2,448)(3,634)(34,208)

154
–
(188)
(864)
397
40
(6)
(46)
88
96
(37)
42
–
–

(214)
1
(641)
(648)
411
(35)
(310)
(509)
204
7
(263)
–
(183)
(0)

(2,016)18(6,035)(6,103)3,870(331)(2,919)(4,791)
1,925
69(2,483)–(1,731)(7)(15,156)(17,939)(168,859)(304)(3,539)76(1,500)720(14,120)

12,147

15,598146,826(254)
10(5,281)
1,677
24,112864(397)(10,392)¥ 14,187(3,098)
9
3,594
5,711
40,235629(398)(10,562)¥ 29,903(29,165)85
33,83153,761
378,723
5,922(3,755)(99,422)$ 281,467

8

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statement of Cash Flows (continued)
Year ended March 31, 2018

Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property and equipment
Proceeds from sales of property and equipment
Purchase of investments in securities
Proceeds from sales of investments in securities
Purchase of subsidiaries’ shares resulting in changes inscope of consolidation
Proceeds from purchase of a subsidiary’s shares resulting
in changes in scope of consolidation
Payments of long-term loans receivableCollection of long-term loans receivable
Proceeds from sales of a subsidiary’s shares resulting inchange in scope of consolidation
Other, net
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in short-term borrowings
Proceeds from long-term debt
Repayments of long-term debt
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling shareholders
Repayments to non-controlling shareholders
Purchase of subsidiaries’ shares not resulting in changes
in scope of consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash
equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Decrease in cash and cash equivalents resulting fromchanges in accounting period of consolidated
subsidiaries
Increase in cash and cash equivalents resulting frommerger with non-consolidated subsidiary
Cash and cash equivalents at the end of the year
(Note 22)

2017
2018
(Millions of yen)

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

(671)
2,680
(6,381)
145(14,059)
503

(406)
168
(4,092)710(3,278)3,140$ (3,823)
1,581(38,518)
6,685(30,855)
29,556–(168)(1,590)

21
(322)
345

–
(929)
92

–
(8,746)
872

115
(328)
(17,951)–
1,046(3,717)–
9,849(34,989)

14,45042(2,561)(4)(3,732)(103)(22)(14,872)
6,187(6,549)(7)(5,635)(1)(20)(139,987)
58,239(61,648)(69)(53,047)
(18)
(192)

(29)
(839)
7,200

(1)
(881)
(21,783)(15)(8,299)(205,038)

(92)
3,344
26,732

84
4,486
30,027794
42,234
282,641

(56)

(9)

(91)

7

–

–

¥ 30,027¥ 34,505$ 324,783¥

See accompanying notes to consolidated financial statements.

¥

9

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2018

1.

Basis of Presentation

KYUDENKO CORPORATION (the “Company”) and its domestic subsidiaries maintaintheir accounting records and prepare their financial statements in accordance with accounting
principles generally accepted in Japan, and its foreign subsidiaries maintain their books ofaccount in conformity with those of their countries of domicile.
The accompanying consolidated financial statements of the Company and consolidated
subsidiaries are prepared on the basis of accounting principles generally accepted in Japan,
which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards, and are compiled from the consolidated
financial statements prepared by the Company as required by the Financial Instruments andExchange Act of Japan.
In preparing the accompanying consolidated financial statements, certain reclassifications
and rearrangements have been made to the consolidated financial statements issued
domestically in order to present them in a format which is more familiar to readers outside
Japan.
Certain amounts in the prior year’s consolidated financial statements have been reclassified
to conform to the current year’s presentation. Such reclassifications had no effect on
consolidated profit or net assets.
The U.S. dollar amounts in the accompanying consolidated financial statements have beentranslated from yen amounts solely for the convenience of the reader, as a matter of arithmetic
computation only, at ¥106.24 = U.S.$1.00, the rate of exchange prevailing on March 31, 2018.
This translation should not be construed as a representation that the yen amounts have been,
could have been, or could in the future be, converted into U.S. dollars at the above or any
other rate.
As permitted by the Financial Instruments and Exchange Act of Japan, amounts of less than
one million yen for the years ended March 31, 2018 and 2017 have been omitted.
Consequently, the totals shown in the accompanying consolidated financial statements forthe years ended March 31, 2018 and 2017 (both in yen and in U.S. dollars) do not necessarily
agree with the sum of the individual amounts.

10

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies(a) Principles of consolidation and accounting for investments in unconsolidated
subsidiaries and affiliates
The accompanying consolidated financial statements include the accounts of theCompany and any significant companies controlled directly or indirectly by theCompany. Investments in companies over which the Company exercises significant
influence in terms of their operating and financial policies have been accounted for by
the equity method.
As of March 31, 2018, the numbers of consolidated subsidiaries and affiliates accounted
for by the equity method were 48 and 7 (43 and 6 in 2017), respectively.
During the year ended March 31, 2018, the following events and/or transactions haveoccurred, which resulted in changes in the scope of consolidation. Automation
Technology Co., which is the Company’s subsidiary, acquired Systech Co. and theCompany acquired the shares of Jinnouchi Koumuten Co., Ergotech Co., and Sanyuu
Densetu Co. These subsidiaries and SEIWA KOGYO CO., LTD. were newly includedin the scope of consolidation. Kyuko-Lease Inc. was newly accounted for by the equity
method through an additional share acquisition by the Company. In addition,
Syodensya Co., a consolidated subsidiary, changed its name to Q-mast Co.
The financial statements of Jinnouchi Koumuten Co. are consolidated by using thefinancial statements as of February 28, which are prepared solely for consolidation
purposes. Kyulien Environment Improving Co., Ltd., Asia Projects Engineering Pte.
Ltd. and Kyudenko South East Asia Pte. Ltd. are consolidated by using their financial
statements as of their respective fiscal year end, which falls on December 31. Sanyuu
Densetsu Co. is consolidated by using its financial statements as of its fiscal year end,
which falls on January 31. Necessary adjustments are made to their financial
statements to reflect any significant transactions between their fiscal year-ends andMarch 31.
All significant intercompany balances and transactions have been eliminated inconsolidation.
Certain subsidiaries were excluded from the scope of consolidation because the effect of
their sales, net profit or loss, total assets and retained earnings on the accompanying
consolidated financial statements was immaterial. Such unconsolidated subsidiaries
and affiliates are accounted for by the equity method, unless they are clearly immaterial.
Certain unconsolidated subsidiaries and affiliates were excluded from the scope of
application of the equity method because their profit or loss and retained earnings
attributable to the Company’s interest were not material either individually or inaggregate to the consolidated financial statements.

11

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(a) Principles of consolidation and accounting for investments in unconsolidated
subsidiaries and affiliates (continued)
Unrealized intercompany gains among the Company and the consolidated subsidiaries
have been eliminated and the portion attributable to non-controlling interests has been
charged to non-controlling interests.
Investments in subsidiaries and affiliates which are neither consolidated nor accounted
for by the equity method are carried at cost or less. Where there has been a permanent
decline in the value of such investments, the Company has written down the investments.
(b) Foreign currency translation
All monetary assets and liabilities denominated in foreign currencies are translated into
yen at the rates of exchange in effect at the balance sheet date, except that receivables
and payables hedged by qualified forward foreign exchange contracts are translated at
the corresponding contract rates. All other assets and liabilities denominated in foreign
currencies are translated at their historical rates. Gain or loss on each translation iscredited or charged to profit (loss).
The balance sheet accounts and income statement accounts of the foreign consolidated
subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet
date, except for the components of net assets excluding non-controlling interests which
are translated at their historical exchange rates. Differences arising from the translation
are presented as translation adjustments and non-controlling interests in the consolidated
financial statements.
(c) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can bewithdrawn at any time and short-term investments with a maturity of three months orless when purchased which can easily be converted to cash and are subject to little riskof change in value.
(d) Inventories
Costs on uncompleted construction contracts are stated at cost determined on an
individual project basis. Merchandise and raw materials and supplies are statedprincipally at the lower of cost or market, cost being determined principally by theperiodic average method.

12

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(e) Short-term investments and investments in securities
Securities other than equity securities issued by unconsolidated subsidiaries andaffiliates are classified into three categories: trading, held-to-maturity or other securities.
Trading securities are carried at fair value and held-to-maturity securities are carried atamortized cost. Marketable securities classified as other securities are carried at fairvalue with changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in net assets.
In cases where an embedded derivative in a compound financial instrument cannot be
separately measured, the entire compound financial instrument is measured at fair value
with changes in value charged or credited to profit (loss).
Non-marketable securities classified as other securities are carried at cost determined by
the moving average method. Investments in limited liability partnerships and othersimilar partnerships, which are deemed to be securities under Article 2, Clause 2 of the
Financial Instruments and Exchange Act of Japan, are valued at the amount of theunderlying equity in their net assets based on the latest financial statements available asof the closing date stipulated in the partnership agreement.
(f) Property and equipment and depreciation (excluding leased assets)
Depreciation of property and equipment (excluding leased assets) of the Company andits consolidated subsidiaries is calculated principally by the declining-balance method
based on the estimated useful lives and the residual value in accordance with the
Corporation Tax Law of Japan, except for certain buildings of the Company anddomestic consolidated subsidiaries, which are depreciated by the straight-line method.
Facilities attached to buildings and other non-building structures acquired on or after
April 1, 2016 are also depreciated by the straight-line method.
Significant renewals and additions are capitalized at cost.
charged to profit (loss).

Maintenance and repairs are(g) Intangible assets (excluding leased assets)
Intangible assets (excluding leased assets) are amortized by the straight-line method.
Computer software for internal use is amortized by the straight-line method over theestimated useful life of five years.
(h) Goodwill
Goodwill is amortized by the straight-line method over periods not exceeding 20 years,
considering each individual condition.

13

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(i) Leases
Leased assets under finance lease contracts which do not transfer ownership to the lessee
are depreciated to a residual value of zero by the straight-line method over the respective
lease terms.
(j) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on past experience for normal
receivables and on an estimate of collectability of receivables from companies infinancial difficulty.
(k) Allowance for investment loss
Allowance for investment loss is provided at an amount considered to be appropriate
based on an evaluation of the financial condition of the individual investees. The
allowance is directly deducted from each investment amount.
(l) Provision for loss on construction contracts
Provision for loss on construction contracts is provided with respect to uncompleted
construction projects for which anticipated future losses are expected and a reasonableestimate of the amount can be made at the fiscal year end.
As of March 31, 2018, no provision for loss on construction contracts was recognized,
because there were no construction contracts for which losses were anticipated.
(m) Retirement benefits
Asset and liability for retirement benefits for employees have been provided at an
amount calculated based on the retirement benefit obligation after the fair value of thepension plan assets are deducted. Retirement benefits are attributed to each period by
the benefit formula method over the estimated years of service of the eligible employees.
Prior service cost is being amortized as incurred by the straight-line method over periods
within the estimated average remaining years of service of the eligible employees.

14

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(m) Retirement benefits (continued)
Actuarial gain or loss is amortized in the years following the year in which the gain orloss is recognized primarily by the straight-line method over periods within the estimatedaverage remaining years of service of the eligible employees.
All of the consolidated subsidiaries use a simplified method for calculating retirement
benefit expenses and liabilities mainly based on the assumption that the benefits payable,
which are mainly calculated as if all eligible employees voluntarily terminated theiremployment at fiscal year-end, approximate the retirement benefit obligation at year-end.
In addition, provision for retirement benefits for directors and audit and supervisoryboard members of certain consolidated subsidiaries are provided at the amount payableat year-end in accordance with each company’s internal regulations.
(n) Income taxes
Income taxes are calculated based on taxable income and charged to income on an
accrual basis. Deferred tax assets and liabilities are computed based on the temporary
differences between the financial reporting and the tax bases of the assets and liabilities
that will result in taxable or deductible amounts in the future. Computations of deferred
tax assets and liabilities are based on the tax rates which have been enacted as of thebalance sheet date.
(o) Research and development costs
Research and development costs are charged to profit (loss) as incurred.
(p) Recognizing revenues and costs of construction contracts
Revenues and costs of construction contracts for which contract revenues, contract costs
and the percentage of completion can be reliably estimated are recognized by thepercentage-of-completion method. The percentage of completion is calculated at thecost incurred as a percentage of the estimated total cost. The completed-contract
method continues to be applied for construction contracts for which the percentage-ofcompletion cannot be reliably estimated.
(q) Consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive ofconsumption taxes.

15

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(r) Derivative financial instruments
The Company and certain subsidiaries enter into forward foreign exchange contracts inorder to hedge the risk arising from fluctuations in foreign currency exchange rates ontransactions denominated in foreign currencies and interest-rate swaps in order to hedge
the risk arising from fluctuations in interest rates on certain loans from financial
institutions and interest and currency rate swaps in order to hedge the risk arising fromfluctuations in foreign currency exchange rates and interest rates on all loans
denominated foreign currencies from financial institutions. The Company and its
consolidated subsidiaries do not enter into derivative transactions for speculative
purposes.
Hedging instruments are interest-rate swaps, interest and currency rate swaps andforward foreign exchange contracts. Hedged items are interest payments on loans,foreign currency loans and associated interest payments and forecasted transactions inforeign currencies.
Derivative financial instruments are carried at fair value with changes in unrealized gainor loss charged or credited to profit (loss), except for those which meet the criteria fordeferral hedge accounting under which unrealized gain or loss is deferred as a componentof net assets.
Deferral hedge accounting is adopted for derivatives which qualify as hedges, underwhich unrealized gain or loss is deferred. Short cut method, “Tokurei-shori” and“Furiate-shori” which is the net amounts to be paid or received under the interest rate
swap contract are added to or deducted from the interest on the liabilities and foreign
currency liabilities are translated at the corresponding currency swap contract rates, isapplied for interest and currency rate swaps which qualify for such treatment. The
allocation method, “Furiate-shori” which requires that recognized foreign currency
receivables and payables be translated at the corresponding forward foreign exchange
rates, is applied for forward foreign exchange contracts which qualify for such treatment.
Hedge effectiveness is not assessed if the substantial terms and conditions of the hedging
instruments and the hedged items are the same. An assessment of hedge effectivenessis omitted for interest and currency rate swaps which meet certain conditions. No
evaluation is performed for hedge effectiveness of forward foreign exchange contracts
since the derivative contracts are based on forecasted transactions which are certain to
be executed.

16

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(s) Accounting standards issued but not yet effective
Implementation Guidance on Tax Effect Accounting and Implementation Guidance on
Recoverability of Deferred Tax Assets
On February 16, 2018, the ASBJ issued “Implementation Guidance on Tax EffectAccounting” (ASBJ Guidance No.28) and “Implementation Guidance on Recoverabilityof Deferred Tax Assets” (revised 2018) (ASBJ Guidance No.26). These revisions are
arising from the timing of transferring “Practical Guidelines on Accounting Standards
for Tax Effect Accounting” issued by the Japanese Institute of Certified Public
Accountants to the ASBJ that made the following necessary revisions while adhering
fundamentally to the framework outlined in the above practical guidelines.
(1) Overview
Major revised accounting treatments are as follows:ll

Accounting treatment of taxable temporary differences related to investments
in subsidiaries, etc. when an entity prepares separate financial statements anddeferred tax liabilities related to temporary differences that are not recorded
under certain situations such as when the parent company can determine
whether to sell the investment and does not intend to conduct such sale in theforeseeable future
Accounting treatment related to the recoverability of deferred tax assets inentities that qualify as Category 1, that is, the Company has recorded sufficienttaxable income to exceed the amount of the deductible temporary differences in
the current and prior three years(2) Scheduled date of adoption
The Company expects to adopt the implementation guidance from beginning of the
fiscal year ending March 31, 2019.
(3) Impact of the adoption of implementation guidance
The Company is currently evaluating the effect of the adoption of this
implementation guidance on its consolidated financial statements.

17

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
2.

Summary of Significant Accounting Policies (continued)(s) Accounting standards issued but not yet effective (continued)
Accounting Standard and Implementation Guidance on Revenue Recognition
On March 30, 2018, the ASBJ issued “Accounting Standard for Revenue Recognition”(ASBJ Statement No.29) and “Implementation Guidance on Accounting Standard for
Revenue Recognition” (ASBJ Guidance No.30).
(1) Overview
This is a comprehensive accounting standard for revenue recognition. Specifically,
the accounting standard establishes the following five-step model that will apply torevenue from customers:
1.
2.
3.
4.
5.

Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation(2) Scheduled date of adoption
The Company expects to adopt the accounting standard and implementation
guidance from the beginning of the fiscal year ending March 31, 2022.
(3) Impact of the adoption of accounting standard and implementation guidance
The Company is currently evaluating the effect of the adoption of this accounting
standard and implementation guidance on its consolidated financial statements.

3.

Notes Receivable, Trade and Notes Payable, Trade Maturing on March 31, 2018

The balance sheet date for the year ended March 31, 2018 fell on a bank holiday.
Consequently, notes receivable, trade of ¥443 million ($4,169 thousand) and notes payable,
trade of ¥4,856 million ($45,707 thousand) with a due date of March 31, 2018 were includedin the respective balances and settled on the next business day.

18

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
4.

Reductions in Acquisition Costs Due to Subsidies and Capital GainsThe amounts of subsidies received from the Japanese national government and capital gains
recognized upon the expropriation by the government and the exchange for similartransactions and deducted from the acquisition costs of property and equipment at March 31,2017 and 2018 are as follows:
2017
2018
(Millions of yen)
Structures
Machinery

5.

¥ 283
¥ 2,809¥ 283¥ 2,8092018(Thousands of
U.S. dollars)$ 2,666$ 26,445

Impairment Loss on Fixed Assets

The Company and its consolidated subsidiaries perform impairment test by grouping theirproperty and equipment and intangible assets for business use in each branch of the Company
or each consolidated subsidiary principally based on their management accounting categories.
Rental properties and idle assets which are not anticipated to be utilized in the future aregrouped individually.

Location
SingaporeClassification
Goodwill

2018(Millions of yen)(Thousands of
U.S. dollars)$ 7,823¥ 831

For the year ended March 31, 2018, as profitability of ASIA PROJECTS ENGINEERING
PTE. LTD. decreased significantly, the carrying value of goodwill of ¥831 million ($7,823)
resulting from the acquisition of this company was fully written down due to losing
profitability and impairment loss on goodwill was recognized in the consolidated statementof income.
The recoverable amount of goodwill was measured at value in use based on estimated future
cash flows discounted at rate of 7.0%.

19

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
6.

Short-Term Borrowings, Long-Term Debt, Convertible Bond-type Bonds with
Share Subscription Rights and Lease Obligations

The annual weighted-average interest rates applicable to short-term borrowings (excluding
the current portion of long-term debt) were 0.27% and 0.83% for the years ended March 31,2017 and 2018, respectively.
Long-term debt, convertible bond-type bonds with share subscription rights and leaseobligations at March 31, 2017 and 2018 consisted of the following:
2017
2018
(Millions of yen)
Loans from banks due through 2030
with interest rates ranging from
0.266% to 2.400%
Convertible bond-type bonds with sharesubscription rights (non-interest
bearing)
Lease obligations due through 2026
Less current portion

2018(Thousands of
U.S. dollars)¥ 16,255¥ 16,168$ 152,185

1,860
3,172
21,288(7,398)¥ 13,890

13
3,497
19,678(8,097)¥ 11,581

122
32,922
185,230(76,214)$ 109,015

The aggregate annual maturities of long-term debt, convertible bond-type bonds with sharesubscription rights and lease obligations as of March 31, 2018 are summarized as follows:(Millions of yen)(Thousands of
U.S. dollars)¥ 8,097
1,481
1,341
1,174
5,952
1,631
¥ 19,678$ 76,214
13,947
12,63011,05256,026
15,357$ 185,230

Year ending March 31,
2019
2020
2021
2022
2023
2024 and thereafter

20

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.

Retirement Benefit Plans

The Company has defined benefit plans (corporate pension plans) and defined contributionplans (corporate pension plans and lump-sum payment plans), and the consolidated
subsidiaries also have defined benefit plans (multiple-employer pension plans and lump-sum
payment plans) covering substantially all employees who are entitled to lump-sum or annuity
payments, the amounts of which are determined by reference to their basic rates of pay, lengthof service, and the conditions under which termination occurs.
The Company and its consolidated subsidiaries may pay additional retirement benefits undercertain circumstances.
For the defined benefit plans of most of consolidated subsidiaries, liabilities and expenses for
retirement benefits are calculated using the simplified method.
Some consolidated subsidiaries have joined the employees’ pension fund system, a multipleemployer pension plan. If the amount of plan assets corresponding to the contributions ofeach subsidiary cannot be reasonably calculated, such plans are accounted for by the same
method as that for defined contribution plans.
(a) Defined benefit plans
1) The changes in the retirement benefit obligation for the years ended March 31, 2017and 2018 were as follows:
2017
2018
2018
(Millions of yen)(Thousands of
U.S. dollars)
Balance at the beginning of the year
¥ 45,636¥ 44,233$ 416,353
Service cost
1,845
1,855
17,467
Interest cost
273
309
2,914
Actuarial gain and loss
84
100
943
Retirement benefit paid
(3,607)(2,746)(25,854)–2,300
21,650Prior service cost¥
44,233¥46,052$433,474
Balance at the end of the year2) The changes in the plan assets for the years ended March 31, 2017 and 2018 wereas follows:
2017
2018
2018
(Millions of yen)(Thousands of
U.S. dollars)
Balance at the beginning of the year
¥ 25,800¥ 28,028$ 263,823
Expected return on plan assets
516
560
5,276
Actuarial gain and loss
241
655
6,165
Contributions by the Company
4,454
4,508
42,436Retirement benefit paid
(3,033)(2,349)(22,119)
49
52
491
Other
¥ 28,028¥ 31,454$ 296,074
Balance at the end of the year
21

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.

Retirement Benefit Plans (continued)(a) Defined benefit plans (continued)
3) The following table sets forth the funded status of the plans and the amounts
recognized in the consolidated balance sheets at March 31, 2017 and 2018 for theCompany’s and its consolidated subsidiaries’ defined benefit plans:
2017
2018
(Millions of yen)
Funded retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Net liability for retirement benefits inthe consolidated balance sheet
Liability for retirement benefits
Asset for retirement benefits
Net liability for retirement benefits inthe consolidated balance sheet¥ 36,846(28,028)
8,817
7,387

¥ 36,590(31,454)
5,135
9,461

2018
(Thousands of
U.S. dollars)$ 344,416(296,074)
48,34189,058

16,204

14,597

137,400

16,204–

14,597–

137,400–¥ 16,204¥ 14,597$ 137,400

4) The components of retirement benefit expenses for the years ended March 31, 2017and 2018 were as follows:2017
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain and loss
Amortization of prior service cost
Other
Retirement benefit expenses

2018(Millions of yen)
¥ 1,795¥ 1,803
273
309
(516)
(560)
1,702
127
(454)
(287)
41
86
¥ 2,842¥ 1,479

2018(Thousands of
U.S. dollars)$ 16,976
2,914(5,276)
1,204(2,710)815$ 13,922

Contributions from employees of ¥49 million and ¥52 million ($491 thousand) for theyears ended March 31, 2017 and 2018 are not included in above service cost.

22

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.

Retirement Benefit Plans (continued)(a) Defined benefit plans (continued)5) The components of retirement benefit liability adjustments included in othercomprehensive income (before tax effect) for the years ended March 31, 2017 and2018 were as follows:
2017
2018
(Millions of yen)
Prior service cost
Actuarial gain and loss
Total

¥ (454)
1,858¥ 1,404¥ (2,588)682¥ (1,905)

2018(Thousands of
U.S. dollars)$ (24,361)
6,426$ (17,934)

6) The components of retirement benefit liability adjustments included in accumulated
other comprehensive income (before tax effect) as of March 31, 2017 and 2018 wereas follows:
2017
2018
(Millions of yen)
Unrecognized prior service cost
Unrecognized actuarial gain and loss
Total

¥ 5,192
4,057¥ 9,249¥ 7,780
3,374¥ 11,155

2018(Thousands of
U.S. dollars)$ 73,234
31,766$ 105,001

7) The fair value of plan assets, by major category, as a percentage of total plan assets
at March 31, 2017 and 2018 was as follows:

Bonds
StocksGeneral accounts of life insurance
Other
Total

2017
43%
29%
9%
19%
100%

2018
44%
25%
8%
23%
100%

The expected return on assets has been estimated based on the present andanticipated allocation to each asset class and the expected long-term returns on
assets held in each category at present and in the future.
8) Weighted average assumptions used in accounting for the above plans were as
follows:

Discount rates
Expected rates of return on plan assets

2017
0.7%
2.0%

2018
0.6%
2.0%
23

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.

Retirement Benefit Plans (continued)(b) Defined benefit plans accounted for using the simplified method
1) The changes in liability for retirement benefits calculated using the simplified
method for the years ended March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Balance at the beginning of the year
Retirement benefit expenses
Retirement benefit paid
Contributions
Transfer to accounts payable
Other
Balance at the end of the year

¥ 1,284
361
(117)
(352)
(149)
(1)
¥ 1,024¥ 1,024
354
(188)
(349)
–
(46)
¥ 794

2018
(Thousands of
U.S. dollars)$ 9,646
3,337(1,774)(3,290)–(437)$ 7,4812) The following table sets forth the funded status of the plans accounted for using thesimplified method and the amounts recognized in the consolidated balance sheet atMarch 31, 2016 and 2017 for the defined benefit plans:
2017
2018
(Millions of yen)
Funded retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit
obligation
Net liability for retirement benefits inthe consolidated balance sheet
Liability for retirement benefits
Asset for retirement benefits
Net liability for retirement benefits inthe consolidated balance sheet¥ 3,957(3,143)814¥ 4,040(3,447)592

2018(Thousands of
U.S. dollars)$ 38,028(32,454)
5,574

210

202

1,907

1,024

794

7,481

1,266
(241)

1,148
(353)

10,812(3,331)794$ 7,481¥ 1,024¥

3) Retirement benefit expenses calculated using the simplified method amounted to¥361 million and ¥354 million ($3,337 thousand) for the years ended March 31,2017 and 2018, respectively

24

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
7.

Retirement Benefit Plans (continued)(c) Defined contribution plans
Contributions made to defined contribution plans by the Company for the years ended
March 31, 2017 and 2018 were ¥344 million and ¥364 million ($3,434 thousand),
respectively.
(d) Multiple-employer pension plans
With regard to the employees’ pension fund system, which some consolidated
subsidiaries have joined, the disclosure on multiple-employer pension plans wherecontributions are recognized as retirement benefit expenses is not presented because suchcontributions were immaterial.

8.

Asset Retirement Obligations

Asset retirement obligations mainly represent future obligations to restore leased property toits original condition associated with the removal of the consolidated subsidiaries’ renewableenergy generation facilities.
The asset retirement obligations are measured at the present value of the future liabilities
applying discount rates of 0.612% to 1.994% corresponding with 17 years, which is theestimated useful life of those facilities from the acquisition date.
The following table indicates the changes in asset retirement obligations included in “Other
long-term liabilities” for the years ended March 31, 2017 and 2018:
2017
2018
(Millions of yen)
Balance at the beginning of the year
Increase due to acquisition ofproperty and equipment
Adjustment due to passage of time
Balance at the end of the year

¥ 925

¥ 1,028

2018(Thousands of
U.S. dollars)$ 9,680

86
16¥ 1,028

111
17¥ 1,157

1,046
164$ 10,891

25

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.

Net Assets

Under the Corporate Law of Japan (the “Corporate Law”), the entire amount paid for new
shares is required to be designated as common stock, in principle. However, a company
may designate an amount not exceeding 50% of the proceeds of the issuance of new sharesas additional paid-in-capital, which is included in capital surplus.
The Corporate Law provides that an amount equal to 10% of the amount to be distributed as
distributions of capital surplus (other than capital reserve) and retained earnings (other thanlegal reserve) be transferred to capital reserve and legal reserve, respectively, until the sumof capital reserve and legal reserve equals 25% of the stated common stock. Such
distributions can be made at any time by resolution of the shareholders or by the Board of
Directors, if certain conditions are met, but neither capital reserve nor legal reserve isavailable for distributions.
The Company’s capital reserve included in capital surplus at March 31, 2018 amounted to¥12,537 million ($118,009 thousand).
There was no legal reserve for the years ended March 31, 2017 and 2018.
(a) Shares issued and outstanding / Treasury shares
For the year ended March 31, 2017:

Types of shares
Shares issued:
Common stock
Treasury stock:
Common stock

Number ofshares at April
1, 2016

Increase
Decrease(Number of Shares)

Number ofshares at
March 31, 2017

66,039,535

4,095,436–

70,134,971

391,045

1,342

373,446

18,941

Detail of the increase in shares issued is as follows:
Issuance of new shares due to exercise of share subscription rights
2nd unsecured convertible bond-type bonds with share subscription rights
Details of the increase and decrease in treasury stock are as follows:
Increase due to purchase of shares of less than one standard unit
Decrease due to exercise of share subscription rights
2nd unsecured convertible bond-type bonds with share subscription rights

4,095,436

1,342
373,446

26

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.

Net Assets (continued)(a) Shares issued and outstanding / Treasury shares (continued)
For the year ended March 31, 2018:

Types of shares
Shares issued:
Common stock
Treasury stock:
Common stock

Number ofshares at April
1, 2017

Increase
Decrease(Number of Shares)

Number ofshares at
March 31, 201870,134,971

1,023,539–

71,158,510

18,941

1,615

1,665

18,891

Detail of the increase in shares issued is as follows:
Issuance of new shares due to exercise of share subscription rights
2nd unsecured convertible bond-type bonds with share subscription rights
Details of the increase and decrease in treasury stock are as follows:
Increase due to purchase of shares of less than one standard unit
Decrease due to exercise of share subscription rights
2nd unsecured convertible bond-type bonds with share subscription rights

1,023,539

1,615
1,665

(b) Share subscription rights
For the year ended March 31, 2017
Number of sharessubject to share subscription rights
IssuerDescription

The
Company

2nd unsecured
convertiblebond-type bonds
with sharesubscription
rightsType ofsharesAt April 1,
2016

Commonstock

5,456,877

Increase

Decrease

At March
31, 2017(Number of Shares)

1.
2.
3.

33,533

4,468,882

1,021,528

Number of shares subject to share subscription rights represents the number ofshares to be issued upon exercise of the share subscription rights.
The increase during the year was due to adjustments to the conversion value, andthe decrease was due to exercise of the share subscription rights.
The share subscription rights are included in the convertible bond-type bonds withshare subscription rights in the consolidated balance sheet.
27

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.

Net Assets (continued)(b) Share subscription rights (continued)
For the year ended March 31, 2018
Number of sharessubject to share subscription rights
IssuerDescription

Type ofsharesAt April 1,
2017

Increase

Decrease

At March
31, 2018(Number of Shares)
The
Company

1.
2.
3.

2nd unsecured
convertiblebond-type bonds
with sharesubscription
rightsCommonstock

1,021,528

10,892

1,025,204

7,216

Number of shares subject to share subscription rights represents the number ofshares to be issued upon exercise of the share subscription rights.
The increase during the year was due to adjustments to the conversion value, andthe decrease was due to exercise of the share subscription rights.
The share subscription rights are included in the convertible bond-type bonds withshare subscription rights in the consolidated balance sheet.

(C) Dividends
1) Dividends paid
For the year ended March 31, 2017:
Total
dividends(Millions of yen)
Resolution: Meeting of the Boardof Directors on April 28, 2016
Cash dividends (¥25 per share)
Resolution: Meeting of the Boardof Directors on October 29, 2016
Cash dividends (¥30 per share)

Recorddate

Effectivedate¥ 1,641

March 31,2016

June 7,2016¥ 2,101

September
30, 2016

December
1, 201628

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
9.

Net Assets (continued)(C) Dividends (continued)
1) Dividends paid (continued)
For the year ended March 31, 2018:
Total dividends(Thousands(Millions ofof U.S.
yen)
dollars)
Resolution: Meeting of the Boardof Directors on April 28, 2017
Cash dividends (¥40 ($0.38) per
share)
Resolution: Meeting of the Boardof Directors on October 27, 2017
Cash dividends (¥40 ($0.38) per
share)

Recorddate

Effectivedate¥ 2,805$ 26,406

March 31,2017

June 6,2017¥ 2,839$ 26,729

September
30, 2017

December
1, 2017

10. Net Sales from Construction Contracts Recognized by Percentage-of-Completion
MethodNet sales from construction contracts recognized by the percentage-of-completion method
for the years ended March 31, 2017 and 2018 amounted to ¥166,115 million and ¥180,913
million ($1,702,874 thousand), respectively.

11 Provision (Reversal of Provision) for Loss on Construction Contracts
Provision (reversal of provision) for loss on construction contracts included in cost of sales
for the years ended March 31, 2017 and 2018 represents provision of ¥154 million andreversal of provision of ¥214 million ($2,016 thousand), respectively.

29

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Selling, General and Administrative Expenses
Major items included in selling, general and administrative expenses for the years ended
March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Salaries and wages
Retirement benefit expenses
Retirement benefits expenses for
directors and audit andsupervisory board members
Depreciation and amortization¥ 8,735614¥ 9,200
362

59
859

51
948

2018
(Thousands of
U.S. dollars)$ 86,598
3,411

480
8,926

13. Research and Development Costs
Research and development costs included in cost of sales and selling, general andadministrative expenses for the years ended March 31, 2017 and 2018 amounted to ¥235
million and ¥286 million ($2,699 thousand), respectively.

14. Income Taxes
Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries
consist of corporation tax, inhabitants’ taxes and enterprise tax, which, in the aggregate,
resulted in a statutory rate of approximately 30.69% for the years ended March 31, 2017 and2018. Income taxes of the foreign consolidated subsidiaries are based generally on the tax
rates applicable in their countries of incorporation.
The reconciliation between the effective tax rates reflected in the consolidated statement ofincome and the effective statutory tax rates was not presented because the difference between
the statutory tax rate and the effective tax rate reflected in the consolidated statement ofincome was not greater than 5% of the statutory tax rate for the years ended March 31, 2017and 2018.

30

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Income Taxes (continued)
The significant components of deferred tax assets and liabilities as of March 31, 2017 and2018 were as follows:
2017
2018
(Millions of yen)
Deferred tax assets:
Liability for retirement benefits
Accrued bonuses
Unrealized profits on fixed assets
Tax loss carryforwards
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gain on othersecurities
Reserve for deductions inacquisition costs of property andequipment
Reserve for special depreciation
Other
Total deferred tax liabilities
Net deferred tax assets

2018(Thousands of
U.S. dollars)¥ 5,341
2,125
703
932
2,748
11,852(1,272)
10,579¥ 4,784
2,241
850
638
2,877
11,391(1,045)
10,346$ 45,032
21,0968,003
6,006
27,084
107,223(9,836)
97,387(1,290)(1,864)(17,546)(1,269)(824)(818)(4,203)¥ 6,376(1,249)(627)(916)(4,657)¥ 5,688(11,761)(5,907)(8,623)(43,839)$ 53,547

Note: Net deferred tax assets as of March 31, 2017 and 2018 were reflected in the following
accounts in the consolidated balance sheet:
2017
2018
(Millions of yen)
Current assets - deferred tax assets
Fixed assets - deferred tax assets
Current liabilities - other current
liabilities
Long-term liabilities - other long-term
liabilities¥ 3,415
3,401¥ 3,755
2,433

2018(Thousands of
U.S. dollars)$ 35,350
22,908

(59)

(3)

(33)

(381)

(496)

(4,678)31

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Other Comprehensive Income (loss)
Reclassification adjustments and tax effects allocated to each component of othercomprehensive income (loss) for the years ended March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Unrealized holding gain on securities:
Amount arising during the year
Reclassification adjustments for gain
included in profit attributable toowners of parent
Amount before tax effectTax effectUnrealized holding gain on securities
Unrealized gain (loss) on hedging
instruments:
Amount arising during the year
Reclassification adjustments included
in profit
Amount before tax effectTax effectUnrealized gain (loss) on hedging
instruments:
Translation adjustments:
Amount arising during the year
Retirement benefit liability adjustments:
Amount arising during the year
Reclassification adjustments for gain
and loss included in profit attributableto owners of parent
Amount before tax effectTax effect
Retirement benefits liability
adjustments
Share of other comprehensive income(loss) of affiliates accounted for by theequity method:Amount arising during the year
Total other comprehensive income (loss)

2018(Thousands of
U.S. dollars)¥ 1,403¥ 1,949$ 18,346

(27)
1,376
(412)
964

(253)
1,695
(533)
1,161

(2,389)15,956(5,019)10,93744(248)(2,338)

–
44
(13)

–
(248)
75

–
(2,338)
712

31

(172)

(1,626)

(190)

153

1,442

156

(1,745)(16,428)

1,248
1,404
(450)

(160)
(1,905)578(1,506)(17,934)
5,443

954

(1,327)(12,490)23¥ 1,783(211)¥ (396)(1,993)$ (3,730)
32

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Commitments and Contingencies
At March 31, 2017 and 2018, the Company and its consolidated subsidiaries were
contingently liable for guarantees as follows:
Debt guarantees for non-consolidated companies, affiliates not accounted for by the equity
method and third parties
2017
2018
(Millions of yen)Mizuho Bank, Ltd.
(Atsumi Greenpower Co.)
Development Bank of Japan Inc.
(Nagashima Windhill Co.)
The Hokuriku Bank, Ltd.
(Matusima Fuuryoku Co.)
Total

2018
(Thousands of
U.S. dollars)

¥ 465

¥ 378

$ 3,563

245

217

2,045

–
¥ 711

880
¥ 1,475

8,283$ 13,891

Discounted notes receivable
2017
2018
(Millions of yen)
¥ 30

¥ 413

2018
(Thousands of
U.S. dollars)$ 3,887

Endorsement for transfer of notes receivable
2017
2018
(Millions of yen)
¥6

¥2

2018
(Thousands of
U.S. dollars)$ 23

The Company has entered into subordinated loan commitment contracts as a subordinatedcreditor in joint financing for companies involved in the PFI business. (PFI is a private
finance initiative which is a method of providing funds for major capital investments, whereby private firms are contracted to complete and manage public projects.)
At March 31, 2017 and 2018, the Company had loan commitment agreements with 9
companies and 10 companies, respectively. The unused balances under the loan commitment
contracts at March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Total loan commitments
Aggregated borrowings
Unused balances

¥ 146
–
¥ 146

¥ 155
–
¥ 155

2018
(Thousands of
U.S. dollars)$ 1,465–$ 1,465
33

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Pledged Assets
The assets pledged as collateral for short-term borrowings of ¥137 million and ¥1,399 million($13,168 thousand) and long-term debt of ¥1,991 million and ¥1,792 million ($16,867
thousand) of the Company’s investees involved in the renewable energy generation business
and/or PFI business at March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Cash on hand and in banks
Other current assets – short-termloans receivable
Buildings and structures
Machinery, vehicles, tools,
furniture and fixtures
Land
Investments in securities andinvestments in unconsolidated
subsidiaries and affiliates
Long-term loans receivable
Investments and other assets –rental deposit
Total

¥

2018
(Thousands of
U.S. dollars)$ 3,942

281

¥ 418

1,309
8

15
6

146
65

1,441
–

1,271
0

11,964
4

7,212
92

6,826
77

64,259724

15¥ 10,361

15¥ 8,631141$ 81,249

18. Amounts Per Share
Per share information as of March 31, 2017 and 2018 and for the years then ended is asfollows:
2017

2018
(Yen)

Profit attributable to owners of parent:
Basic
Diluted¥Net assets¥ 1,995.00

327.22313.47¥2018(U.S. dollars)

356.89355.55$ 3.36
3.35¥ 2,269.48$ 21.36

Basic profit attributable to owners of parent per share is computed based on the profit
attributable to owners of parent available for distribution to shareholders of common stockand the weighted average number of shares of common stock outstanding during the year,
and diluted profit attributable to owners of parent per share is computed based on the profit
attributable to owners of parent available for distribution to the shareholders and the weighted
average number of shares of common stock outstanding during each year after giving effectto the dilutive potential of shares of common stock to be issued upon the exercise of sharesubscription rights.
34

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. Amounts Per Share (continued)
Net assets per share are computed based on the net assets excluding non-controlling interests
and the number of shares of common stock outstanding at the year end.
(a) The bases for the calculation of basic and diluted profit attributable to owners of parent
per share are as follows:
2017
2018
(Thousands of shares)
Weighted average number of sharesfor basic profit attributable to ownersof parent
Increase in shares of common stock:
Exercise of share subscription rights

68,14370,8782,989

267

The entire amounts of profit attributable to owners of parent of ¥22,297 million and¥25,296 million ($238,102 thousand) for the years ended March 31, 2017 and 2018 were
attributed to common shareholders.
(b) The bases for the calculation of net assets per share are as follows:
2017
2018
(Millions of yen)
Total net assets
Amounts deducted from total net
assets:Non-controlling interests
Net assets attributable to shares ofcommon stock¥ 141,503¥ 164,1392018(Thousands of
U.S. dollars)$ 1,544,984(1,622)(2,689)(25,314)¥ 139,881¥ 161,449$ 1,519,669

2017
2018
(Thousands of shares)
Number of shares of common stock in
issue
Less: Number of shares of treasury
stock
Number of shares of common stock
used for the calculation of net assets
per share

70,143

71,158(18)(18)

70,116

71,13935

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments
Status of financial instruments(a) Policy for financial instruments
The Company and its consolidated subsidiaries utilize highly secure financial assets for
short-term fund management. In addition, they obtain borrowings from financial
institutions such as banks for short-term operating funds and capital expenditures.
Derivative transactions are only used to reduce risks arising from future fluctuations inforeign currency exchange rates and interest rates, except for certain highly secure
embedded derivatives in compound financial instruments used for surplus funds. The
Company and its consolidated subsidiaries do not enter into derivatives for speculative
purposes.
Furthermore, the Company and its consolidated subsidiaries examine their utilization
based on internal rules and regulations each time.
(b) Details of financial instruments, related risk and risk management system
Trade receivables, such as notes receivable, accounts receivable on completed
construction contracts and other accounts receivable, are exposed to credit risk in relation
to customers. With regard to this risk, the Company and its consolidated subsidiaries
monitor the due dates and outstanding balances and make efforts to identify at an earlypoint and mitigate risks of bad debts from customers who have financial difficulties.
Investments in securities mainly consist of equity securities and are exposed to market
risk. The Company and its consolidated subsidiaries review the fair values of listed
equity securities quarterly and the financial condition of the issuing entities.
Trade payables, such as notes payable, accounts payable on construction contracts andother accounts payable, have payment due dates mainly within one year.
Short-term borrowings are taken out mainly to obtain funds for operating activities.
Long-term debt is used mainly for the purposes of capital investments.
Trade payables, short-term borrowings and long-term debt are exposed to liquidity risk.
The Company and its consolidated subsidiaries manage the risk by preparing andupdating its cash flow plans monthly. In order to avoid interest rate fluctuation risk andforeign exchange fluctuation risk, the Company uses interest rate swaps for certain loans
borrowed from financial institutions, interest rate and currency swaps are used for allloans denominated in foreign currencies, and forward foreign exchange contracts areused for certain forecasted transactions denominated in foreign currencies.
Furthermore, the Company and its consolidated subsidiaries examine the utilization ofhedge transactions based on internal rules and regulations each time.
36

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments (continued)
Status of financial instruments (continued)(c) Supplemental explanation on estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available.
When there is no quoted market price available, the fair value is reasonably estimated.
As the estimation of the fair value relies on various assumptions and factors, different
assumptions and factors could result in different fair value.
Estimated fair value of financial instruments
The carrying value of financial instruments on the consolidated balance sheet as of March 31,2017 and 2018, the estimated fair value and the difference between them are shown in thefollowing table. The table does not include financial instruments for which it is extremely
difficult to determine the fair value:

Cash on hand and in banks
Notes receivable, accounts
receivable on completed
construction contracts
and other accounts
receivable
Less: Allowance for
doubtful accounts (*1)
Investments in securities
Total assets
Notes payable, accounts
payable on construction
contracts and otheraccounts payable
Convertible bond-typebonds with sharesubscription rights
Long-term debt (*2)
Total liabilities
Derivatives

March 31, 2017
Carrying
Estimatedvalue
fair value
Difference(Millions of yen)
¥ 30,314¥ 30,314¥–

106,204(6)
106,198
20,897¥ 157,410

106,198
20,897¥ 157,410

80,63680,636–

1,860
16,255¥ 98,752
¥
(80)

2,978
16,291¥ 99,906
¥
(80)

1,118
35
¥ 1,154
¥
–

¥

–
–
–

37

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments (continued)
Estimated fair value of financial instruments (continued)

Cash on hand and in banks
Notes receivable, accounts
receivable on completed
construction contracts
and other accounts
receivable
Less: Allowance for
doubtful accounts (*1)

March 31, 2018
Carrying
Estimated
Carrying
Estimatedvalue
fair value
Difference
value
fair value
Difference(Millions of yen)(Thousands of U.S. dollars)¥ 35,189¥ 35,189¥ –$ 331,229$ 331,229$–

127,6101,201,155

Investments in securities
Total assets(17)
127,593
22,756¥ 185,539

127,593
22,756¥ 185,539

¥

–
–
–

(165)
1,200,990
214,200$ 1,746,420

1,200,990
214,200$ 1,746,420$

Notes payable, accounts
payable on construction
contracts and otheraccounts payable
Long-term debt (*2)
Total liabilities

98,73816,168¥ 114,907

98,73816,142¥ 114,881–(25)¥ (25)

929,394
152,185$ 1,081,579

929,394
151,944$ 1,081,339–(240)$ (240)Derivatives (*3)

¥

¥

¥

$

$

$

(329)

(329)

–

(3,096)(3,096)(*1) The allowance for doubtful accounts was deducted from the notes receivable, accounts
receivable on completed construction contracts and other accounts receivable.
(*2) The balances include the current portion of long-term debt.
(*3) The value of assets and liabilities arising from derivatives is shown at net value, andwith the amount in parentheses representing net liability position.
Note 1: Valuation methods to determine the estimated fair value of financial instruments andother matters related to securities and derivative transactions are as follows:
AssetsCash on hand and in banks
Since all these items are settled in a short period of time, the carrying value
approximates fair value.
Notes receivable, accounts receivable on completed construction contracts andother accounts receivable
Since these items are settled in a short period of time, the carrying value
approximates fair value.

38

–
–
–

–

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments (continued)
Estimated fair value of financial instruments (continued)
Investments in securities
The fair value of equity securities is based on quoted market prices. The fairvalue of debt securities is based on either quoted market prices or prices provided
by the financial institutions making markets in these securities. The fair valueof investment trusts is based on publicly available information.
Liabilities
Notes payable, accounts payable on construction contracts and other accounts
payableSince all these items are settled in a short period of time, the carrying value
approximates fair value.
Convertible bond-type bonds with share subscription rights
The fair value of convertible bond-type bonds with share subscription rights isbased on quoted market prices.
Long-term debt
The fair value of long-term debt is based on the present value of the total ofprincipal and interest discounted by the interest rate to be applied if similar new
borrowings are entered into.
Derivative transactions
The fair value of derivative transactions is based on prices provided by thecounterparty financial institutions. The fair value of the interest rate and currency
swaps was included in that of the hedged long-term debt as they are accounted
for together with underlying hedged items under the short-cut method.
Note 2: Unlisted equity securities of ¥25,950 million and ¥25,869 million ($243,496
thousand) as of March 31, 2017 and 2018, respectively, were not included in theabove table because it was extremely difficult to determine the fair value.

39

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments (continued)
Estimated fair value of financial instruments (continued)
Note 3: Redemption schedule for receivables and marketable securities with maturities at
March 31, 2017 and March 31, 2018 were as follows:

Due inone yearor less
Cash in banks
Notes receivable, accounts
receivable on completed
construction contracts andother accounts receivable
Short-term investments andinvestments in securities
Other securities withmaturities (debt securities)
Other securities withmaturities (Other)Total¥ 30,237

Due after
ten years¥–

106,204

–

–

–

3

1,000

1,832

392

–
¥ 136,445

207¥ 1,207–¥ 1,832

12,490¥ 12,882

March 31, 2018
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Millions of yen)
¥
–
¥ –
–
–

Due after
ten years

Due inone yearor less
Cash in banks
Notes receivable, accounts
receivable on completed
construction contracts andother accounts receivable
Short-term investments andinvestments in securities
Other securities withmaturities (debt securities)
Other securities withmaturities (Other)
Total

March 31, 2017
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Millions of yen)¥–¥–

¥ 35,124¥––

127,610

–

2,006

825

253

40
¥ 162,775

231¥ 2,237–¥ 825

11,310¥ 11,563

40

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Financial Instruments (continued)
Estimated fair value of financial instruments (continued)

Due inone yearor less
Cash in banks
Notes receivable, accounts
receivable on completed
construction contracts andother accounts receivable
Short-term investments andinvestments in securities
Other securities withmaturities (debt securities)
Other securities withmaturities (Other)Total$ 330,618

March 31, 2018
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Thousands of U.S. dollars)$–$–

Due after
ten years$–

1,201,155

–

–

–

–

18,884

7,771

2,381

376
$ 1,532,150

2,178$ 21,062–$ 7,771

106,457$ 108,839

The redemption schedule for long-term debt is disclosed in Note 6.

41

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. Securities(a) Information regarding marketable securities classified as other securities as of March
31, 2017 and 2018 is as follows:
March 31, 2017
Carrying
value
Securities whose carrying
value exceeds theiracquisition cost
Equity securities
Debt securities
OthersSubtotal
Securities whose carrying
value does not exceed
their acquisition cost
Equity securities
Debt securities
OthersSubtotal
Total¥ 16,509
1,121
214
17,845¥ 11,917
1,088
122
13,128¥ 4,592
33
91
4,717

863
2,020
169
3,053
¥ 20,899

1,152
2,059
169
3,380
¥ 16,509

(288)
(38)
(0)
(327)
¥ 4,389

Carrying
value
Securities whose carrying
value exceeds theiracquisition cost
Equity securities
Debt securities
OthersSubtotal
Securities whose carrying
value does not exceed
their acquisition cost
Equity securities
Debt securities
OthersSubtotal
Total

Gross
Acquisition
unrealized
costgain (loss)(Millions of yen)March 31, 2018
Gross
Gross
Acquisition
unrealized
Carrying
Acquisition
unrealized
costgain (loss)
value
cost
gain (loss)(Millions of yen)(Thousands of U.S. dollars)¥ 18,132
123
189
18,445¥ 11,60788
106
11,802¥ 6,525
34
82
6,643

$ 170,676
1,163
1,780
173,619$ 109,253
836
1,000
111,090$ 61,422
327
779
62,528

1,347
2,954
36
4,338
¥ 22,783

1,691
3,007
50
4,749
¥ 16,551

(343)
(53)
(13)
(411)
¥ 6,231

12,68527,806340
40,832$ 214,452

15,92328,308470
44,702$ 155,793(3,237)(501)(130)(3,869)$ 58,659

42

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
20. Securities (continued)(b) Information regarding sales of securities classified as other securities for the years ended
March 31, 2017 and 2018 was as follows:
2017
Proceeds
from sales

Equity securities
Debt securities
Others

¥ 16
368
119
¥ 504

2018
Gain onProceeds
sales
from sales(Millions of yen)
¥ 10
18
8
¥ 37

¥ 546
–
45
¥ 591

2018
Gain on
sales

¥ 227
–
36
¥ 263

Proceeds
Gain onfrom sales
sales(Thousands of
U.S. dollars)$ 5,143$ 2,140––424
342$ 5,567$ 2,483(c) Impairment losses on securities classified as other securities of ¥96 million and ¥7
million ($69 thousand) were recognized for the years ended March 31, 2017 and 2018,
respectively.
The securities whose fair value has declined by 30% on more are treated as securities
whose fair value declined significantly.
Loss on impairment is recorded on securities whose fair value has declined by 50 per
cent. or more, or whose fair value has declined by 30 per cent. or more, but less than 50
per cent., if the decline is deemed to be irrecoverable. Loss on impairment is recordedon securities whose fair value is difficult to determine if the decline is deemed to be
irrecoverable considering the financial position of the securities’ issuers.
Allowance for investment losses directly deducted from the corresponding investments
in securities for the years ended March 31, 2017 and 2018 were as follows:
2017
2018
(Millions of yen)
Investments in securities

¥ 201

¥ 76

2018
(Thousands of
U.S. dollars)
$ 724

43

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. Derivative Transactions
Summarized below are the notional amounts and the estimated fair value of the derivative
instruments outstanding at March 31, 2017 and 2018, for which hedge accounting has been
applied.
a.

Currency-related transactions

Method of hedge
accounting
Allocation
methodMethod of hedge
accounting
Allocation
methodMethod of hedge
accounting
Allocation
methodHedging instruments
Forwardforeignexchange
contracts

Buy: USD

Hedging instruments
Forwardforeignexchange
contracts

Buy: USD

Hedging instruments
Forwardforeignexchange
contracts

Buy: USD

Hedged items
Forecasted
transactions
denominatedin foreign
currencies

Hedged items
Forecasted
transactions
denominatedin foreign
currencies

Hedged items
Forecasted
transactions
denominatedin foreign
currencies

March 31, 2017
Notional
Due after
amounts
one year
Fair value(Millions of yen)
¥ 6,984

Notional
amounts¥ 6,573¥ 6,573¥ (80)March 31, 2018
Due after
one year
Fair value(Millions of yen)
¥ 3,393¥ (329)March 31, 2018
Notional
Due after
amounts
one year
Fair value(Thousands of U.S. dollars)$ 61,873$ 31,942$ (3,096)

The fair value was calculated based on prices provided by the counterparty financial
institutions.

44

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
21. Derivative Transactionsb.

Interest-related transactions
March 31, 2017

Method ofhedge
accounting
Short-cut
methodPrinciple
methodShort-cut
methodHedging instruments
Interest rate
swap
Interest rate
swap
Interest rateand currency
swap

Receive: floating
Pay: fixed
Receive: floating
Pay: fixed
Receive: floating
Pay: fixed
Receive: USD
Pay: JPY

Hedgeditems
Long-termdebtLong-termdebtLong-term
debt

Notional
amounts

Due after
one year
Fair value(Millions of yen)
¥ 5,000
¥
–
¥
–
2,759

2,593

(129)

1,757

1,506

–

March 31, 2018
Method ofhedge
accounting
Principle
methodShort-cut
methodHedging instruments
Interest rate
swap
Interest rateand currency
swap

Receive: floating
Pay: fixed
Receive: floating
Pay: fixed
Receive: USD
Pay: JPY

Hedgeditems
Long-termdebtLong-term
debt

Notional
amounts

Due after
one year
Fair value(Millions of yen)
¥ 4,137¥ 3,982¥ (341)
1,506

1,255

–

March 31, 2018
Method ofhedge
accounting
Principle
methodShort-cut
methodHedging instruments
Interest rate
swap
Interest rateand currency
swap

Receive: floating
Pay: fixed
Receive: floating
Pay: fixed
Receive: USD
Pay: JPY

Hedgeditems

Notional
Due after
amounts
one year
Fair value(Thousands of U.S. dollars)Long-termdebtLong-term
debt$ 38,941$ 37,490$ (3,217)

14,175

11,812–

The fair value of the interest swaps for the year ended March 31, 2017 and the interest
rate and currency swaps for the year ended March 31, 2018 was included in that of thehedged long-term debt as they are accounted for together with underlying hedged items
under the Short-cut method.
The principle method was applied to the interest rate swaps used to hedge long-term debt
of an affiliate accounted for by the equity method, and the notional amount and the fairvalue were based on the Company’s proportionate share.
The fair value was calculated based on prices provided by the counterparty financial
institutions.
45

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
22. Supplemental Information on Consolidated Statement of Cash Flows(a) Cash and cash equivalents in the consolidated statement of cash flows for the years ended
March 31, 2017 and 2018 are reconciled to cash on hand and in banks in the consolidatedbalance sheet as follows:
2017
2018
(Millions of yen)
Cash on hand and in banks
Time deposits with maturities ofmore than three months
Short-term borrowings
Cash and cash equivalents¥ 30,314(287)¥ 35,189
(668)

2018
(Thousands of
U.S. dollars)$ 331,229(6,294)–¥ 30,027(16)¥ 34,505(150)$ 324,783(b) Information regarding details of significant non-monetary transactions for the years
ended March 31, 2017 and 2018 is as follows:
Leased assets and lease obligations related to new finance lease transactions recorded
for the years ended March 31, 2017 and 2018 amounted to ¥1,162 million and ¥1,153
million ($10,857 thousand), respectively.
Asset retirement obligations recorded for the years ended March 31, 2017 and 2018
amounted to ¥86 million and ¥111 million ($1,046 thousand), respectively.
Exercise of share subscription rights on convertible bond-type bonds with sharesubscription rights is as follows:
2017
2018
(Millions of yen)
Gain on disposal of treasury stock
due to exercise of sharesubscription rights
Increase in common stock due toexercise of share subscription
rightsIncrease in capital surplus due toexercise of share subscription
rightsDecrease in treasury stock due toexercise of share subscription
rightsDecrease in convertible bond-typebonds with share subscription
rights due to exercise of sharesubscription rights

¥

71

¥

2018
(Thousands of
U.S. dollars)

(4)

$

(38)

3,730

922

8,680

3,726

921

8,676

608

7

66

¥ 8,137¥ 1,847$ 17,385
46

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Segment Information(a) Business segment information(1) Outline of reportable segments
The reportable segments of the Company and its consolidated subsidiaries (the“Group”) are components for which discrete financial information is available andwhose operating results are regularly reviewed by the Board of Directors to makedecisions on resource allocation and to assess performance.
The Group is primarily engaged in the integrated utilities engineering service
business, based on mid- to long-term business plans developed in the head office of
the Company.
The Company’s regional offices mainly offer services incooperation with each company of the Group.
Also, some consolidated subsidiaries operate as independent management units andare involved in other industries such as sales business of construction-relatedmaterials and equipment, real estate sales business and renewable energy generation
business.
Thus, the Group consists of the segments based on business activities, with several
businesses that have essentially identical financial characteristics and contents ofservices combined into “Utilities engineering service” as a reportable segment forthe purpose of disclosing appropriate information.
The “Utilities engineering service” segment primarily offers services for the designand construction of electrical works, such as power distribution lines, indoor wiring,and electronic communication, and of heating ventilation and air conditioning
mechanical installation works, such as ventilation, heating and cooling, plumbing,water treatment and sanitation equipment installation.
(2) Change in presentation of reportable segments
Effective March 31, 2018, the Company reviewed the management method of thesales business of construction-related materials and equipment, which had been
included in “Others” in terms of enhancing business management within the newGroup structure since the Company reorganized and reinforced its materials
procurement structure in the group, especially, Q-mast, the Company’s subsidiary.
The sales of construction-related materials and equipment to group companies by
Q-mast is considered material procurement activity for the utilities engineering
service of the Group and accordingly, categorized as “Utilities engineering service.”
The sales of construction-related materials and equipment to third parties iscategorized as “Others” which is the same as before.
The Company has reclassified the previously reported segment information for theyear ended March 31, 2017 to conform to this revised segmentation.
47

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Segment Information (continued)(a) Business segment information (continued)(3) Method used to calculate net sales, profit or loss, assets, liabilities and other items
by reportable segment
The accounting policies of the reportable segments are substantially the same as
those described in “2. Summary of Significant Accounting Policies.” Segment
performance is evaluated based on operating profit or loss. Intersegment sales andtransfers are determined by reference to actual market price.
(4) Information as to net sales, income or loss and other items for each reportablesegment for the years ended March 31, 2017 and 2018 are summarized as follows:

Net sales
Sales to third parties
Intersegment sales
and transfers
Total
Segment income or loss
Other items
Depreciation andamortization
Amortization of
goodwill

Net sales
Sales to third parties
Intersegment sales
and transfers
Total
Segment income or loss
Other items
Depreciation andamortization
Amortization of
goodwill

Utilities
engineering
serviceYear ended March 31, 2017
Adjustments
andOthersTotaleliminations(Millions of yen)

¥ 328,915¥ 12,855¥ 341,771¥–¥ 341,771

3,582¥ 332,498¥ 29,249

4,472¥ 17,328¥ 1,324

8,055¥ 349,826¥ 30,573(8,055)¥ (8,055)¥ 159–¥ 341,771¥ 30,732¥

3,063¥ 2,544¥5,607¥ (158)

¥

5,449

¥

314

¥

¥

317

¥

¥

317

2

–

Consolidated

Utilities
engineering
serviceYear ended March 31, 2018
Adjustments
andOthersTotaleliminations(Millions of yen)

¥ 346,403¥ 14,468¥ 360,872¥–¥ 360,872

2,567¥ 348,970¥ 33,273

4,938¥ 19,407¥ 1,735

7,506¥ 368,378¥ 35,008(7,506)¥ (7,506)¥ (281)–¥ 360,872¥ 34,726¥

3,211¥ 2,446¥

5,658¥ (145)

¥

5,512

¥

148

¥

¥

148

¥

¥

148

–

–

Consolidated

48

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Segment Information (continued)(a) Business segment information (continued)(4) Net sales, profit or loss and other items by reportable segment for the years ended
March 31, 2017 and 2018 are summarized as follows: (continued)

Net sales
Sales to third parties
Intersegment sales
and transfers
Total
Segment income or loss
Other items
Depreciation andamortization
Amortization of
goodwill

Utilities
engineering
serviceYear ended March 31, 2018
Adjustments
andOthersTotaleliminations(Thousands of U.S. dollars)$ 3,260,570$ 136,191$ 3,396,762$–$ 3,396,762

24,171$ 3,284,741$ 313,189

46,484$ 182,675$ 16,335

70,655$ 3,467,417$ 329,524(70,655)$ (70,655)$ (2,651)–$ 3,396,762$ 326,872$

30,231$ 23,026$

53,257$ (1,370)$

51,887

$

1,397

$

$

1,397

$

$

1,397

–

–

Consolidated

Note 1: “Other” consisted of business segments that were not included in reportablesegments, such as sales business of construction-related materials andequipment for third parties, real estate sales business, renewable energy
generation business, temporary staffing service, software development
business, environmental analysis / measurement business, medical-related
business, golf course management, business hotel management, planningand operation of commercial facilities and other.
Note 2: Details of adjustments and eliminations were as follows:(i) Segment assets and segment liabilities are not described since these are
not allocated to each segment(ii) Segment income of ¥159 million and segment loss of ¥281 million($2,651 thousand) for the years ended March 31, 2017 and 2018 posted
in adjustment reflects the elimination of transactions between
segments, respectively.
(iii) Segment income or loss is reconciled to operating income on the
consolidated statement of income.
(iv) Impairment loss on goodwill of ¥831 million ($7,823 thousand) is
recognized in “Utilities engineering service” was recognized for theyear ended March 31, 2018.

49

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Segment Information (continued)(b) Related information(1) Geographical information
The disclosure of geographical segment information has been omitted as net sales
to third parties and property and equipment in Japan constituted more than 90% of
the consolidated sales for the years ended March 31, 2017 and 2018.
(2) Information by major customers
The following table presents major customer information for the years ended March
31, 2017 and 2018:
2017
2018
(Millions of yen)
Name of customers:
Kyushu Electric Power Co., Inc.
Reportable segment:
Utilities engineering service and Others
Net sales¥ 52,505¥ 51,910

2018(Thousands of
U.S. dollars)$ 488,618(c) Amortization of goodwill and remaining balance of goodwill by reportable segment
The following table presents the amortization and balance of goodwill by reportablesegment as of and for the years ended March 31, 2017 and 2018:

Utilities
engineering
service
Goodwill:
Amortization
Balance as of March 31¥ 314¥ 1,175

Utilities
engineering
service
Goodwill:
Amortization
Balance as of March 31

¥ 148
¥ 298

Year ended March 31, 2017
Adjustments
andOtherseliminations(Millions of yen)
¥2
¥–

¥–
¥–

Year ended March 31, 2018
Adjustments
andOtherseliminations(Millions of yen)
¥ –
¥ 201

¥–
¥–

Consolidated¥ 317¥ 1,175

Consolidated

¥ 148
¥ 500

50

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
23. Segment Information (continued)(c) Amortization of goodwill and remaining balance of goodwill by reportable segment(continued)

Utilities
engineering
service
Goodwill:
Amortization
Balance as of March 31$ 1,397$ 2,812

Year ended March 31, 2018
Adjustments
andOtherseliminations(Thousands of U.S. dollars)$–$ 1,893

Consolidated$–$–$1,397$4,706(d) Gain on bargain purchase by reportable segment
For the year ended March 31, 2018, the Company recorded a gain on bargain purchaseof ¥183 million ($1,731 thousand) in the “Utilities engineering service” segment mainly
as a result of the acquisition of shares of Ergotech Co., and newly including Ergotech
Co., and its subsidiary, SEIWA KOGYO CO., LTD. in the scope of consolidation.

24. Related Party Transactions
Transactions and balances with related parties as of and for the years ended March 31, 2017and 2018 were as follows:
2017
2018
(Millions of yen)
Kyushu Electric Power Co., Inc.
Construction orderAccounts receivable on completed
construction contracts
Advances received on uncompleted
construction contracts

2018(Thousands of
U.S. dollars)¥ 48,652¥ 47,881$ 450,688¥ 9,317¥ 8,435$ 79,400

¥

¥

$

62

92

867

The transaction amounts do not include consumption taxes. The balances include
consumption taxes. Kyushu Electric Power Co., Inc. (located in Fukuoka City, with acapital amount of ¥237,304 million ($2,233,659 thousand) engaged in the business of
supplying electric power) is a related company which owned 22.99% and 22.66% of theshares of the Company as of March 31, 2017 and 2018, respectively.
The terms of the transactions referred to above were negotiated and determined on an arm’slength basis similar to third party transactions.

51

KYUDENKO CORPORATION and Consolidated Subsidiaries
Notes to Consolidated Financial Statements (continued)
25. Subsequent EventAppropriation of retained earnings
The following appropriation of retained earnings of the Company, which has not beenreflected in the consolidated financial statements for the year ended March 31, 2018, wasapproved at the meeting of the Board of Directors held on April 27, 2018:

Cash dividends (¥50.00 = $0.47 per share)

Millions of yen¥ 3,557

Thousands of
U.S. dollars$ 33,489

52