Ac t ion
Corporate Action Report 2016

MitsuiEngineering &Shipbuilding

Time for
Innovation and Creation
What issues will people and society face andwhat will they need in the coming decades?
Will we be able to create valuable goods andservices in an external environment that is likely
to have changed markedly? At the MES Group,
more than 12,000 employees from more than
50 Group companies have begun to think andact beyond the frameworks of products andorganizations through the sharing of the MESGroup 2025 Vision, which outlines our longterm vision.
Here we cover the achievements being madeafter starting to act as an engineering team thatmakes full use of the diverse resources and technologies from inside and outside the Group.

Ac tionHelping to ensure a sustainable future of the earth
through support for ongoing development ofocean resources in various regions around the world.
Action report

Deepening collaboration with MODEC, Inc.

We constructed the new-build hull for a floating,production, storage and offloading (FPSO) unit for offshore
oil and gas field and delivered it to MODEC, Inc.
Construction and integration of the unit’s topsides
production facilities was undertaken and completed at a

Resource 01

Technologies forbuilding floating
structures

number of module fabrication and integration yards
overseas by MODEC. We have also developed the Mitsuinoah-FPSO Hull, a next generation hull for FPSO units, andResource 02

successfully obtained approval in principle (AIP) for thisPlant
engineering
technologies

design from the American Bureau of Shipping (ABS). In
addition to these efforts, we established the FPSO BusinessResource 03

Technologies forthe engineering,
operation, andmaintenance of
FPSOSection in February 2016 and made a capital participationin an FPSO charter project. With these and other measures,
we are steadily enhancing our businesses in the area of

Creating systems for supplying resources and energy stably

marine resource development.

Ac tion for02

Environment & Energy
A floating produc tion s torage and of floading (FPSO) unit for a deep water of fshore oil and gas field

03

Supporting life in safety and peaceby responding to the growing demand for
new construction and maintenance projects.
Action report

Infrastructure Business Department established byconsolidating related businesses

In Japan, we are seeing demand not only for theconstruction of new social infrastructure, but also for
maintenance measures for aging structures, with growing
importance placed on technologies for inspecting anddiagnosing structures. In countries around the world,

Resource 01

Technologies forbuilding floating
structures

demand for the construction of new forms of social
infrastructure is expected to rise due to the growing
populations and economic development of emerging

Resource 02

countries. Over the years the MES Group has engaged in

Plant
engineering
technologies

the bridge engineering business, which covers theconstruction of steel and concrete bridges, and radar

Resource 03

Technologies forthe engineering,
operation, andmaintenance of
FPSO

business, which contributes to the inspections of roads,
bridges, tunnels, and other structures. In April 2015, weconsolidated the management resources for these twoCreating systems for supplying resources and energy stably

businesses to establish the Infrastructure Business
Department. We will operate the infrastructure business in
an integrated manner and respond to the growing demand,
thereby contributing to safe, secure, and affluent lifestyle.

Ac tion for
04

Social & Industrial Infrastructure
Bridge No.1 on Ota-Kit suki Line / Kit suki Cit y, Oita Prefec ture05

Ac tion for

Marine Logistics & Transportation

Providing propulsion systems that areenvironmentally friendly and economically efficient
Action reportCompletion of Japan’s first commercial electronically controlled
gas injection diesel engine (ME-GI) that burns LNG

As a marine logistics professional that understands theentire global supply chain, we are expected to have a view
upon which we collectively consider economic efficiency
and environmental performance. We started with theevolution of the marine diesel engine. There is a growing

Resource 01

Technologies for
manufacturing
ship enginesinterest in natural gas as a marine fuel alternative to heavy
oil because it allows for a significant reduction in emissionof sulfur oxide (SOx) and CO2 , and it is expected to help

Resource 02

reduce emissions of nitrogen oxide (NOx) and particulate

Technologies related
to the supply ofhigh-pressure gas

matter (PM). MES has established a system for responding

Resource 03

Technologies for
operation support andmaintenance with
IoT

to diverse fuel needs with engines such as the ME-GI (LNG
and heavy oil), ME-GI-Ethane (ethane and heavy oil), and
ME-LGI (methanol and heavy oil). In October 2015, wecompleted Japan’s first commercial ME-GI. In addition, weCreating a marine logistics system that enables quick,smart transport

are the first in the world to create a form of operation thatcombines ME-GI and fuel gas supply system (FGSS)
compressor. Moving forward, we will continue to tackle
these kinds of challenges.
06

Building a crank shaf t into a marine diesel engine / Tamano Works, Okayama Prefec ture07

Ac tion forIntellectual Adventure

Supporting leading research projects conductedin an attempt to expand the intellectual frontiersof humankind
Action report

The Super-Kamiokande that helped Professor Takaaki Kajita
earn the Nobel Prize in Physics

It all started when MES’s designs and manufacturing ofpressurized containers and low-temperature LPG
containers caught the attention of leading researchers.
Kamioka Mine is located in Hida City, Gifu Prefecture, and it
is home to the Super-Kamiokande, a neutrino detector

Resource 01

Technologies forconstructing
large structures

facility that was constructed 1,000 meters underground in
the mine. It is extremely complex form of observational
equipment consisting of a huge tank that is 39.3 meters indiameter and 41.4 meters in height, with approximately
11,000 photomultiplier tubes mounted inside the tank,

Resource 02

Technologies fordesigning andmanufacturing
pressurized containers

Resource 03

Human networkthat has beendeveloped

which is filled with 50,000 tons of ultra-pure water. MES
was involved in the construction of this equipment all theway from the schematic plan phase. Professor Takaaki
Kajita was awarded the Nobel Prize in Physics in 2015 forDevelopment and construction of unprecedented researchand development facilities

his research based on the results of observations made byusing the Super-Kamiokande. We were deeply moved tohave been involved in a research project that helped to
expand the intellectual frontiers of humankind. Through theconstruction of research facilities, we will continue tosupport researchers who enthusiastically tackle new areasof study.
08

Cons truc tion of the Super-Kamiokande / Kamioka Mine in Hida Cit y, Gifu Prefec ture

09

Contents
02

Action Report 01 : Environment & Energy

04

Action Report 02 : Social & Industrial Infrastructure

06

Action Report 03 : Marine Logistics & Transportation

08

Action Report 04 : Intellectual Adventure

10

Contents / Editing Policy

11

Mission Statement

12

Financial Highlights

14

Message from the President

18

Feature: Changing ourselves to become morevaluable Business model innovations in progress

20

Mission Statement

P02

Action report

Reports on the most recent developments at MES

Mission Statement
P14

01 : Enhancement of the gas engineering businessMessage fromthe President

President Tanaka provides an overview offiscal 2016 and outlines our future direction.

22

02 : Enhancement of after-sales service business

26

Dialogue of Outside Directors

30

Business Segment Overview

Gas Engineering &32

Ship & Ocean Project Headquarters

After-Sales Service

34

Machinery & Systems Headquarters

36

Engineering Headquarters

38

Research & Development Headquarters

40

Corporate Governance43

Social Activities of MES

44

Environmental Preservation48

Social Contributions

The core of our Group is manufacturing. Through our advanced technology,

P18

Financial Data

82

Company Profile

Special Report

Detailed explanations of our initiatives forbusiness model innovation.

we offer products and services that are environment-friendly andcontribute to society and people.
Our mission and raison d'etre is to gain the trust of society andpeople by contributing to the developmentof society through our manufacturing.
We believe that this trust is vital to our existence.

Management Policy
P30

50

To continue our role as trusted manufacturer,
and trusted member of society

Business Segment
Overview

Overview and outlook of earnings ofeach division

Build further satisfaction for our customers
Provide safe and effective workplace environment for employees
Contribute to the development of society
Pursue a profit for the longevity of the company

Editing Policy
Under our Company Philosophy of “To continue working as a company trusted
by society and individual through products and services we offer,” we at Mitsui
Engineering and Shipbuilding Co., Ltd. uphold our corporate philosophy as we
strive to be a company that uses manufacturing to contribute to social
development and preserve the global environment. We view all actions related
to achieving this goal as collective approach towards the creation of corporate
value. The Corporate Action Report is a comprehensive summary of all these
activities, covering management strategies, vital strategies, and the status ofbusiness, as well as environment conservation activities and social contribution
activities. It is designed to provide stakeholders with a better understanding ofcompany operations.
This report covers the period from April 2015 to March 2016.
However, some sections include information for April 2016 and thereafter.

10

11

Financial Highlights

Net Sales
Millions of Japanese Yen

Financial Results
New Orders Received

FY2012686,886

FY2013
662,557

FY2014
1,107,750

Operating Income
Operating Income per Net Sales

Thousands of
U.S.Dollars

FY2015
959,785

FY2016609,622

FY2016
5,410,206

Net Sales

571,852

577,093670,068

816,520805,414

7,147,799

Operating Income

31,421

24,002

19,96913,29911,813

104,837

Ordinary Income

32,345

26,162

26,18014,89915,078133,813Net Income *1

17,880(8,208)42,855

9,463

7,600

67,448(JPY 100 million)(JPY 100 million)(%)(JPY 100 million)

9,000

400

8

500

8,165 8,054

8,000

6,000

6

300

5,719 5,771

5.5

4.2

3,000

200

200
133

FY2012FY2013

FY2014FY2015FY2016

2012

13,56447,182

14,49915,16829,803

264,492

Investing Cash Flow (Loss)

11,516(12,101)(37,313)(32,386)(34,600)(307,064)

Free Cash Flow

25,08035,081(22,814)(17,218)(4,797)(42,572)

Financing Cash Flow (Loss)(32,416)(4,793)

15,532(4,374)

48,217427,911

Cash and Cash Equivalents

72,008106,193111,926

94,665

135,748

1,204,721

FY2014FY2015FY2016

209,631207,314323,609347,305

343,853

3,051,589

Total Assets

655,930

660,398

932,896

1,074,563

1,094,043

9,709,292

Interest-bearing Debt *2

144,565

148,257

187,833

188,314

239,874

2,128,807

Per Share Information

FY2012

EPS (Net Income per Share)
BPS (Net Assets per Share)
Dividends per Share
Share Price at the year end

21.59(9.91)FY201451.80

FY2015
11.63

FY20169.40

FY20160.083

219.17212.24266.64292.86290.48

2.578

4.0

3.0

2.0

2.0

4.0

0.035

144

166

218

205

168

0

2012

2013

2014

2015

1.5
2016 (FY)Net Assets per Share

0

2013

2014

0
-5

△ 82
2012

5

3.2

△ 4.6

-100
0

76

2015

2016 (FY)

(%)

(JPY)

300

Dividends per Share
292.86 290.48

1.491

(JPY)

5

266.64

102
84

85

4

219.17 212.24

4.0

4.0

200

3.0

3

80

FY2016

Net Assets

FY20132016 (FY)150

80

FY20132015

D/E Ratio100

FY2012

2014

95

FY2016

Operating Cash Flow

Financial Position

2013

10

10.3

4.1
2

1.6

1,000
0

15

100

118

100

2,000

20

179

4

3.0

25

21.6

300

240

5,000
200

(%)

429

400

314

6,701

7,000

4,000

Cash Flow

Net Income
ROE (Return of Equity)

2

2.0

2.0

2014

2015

2016 (FY)

8.14

8.13

2015

2016 (FY)

100

50

1

0

2012

2013

2014

2015

2016 (FY)

Employees (Consolidated)

2012

2013

2014

2015

2016 (FY)

Total Energy Consumption(persons)(TJ)

12,055 12,291

0

2012

2013

CO2 Emission(10,000t)

10

2,000

15,00010,000012,7051,500

10,025 9,881

1,360

1,290

1,175

1,265 1,300

6.38

6.70

6.90

2013

2014

5

1,000
5,000

Key Financial Indicator

FY2012FY2013

FY2014FY2015FY2016

Shareholders' Equity to Total Assets (%)

27.7

26.6

23.6

22.0

21.5

ROE (Return of Equity) (%)

10.3

(4.6)

21.6

4.1

3.2

500

0

2012

2013

2014

2015

2016 (FY)

0

2012

2013

2014

2015

2016 (FY)02012

TJ: Tera Joule (=1012J)※1 Proﬁt(losses) attributable to owners of parent※2 Excluding lease liabilities

1213

Message from the President
Facing an uncertain business environment

From a long-term vision
to the next set of actions.
Be on the lookout for innovationachieved through the concerted
efforts of the MES Group.

In fiscal 2016, we saw the moderate recoveryof the US economy. Nevertheless, the global
economy remained uncertain due to the
sharp fall of prices of energy resources suchas crude oil, the economic slowdown of
China, and the economic slump of emerging
countries that came to the surface.
In Japan, we saw continuous improvementin earnings recovery largely among exporting
companies thanks to the weaker yen in 2015.
However, the economy has lacked momentum
due in part to the rising value of the yen,which has remained high since the turn of
the year, persistently low resource prices,and the sluggish growth of capital
expenditures.
In the midst of this environment, our full-year
consolidated earnings were net sales of
805.4 billion yen, operating income of
11.8 billion yen, ordinary income of 15.1
billion yen, and net income of 7.6 billion yen.
Net sales were the second highest ever,

although net sales of the Ship & Ocean
segment declined and fell below the initial
forecast.
Operating income, ordinary income, andnet income fell below the initial forecasts
due to the losses incurred in relation to theconstruction of an ocean support vesselby a subsidiary. We will prevent this problem
from reoccurring by ensuring our subsidiaries
thoroughly manage the design, procurement,
and manufacturing processes and by
establishing a system for supporting our
subsidiaries.
Consolidated orders received were 609.6
billion yen, which fell below the full-yeartarget of 750 billion yen due in part to thepostponement of the bid for a project on
floating production storage and offloading
system (FPSO) for marine oil and gas.
However, we believe that we secured asound quantity of orders.

Floating production storage andoffloading system (FPSO) vessels formarine oil and gas
An FPSO is an ocean-based facility
that produces oil and gas, storesproduced fuel in the facility’s internaltanks, and then directly supplies it tooil tankers.
The FPSO is the most popular typeof production facility, representing
over 60% of floating vessels formarine oil and gas production.

Progress of the Mid-Term Business Plan in fiscal 2016

President / Representative Director CEO

14

Fiscal 2016 was the middle year of the
Mid-Term Business Plan 2014 (MBP14),
and we have been implementing various
policies aimed at achieving the “wellbalanced portfolio” that we set as a goal in
the MBP14, with the three key strategies of“Manufacturing Business Innovation,”“Engineering Business Expansion,” and“Expansion of Business Engagement andRelated Service Business,” complemented
by a basic policy of “Enhance Business
Foundation.”
For the “Manufacturing Business Innovation,”
we are enhancing the “neo series” lineup of
next-generation environment-friendly ships
in the Ship & Ocean segment. In businesses
related to ocean development, we promote
initiatives for the future, such as thedevelopment of the FPSO hull under a newconcept, by taking advantage of ourexperience in delivering an FPSO hull for
MODEC, Inc. In the Machinery segment,
we position marine diesel engine poweredby gas or similar fuels as a future growthfield, and are enhancing our production
system to meet customer needs. In addition,
the container crane business has continued

to be strong. We have made investments
to expand this business, and have also
implemented structural reforms.
For the “Engineering Business Expansion,”in the Ship & Ocean segment, we havemade the German engineering company
TGE Marine AG (TGE) one of our
subsidiaries. By joining hands with TGE,
we will aim to establish a firm position in
the market for medium- and small-sizedgas carriers. In regards to orders received,
we have successfully won some orders forcivil engineering projects, such as those forwind farms and coal thermal power plants.
In addition, we have also seen the entry of
MODEC, Inc. into the market of North Sea
oil, while Burmeister & Wain Scandinavian
Contractor A/S (BWSC) has received orders
projects to construct multiple biomass
power plants in the United Kingdom.
For the “Expansion of Business Engagement
and Related Service Business,” we will
engage in a mega solar business in Oita
Prefecture and biogas energy generation
business in Betsukai Town, Hokkaido. We
have also taken initiatives to stabilizing ourearnings, such as capital participation in

Next-generation environmentfriendly ships –The neo series
The neo series is a lineup of eco-ship
bulk carriers that retains the broad
applicability and reliability of ourbest-selling 56,000-ton bulk carrier(Mitsui 56BC), while employing anelectrically-controlled engine andan optimized hull shape.
We have developed three ship sizes:
56,000 tons, 60,000 tons, and66,000 tons.
Enhancement of the gas
engineering businessOur “Enhancement of the gas
engineering business” is an initiative
for business model innovation. It is
introduced on page 20 of this report.

15

an FPSO charter project by MODEC, Inc.
and MES, and the operation andmaintenance business for multiple biomass
power plants by BWSC. In the service
business, we have taken measures forbusiness expansion, such as capital

participation in Azuma Engineering (S) Pte
Ltd in Singapore, which runs a business formaintaining and repairing marine diesel
engines, and promoting the establishmentof overseas bases for after-sales services.

Enhancement ofafter-sales service businessOur “Enhancement of after-sales
service business” is another initiative
for business model innovation. It is
introduced on page 22 of this report.

‘‘ It is important to be proactive in’’collaborating with partner companies.

Formulation of the MES Group 2025 Vision, long-term vision
In January 2016, we formulated the MESGroup 2025 Vision, which shows the longterm direction of the MES Group. We haveformulated this vision by considering what
we need to work on in the rapidly changing
external environment. We will incorporate
this vision within the specific action plansin the coming three mid-term businessplans, the first of which will be launched infiscal 2018.
In formulating the MES Group 2025 Vision,
we started by considering what the world

will be like 30 years from now, based on
which we forecast social issues and needs.
Taking these needs into account, we thoughtof the domains in which we would be able
to promote businesses by using thestrengths and resources of the MES Group.
As a result, we specified three domains inwhich we can address social issues andkeep developing as a business. These are
the domains on which we will focus ourstrengths as we move forward.

MES Group
VisionMES Group 2025 Vision
The details of the long-term vision
are described on the following
website page of MES.
http://www.mes.co.jp/english/invest
or/manage/2025vision.html

Three domains on which we will focus our strengths
The first domain is Environment & Energy.
Environment conservation and energy
creation are two essential needs for society
in the future. At the moment, we are widely
involved in energy creation, including thedevelopment of renewable energies suchas wind power, bio-gas, and biomass
power plants, and we are participating in
the ocean resource development sector
by constructing FPSO (floating production,
storage, and offloading) systems for offshore
oil and gas producing. Moving forward,
we will gather and strengthen our existing
expertise and resources, and at the sametime create new forms of value by going
beyond the boundaries of segments orcompanies. To this end, we will integrate
and make full use of their resources andbusiness models, instead of relying upon
the principle of self-sufficiency.
The second domain is Marine Logistics &Transportation. Not only providing
shipbuilding, the MES Group’s involvementin port logistics includes container cranes
and other structures, and as such the market
expects the MES Group to serve as a marine
logistics professional with expertise inevery aspect of the global supply chain.

Three domains on which
we will focus efforts
We reviewed our activities for fiscal
2016 and selected actions we took
in three different domains. These
actions are introduced anddiscussed on pages 04 to 09 of thisreport.

Three domains on which we will focus our strengths

Further innovation will be made possible
by integrating our tangible services, suchas shipbuilding and the manufacturing ofcontainer cranes, with our intangible
services like the monitoring of operating
statuses of marine diesel engines andcontainer terminal management systems.
The third domain is Social & Industrial
Infrastructure. Developing countries in
Asia and Africa require social and industrial
infrastructure and facilities. In Japan andother advanced economies meanwhile,the need for our conservation technology
as a measure against aging infrastructure
will only grow stronger. We can also provide
new solutions in these segments by fusing
technologies such as radar and roboticsbased safety management.
The key points of this long-term vision arethat we have clarified three domains inwhich the MES Group contributes to society,and that we have identified the necessity
to create business ideas based on social
issues or needs instead of within theframework of our existing businesses or
the products we offer.
We can only make great leaps forward indevelopment when we abandon theperspective of providing products such as
ships and cranes. The capacity to provide
solutions to social issues through the useof ships and cranes is more important thanbeing able to build and deliver them. To
survive in a tough competitive environment,
the key is recognizing these needs andpromptly changing our system so that we
can respond to them.

Percentage by business domain
Quantitative target
Achieving net sales of
1.1 trillion yen andan ordinary income rate of
6% by fiscal 2026

5%

20

%

Environment & Energy

Fiscal 2026

6.0%
1.1 trillion yen 50

%

25

%

Marine Logistics & Transportation
Social & Industrial Infrastructure
Other

Needs of society○ Increased energy consumption○ Diversification of energy sources○ Application of

unconventional energy○ Increased marine transportation
volume○ Expanding environmental
conservation needs○ Increased infrastructure andindustrial facility needs○ Expanding need forpreventative conservation,
replacement and renewal forexisting infrastructure andindustrial facility○ Life in safety and peace

16

Environment& Energy

MES Group
strengths and resources○ Diverse products & services○ Engineering prowess○ Connections with customers

MarineLogistics &Transportation

Social &Industrial
Infrastructure

and partner corporations○ Commitment to manufacturing

and engineering○ Human resources to makethe above possible

Evolving into an engineering team that creates social value
In the MES Group 2025 Vision, we havedeclared the ideal to be that “the MESGroup will evolve into an engineering
team that creates social value.” This
reflects our determination to think beyond
the box, unite the efforts of the entire
Group, be proactive in working together
with partners, and continue to provide
valuable things that solve social issues
and needs.

The MES Group has more than 12,000
members from more than 50 Group
companies. With each individual thinking
and acting from wider perspective, we will
work together with customers and partnercompanies to create social value as anengineering team and unite our efforts
towards building a better society. We
humbly ask for the continued support andcooperation of our shareholders.
17Special Report

Improving the profitability further by focusing our efforts on
the upstream and downstream processes in the product life cycle

Changing ourselves to become more valuable
Business model innovations in progress

01

Innovation in the upstream process

Enhancement of
the gas engineering businessWe have acquired shares in TGE Marine AG, a German gas carrier engineering company.
Further enhancement of our gas business is now underway.

It is known that the upstream and downstream processes
in the product life cycle tend to be more profitable than
the intermediate process. The same is true for our businessat MES. Given the current ups and downs of the shipping
market and the fact that companies from emerging countries
are entering the manufacturing business at lower costs,
sustainable growth is difficult to achieve without cultivating
businesses in the highly profitable upstream and downstream

02

processes. Possessing this sense of crisis, MES developed
the Mid-Term Business Plan 2014, which covers the period
from July 2013 until March 2017, to bring about businessmodel innovations. The following section outlines the twoinnovations we have made in the upstream and downstream
processes through tie-ups with other companies andsynergy with our Group companies.

Innovation in the downstream process

Enhancement ofafter-sales service businessWe are moving ahead with the enhancement of our after-sales services
in the field of machinery by establishing services bases in locations that are closer to our customers,
and by working in close cooperation with repair plants.

Profitability

Enhancement

Enhancement

Product life cycle

Engineering

18

Manufacturing

Construction

After-sales services

19

Innovation in the upstream process

TopicsEnhancement of
the gas engineering business
The extraction of shale gas has driven the growing capacity of the natural
gas supply mainly from Australia and the United States. This has resulted in
downward pressure on the natural gas price, heightened expectations forthe worldwide expansion of the liquefied gas market, and raised hopes forinnovation in the gas transportation business.
Anticipating the development of liquefied gas business, MES has acquired
ownership of TGE Marine AG (TGE), a gas carrier engineering company, andhas started to build up its gas engineering business.

What is TGE Marine AG (TGE)?

01

Diversification of
the different types of gas
Markets for different types of liquefied
gas, such as ethane and ethylene gas(LEG), which are byproducts of shale gas
development, liquefied petroleum gas(LPG), and liquefied natural gas (LNG),
are expected to expand in the future.

Increase of
short-distance transport

H

Initiatives are now underway in Asian
countries, such as Singapore, to develop
LNG hubs. These hubs serve as centers
for LNG trade, and are where prices are
set and disseminated. Japan has also
started initiatives aimed at establishingitself as an LNG hub.

H
C

H

H

Long distance

Short distance

Necessity of partial loads

2001

Development of small and midsize gas carriers

Focusing efforts on the development of small and midsize gas carriers

In the building of gas carriers, MES used to focus on large carriers and did
not work on small and midsize ones. However, the demand for small andmidsize carriers is expected to increase in the gas markets of India, China,
and Southeast Asia following the development of routes for short-distancetransport that enable the efficient supply of gas in the region. By collaboratingwith TGE, which excels in the engineering of small and midsize gas carriers,
MES will focus on the development of small-sized ships known as Type C,
and small and midsize gas carriers referred to as “MOSS Type.”

Type-C LNG carrier

neo83GC (MOSS type)

LNG HUB

Ac tion

Expected development ofliquefied gas markets

50%

Amidst the shift from bulk shipment tosmall-scale transport, the need for partial
loading, in which a tank full of cargo isdischarged little by little at multiple
ports, is expected to grow in the future.

TGE is a gas carrier engineering company headquartered in Bonn,
Germany. The company undertakes the EPCS business, including theengineering and construction of type-C pressurized gas tanks and gas
handling systems, and the supervision of construction for small andmidsize gas carriers. TGE already commands a global market share ofmore than 50% for both small LNG carriers and small ethylene
carriers, and approximately 30% for LPG carriers. Its marketing
activities target clients that include both influential gas carrier owners
in Europe and shipyards in China and South Korea.

Ac tionEmergence of LNG hubs

In the past, liquefied gas was generally
supplied with the long-distance transportof large quantities of gas under long-term
contracts. Hereafter, small-scale,
short-distance transport under spot
contracts or flexible contracts in response
to flexible demand is expected to increase.

In October 2015, MES acquired ownership of
TGE Marine AG (TGE),a German gas carrier engineering company.

OIL

+

02

Engagement in EPCS businessEntering the upstream process of gas carrier construction

EPCS business is a business method in which Engineering, Procurement,
and Construction Supervision are undertaken as a job lot, and the gas
system of a gas carrier is managed as a whole. In the global market of gas
career construction, TGE has been involved in projects starting from thephase for determining the specifications of ships. We will enter the
upstream process in gas carrier construction by learning the ins and outsof the projects from TGE, which has worked on a large number of EPCS
business projects.

GAS

Increase of demand fordual fuel propulsion engines
Dual fuel propulsion engines, which use
LNG and heavy oil, ethane and heavy oil,or methanol and heavy oil, for example,
are expected to become the main type ofengines in use.

Ac tion03

Provision of consistent services
from the upstream to the downstream processes
Provision of
consultation on
determining theship’s specifications
and other features

Provision oftechnologies andproducts that involvethe handling of gas
fuels

Ship
owner

TGE

MES

Collaboration

Expanding sales channels of gas engineering equipment

Expanding sales channels of ME-GI and FGSSMES has been making progress on the development and sales of theelectronically-controlled gas injection diesel engine (ME-GI), which allows
for the use of LNG as well as heavy oil, and the high-pressure compressors
for fuel gas supply systems (FGSS). Moving forward, we will work to expand
the sales channels of these technologies and products, which involve thehandling of gas fuels, in the global market for systems in which TGE hasshares.

ME-GI

FGSS

21

Topics

Innovation in the downstream process01

Enhancement ofafter-sales service businessWe are promoting innovation to make the shift from the previous businessmodel focused on selling finished products to a system that enables us toprovide life cycle engineering, with which we are involved in the entire life
cycle of products and respond to all customer needs.
We will be actively involved in domains which we have never worked on,
while also enhancing our existing after-sales service business, and switching
to a business model in which we continue supporting customers’
businesses.

Diesel engines andindustrial machinery
Ships
MES-KHI Yura Dock Co., Ltd. wasestablished in April 2015 at the Ship
Repair Department in Yura Town,
Wakayama with an investment from
Kawasaki Heavy Industries, Ltd. We will
respond to demand for repairs andretrofits, focusing primarily on LNG
carriers for transporting shale gas from
North America, a commodity for which
demand is expected to grow.

MES Technoservice Co., Ltd. andoverseas subsidiaries provide after-sales
services for diesel engines, plant machinery,cranes, gas turbine cogeneration systems,
and other types of equipment.

Ac tion02
Power plants
Burmeister & Wain Scandinavian
Contractor A/S (BWSC) provides total
services for entire power plants. In
addition to the supply and constructionof plants, it offers operation andmaintenance services throughout theentire life cycle period of plants.

In 2015, major progress was made in
our after-sales service businessin the field of machinery.

01

Diesel engine field

Making our way into the maintenance and repair businessOur after-sales services for marine diesel engines used to focus primarily on parts
sales, the dispatching of engineers, and retrofitting. However, our business model
lacked a maintenance and repair business. Thus, we have decided to establish bases
for maintenance and repairs in important areas in Japan and other countries, where
we will be involved in the entire life cycle of marine diesel engines by providing
services such as the overhaul of fuel valves and pumps of engines, as well as thewelding repair of engine exhaust valves, pistons, and other parts.

Establishment of mother factory for
maintenance business

Capital participation in a main factory for
maintenance and welding repair

We established Azuma Machinery Co., Ltd., a joint
venture, by joining up with Azuma Kako Co., Ltd., whichruns a business for repairing and recycling marine engine
parts in Japan and other countries. It is located on thepremises of the Onomichi plant of Azuma Kako in Setouchi
area, which is one of the centers of the repair business inJapan. We will increase our shares in the maintenancebusiness in Japan and make this company a mother factoryas the base for overseas expansion.

We acquired a stake in Azuma Engineering (S) Pte Ltd,
which provides maintenance and welding repair services
in Singapore, the global center of shipping and the marine
shipping industry. We will increase the level of synergy
with Mitsui Engineering & Shipbuilding Asia Pte Ltd(MES Asia), which is also the MES Group’s base for aftersales services, and operate it as the main factory for
maintenance and welding repair.

02

Expansion of overseas bases for after-sales services

Mitsui Zosen Europe

Shanghai

Netherlands

MES Technoservice Shanghai
Tru-Marine
Mazar
KEMKLEN
DMI
HRDD
AGILE
Fischer
FG Marine

FUJI、
Tru-Marine

PolandMTS

TurkeyTesting, inspection,
and analysis services

FPSO / FSO

Maintenanceandrepairbusiness

April 2015, Singapore

LondonMODEC, Inc. provides operation andmaintenance services for floatingproduction storage and offloading
system (FPSO) vessels and Floating
Storage and Offloading (FSO) systems,
which are used in the production of oil
and gas in the ocean.

Engineer
dispatch
Technical
services

We are developing a system for the global operation of the after-sales service
business by implementing various measures, such as establishing a subsidiary forplant machinery maintenance in Qatar and a joint venture in Turkey. We are also
expanding factories for the repair of marine diesel engines. We will build upon theenhancement of our after-sales services to win new orders.

Domains ofafter-sales service businessof MES

Mitsui Zosen Environment Engineering
Corporation provides engineering,procurement, construction, and operationand maintenance services for various
water treatment facilities and waste
treatment facilities.

New

April 2015, Onomichi City, Hiroshima Prefecture

Ac tionEnvironmental plants

Parts
sales

MES Testing & Research Center Co., Ltd.
provides testing, inspection, and analysis
services. It also offers inspection services
in the field of social infrastructure,including the use of radar and othertechnology to inspect bridges.

MES Technoservice
Machinery Construction Logistics
Industry and Trade

Qatar

MES Technoservice
Middle East W.L.L.

UAE

Gulf Turbo

MumbaiPMC

Korea

California
PacecoHoustonTru-Marine

JUNE

FloridaTaiwanMitsuizosen Technoservice Taiwan
Azuma

Hong Kong

Motor-Services Hugo Stamp

PanamaBWSC Panama

Mitsuizosen Technoservice Hongkong
KEMKLEN

Singapore

Mitsui Engineering & Shipbuilding Asia
Azuma Engineering
WelmetLocal subsidiaries of MES Technoservice
Tru-Marine(including ones in which it holds a stake)
Burco
Daikai
Subcontract factory
Arc

Agent

22

23

Topics

02

Ac tionNew business models are createdbeyond the existing framework ofafter-sales services.

01

CMAXS e-GICSX, a next generation condition-based engine monitoring system

Ac tionPreventive maintenance through the use of big data

□ Leam Chabang Port, Thailand/ Retrofitting of 6 Transtainers into Hybrid units

Past projects

VDR

Sensor data

□ Manila Port, Philippines/ Retrofitting of 5 Transtainers into EVSC units

Life cycle solutions
Ac tionLand
Constant connection

Data Logger□ Manila Port, Philippines/ Retrofitting of 3 Transtainers into Hybrid units□ Buenos Aires Port, Argentina/ Retrofitting of 7 Transtainers into EVSC units

Ocean○ Abnormality analysis and monitoringof the main engine and accessories○ Access to data on operation conditions○ Access to results of condition analysis○ Access to results of combustion
diagnostics○ Q&A system

Retrofitting

Transforming existing port cranes into energy-saving cranes

MES and MES Technoservice Co., Ltd. are committed to transform
operating cranes into energy-saving cranes, improving their economic
efficiency and reducing their environmental impact. For example, we
retrofitted five Transtainers at Leam Chabang Port in Thailand and madethem Hybrid Transtainers. We were rated highly for this project because wequickly finished the retrofitting work, which produced an energy savings of
50%, within only two months of fieldwork.
Moving forward, we will continue working to reduce Fuel Consumption andCarbon Footprint up to 60% compared to existing levels. The key to achieve
this is our owned Engine Variable Speed Control (EVSC) technology which
combined with high spec Lithium Ion Batteries and downsized Engine bringto life a new concept in Crane green technology, the MES Hybrid Transtainer.

MES, its subsidiary, MES Technoservice Co.,
Ltd. and Nippon Kaiji Kyokai have beenworking on a joint research project to develop
the "Next Generation Condition-Based Engine
Monitoring System, called CMAXS e-GICSX"for Mitsui-MAN B&W diesel engines startingfrom April 2016.
The CMAXS e-GICSX system ensures the early,
accurate detection of abnormalities by usingsophisticated algorithms that are capable ofconducting onboard analysis and monitoringof the big data collected from not only multiple
main engine sensors but also navigation data,such as weather and sea conditions. By merging
the onboard monitoring results withperformance analysis conducted on land,
the CMAXS e-GICSX system ensures a higher
level of accuracy of performance analysis
than ever before.

e-GICSX

02

Ship Data Center○ Access to results of abnormality analysisof the main engine and accessories

Ship owner andship managementcompany○ Access to data on operation conditions○ Access to results of condition analysis○ Access to results of combustion diagnostics○ Access to results of abnormality analysisof the main engine and accessories○ Access to data on operation conditions○ Access to results of condition analysis○ Access to results of combustion diagnostics
MES and
MES Technoservice ○ Q&A system

03

Services for retrofitting port cranes into larger cranes,
and services for relocating, removing, and dismantling them

A large quantity of container cranes were delivered in the 1980s and 1990s,
which was the initial period of container transport. These cranes now need
to be replaced, and thus there is a rising demand for replacements for aging
cranes. This coincides with the rise in demand for retrofitting existing cranes
into larger cranes as the size of container ships becomes bigger.
At MES, we are aiming to be the One-Stop service provider for our customers.
Our team is capable to provide maintenance to existing cranes, modify andretrofit to match the market needs (Crane Rise-up, boom extension), relocate,remove and dismantle cranes, as well as manufacture New Cranes. We offer
life cycle solutions that provide for the care of products throughout their life
cycle. This means that we support our customers’ terminal operations,which in turn enables us to better understand our customers’ needs. As aresult, we have created a virtuous circle in which our understanding of theirneeds leads to new orders.
Ac tion04

Business engagement

Engagement in terminal operation

Playing a more active role in the Container Terminal Sector will allow us tobetter understand the market needs and to prepare ourselves to be a better
service provider and an even better crane manufacturer.

Person in charge of accessories, manufacturer, etc.

24

25

Progress should be madewith confidence towardearly achievementof the long-term vision.

MES needs to findthe next pillar thatstands as its true value.

Toshikazu Tanaka Outside Director

Mr. Tokuhisa worked for the Japan Bank for International
Cooperation（JBIC）as the Chief Representative ofRepresentative Office in Washington D.C., Deputy
Director General of JBIC Institute, Director General ofCountry Economic Analysis Dept., and Resident
Executive Director for the Americas before he took his
position as the Executive Vice President andRepresentative Director, Nusa Tenggara Mining Corp.
He became a Director of MES in June 2013.

Mr. Tanaka served as a Director, Managing Director,
Executive Vice President, and President and Chief
Executive Officer of Mitsui Chemicals, Inc. and now
serves as the Senior Advisor of the company. He becamea Director of MES in June 2015. He is also the
Chairperson of Japan Intellectual Property Association.

Dialogue of Outside Directors
In 2013, MES began to invite directors from outside the company in an effort tostrengthen its corporate governance. We receive a lot of input from them at the Board of
Directors meetings, and ask them to supervise the direction of our management.
We spoke with Outside Director Toru Tokuhisa, who is in his fourth year as a director, andOutside Director Toshikazu Tanaka, who is in his second year, to give us their honest
opinions about what think of MES now and its future direction.

Tokuhisa

26

market for marine diesel engines and ishighly regarded in overseas markets forwork on social infrastructure, such as
bridges, and container cranes. I believethat if MES can bring these to the forefront,
it will have room for further growth.

Tanakathe company are very committed to what they do. ’’level of accumulated technologies, andthe company has potential.
What do you feel are the strengths
and weaknesses of the company?
Tokuhisa There were a lot of dramatic ups
and downs over the past 100 years, suchas wars. The company has been trying new
businesses instead of merely accumulating
the same technologies. This is a quality I
view as a strength. However, the issue of
whether the company has really developed
a business that will be the next pillar after
shipbuilding is open for debate.
Tanaka I agree. Shipbuilding still accounts
for large share. For example, the company
has many good things about technologies

related to the environment and energy. I
think it should aggressively look to takeadvantage of these things. I also feel that
the Group needs to mobilize more of its
capabilities.
Tokuhisa It commands a large share of the‘‘ I think the speed of management can be made faster. ’’‘‘ My impression is that both the people andTo start, please tell us yourimpression of MES.
Tokuhisa My first impression of MES wasthat it was a company incredibly committed
to what it does. I felt that from both theindividuals I met and the organization.
Tanaka I agree. Everyone is incredibly
proud of the fact that they are part of acompany that has been contributing to themodernization and industrial developmentof Japan for nearly 100 years, withshipbuilding as its main pillar. At the sametime, they also have an extraordinary
determination to reinvent their portfolio in
the rapidly changing business environment.
I feel that the employees work very intently,
seriously, and positively. There is a highToru Tokuhisa Outside Director

100th anniversary
MES was established as
the Shipbuilding Division of Mitsui &Co., Ltd. in Tamano City, Okayama
Prefecture, in 1917. The company willcelebrate its 100th anniversary in2017.

Please tell us your impression or
thoughts on corporate governance.
Tanaka I think great changes have been
made in the last year. The executive officer
system should have had a great impact on
the management foundation. The company
has also established the Personnel Advisory
Committee and Compensation Committee,
increased the number of outside directors,
and formulated the Corporate Governance
Code that aims to establish fairer corporate
governance. I think that the company has
achieved substantial progress with theseand other measures.
Tokuhisa The company was able to makegreat progress in a short period of slightly
less than a year. The driving factor behind
this progress was the fact that the
management team, who were aware of thetrend towards greater emphasis on corporate
governance, began making preparations
several years ago. I feel that the company
is ahead of other listed companies in Japan.
Tanaka The governance of MES has madeconsiderable progress. This is definitely
commendable, and the level reached isdecent by any standard. If I was to nameone point that could do with greater
improvement, I think the company should
go a step further in separating thesupervision and execution functions. One
way in which it has sought to do this is bycreating the executive officer system. I
think the speed of management can bemade faster by transferring authority andresponsibility to executive officers.
Tokuhisa I agree. That will enable the Boardof Directors to concentrate on agendas
covering the broader policies of the company
and accelerate the speed of discussions.
Tanaka: In addition, the businessenvironment is always in a state of rapidchange, so likewise I feel that the Corporate
Governance Code also needs to be changed
flexibly in response to environmental
changes. The company needs to respondin a level-headed manner that best fits thesituation and resources available.

Corporate governanceThe corporate governance of MES
is described in greater detail on
page 40.
Executive officer system
MES introduced the executive
officer system in April 2015.
With this system, the company has
separated the execution function
from the roles of the Board of
Directors, which now concentrates
on decision-making and supervisionfunctions. The execution ofoperations has been delegated to
executive officers to strengthen
both them and the Board of
Directors.

27‘‘ We need to get out in the field more. ’’Tokuhisa

Do you find anything difficult about
being an Outside Director or do you have
any requests for the Board of Directors?
Tokuhisa We are provided with various
types of information. However, because
we are people from the outside, we tend
to only get a superficial understanding.
This has made it difficult to conduct in-depth
discussions at the Board of Directors’
meetings, which is frustrating. In addition,
it would be better if we have more
opportunities to get out in the field. If wevisit key overseas locations as well as thosein Japan, and see what’s happening therewith our own eyes, it would give us a more
direct understanding of how the company’sbusinesses are expanding. However, there’s
no denying the fact that it is difficult for us
to find these opportunities while also
working on our main businesses.
Tanaka We often wonder how much weunderstand the actual difficulties andproblems of people in the field face.
Ultimately, seeing things first hand is thebest way to learn how a manufacturer

operates. Mr. Tokuhisa and I have agreed
that we need to make time to head out tothe field and speak with “the people whowork there to exchange various opinions.
Mr. Tokuhisa, you often find something
about the wording used in the resolutions
submitted to the Board of Directors, don’tyou?
Tokuhisa One reason for that is I used towork for a government agency, so I pickedup the habit of closely checking theaccuracy of the wording used in resolution
documents. I make it a rule to point out
misleading wording, although this may
cause people to say I’m a bit too meticulous.
Tanaka I think that is necessary. We findgood proposals at the Board of Directors’
meetings, don’t we? I sometimes praise
people and let them know they made anice proposal, but there are others who
don’t. At most companies, proposals
submitted to the Board of Directors tend
to face resistance, but I think they should
adopt a more positive attitude, andactively support proposals that are good.

Rising to meet this tide of change, the MESGroup has announced the MES Group2025 Vision, in which all three core domains
overlap in fields where businesses are
emerging. Marine Logistics & Transportationand Social & Industrial Infrastructure, as
well as Environment & Energy, are related
to each of these eight fields. There isnothing wrong with where the Group isheaded. It’s moving in the right direction.
Let me make that crystal clear. We arestarting to see many seeds of growth, suchas eco-ships, solar and wind power
generation, biomass, biogas, floatingproduction storage and offloading system(FPSO) vessels for marine oil and gas, theocean business, marine diesel engines,
and the container crane business. Thus, I
feel that the MES Group should takeconfidence in what it is doing now, andmove forward quickly and boldly bymaking the most of alliances, integrations,and M&As with companies outside theGroup as well as those on the inside.
Tokuhisa I agree. It is important to use the
MES Group 2025 Vision as a guideline andreflect its aims within more specific measuresin the Mid-Term Business Plan 2017 to be
formulated. They will discuss what messages
need to be sent when the 100th anniversary
milestone is reached, while reviewing the
Mid-Term Business Plan 2014. We want tobe a part of this discussion, too, and share
our thoughts, giving full consideration to

the notions of profit and views of generalshareholders and other stakeholders.
Tanaka We view the development ofvarious businesses carried out at the sametime as providing us with a variety ofpossibilities. At some point I feel we needto narrow down the businesses that
represent the true forms of value MES offers,
commit ourselves to them, and develop
them into main pillars.
Tokuhisa It is frustrating to think that not
many people around the world really know
the MES Group, despite all the useful things
it has created for international society, suchas eco-ships and the Super-Kamiokande.
It also has a lot of seeds in growth fields.
We need to do a better job of letting theworld know about all the things the MESGroup is doing.
Tanaka We no longer live in a day and an
age in which people or companies arevalued by others for merely working hardand possessing technologies that are highly
regarded. The Group consists of 12,000
employees, their families, and business
partners. There are literally hundreds ofthousands of people connected to theGroup. I feel it is very important now to letthese people know what the MES Group is
all about and call on them to work hard
together with us.
Thank you very much for your time
today.

MES Group 2025 Vision
The long-term vision is describedin detail on the following page.
http://www.mes.co.jp/english/investor/manage/2025vision.html
Three domains on which we will
focus our strengths
The three domains are described indetail in the Message from the
President that begins on page 14.
In regards to our activities for fiscal
2016, the actions we took in each of
the three domains were highlighted
and discussed on pages 4 to 9 ofthis report.

‘‘ We want to make the MES Group’s presence
felt in the world. ’’
TanakaPlease tell us your ideas for the future
direction of the company and what it needs
to do to improve its corporate value.
Tanaka The idea of value in the world haschanged drastically since the Lehman
Brothers collapse, and the advancement28

of technologies such as IoT and AI are
causing the pace of change to accelerate.
Amidst this trend, new businesses are
emerging at a frightening pace in eightspecific fields: environment, energy, food,water, health, medicine, mobility, and IT.

29

Business Segment Overview
Fiscal 2016 (JPY 100 million)

Main Products

Net Sales Composition

Net Sales

Operating
Income52.6 %

4,238

△133

21.3 %

1,717

138

21.3 %

1,713

83● Bulk carrier● Oil tanker● LNG carrier

Ship & Ocean Project

Ship & Ocean
Project
Headquarters● Floating production storage andoffloading system (FPSO)● Research vessel / Training vessel● Fishery patrol vessel● High-speed vessel● Submersible● Naval ship / Patrol ship

● Marine diesel engine● Gas turbine and gas engine

co-generation system● Process compressor● Top pressure recovery turbine (TRT)

generating system

Machinery & Systems

Machinery &Systems
Headquarters● Reactor / Heat exchanger● Rotary dryer / Coal moisture controller● Quayside container crane● Transfer crane in container yard
● Container terminal management system● Bridge● Floating piers and pontoon● Radar scanner● Manipulator● Petro-chemical plant● Inorganic chemical plant● Biomass power plant

Engineering

Engineering
Headquarters● Biogas power plant● Wind power facility● Overseas power plantengineering & construction● Environmental facility● Diesel engine generating plant

Other 5.9%30

31

Ship & Ocean Project Headquarters

Our Action

We are enhancing our existing
businesses and proceeding withcreation of new business models,such as the ocean business andgas engineering.

Topic s

Tetsuro Koga

Business environment and performance
The shipping market has worsened fromthe cooling state that has continued
since last year and entered a recession
phase. The state of excess capacity
attributed to the completion of numerous
new shipbuilding construction projects
over the last several years has been
aggravated by the slowdown in the
Chinese economy. In particular, charter
freight has remained at historically low
levels in the dry bulk division, which has
left the market in a rigid state. On the other
hand, while the charter market of crude
oil tankers and LPG carriers has remained
reasonable level, competition has been
growing fiercer in the shipbuilding market,
exposing us to fierce price competition
for all types of ships.
The future remains uncertain in the ocean
development field. This uncertainty stems
partly from the drop in the price of crudeoil, which has led to the slowdown ordiscontinuation of new oil well and gas
development projects.
In the midst of these conditions, MES

has developed and released a steadystream of new bulk carriers thatincorporate energy-saving andenvironment-friendly technologies.
Since we handed over the first energysaving ship in November 2013, we havesteadily received new orders for andhave constructed various types ofenergy-saving bulk carriers, ranging
from 56,000-ton bulk carriers to
66,000-ton vessels.
During the fiscal year under review, we
received additional orders for multiple
newly-designed large tankers (VLCC).
This has raised the total number of neworders received for energy-saving ships
to 69 vessels, resulting in an orderbacklog for approximately two years.
The environment for receiving new orders
has been tough, but we will continue
to apply our competitive advantages
as the pioneer shipyard for energy-saving
ships. We will also strive to be selectivein accepting new orders, while at thesame time trying to improve profitability.

We received orders to construct Floating
Storage and Offloading system (FSO)
vessels for marine oil and gas, operation
services for floating production storageand offloading system (FPSO) vessels
for marine oil and gas. However, due inpart to a decline in orders for theconstruction of FPSO and bulk carriers,
orders received decreased by 238.252
billion yen (-44.4%) compared to theprevious fiscal year to 297.818 billion
32

Financial highlights

New orders

FPSO whose vessel hull was constructed
at Chiba Works

6,794

6,000
4,000

5,361

4,400

4,137

2,000
0

2013

2014

2015

2016

(Actual)2017(Forecast)

Net Sales(JPY 100 million / FY)

6,000
4,810
4,000

3,214

3,773

4,238

3,500

2,000

0

Topic s

2013

2014

2015

2016

In October 2015, MES acquired sharesin TGE Marine AG (TGE), a gas career
engineering company headquarteredin Bonn, Germany, making TGE a
subsidiary of MES.
MES and TGE are highly compatible
in terms of technologies and customer
bases. In addition, MES will use TGE’s
network with ship owners to actively
engage in the upstream process ofgas carrier business, such as the

Topic sOperating income

105

99

97

30

0
-100
-200

-133
2013

2014

2015

(Actual)2016

determination of ship specifications.
The acquisition will enable MES toprovide consistent services, from the
upstream to downstream ofmanufacturing processes for the gastransportation business. We will
establish a firm position in the global
market of medium- and small-sizedgas carriers for short-distancetransportation, a type of vessel forwhich demand is expected to increase.

A gas carrier that TGE worked on

2017(Forecast)(Actual)100

Engagement in gas engineering business

2,978

200

yen. Net sales decreased by 57.234
billion yen (-11.9%) compared to theprevious fiscal year to 423.786 billion
yen, partly reflecting a decline in theconstruction of FPSO vessels. While
operating income was 9.657 billion yen
in the previous fiscal year, we posted an
operating loss of 13.305 billion yen due
mainly to a decline in the profitabilityof ocean support vessels.

September 2015, we developed the
Mitsui noah-FPSO Hull (noah: New
Offshore Adapted Hull), a next
generation offshore platform for
FPSO that allows for flexible FPSO
hull design adapted to the production
facilities, rather than adjusting theoil/gas production facilities to fit the
specifications of the hull.
In regards to facilities, a 500-ton
crane will be built at Dock No.3 ofChiba Shipyard in the latter half of2016. Steady progress is being madein the establishment of a system forocean projects.

(JPY 100 million / FY)

8,000(JPY 100 million / FY)

Fiscal 2016 earnings

Progress in the establishment of a system for ocean projects

Working within a business environmentthat remains tough, we are actively
promoting a shift in our axis to oceanand engineering business in an effort
to move away from the previous
business model that focused solely on
general commercial ships.
As for ocean projects, we have beenproceeding with the development of
new process for manufacturing thevessel hulls for floating production
storage and offloading system (FPSO)
vessels for marine oil and gas production
in anticipation of the increase of new
oil well development projects. In

Director and Managing Executive Officer
General Manager of Ship & Ocean Project Headquarters

Initiatives for innovation based on
the Mid-Term Business Plan

2017
(Forecast)Establishment of a Design Office in Fukuoka to strengthen design capabilities

To strengthen its design and engineering
capabilities that support the businessstructure, MES has been increasing
the internal manpower and enhancing
resources of its domestic and overseas
design companies.
In October 2015, we established the
Fukuoka Design Office of Ship Design
Department, Ship & Ocean Project
Headquarters, at Kamigofukumachi
in Hakata Ward, Fukuoka City.
We focused attention on the fact that
Kyushu area possesses a large numberof people with great sets of skills.

There are many educational institutions
that support the ship and marine
business, and many people withexperience in ship design. These
conditions led us to establish a designorganization headed by people withexperience in ship design at Fukuoka,
a strategic location in Kyushu, as ameasure for improving our designand engineering capabilities.
We are working to improve ourcapabilities to handle ocean projects,
and consolidate and improve theefficiency of detailed design function.

Fukuoka Design Office was establishedin October 201533

Machinery & Systems Headquarters

Our Action

We are striving to further
increase the competitiveness of
our mainstay products andimprove product value fromthe perspective of the life cycle.

Topic sShinsuke Minoda

Business environment and performance
The production volume of our marine
diesel engines was on par with theprevious fiscal year at 181 engines/
3,280,000 horse power. In addition, wedelivered three LNG-burning engines,
three methanol-burning engines, andone ethane-burning engine. These
engines all burn new types of fuel, andoffer excellent environmental performanceand economic efficiency. Industrial
machinery saw a year-on-year decline
in orders received for reciprocating
compressors to oil refineries and otherfacilities, which is attributed to aheightened negative attitude towards
capital expenditures affected by the fallof crude oil prices and economic
slowdown in China and other emerging
countries. Because the businessenvironment is expected to remain toughfor the time being, we intend to increase
the sales of high-pressure compressors
for gas-burning marine diesel engines,
for which demand is expected to grow,and enter non-petroleum fields incollaboration with Kaji Technology
Corporation.
Demand for cranes is strong both in Japanand other countries due to replacement
demand and new demand that arosefrom the need to accommodate larger
container ship sizes. To meet this demand,
we are conducting large-scale capital
investments at our Oita Works aimed
at increasing production capacity, with
the new facilities scheduled to start
operating in October 2016. We are also
studying overseas production ofcontainer cranes.
In the Life-cycle Solution Service (LSS
Service) and Customer Oriented Service,
we achieved record highs for both orders
received and net sales. These successes
were due in part to the strength of aftersales services for marine diesel engines,
which were made possible by viewing
the docking before the ballast water
regulations as a business opportunity,
as well as increased crane-related
relocation and dismantling work.

Orders received declined by 31.339
billion yen (-15.4%) year on year to172.238 billion yen. This was due in partto the decrease in orders for marine
diesel engines, container cranes, bridges,
port structures, various industrial
machinery, and after-sales services.
Thanks to these products and businesses,

34

Topic sNew orders(JPY 100 million / FY)

2,036

2,000

1,722
1,159

1,900

1,307

1,000

0

2013

2014

2015

2016

2017
(Forecast)(Actual)Net Sales(JPY 100 million / FY)

2,000
1,450

1,478

2013

2014

1,671

1,717 1,800

2015

2016

1,000

0

(Actual)Methanol-burning electronically-controlled
gas injection diesel engine (ME-LGI)

Cranes continue to see strong
demand both in Japan and othercountries. To respond to numerous
inquiries, we are expanding ourdomestic and overseas manufacturing
centers. At Oita Works, a manufacturing
Topic s

138

0

107

100

82

2013

2014

2015

(Actual)

2016

2017
(Forecast)

Expansion of social infrastructure businessMoving forward, we will continue to
see an increase in the demand for theconstruction of social infrastructure
for the Olympic Games until 2020.
This in turn will lead to greater demand
for the repair of aging roads, bridges,
and other structures. The
decommissioning of nuclear power
plants is also another significant
issue facing Japan.
To respond to these areas of demandand issues, we established an
Infrastructure Business Department
in April 2015 and created a system

Ongoing improvement of the production
capacity at Oita Works

forward with efforts to enhance theafter-sales service business, such as
the expansion of the technical service
domain aimed at providing newservices. We will create businesses
from the viewpoint of the productlifecycle to break away from the previous
earnings structure that was based
merely on the sales of products.

2017

Operating income

100

center in Japan, we have conducted
capital expenditures to increase thelarge Portainer production capacity
to 36 per year. A new production line
is scheduled to start operating in thesecond half of 2016.

Enhancement of after-sales services

For the after-sales services for marine
diesel engines, we have establisheda system for entering the maintenanceand repair business, which was not in
the previous business model.
We have expanded overseas basesand established a global organization
for the after-sales services for industrial
machinery. In addition, we are moving
Topic s111

Improving crane production capacity(Forecast)200

net sales increased by 4.553 billion yen(+2.7%) year on year to 171.690 billion
yen. Operating income increased by
3.146 billion yen (+29.5%) year on year
to 13.806 billion yen, partly reflecting
the strength of after-sales service
business and industrial machinery.

a high-pressure gas compressor to thefuel gas supply system (FGSS) for
ME-GI, which has been installed at
Tamano Works. It began gas operation
with the world’s first combination ofcompressor and engine. We are steadily
moving forward with the creation of asystem that will allow us to supply not
only engines as single units, but also
high-value added propulsion systems
in an integrated manner.

Financial highlights(JPY 100 million / FY)

Fiscal 2016 earnings

Expanding environment policy-compliant product businessIn October 2015, we completed thefirst electronically-controlled gas
injection diesel engine (ME-GI) in Japanfor commercial use. We have also
received an order for the world’s firstethane-burning engine (ME-LGI).
Ready to offer ME-GI, ME-GI-Etane,
and ME-LGI, we have established asystem to meet the needs for various
types of fuel.
In addition, in October 2015 we added

Director and Managing Executive Officer
General Manager of Machinery & Systems Headquarters

Initiatives for innovation based on
the Mid-Term Business Plan

that makes it possible to operatebusinesses in an integrated manner.
This department and system consolidate
our management resources, such as
the bridge construction technologies,
radar search technologies, and robot
technologies used for thedecommissioning business.
Moving forward, we will promotecollaboration and joint developmentwith other companies in the different
fields, thereby benefitting from thegreat demand and further expanding
our social infrastructure business.

Entering the marine diesel engine
maintenance and repair business

Investigation of tunnel lining concrete

35

Engineering Headquarters

Our Action

We will enter the upstream anddownstream areas of projects,
such as business engagement
and O&M, with our engineering
capabilities at the core.

Topic sA biogas power plant was completed
and began commercial operation in
July 2015. The plant was constructedby Betsukai Biogas Power Generation
Co., Ltd., a special-purpose company
that was established jointly by MES,
Betsukai Town in Hokkaido, JA
Nakashunbetsu, and JA Doutou Asahi.
This power plant generates methanegas from domestic animal waste
supplied by dairy farmers and uses it

Shinsuke Nippo

Business environment and performancerenewable energy remains as strongas ever both in Japan and othercountries.
In the midst of these conditions,
Burmeister & Wain Scandinavian
Contractor A/S (BWSC) received
orders for the construction, operation,and maintenance of two large biomass
power plants in the United Kingdom.
In Japan, we received orders for theconstruction of two wind power plants
and other facilities. We focused ourefforts on securely implementing theconstruction work in projects for which
we have already received orders, andeach project has made steady progress.
In the area of business engagement,commercial operation began for thebiogas energy generation projects in
Hokkaido and solar energy business at
the Oita Works.

Financial highlights

New orders

2,664

1,000

0

2,300
1,824

2,000
1,087

2013

1,009

2014

2015

2016

36

construction work projects for the UnitedStates and Singapore, power plantengineering work for Vietnam, and thecompletion of a solar power plant in
the environmental energy field. While
we posted an operating loss of 10.633
billion yen in the previous fiscal year, weposted an operating income of 8.297
billion yen in the fiscal year under review
due to the completion of unprofitable
work projects and the steady progressof large-scale work projects.

2017(Forecast)(Actual)Net Sales(JPY 100 million / FY)

2,000

1,713 1,800
1,167

1,000

1,296

854

2013

2014

2015

2016

(Actual)Orders received decreased by 81.513
billion yen (-44.7%) year on year to
100.922 billion yen due in part to thedelay in a project for a petrochemicalplant and projects in the field of power
plant engineering, as well as thereactionary fall experienced by BWSC,
which received orders for large-scale
projects in the previous fiscal year. Net
sales increased by 41.654 billion yen(+32.1%) year on year to 171.270 billion
yen. This increase was due in part to thesteady progress of petrochemical plantto generate power. The electric power
selling business will be operated for
20 years, with MES taking theinitiative in the businessdevelopment and undertaking theEPC, Betsukai Biogas Power
Generation Co., Ltd. operating theplant, and Mitsui Zosen Environment
Engineering Corporation handlingthe maintenance of the facility.

Betsukai Biogas Power Generation Plant(JPY 100 million / FY)

3,000

0

Fiscal 2016 earnings

Enhancing upstream and downstream service businesses that focus on
EPC (engineering, procurement, and construction) in the renewable energy field

Start of commercial operation of one of the largest biogas power plants in Japan

Director and Managing Executive Officer
General Manager of Engineering Headquarters

Oil and gas producing countries andmajor oil companies are reviewing
their capital expenditure plans in
response to the slumping crude oil
prices. This trend and other developments
have made the future of our businessenvironment uncertain. Customers in
the field of chemical plants, which is one
field in which we excel, are in thedownstream part of the petroleum
industry. While they benefit from low
crude oil prices because they can reducematerial costs, they have maintained acautious stance on capital expenditures.
On the other hand, economic growthin Southeast Asia is expected to cause
the demand for electricity to go up. In
Indonesia, progress was seen in a plan
to construct a coal thermal power plant,
which was at a standstill. In theenvironmental energy field, the demandfor energy generation based on

Initiatives for innovation based on
the Mid-Term Business Plan

(JPY 100 million / FY)

200

83

0

-200

60

13
-2

-100

-106
2013

2014

2015

(Actual)2016

A 44.8-megawatt mega solar power
plant, which was being constructedby Oita Hiyoshibaru Solar Co., Ltd., aspecial-purpose company that wasestablished jointly by MES, ITOCHU
Corporation, and Kyudenko
Corporation, was completed andbegan commercial operation in
March 2016.
This facility was built on about a
460,000 square meter plot of land on

the premises of Oita Works, with
MES undertaking the EPC for the
project. The expected annual
electricity-generating capacity is
52,500,000 kilowatt-hours, which isequivalent to the annual power
consumption of approximately 9,300
regular homes. This plant will be
used to run the electric power sellingbusiness for 20 years.

Full view of the Oita Hiyoshibaru
Mega-Solar Power Plant

2017(Forecast)

Operating income

100

Start of commercial operation of a mega solar power plantthat was constructed on the premises of Oita Works

2017(Forecast)

Orders received for construction, operation, and maintenance ofa biomass power plant for the United Kingdom
In December 2015, BWSC received
orders for the construction and12-year operation and maintenanceof a combined heat and power plantin the United Kingdom. This plantuses wood chips for fuel, has anelectricity-generating capacity of
27.8 megawatts, and is expected togenerate 223 gigawatt-hours per
year. BWSC engages in a consistentbusiness involving the development,
construction, and operation
management of high-efficiency
biomass, biogas, and diesel power
plants in various areas around theworld. Since its establishment, it hasdelivered more than 175 power
plants to 53 countries around theworld, with a total capacity of morethan 3,500 megawatts.

Rendering of the biomass power plantin Cramlington

37

R & D and Intellectual Property Activities
we are developing exhaust gas recirculation (EGR) system tomeet the current IMO NOx (Nitrogen Oxides) Tire III regulation.
We are also working on a waste heat recovery system (THS)that uses hydraulic power and is capable of reducing fuelconsumption and CO2 emissions by up to 4%. In addition tothese systems, we are developing an electronically-controlled
duel fuel gas injection diesel engine (ME-GI) for liquefied
natural gas (LNG) and ethane that allows for a significant
reduction of sulfur oxide (SOx) and CO2 emissions, fuel gas
supply system (FGSS) for ME-GI, and an electronically-controlled
duel fuel liquid gas injection engine (ME-LGI) for methanol
and liquefied petroleum gas (LPG).

We are pursuing development aimed
at enhancing product competitivenessand expanding our businesses
through close partnerships with
operational headquarters andAKISHIMA LABORATORIES(MITSUI ZOSEN) INC.
Executive Officer
General Manager of Research & Development Headquarters

Yukinori Torii

Initiatives in the Social & Industrial Infrastructure domain
We are developing radar inspection system for the maintenanceof tunnels and roads, technologies for large-scale maintenanceand repair of bridges, and other related technologies. In thefield of industrial machinery, we are developing axial compressors
for ASU (Air Separation Units) that compress air to separate
oxygen and other elements from it.

Research and development
Initiatives in the Environment & Energy domain
In the field of ocean development and submersibles, we aredeveloping a newly constructed floating production storageand offloading system (FPSO) vessel for marine oil and gas,
which will make it possible to respond to requests for delivery ina short turnaround period. We are also working a medium-sized
multi-gas carrier that transports various types of liquefied gas,
dynamic positioning system (DPS) with redundancy that makeit possible to respond to various customer needs, Remotely
Operated Vehicle (ROV) for measuring the distribution ofradioactive materials on the ocean floor, a system for producing
methane hydrate under the ocean floor, and other systems
and vessels.
In the field of renewable energy, we are developing floating
and bottom-mounted off-shore wind power generation facilities,
wave power generation facilities, and others. Furthermore, inthe field of environmental plants, we are developing
fermentation technologies which are compatible with diverse
materials for the purpose of expanding the scope of applicationof biogas power generation technologies.

38

Development of system for producing
methane hydrate under the ocean floor

Verticalobservation pipe

Gas-liquid
separator

Test equipment of class-30m height
Flow condition in the verticalobservation pipe

External view of the 5th-floor part of the test equipment of class-30m height(Japan’s Methane Hydrate R&D Program)

Initiatives in the Marine Logistics & Transportation domain

Shut-down valve

In the field of port cranes, we are tackling the developmentof low-profile container crane conformed to aeronauticalheight regulation with seismic isolator, which is located aroundthe airport．Also we are developing light weight crane tominimize reinforcement of civil work for the existing quay,various technologies coped with terminal automation system,and other items.
In the field of merchant ships, we are developing new
neo-series ships, or next-generation, environmentallyfriendly ships that reduce CO2 emissions, and services ofanalyzing propulsive performance of ships in the commercial
voyage. We are also working on technologies to improve theprecision of the predictive calculation of flows done by using
a computer (CFD) for highly efficient of ships.
In addition, in the field of two-stroke marine diesel engines

Pre-scrubber
EGR Cooler
Water Mist Catcher
EGR blower
Blower cut out valve
Receiving tankIntegrated EGR layout for ME engine

FGSS high-pressure gas compressor for ME-GI

Intellectual properties
The basics of initiatives for intellectual property lie in securing
a competitive edge for our businesses through the acquisitionof intellectual property rights and their application.
Intellectual Property Department and operational headquarters
work together to promote the creation of intellectual property
rights, such as inventions achieved through the developmentof products and technologies and trademarks attached to our
products, and acquisition of rights over the properties and theirapplication. The Legal Department, Intellectual Property
Department, and related departments also work together tohandle contracts and disputes with other companies regarding
intellectual properties.
The intellectual property strategy cannot exist on its own, butmust be implemented in an integrated manner with the businessstrategy and technological development strategy, forming
the trinity strategy. While we are apt to feel that the rights are
acquired as a result of achievements in technological development,
we must fully consider how to acquire, protect, and apply
technologies when we start developing a business or product.
At MES, we always try to formulate and implement intellectual
property strategy in this way.
In addition, in Japanese corporate society, where there is atendency to avoid patent disputes, we have started to see atrend towards actively exercising intellectual property rights.
This is believed to be the result of the great impact made by
the progress of globalization. At the same time, however, it also
reflects the fact that people are starting to have a greater awarenessof how to apply these rights to gain profits. The importanceof patent surveys and analysis, which aim to avoid infringing
upon other companies’ rights and exercise the intellectual
property rights owned by MES, have been increasing, and we aretaking measures to improve our capacity to conduct surveys.

Changes in the number of patents(Number of patents)

1,500

1,195 1,237
1,000

1,300

1,206

927

500

0

2012

2013

2014

2015

2016 (FY)

Changes in the amount of
R&D expenses(Million yen)

7,000
6,000

6,120 5,973
5,094 4,858 5,006

5,000
4,000
3,000
2,000
1,000
0

2012

2013

2014

2015

2016 (FY)39

Corporate GovernanceCorporate governanceDirectors / Corporate Auditors

1. Basic philosophy

Chairman and
Representative Director

President andRepresentative Director

Vice President andRepresentative Director

Yasuhiko Katoh

Takao Tanaka

Takaki Yamamoto

Director

Director

Shinsuke Minoda

Akira Nishihata

Director

Director

Director

Director (Outside)

Director (Outside)

Kiyoshi Nakamura

Shinsuke Nippo

Tetsuro Koga

Toru Tokuhisa

Toshikazu Tanaka

Based on its Company Philosophy, Business Policy, andManagement Policy, MES aims to ensure its sustainablegrowth and further improve its medium- and long-term
corporate value. It recognizes the importance of the social
nature of a company and takes into account the global
environment, working to ensure that all of its stakeholders
find the company beneficial to society. To this end, we haveestablished a system for making fair and transparent
decisions promptly and boldly, under which we continuously
strive to enhance our corporate governance.
<Company Philosophy>
To continue working as a company trusted by society andindividual through products and services we offer<Business Policy>
To fulfill expectations and foster trust in people andsociety as a manufacturing company that offers products
and services representing the culmination of our global
business experience and years of advanced technology
development in a wide range of fields<Management policy>
Build further satisfaction for our customers

Provide safe and effective workplace environment for
employees
Contribute to the development of society
Pursue profit for the longevity of the company
In accordance with the preceding basic philosophy
concerning corporate governance, we will try to enhance
our corporate governance based on the following basic
policies.
(1) We ensure the substantive rights and equality of ourshareholders.
(2) We collaborate appropriately with our shareholders
and other stakeholders.
(3) We ensure the appropriate, voluntary disclosure of ourcorporate information and transparency.
(4) We clarify the roles and responsibilities of our Board of
Directors, Corporate Auditors, and Board of Corporate
Auditors.
(5) We hold dialogue with our shareholders to help
support our sustainable growth and improve mediumand long-term corporate value.

2. Structure
Corporate Auditor (Full-time)

Corporate Auditor (Full-time)

Corporate Auditor (Outside)

Corporate Auditor (Outside)

Yasuo Irie

Takahiro Hiraiwa

Osamu Endo

Koichi Tanaka

Executive Officers

Directors

Executive Officer

Takao Tanaka
Takaki Yamamoto
Shinsuke Minoda
Akira Nishihata
Kiyoshi Nakamura
Shinsuke Nippo
Tetsuro Koga
Norihisa Fukuda
Shoichi Taguchi
Yasuki Kishimoto
Yukinori Torii
Katsuhiko YoshidaToshiro Miyake

Executive Officer

Ryoichi Oka

Executive Officer

Executive Officer

Yuichi Shiomi
Yuji Kozai
Kiyohiko Murakami
Keiji Kurosaka
Naokazu Fukui
Shigeki Takitani

Executive Officer

Yasunori Iwamatsu

Chairman and
Representative Director

Yasuhiko Katoh

President andRepresentative Director

Takao Tanaka

Vice President andRepresentative Director

Takaki Yamamoto

Managing Executive Officer

Shinsuke Minoda
Akira Nishihata
Kiyoshi Nakamura
Shinsuke Nippo
Tetsuro Koga
Toru Tokuhisa
Toshikazu Tanaka

Managing Executive Officer

Director
Director
Director
Director
Director
Director (Outside)
Director (Outside)

President
Senior Managing Executive Officer
Managing Executive Officer

Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Managing Executive Officer
Executive Officer
Executive Officer
Executive Officer

Corporate Auditors
Corporate Auditor(Full-time)

Yasuo Irie

Corporate Auditor(Full-time)

Takahiro Hiraiwa

Executive Officer

Corporate Auditor(Outside)

Osamu Endo

Executive Officer

Corporate Auditor(Outside)

Koichi Tanaka

Executive Officer
Executive Officer

CEO
General Manager of Export Control Dept., and CCO (*1)
General Manager of Machinery & Systems Hq.
General Manager of Ocean Business Promotion Dept., and CISO (*2)
CFO (*3)
General Manager of Engineering Hq.
General Manager of Ship & Ocean Project Hq.
Director and Senior Managing Executive Officer,
Minaminippon Shipbuilding Co., Ltd.
General Manager of Tamano Works and Special Mission
by President (in charge of manufacturing)
Deputy General Manager of Machinery & Systems Hq. (in charge ofmaterial handling machinery) and General Manager of Oita Works
General Manager of Research & Development Hq.
Deputy General Manager of Engineering Hq.
(in charge of plant engineering)
Deputy General Manager of Ship & Ocean Project Hq.
and General Manager of Tamano Shipyard, Ship & Ocean Project Hq.
Deputy General Manager of Machinery & Systems Hq.
(in charge of industrial machinery) and General Manager ofTechnoservice Dept., Machinery & Systems Hq.
General Manager of Finance & Accounting Dept.
General Manager of Corporate Planning Dept.
General Manager of Machinery Factory, Machinery & Systems Hq.
Deputy General Manager of Engineering Hq.
(in charge of energy solutions and infrastructure)
General Manager of Marketing Promotion Dept.
General Manager of Procurement Dept.
Deputy General Manager of Ship & Ocean Project Hq.
and General Manager of Planning & Administration Dept.,
Ship & Ocean Project Hq.

MES is required by law to establish a Board of Corporate
Auditors. The function fulfilled by the Board of Corporate
Auditors together with the voluntarily established Personnel
Advisory Committee and Compensation Advisory Committee
form the structure for corporate governance at MES, and wehave appointed accounting auditors. As of June 28, 2016,
the MES Board of Directors consists of ten members. Two ofthese members are part-time outside directors. Moreover,
our Board of Corporate Auditors consists of four members,
two of which are part-time outside corporate auditors.
We have also adopted an executive officer system toimprove decision-making on vital matters by the Board of
Directors, improve supervisory functions, and streamline
business operations. The executive officers elected by the

Board of Directors are given executive authority related tobusiness operations, and they perform their assigned duties
under the supervision of the chief executive officer (CEO).
The Personnel Advisory Committee is chaired by thepresident and consists of four directors, including two outside
directors. It improves the transparency of the procedure fornominating candidates for directors and electing executive
officers, and ensures the fairness of the procedure. The
Compensation Advisory Committee is chaired by an outside
director, and consists of four directors including the twooutside directors. It improves the transparency of theprocedure for determining the compensation for directors
and executive officers, and ensures the appropriateness ofthe compensation standards and fairness of evaluations.

Internal control system
Basic philosophy
We view the objectives of our internal control system as“Assuring efficiency and work performance (achieving
objectives),” “Assuring the reliability of financial reports,”and “Complying with the law (compliance).” We are making
efforts to reinforce and improve our internal control morethan ever.
In our internal control system, the Total Risk Management
and Internal Control Committee deliberates the basic policy
regarding internal control required by the Companies Act,

the Financial Instruments and Exchange Act, and othermatters. It also undertakes the company-wide promotion of
measures based on the policy decided by management
committees and other bodies.
To achieve our internal control objectives, we have establisheda business execution system, compliance system, a risk
management system, and an internal control promotion
system for financial reports. The internal auditing section(Auditing Department) confirms the efficacy of these systems.

(*1) CCO stands for Chief Compliance Officer. (*2) CISO stands for Chief Information Security Officer. (*3) CFO stands for Chief Financial Officer.

40

41

Systems of corporate governance and internal control
1. Business execution system
To execute business operations in accordance with the basic
policy decided by the Board of Directors, we have established
two managing committees: the Management Strategy
Committee and the Management Committee. Deliberations
are held based on the functions of each organization topromote rapid, flexible decision-making. As for the businessexecution system, we transferred the authority to executebusiness from directors to executive officers elected by the
Board of Directors. This streamlines the execution of duties
performed by directors.

Flow Chart of Corporate Governance and Internal Control
Shareholders' Meeting
Election/dismissal

Directors

Consultation

Election/dismissal

Decision on contents ofagendas concerning
Audit Corporate Auditors election or dismissal Accounting(Board of
Auditors
Corporate Auditors)(Board of Directors)
Recommendation

ReportReportPersonnel Advisory Committee(consultative body to the president)

Discussion ofimportant matters,
reports on businessexecutions

Compensation Advisory Committee(consultative body to the president)

Audit

Audit

Election/dismissal,oversight[Business
execution function]
Executive officers

2. Compliance systems
We operate our businesses by keeping legal compliance in
mind, and continually review and reinforce our compliancesystems. Specifically, we deliver the Corporate Code of
Conduct to all officers and employees of the corporategroup made up of MES and its domestic subsidiaries. We havealso established a system in which guidebooks and collectionsof cases, which are materials used as references for daily
operations, are available for review at all times. We distribute
an English version of the Corporate Code of Conduct to ouroverseas subsidiaries and work with the presidents of thosesubsidiaries in a timely manner based on the situation of eacharea to confirm compliance systems and the status of theirimplementation. Likewise, we have established the Compliance
Committee as an entity for promoting awareness ofcompliance policy and reporting results of surveys.
To ensure legal compliance during activities aimed at winningnew orders for public projects, each division and department
conducts checks by themselves. We have also establishedan Antimonopoly Act Observance Monitoring Committee.

Election/dismissal[Monitoring andoverseeing function]

Instruction/report

Chief Executive Officer (CEO)Deliberation

Deliberation/
reportInstruction/
reportManagement
Strategy
Committee

Management
Committee

Instruction

Instruction

Instruction/report[Permanent Committee]

Instruction/report

Monitoring/
ReportSpecial Crisis Control Committee *1*1 : To act in case of contingency

Investigation

Divisions/Departments of MES
and Subsidiaries
Consultation/Reporting

Audit

IT Control Task Force

Antimonopoly Act
Observance Monitoring
Committee(Help line)

Auditing
Department

Total Risk Management andInternal Control Committee

Compliance Committee

Monitoring/
ReportInstruction/
reportIntra-office Risk Management
Review Sessions

Audit

Action forSocialResponsibility

Employees of the Company Groupconsisting of MES and Subsidiaries, and Clients

LawyerIn addition, we have set up a “Help-line” to detectcompliance problems in their early stages. Employees candirectly consult or submit reports to either the Secretary
General of the Compliance Committee or a lawyer.

3. Risk management system
MES is promoting Total Risk Management System thatsystematically identifies and evaluates risks related to all
aspects of business activities. This system is designed to ensurethat we conduct business activities within the proper limit inwhich we can take risks. Under the Total Risk Management
and Internal Control Committee, we promote group-widerisk management in line with the total risk management
policy determined at the Management Strategy Committee.
In regards to risks related to business operations, eachheadquarters holds Intra-office Risk Management Review
Sessions and conducts risk analysis on their own. For orders
received and things such as investment and loan projects,
key members of relevant divisions and departments examine
the risk management status before they are submitted to theManagement Committee for deliberation.
To address information security risks, we have establishedthe IT Control Task Force, a group-wide organization andsubordinate body of the Total Risk Management and Internal
Control Committee. This organization formulates basic
policies on security measures. Following these basic policies,
we promote specific measures such as formulating security
policies, obtaining the latest information by cooperatingwith external organizations, monitoring network and IT
equipment, taking countermeasures against attacks fromthe outside, and providing related education and training.
In cases of contingency, the Special Crisis Control Committee
stands ready to quickly cope with the problem.

4. Internal control promotion system for financial reports
To assure the credibility of financial reports, basic policy
concerning evaluation of internal control for financial reports
is established at annual management committees and the42

Total Risk Management and Internal Control Committee
evaluates the preparation and operation status of saidinternal control, and make corrections if necessary.

43

Environmental Preservation
Reducing annual CO2 emissions by approx. 32,000 tons
Start of operation of a mega-solar power planton the premises of Oita Works[Mega-solar power generation business at Oita Hiyoshibaru Mega-Solar Power Plant]

The joint project, which has been undertaken with ITOCHU Corporation and
Kyudenko Corporation since 2014, has finally taken shape,with commercial operation starting in March 2016.
A large-scale solar power plant has begun to produce environmentally-friendly energy
on a vast area of land on the premises of MES Oita Works.

Use of a vast area of land on the premises

Maintaining the rainwater slopes of the land

Currently, fossil fuels constitute more than 80% ofenergy supplied in Japan, and most of these fuels areimported from other countries. The situation surrounding
fossil fuels has been unstable, with the demand growing
globally and the market prices becoming volatile.
Fossil fuels also face environmental problems partly
because they are sources of greenhouse gases.
These circumstances have made it necessary to further
promote the introduction of renewable energy—suchas solar power, wind power, and biomass—to realizeboth a stable energy supply and lower the burden on
the environment. To help spread the use of renewableenergy, MES is taking part in an approximately 45megawatt mega solar (large-scale solar power generation
facility) project. It has also undertaken EPC (engineering,procurement, and construction) work.
This project was carried out on the site of the former
Hiyoshibaru Country Club, which was located on thevast premises of Oita Works, to maximize the solar
power generation capacity.

One feature of the design of the mega solar power
plant is that solar panels have been set up on the existingslopes without leveling the overall site. This means thatthe rainwater slopes of the land remain unchanged,
making it possible to use the drainage system of thegolf course and limit the parts requiring drain pipe laying
work to only the creeks and ponds. It also made it
possible to limit land development work to partial earth
cutting and filling of the greens and bunkers. As a result,the area for land development works was limited toaround one-sixth of the overall site of the power plant.
In addition, discussions about the maintenance
operation method began in the design phase, which
helped to minimize the area needed for service roads
for the power plant. While mega solar power plants
generally require 1.3 to 1.5 hectares of land per one
megawatt, we were able to install solar panels forapproximately 45 megawatts on a 46-hectare site.
The overall design of the power plant was meant to
reduce the environmental burden by limiting the areafor land development and size of the facility.
The electric facilities installed at the plant, such as highvoltage transformers, conform to the Top Runnerstandards. In addition to making the plant environmentallyfriendly, consideration was also given to lowering theenergy consumption.

Windbreak and protecting the wildlife
One feature of the construction work is that an effort
was made to keeping as many of the trees surrounding
the site as possible. The trees functioned as thewindbreak for the golf course and prevented dust frombeing generated by the wind or other factors during
the construction work. They also helped control thenoise from the construction work. In addition, the trees
make the power plant invisible from the outside, whichis good for the landscape.
Consideration was also given to protecting living things.
More than 100 living such as carp, crucian carp andtortoises lived in the five ponds of the former
Hiyoshibaru Country Club. Before those ponds werefilled in, the animals were carefully moved using
water-filled containers so that they would not be
injured. They were relocated to a pond in the gardenof the guesthouse that is located on land adjacent tothe solar power plant.

Generating power equivalent to the annual
power consumption of 9,300 homes
The expected annual electric-generating capacity of
the Oita Hiyoshibaru Solar Power Plant is 52,500,110
kilowatt-hours. This is equal to the annual power
consumption of approximately 9,300 ordinary homes.
To lessen the environmental burden, the plant helps
reduce CO2 emissions by approximately 32,000 tons
per year. We have also been proactive in pursuingother projects for generating power from renewableenergy. For example, we operate a mega solar power
generation facility with a capacity of approximately 22
megawatts on the same site as that of the Oita
Hiyoshibaru Mega-Solar Power Plant, and one with acapacity of approximately 2 megawatts at Tamano
Works. At Chiba Works, we operate one of the largest
biomass power generation facilities in Japan, which
has a capacity of 50 megawatts, and a wind power
generation facility with a capacity of 1.5 megawatts.
We continue working to contribute in various ways toimproving the energy self-sufficiency rate andreducing the burden on the global environment.

Former Hiyoshibaru Country Club
High-voltage transformers that conform to the Top Runner standards

Before development

After development

44

Solar panels set up on the existing rainfall slopes of the land

Carp moved out by using containers

Panoramic view of the Oita Hiyoshibaru Mega-Solar Power Plant

45

● Initiatives for promoting environmental preservation● Environmental management data of subsidiaries

As a manufacturer, MES places a great deal of importance on activities related to environmental preservation.
These include conserving resources and energy, reducing waste, and properly managing chemical substances.

The graphs below show environmental management data covering the past five years
for the domestic factories of MES subsidiaries in Japan.

Efforts to conserve energy and reduce CO2 emissions
MES continues to promote efforts to reduce CO2 emissions throughactivities such as switching the fuel for in-house power generation fromheavy oil to natural gas. The graphs on the right show our total energy
consumption, CO2 emissions, and purchased electricity over the past
five years. Corresponding with an increase in the production of small
engines among marine diesel engines, which are our mainstay
products, total energy consumption for fiscal 2015 increased byapproximately 3% year on year. On the other hand, the CO2 emission
coefficient of each power company declined, causing CO2 emissions tofall slightly from the fiscal 2015 level.

● Total energy consumption● CO2 emissions *2

FuelElectricity（TJ)※1

1,500(10,000 t)

1,360 1,290

1,265 1,300

1,175

6

1,000

4

1,071

500
0

2012

2013

2014

2

150,000

The graph on the right shows the use of water by MES over the last five
years. MES uses both service water (clean water) and industrial water(intermediate water). We strived to save water once again during fiscal
2016, and as a result of these efforts the amount of service andindustrial water used fell by approximately 5% from the previous year.

100,000

02016 （FY）

2015● Purchased electricity

Effective use of aquatic resources

The unlawful dumping of industrial waste has become a major social
problem. As a producer of industrial waste, MES makes every effort tofulfill its responsibilities in this area. One of these efforts is our strict
management of manifest. This is accomplished through periodic
on-site inspections of disposal companies. Even more important is oureffort to reduce the amount of waste itself. To achieve this objective,
we work hard to recycle and thoroughly classify our waste. The graphson the right show the waste amount and recycle rates over the past five
years, and a breakdown of waste for fiscal 2016. We worked to limit
waste, and as a result of our efforts fiscal 2016 saw an approximately
0.4% reduction in waste from the previous fiscal year. Meanwhile, therecycle rate increased by approximately 0.3% to 87% because of theincreased amount of slag that we recycled. We will continue our efforts
to reduce waste and improve our recycle rate. In addition, we willcontinue to properly dispose of our waste through strict management.

2012

2013

Promoting environment-friendly transportation
As a cargo owner, MES is actively tackling the issue of energy
conservation in the field of transportation as well. One way in which weare doing this is by increasing the transportation loading rates while
reducing the number of shipments by aggregating things such as
shipping dates and destinations. We are also attempting to reduce thenumber of dedicated ships and expand the use of consolidated
shipments. All of these activities are aimed at reducing both CO2emissions and energy consumption. The graph on the right shows MES’s
CO2 emissions over the past five years, as well as domestic transportation(ten thousand tons-kilo) and unit consumption (= amount of energy
consumed for transportation per amount transported). Domestictransportation in fiscal 2016 increased by approximately 80% from theprevious fiscal year, while energy use per transportation decreased byapproximately 7% year on year.
46

2014

● Water consumption

1,500
121,293

112,024

100,789

1,283

109,121 109,886

1,167

2015

2016 （FY）

Industrial water
Service water(1,000 cubic meters)

1,089 1,168 1,113

1,000

The total amount of subsidiary energy consumption for fiscal 2016
increased approximately 16% from fiscal 2015 due to the increase in
the number of subject domestic subsidiaries. During that same period,
the amount of electricity purchased by subsidiaries increased by no
more than approximately 9%.
Despite the increase in the number of domestic subsidiaries, CO2
emission in fiscal 2016 only increased by approximately 13% due to adecrease in the CO2 emission coefficient.

Effective use of aquatic resources● CO2 emissions *3

FuelElectricity（TJ)※1

1,000
800
600

815

(10,000 t)

957

843

6

822

4.36

640

5.04

2014

2015

5.69

4
2.50

400

678

2

200
0

2012

2013

2014

2012

2013

● Water consumption

80,00050,87757,468 59,799

62,1102016 （FY）

Industrial water
Service water(1,000 cubic meters)(1,000 kWh)

60,00002016 （FY）

2015● Purchased electricity

Despite the increase in the number of subject subsidiaries, the water
consumption in fiscal 2016 decreased by 0.2% from the previous
fiscal year.

4.86

600

67,994

400

359

392

441

423

440

40,00050,000

500

0

2012

2013

2014

0

2016 （FY）

2015

2012

2013

2014

2015

0

2016 （FY）*1 TJ: Tera Joule (=1012J)*2 CO2 emissions were calculated by following the Guidelines for Calculating Corporate Greenhouse Gases Emissions issued
by the Ministry of the Environment. CO2 emissions from electric power were calculated by using the adjusted CO2 emission
coefficient for designated electric enterprises that was also published by the Ministry of the Environment.

● Total waste amount and recycle rate

Disposed amount

Recycle rate (%)

50,00042,80040,00037,60030,00080

34,50032,600 34,600

20,00060
40

30,00010,000

20

0

0

2012

2013

2014

2016 （FY）

2015

Waste paper
and rag● FY2016 breakdown of waste
Scrap metal

Slag

67.0

（%)

10.1

Waste
wood

1.4

2016 （FY）

2012

Disposed amount

2013

2014

2015

2016 （FY）

Recycled amount
Recycle rate (%)

50,000100

40,00030,00021,90019,200 18,100

60

21,700 22,500

10,000080

69.9

20,00040
20

15,700
2012

2013

2014

2015

Slag

0.1

Sludge5.8

2015

Quantity (t)Rubble

3.9

2014

280

2016

（FY）

0

● FY2016 breakdown of waste

2.6

Waste
oil

2013

● Total waste amount and recycle rate

Compared to fiscal 2015, the amount of waste for fiscal 2016 increased
by approximately 4%. Domestic subsidiaries include those involved iniron casting, steel casting manufacturing, and ship repair operations
that differ from operations conducted by MES. As such, the breakdown
of waste from our subsidiaries also differed from MES. Approximately
50% of the waste produced by domestic subsidiaries was slag (fiscal
2015). Due to the progress in the recycling of slag, the recycle rateincreased 2.5% from fiscal 2015 to approximately 70%.

100

87.0

2012

0

*3 CO2 emissions were calculated by following the Guidelines for Calculating Corporate Greenhouse Gases Emissions issued
by the Ministry of the Environment. CO2 emissions from electric power were calculated by using the adjusted CO2 emission
coefficient for designated electric enterprises that was also published by the Ministry of the Environment.

Data related to waste

Recycled amount

Quantity (t)200

20,000460

Proper management of specific chemical substances(PRTR substances)
The majority of chemical substances used by MES are the solvents andpigments contained in paint. The changes in the output and travel
amount of specific chemical substances over the past five years areshown in the graph on the right. The other chart describes thebreakdown of chemical substances used by MES for fiscal 2016. In May
2004, a partial revision to the Air Pollution Control Act was officiallyannounced. By maintaining strict control of usage levels and by using
low-emission airtight containers, MES continues working to conform to
the objectives of this law.

8.13

6.90

6.70

6.38

(1,000 kWh)

Initiatives for reducing waste

8.14

8

● Total energy consumption

Energy conservation and CO2 emissions

Scrap metal

49.8

（%)

26.7

Others

Waste
wood

6.0

4.8

Waste plastic

Rubble

3.5

Waste
oil

Others

12.0

3.2

3.2

● Specified chemical substances(amount of emissions + travel amount)● Breakdown of specified chemical substances(amount of emissions + travel amount) in FY2016

（t)

1,200

（t)

600

1,092

1,000

1,014

900

800

688

400

600

300

400

200

200

100

0

0

2012 2013 2014 2015 2016 （FY）

● CO2 emissions in relation

to transportation amount● Environmental accounting

500

730

380

178

27

CO2 emissions
Domestic transportation

15,0008,000

12,000

6,000

9,000

4,000

6,000

2,000

3,000

0

Unit consumption
Unit
consumption(㎘/10,000 tonkilometers)

18,75018,00010,0000

3

Xylene Toluene Ethyl- Manganese Others
benzeneand its
compoundDomestictransportation(10,000 tonCO2 emissions (t)kilometers)

12,000

143

0.2

0.164

0.1

8,320
2,140

2,150

2,880

2012

2013

2014

5,090

2015

2016

（FY）

0

MES spent a total of 2,890 million yen on investments
and costs related to environmental preservation
efforts. A detailed breakdown of these expenditures
is shown on the right. The categories for environmental
preservation costs are based on the Environmental
Conservation Cost Categories shown in theEnvironmental Accounting Guidelines 2005.
These expenditures included a total of 340 million
yen spent on investment, consisting of 300 million
yen spent on research and development, 20 million
yen spent on pollution prevention cost such as exhaustgas measures, and 20 million yen spent on energy
conservation of global environment conservation.
The total non-investment costs came to 2,550 million
yen, which included 2,050 million yen spent on the
research and development of environment-friendly
energy-saving products, 340 million yen allocatedto resource circulation cost such as waste treatment,
80 million yen spent on administration costs, and70 million yen for pollution prevention cost.

Environmental preservation cost (= sum of investment and cost: 2,891.5 million yen)
Categories corresponding
to business activities(JPY million)

Investment

Cost(1) Pollution prevention cost

21.8

66.7

Exhaust gas measures, wastewater treatment,
dust control and other pollution control(2) Global environmental
conservation cost

16.2

1.1

Energy saving(3) Resource circulation cost

1.6

344.9

Waste treatment

2. Upstream / downstream cost—

0.2

Use of recycled paper as copy paper

3. Administration cost

—

82.5

Environmental management system implementation,
CSR reports, and environmental education

303.5

2,049.9

Development of various environment-friendly products

5. Social activity cost—

0.8Road cleaning, seminar sponsorship

6. Environmental remediation cost—

2.4

Environmental damage countermeasure343.1

2,548.4

Major initiatives and effects

1. Business Area Cost

4. Research & development cost

Total

47

Social Contributions
MES carries out a wide variety of social contribution activities, in addition to its business activities,
in line with our Company Philosophy, which calls on us “to continue working as a company trusted by society
and individuals through products and services we offer.”

SportsActivities of Showa Aircraft Industry Co., Ltd.
to support top athletesSuper-Kamiokande, a neutrino detector facility that was constructed at 1,000 meters underground in Kamioka Mine

Showa Aircraft Industry Co., Ltd. runs businesses that range
from the development and operation of real estate such as
MoriTown, a shopping facility, to the manufacture of specialpurpose vehicles such as tankers and aircraft components inhoney-comb structures, in Akishima City, Tokyo. As of February 1,
2015, this company employed Ms. Aki Yazawa, a top canoe slalom
athlete, in cooperation with Athnavi, a Japanese Olympic
Committee (JOC) program that provides support for top athletes
looking for jobs. In addition, the company is an official partner
for fiscal 2017 of the Japan Canoe Federation, and aims to help
further the development of canoeing as a sport. Under the
corporate philosophy of “helping to create a wealthy society
and lifestyles,” the company opened the MORIPARK Outdoor
Village, a new type of outdoor shopping facility, in March 2015.
Aiming to expose people to outdoor sports, this facility provides
hands-on experiences that allow people to discover the fun of
outdoor sports. The company will continue furthering thedevelopment of outdoor sports by supporting the canoeing
sporting events and the activities of Ms. Yazawa.

Science48□ Sporting event / Canoe slalom□ Career / March 2014: Graduated from Surugadai University
February 2015: Joined Showa Aircraft Industry Co., Ltd.
□ Hometown / Iida City, Nagano Prefecture□ Qualification / Granted the name of Nishikawa Namiha in the Nishikawa
School of Nihon Buyo (Japanese classical dance)□ Major achievements
2015 May: Ranked 3rd in Bratislava Open (Slovakia)

June: Ranked 27th in WPC World Cup 2015 -- Prague
August: Ranked 29th in 2015 ICF Canoe Slalom World Cup in France
September: Ranked 25th in 2015 ICF Canoe Slalom World Championships
in London (result of the national team: 15th)(first qualifying round of Rio 2016 Olympics)
October: Ranked 1st in 2015 Japan Cup Final Round
November: Ranked 18th in Rio Olympic Test Event

2016 April: Ranked 1st in 2016 Japan Cup First Round

Ranked 1st in 2016 NHK Cup Canoe Slalom All Japan Championships

CultureProfessor Takaaki Kajita was awarded
the Nobel Prize in Physics for his researchbased on results of observations made byusing the Super-Kamiokande.
In 2015, Takaaki Kajita, the Director of Institute for Cosmic Ray
Research and Professor at the University of Tokyo, was awarded
the Nobel Prize in Physics for discovering neutrino oscillations.
The Super-Kamiokande is the neutrino detector facility that
supported this research project, which has succeeded in expanding
the intellectual frontiers of humankind. MES was involved in theconstruction of this facility from the schematic plan phase. In
2001 a chain reaction of implosions destroyed the original facility.
Following this major accident, MES worked together withresearchers to determine the cause of the chain reaction.
A lecture meeting to commemorate Professor Kajita’s winning
the Nobel Prize was held in March 2016. The meeting was hosted
by the Asahi Shimbun Company and co-sponsored by MES.
High school and university students were invited to the meeting,and Professor Kajita sent a message to the young people.
In addition to the Super-Kamiokande, MES has participated in
the construction of the Japan Microgravity Center located in
Kamisunagawa Town, Hokkaido, and KamLAND, a neutrino
detector owned by Tohoku University. We will continue toprovide technological support to researchers who enthusiasticallytake on new challenges.

Profile of Ms. Aki Yazawa

Support for the activities of the Fureai Trio

Professor Takaaki Kajita talking about his researchHigh school and university students who dream of
becoming scientists asked Professor Kajita many questions.

We hold full-scale classical music concerts for people
in local communities.

We held a memorable first award presentation ceremony.

Children and people with disabilities have few opportunities to be
exposed to classical music. The activities of Fureai Trio started with adesire to expose these people to live classical music and spirituallyenrich their lives. The trio has given 410 public performances formore than 95,000 people. Since the activities of the Fureai Triostarted in 2003, MES has not only co-sponsored its events, but has
also provided volunteer services to support its concert activities.

Activities of the Mitsui Public Relations Committee
MES has co-sponsored various cultural activities as a member
company of the Mitsui Public Relations Committee. MES carries out
various activities aimed at “enriching society by cherishing people
and respecting diverse personal characteristics,” working in line withthe characteristics of the Mitsui Group described as “Mitsui is
People.” One example is the MITSUI Golden Glove Award, an award
that stresses the importance of fielding in professional baseball. In
2015, the committee created the MITSUI Golden Takumi Award.
Japanese traditional crafts face a number of problems, such as thelack of people to carry on these traditions. Through this award
program, the committee provides opportunities for people to gain
attention and praise for successfully carrying on traditional
techniques and styles and combining them with innovative ideas,
thereby helping to further the development of traditional crafts.
49

Financial Data
Consolidated Balance Sheets
As of March 31, 2016 and 2015

AssetsLiabilities and Net Assets
Japanese Yen(millions)

Current Assets
Cash and time deposits (Note1(r))
Receivables
Trade
OthersLess allowance for doubtful accounts
Merchandise and finished goods
Raw materials and supplies
Work in progress
Deferred tax assets (Note11)
Short-term loans
Others (Notes 1(r) and 16)
Total current assets

2016¥

U.S.Dollars(thousands) (Note 1(a))

2015
139,374¥

Current Liabilities

2016
85,353$

1,236,901

282,420
13,923(2,466)
4,107
5,010
33,831
14,535
22,591
24,497537,822

310,973
13,311(1,738)3,306
9,845
28,242
18,54255,027
19,690542,551

2,506,390
123,562(21,885)
36,44844,462300,240
128,994
200,488
217,4034,773,003

Land (Note1(p))
Buildings and structures
Machinery, equipment and vehicles
Lease assets
Construction in progress

271,437
199,667
195,474
17,6496,645
690,872

271,356
198,584
196,587
20,8294,165
691,5212,408,919
1,771,983
1,734,771
156,629
58,972
6,131,274

Less accumulated depreciation
Net property, plant and equipment(311,820)
379,052(313,795)
377,726(2,767,305)
3,363,969

32,361

11,713

287,194

81,64628,313250
20,763
16,573(2,737)
144,80885,83022,287
8,684
15,056
13,220(2,504)
142,573

724,583
251,269
2,219
184,265
147,080(24,290)
1,285,126

Property, Plant and Equipment (Note4)

Intangible Assets
Intangible Assets

Japanese Yen(millions)Short-term borrowings (Notes 4 and 5)
Current portion of long-term indebtedness (Note6)
Lease obligations
Trade payables
Advances from customers
Accrued expenses
Accrued income taxes (Note11)
Deferred tax liabilities (Note11)
Provision for losses on construction contracts
Provision for product warranty
Asset retirement obligations
OthersTotal current liabilities

2016¥

U.S.Dollars(thousands) (Note 1(a))

2015
27,861
41,1262,146
245,636
84,38820,593
6,894
592
10,1239,881
223,267472,509¥2016

17,46842,834
2,662
247,657
77,15925,2999,942
488
17,1238,926
433,287
482,849$

247,258
364,980
19,0452,179,943
748,917
182,756
61,182
5,254
89,83987,691
18
206,487
4,193,370

Long-term Liabilities
Long-term indebtedness (Notes 4 and 6)
Lease obligations
Liability for severance and retirement benefits
For directors and corporate auditors
Net defined benefit liabilities
Deferred tax liabilities
On reevaluation reserve for land (Notes 1(p) and 11)
Others (Note11)
Asset retirement obligations
OthersTotal long-term liabilities

170,887
7,306

128,0128,630

1,516,569
64,838522
12,318404
11,277

4,633
109,318

15,086
51,697
1,287
18,578277,681

21,312
49,371
1,302
24,101
244,409

133,884
458,795
11,422
164,8742,464,333

44,385
18,812
148,723(4,779)6,185(7,654)30,541
11,531(12,969)
232
108,846
343,853

44,385
18,248142,677(4,761)
14,058(9,719)24,777
12,705(5,646)
146
110,435
347,305

393,903
166,951
1,319,870(42,412)54,890(67,926)
271,042
102,334(115,096)
2,059
965,974
3,051,589

Investments, Long-term Loans and Other Assets
Investment securities (Notes 2, 3, and 4)
Long-term loans
Net defined benefit assets
Deferred tax assets (Note11)
Others (Note3)
Less allowance for doubtful accounts
Total investments,long-term loans and other assets
Total assets¥

1,094,043¥

The accompanying notes to the consolidated financial statements are an integral part of these balance sheets.

1,074,563$

9,709,292

Net Assets (Note8)
Common stock
Authorized - 1,500,000,000 shares
Issued - 830,987,176 shares
Capital surplus
Retained earnings
Treasury stock
Net unrealized holding gains(losses) on securities (Note2)
Unrealized gains(losses) on hedging derivatives
Revaluation reserve for land (Notes 1(p) and 11)
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets¥

1,094,043¥

1,074,563$

9,709,292

The accompanying notes to the consolidated financial statements are an integral part of these balance sheets.

50

51

Consolidated Statements of Income
For the Years Ended March 31, 2016 and 2015
Net Sales
Cost of Sales (Note1(q))
Gross profit

2016

2015
805,414743,530
61,884¥

Other Income (Expenses)
Interest and dividend income
Interest expense
Amortization of net transition obligation (Note 9)
Loss on valuation of derivatives
Equity in earnings of unconsolidated subsidiaries and affiliates
Foreign currency exchange gain (losses)
Gain on disposal of non-current assets
Gain on sales of investment securities (Note 2)
Gain on valuation of derivatives
Gain on liquidation of subsidiaries and affiliates
State subsidy
Gain on sales of subsidiaries and affiliates' stocks
Gain on bargain purchase
Insurance income
Gain on forgiveness of debts
Reversal of provision for environmental preservation cost
Loss on disposal of non-current assets
Loss on impairment of non-current assets (Note 14)
Loss on sales of investment securities (Note 2)
Loss on valuation of investment securities
Loss on valuation of investment in capital of subsidiaries and affiliates
Loss on liquidation of subsidiaries and affiliates
Loss on reduction of non-current assets
Provision of allowance for doubtful accounts
Loss on liquidation of business
Loss on shipping accident
Others, net
Total
Profit before income taxes

2016

816,520757,034
59,486$

46,187
13,299Profit¥444,364
104,837

4,976(3,232)
4,838(6,672)
522
3,297
3,227
587
712
321
3,117
334
1,730
(1,363)
(341)
(169)
(419)
(112)
(686)
(712)
(213)
(1,160)127
8,709
20,522

4,128(2,769)(1,929)(2,823)
4,022
1,029
137
1,137
4,768
(2,076)(2,689)
(0)
(215)
(984)
971
2,707
16,00644,160(28,683)
42,936(59,212)
4,633
29,26028,639
5,209
6,319
2,849
27,662
2,964
15,353(12,097)(3,026)(1,500)(3,718)(994)(6,088)(6,319)(1,890)(10,295)
1,127
77,289182,126

10,621
2,038
12,659
7,863

12,985(6,884)
6,101
9,905

94,25818,087112,345
69,781

263
7,600

442
¥ 9,463

2,333
67,448

9.40
4.00

¥
¥

¥

11.63
2.00

¥
¥

$

0.083
0.035

$
$

Beginning balance as of April 1, 2014

Other comprehensive income(Note 15)
Net unrealized holding gains on securities
Unrealized gains (losses) on hedging derivatives
Revaluation reserve for land
Foreign currency translation adjustments
Remeasurements of Defined Benefit Plans
Share of other comprehensive income ofaffiliates accounted for using equity method
Total

2015
7,863

¥

(8,540)
2,988
5,989
776
(7,354)Net
Foreign Remeasureunrealized Unrealized Revaluation
Non
Subscription
currencyments
holding gains(losses) reserve-controllingrightstranslation of defined
gains(losses) on hedging
forlandinterests
to shares
derivatives
adjustments
benefitplans
on securities

Number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

830,987

44,385

18,178 136,289

(855)

7,360

(2,649)22,516

4,252(9,036)67 103,102 323,609(55)(1,648)44,385

18,178 134,696

(855)

7,360

(2,649)22,516

4,252(9,036)67 103,047

321,961

Cumulative effects of changes
in accounting policies(1,593)

Total

Cash dividends paid

(1,656)(1,656)

Profit attributable to owners of parent

9,463

9,463

Change of scope of consolidation(2)

Purchases of treasury stock
Sales of treasury stock

70

Transfer from revaluation reserve for land

(2)
(4,025)(4,025)

119

189

176

176

Net changes of items other thanthose in Shareholders’ equity
Beginning balance as of April 1, 2015

830,9874

44,385

18,248 142,677(4,761)

6,698(7,070)

2,261

8,453

3,390

79

14,058(9,719)24,777

12,705(5,646)146 110,435 347,305

7,388

21,199Cash dividends paid

(1,616)(1,616)

Profit attributable to owners of parent

7,600

7,600

Change of scope of consolidation

(24)

(24)

Change of scope of equity method

(25)

(25)

Purchases of treasury stock(18)

Sales of treasury stock

111
564

564

Net changes of items other thanthose in Shareholders’ equity
830,987

44,385

18,812 148,723

Thousands
Number ofshares ofcommon stock

Beginning balance as of April 1, 2015

0111

Change in treasury shares of parent
arising from transactions
with non-controlling shareholders

Balance as of March 31, 2016

(18)

0

(0)

Transfer from revaluation reserve for land

(4,779)(7,873)

2,065

5,764

(1,174)(7,323)

86

6,185(7,654)30,541

11,531(12,969)

232 108,846 343,853(1,589) (10,044)

U.S. Dollars (thousands) (Note1(a))
Commonstock

830,987 393,903

CapitalsurplusRetainedearnings

Treasurystock

NetForeign Remeasureunrealized Unrealized Revaluation
Non
Subscription
currencyments
holding gains(losses) reserve-controllingrightstranslation of defined
gains(losses) on hedging
for landinterests
to shares
derivatives
adjustments
benefitplans
on securities

161,945 1,266,214 (42,252) 124,760 (86,253) 219,888

112,753(50,107)

Total

1,296 980,076 3,082,223

Cash dividends paid

(14,342)(14,342)

Profit attributable to owners of parent

67,44867,448Change of scope of consolidation

(213)

(213)

Change of scope of equity method

(222)

(222)

Purchases of treasury stock(160)

Sales of treasury stock

(160)

0

(0)

Transfer from revaluation reserve for land

0
985

985

Change in treasury shares of parent
arising from transactions
with non-controlling shareholders

5,006

5,006

Net changes of items other thanthose in Shareholders’ equity
Balance as of March 31, 2016

2016¥

Japanese Yen (millions)Thousands

830,987 393,903

166,951 1,319,870(42,412)(69,870)

18,32754,890(67,926) 271,042 102,334 (115,096)

51,154(10,419) (64,989)

763(14,102)(89,136)

2,059 965,974 3,051,589

U.S.Dollars(thousands) (Note 1(a))

Japanese Yen(millions)

For the Years Ended March 31, 2016 and 201552

For the Years Ended March 31, 2016 and 2015

7,147,799
6,598,598
549,201

Consolidated Statements of Comprehensive Income

ProfitConsolidated Statements of Changes in Net Assets

Restated balance

Income Taxes (Note 11)
Current
DeferredAmounts Per Share of Common Stock (Notes 1(a) and 8)
Earnings per share
Dividends, applicable to the year¥

50,071
11,813

Selling, General and Administrative Expenses (Note1(q))
Operating income

Profit attributable to non-controlling interests
Profit attributable to owners of parent

U.S.Dollars(thousands) (Note 1(a))

Japanese Yen(millions)

2016
9,905

$

69,781(75,790)
26,51853,1506,887(65,264)

7,722(2,904)
2,438
7,145
3,337

(847)

349

(7,517)(6,988)18,087(62,016)Comprehensive income

¥

875

¥

27,992$

7,765

Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

¥
¥

(768)
1,643

¥
¥

23,365
4,627$$(6,816)
14,58153

Consolidated Statements of Cash Flows
Japanese Yen(millions)

Cash Flows from Operating Activities :Profit before income taxes

2016

U.S.Dollars(thousands) (Note 1(a))

2015Cash Flows from Investing Activities :

2016

¥

20,522

Depreciation and amortization
Loss on impairment of non-current assets
Amortization of goodwill
Gain on bargain purchase
Share-based compensation expenses
Increase (Decrease) of allowance for doubtful accounts
Increase in net defined benefit liablity
Increase in net defined benefit asset
Interest and dividend income
Interest expense
Equity in earnings of unconsolidated subsidiaries and affiliates
Foreign currency exchange gain, net
Gain on sales of investment securities
Gain on sales of subsidiaries and affiliates' stocks
Loss on valuation of investment securities
Loss on valuation of investments in capital of subsidiaries and affiliates
Loss on liquidation of business
Loss on liquidation of subsidiaries and affiliates
Loss on disposal of non-current assets, net
Loss on reduction of non-current assets
State subsidy
Gain on forgiveness of debt
Insurance income
Changes in assets and liabilities :Decrease (increase) in
Trade receivables
Inventories
Other assets
Increase (decrease) in
Trade payables
Other liabilities

17,945
341
922
86
964
523
(2,165)(4,976)
3,232(4,838)4,162(3,128)
(321)
419
112
99
841
712
(712)
(334)
(3,117)

17,457
2,689
495(4,768)79(1,473)247(3,563)(4,128)2,769(4,022)
2,082(137)(1,137)
0
984
215
1,047
-

159,256
3,026
8,182
763
8,555
4,641
(19,213)(44,160)
28,683(42,936)
36,936(27,760)(2,849)
3,718
994
879
7,464
6,319
(6,319)(2,964)(27,662)

30,642(4,945)(5,629)(74,521)(4,204)(2,440)271,938(43,885)(49,955)(2,661)(14,036)

57,485
9,803(23,615)(124,565)

Others, net
Sub-total(183)
34,477

8,725
19,690(1,624)
305,973

Interest and dividend received
Interest paid
Proceeds from insurance income
Income taxes paid
Net cash provided by (used in) operating activities

9,078(2,933)
3,117(13,936)
29,8035,517(2,895)(7,144)
15,16880,564(26,029)
27,662(123,678)
264,492¥

16,006$

182,126

Adjustments to reconcile Profit before income taxes to net cash
provided by (used in) operating activities

54

¥

¥

$

Japanese Yen(millions)

Net decrease in time deposits
Capital expenditure
Proceeds from sales of non-current assets
Purchases of investment securities
Proceeds from sales of investment securities
Payments for the purchase of investment in subsidiaries resulting
in change in scope of consolidation (Note 1(r))
Proceeds from sales of shares of subsidiaries resulting in change inscope of consolidation
Purchase of shares of subsidiaries and affiliates
Proceeds from sales of shares of subsidiaries and affiliates
Disbursements of loans receivableCollection of loans receivable
Proceeds from subsidy income
Others, net
Net cash provided by (used in) investing activities

2016

¥

U.S.Dollars(thousands) (Note 1(a))

2015

2016

1,751
(16,023)
747
(52)
6,816

2,630
(16,603)
1,412
(4)
340

15,540(142,199)
6,629
(461)
60,490(15,155)-(134,496)

221

-

1,961

(10,695)(77,260)
74,789712(451)(34,600)(8,040)1,519(38,800)
24,446714(32,386)(94,915)(685,659)
663,729
6,319(4,002)(307,064)¥$

Cash Flows from Financing Activities :Net increase (decrease) in short-term borrowings
Proceeds from long-term indebtedness
Repayments of long-term indebtedness
Repayments of lease obligations
Proceeds from issuance of bonds
Repayments on bonds
Purchases of treasury stock
Cash dividends
Dividends paid to non-controlling interests
Proceeds from share issuance to non-controlling shareholders
Proceeds from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation
Others, net
Net cash provided by (used in) financing activities

12,444
68,683(28,568)(1,540)10,000(10,000)(18)(1,612)(2,116)-¥(6,322)
29,156(37,079)(3,428)10,000(4,026)(1,653)(1,215)
9,769

110,437
609,540(253,532)(13,667)
88,747(88,747)(160)(14,306)(18,779)
-

944

-

8,378

0
48,217424(4,374)¥$0427,911

Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net increase (decrease) in Cash and Cash Equivalents(2,464)40,956

3,904(17,688)(21,867)
363,472

Increase due to changes in scope of consolidation
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year (Note1(r))

127
94,665
135,748427
111,926
94,6651,127
840,122
1,204,721

¥

¥

$

55

Notes to Consolidated Financial Statements
1. Significant Accounting and Reporting Policies
The following is a summary of the significant accounting and reporting policies adopted by the Mitsui Engineering & Shipbuilding Group (the“Group”), which consists of Mitsui Engineering & Shipbuilding Co., Ltd. (“MES”) and its consolidated subsidiaries (“Subsidiaries”) in the
preparation of the accompanying consolidated financial statements.

(a) Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of the Group have been prepared in accordance with the provisions set forth in the“Japanese Financial Instruments and Exchange Act” and its related accounting regulations, and in conformity with accounting principles
generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements fromInternational Financial Reporting Standards.
The accounts of the overseas Subsidiaries are based on their accounting records maintained in conformity with generally accepted
accounting principles prevailing in the respective countries of domicile (“Local GAAP”) and significant differences between Japanese GAAP
and Local GAAP are adjusted in consolidation. The accompanying consolidated financial statements have been restructured and translated
into English from the consolidated financial statements of the Group prepared in accordance with Japanese GAAP and filed with theappropriate Finance Bureau of the Ministry of Finance as required by the “Financial Instruments and Exchange Act”. Certain supplementary
information included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailingexchange rate at March 31, 2016, which was ¥112.68 to U.S. $1. The convenience translations should not be construed as representations that
the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate ofexchange.

2) If forward foreign exchange contracts are entered into to hedge a future transaction (be contracted but not stated in financial statements)
denominated in foreign currency, recognition of gains and losses resulting from fair value of the forward foreign exchange contracts aredeferred until the contracts are applied to the hedged item.
Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received under theinterest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was allocated.

(f) Allowance for Doubtful Accounts
In order to provide for credit losses, non recoverable amount is recorded based on write-off ratio for general accounts. For doubtful accounts,
collectability is examined and recoverable amount is estimated individually.

(g) Inventories
Merchandise, finished goods, raw materials and supplies are stated at cost determined mainly by the moving-average method (except steels
for new shipbuilding, which are by identified cost method) (Balance sheet value reflects downturn in profitability). Work in progress is statedusing identified cost method (Balance sheet value reflects downturn in profitability). Construction costs, which are accumulated in inventory,
consist of direct materials, labor, other items directly attributable to each contract and an allocable portion of general manufacturing andconstruction overheads.

(b) Principles of Consolidation(h) Property, Plant and Equipment and Depreciation

The accompanying consolidated financial statements include the accounts of the Group, over which MES has power of control throughmajority voting rights or existence of certain conditions requiring control by MES.
Material inter-company balances, transactions and profits have been eliminated in consolidation.
The assets and liabilities of the Subsidiaries, including the portion attributable to non-controlling shareholders were evaluated using the fairvalue at the time MES acquired control of the respective subsidiaries.
Investments in all significant unconsolidated subsidiaries and affiliates are accounted for by the equity method.
Goodwill is generally amortized over certain periods on the straight-line method.
Fiscal years of some Subsidiaries end on the 31st of December. MES consolidates these subsidiaries’ financial statements as of eachsubsidiary’s latest fiscal year and significant transactions occurred between each subsidiary’s fiscal year-end and MES’s fiscal year-end are
adjusted on consolidation.

Depreciation of plant and equipment is mainly computed using the declining-balance method over their estimated useful lives. Buildings,
acquired on and after April 1, 1998, are depreciated using the straight-line method. Ordinary maintenance and repairs are charged to the
profit and loss account as incurred.

(i) Intangible assets
Intangible assets primarily consist of software, customer-related assets and goodwill. Software for own use is depreciated using thestraight-line method over the estimated useful life (five years). Customer-related assets is also amortized using the straight-line method basedon effected period (mainly eighteen years). Goodwill is generally amortized using the straight-line method over a reasonable period in which
the economic benefits are expected to be realized.

(c) Revenue Recognition(j) Employees’ Severance and Retirement Benefits

Revenue and costs associated with construction contracts
1) Construction of its certainty of achievement on the progressed portion until the fiscal year end can be recognized:
The percentage-of-completion method(The progress of work is mainly measured by the percentage of cost method）
2) Construction other than above:
The completed-contract method
Revenues and costs of sales on finance lease transactions are recognized when lease payments are received.

In calculating retirement benefit obligations, the benefit formula basis is used to allocate projected retirement benefits over the period to theend of this consolidated fiscal year. Actuarial gains and losses are recognized in the consolidated statements of income commencing with thefollowing year using the straight-line method mainly for five or ten years. Prior service costs are recognized in the consolidated statements ofincome using the straight-line method for one or five years.
After being adjusted for tax effect, unrecognized actuarial gains and losses, unrecognized prior service costs are added to “Remeasurementsof defined benefit plans”, an item within “Accumulated other comprehensive income(net assets)”.

(d) Securities
MES and its domestic Subsidiaries examined the intent of holding each security and classified those securities as (a) securities held for trading
purposes ( “trading securities”), (b) debt securities intended to be held to maturity ( “held-to-maturity debt securities”), (c) equity securities
issued by subsidiaries and affiliated companies, and (d) all other securities that are not classified in any of the above categories (“available-for-sale securities”). MES and its domestic Subsidiaries did not have trading securities or held-to-maturity debt securities.
Equity securities issued by Subsidiaries and affiliated companies, which are not accounted for by the equity method, are stated atmoving-average cost. Available-for-sale securities with available fair market values are stated at fair market value. Fair market value iscalculated using mainly the average price of securities over one month before the consolidated balance sheet date. Unrealized gains andlosses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses onsale of such securities are computed using moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliated companies which
are not accounted for by the equity method, and available-for-sale securities decline significantly, such securities are stated at fair market
value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. If the fairmarket values of these securities are not readily available, they should be written down to net asset value with a corresponding charge in thestatements of income in the event net asset value declines significantly. In these cases, such fair market value or the net asset value will be thecarrying amount of the securities at the beginning of the next year.

(k) Liabilities for Severance and Retirement Benefits for Directors and Corporate Auditors
Amount is recorded based on internal regulations in order to prepare for payment of retirement benefit of directors and corporate auditors.

(l) Translation of Foreign Currency Accounts
Under Japanese accounting standard for foreign currency translation, monetary assets and liabilities denominated in foreign currencies aretranslated into Japanese yen at the exchange rates prevailing at each balance sheet date with the resulting gain or loss included in the current
statements of income.
Assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rates in effect at each balance
sheet date, except for common stock and capital surplus, which are translated at historical rates. Revenue and expense accounts are alsotranslated at the exchange rates in effect at each balance sheet date.

(m) Provision for Losses on Construction Contracts
Provision for losses on construction contracts, etc., is provided based on an estimate of the total losses which can probably occur for the next
fiscal year and beyond with respect to construction projects, etc., on which eventual losses are deemed inevitable and amounts thereof canreasonably be estimated.

(e) Derivative Transaction and Hedge Accounting(n) Provision for Product Warranty

Japanese accounting standard for financial instruments requires MES and domestic Subsidiaries to measure derivative financial instruments atfair value and to recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Group defers recognition of gains or losses
resulting from changes in fair value of derivative financial instruments until the instruments are applied to hedged items.
In cases where forward foreign exchange contracts are used as hedges and meet certain hedging criteria, the forward foreign exchange
contracts and hedging items are accounted for in the following manner.

Provision for product warranty for ships and other products is provided based on the estimated amounts calculated by using mainly theaverage proportion of product warranties against sales amounts for past two years.

1) If forward foreign exchange contracts are entered into to hedge existing foreign currency receivables or payables,i) the difference, if any, between the Japanese yen amount of the hedged foreign currency receivables or payables converted by thecontracted forward foreign exchange rate and the book value of the receivables or payables is recognized in the consolidated statements
56

of income of the fiscal year in which such contracts are entered into, andii) the difference between the Japanese yen amount converted by the contracted forward foreign exchange rate and the Japanese yenamount by spot rate at the trade date of the contract is allocated to every fiscal period over the term of the contract.

(o) Income Taxes
Deferred income tax is recognized from temporary differences between the carrying amounts of assets and liabilities for tax and financial
reporting. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences.

57

(p) Revaluation Reserve for Land
The land used for business operations is revaluated based on real estate tax value on March 31, 2000 and March 31, 2002 respectively, in
accordance with Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land (the “Law”) effective March 31, 1998. The
related unrealized gain, net of income taxes was recorded as “Revaluation reserve for land” in Net assets and the deferred income tax effects
were recorded as Deferred tax liabilities on “Revaluation reserve for land” in Long-term liabilities.
According to the Law, revaluation of the land is not permitted at any time after the above revaluation even in cases where the fair value of theland declines. Such unrecorded revaluation losses are ¥38,972 million ($345,864 thousand) and ¥38,778 million as of March 31, 2016 and 2015,
respectively.

(q) Research and Development
Costs relating to research and development activities are charged to the profit and loss account as incurred. The amounts for the years ended
March 31, 2016 and 2015 were ¥3,472 million ($30,813 thousands) and ¥3,508 million,respectively.

(r) Cash Flow Statement
In preparing the consolidated statements of cash flows, cash on hand, readily available deposits including short-term loans and short-term
highly liquid investments with maturities not exceeding three months at the time of purchase are considered to be cash and cash equivalents.
Reconciliation of cash and time deposits shown in the consolidated balance sheets and cash and cash equivalents in the consolidated
statements of cash flows as of March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)

2016
Cash and time deposits
Time deposits with maturities exceeding 3 months
Cash equivalents included in short-term loans
Cash and cash equivalents¥¥

U.S.Dollars (thousands)

2015
139,374(3,626)
135,748¥¥2016
85,353(4,686)13,99894,665$$

1,236,901(32,180)
1,204,721

Acquisition cost and net payments for assets and liabilities of TGE Marine AG and its subsidiaries, newly consolidated subsidiaries acquired
through stock purchase, for the year ended March 31, 2016 were as follows:
Japanese Yen (millions)
Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Non-controlling interests
Acquisition cost of stock
Cash and cash equivalents of newly consolidated subsidiaries
Net: Payments for the purchase of investment in subsidiaries
resulting in change in scope of consolidation¥¥¥

U.S.Dollars (thousands)
95,50979,020128,435(66,569)(40,025)(9)
196,361$(61,865)

10,762
8,904
14,472(7,501)(4,510)(1)
22,126(6,971)$

15,155$

134,496(s) Finance Lease Transactions without Transfer of Ownership
Lessee：The method of amortization of the lease assets related to finance lease transactions without transfer of ownership is by the straight-line
method corresponding to lease period. The residual value is the guaranteed residual value in case such value is set forth in the lease contract
but otherwise is zero value.
Lessor：Revenues and costs of sales on finance lease transactions, other than those that transfer ownership of the leased property to the lessee, arerecognized when lease payments are received.

(t) Reclassifications
Certain reclassifications have been made in the financial statement of the previous fiscal year to conform to the classification used in this fiscal
year. These reclassifications had no effect on previously reported profit or net assets.

(u) Additional information
Transfer of non-current assets
MES resolved at its Board of Directors’ Meeting held on February 25, 2016, to transfer non-current assets.
(1)Reason of transfer
In order to reform the business structure and improve the financial strength through effective utilization of assets, MES decided to transfer
the Land and buildings of the rental warehouse and the dormitory which it owns in Shinonome, Koto ward, Tokyo.
(2)Details of the transferred assets
a. The rental warehouse
Address: 11-28, Shinonome 1-chome, Koto ward, Tokyo
Land surface area: 10,566.57 ㎡
Total floor area: 5,779.62 ㎡
Note: The borrower is to vacate the rental warehouse by August, 2016.
b. The dormitory
Address: 11-34, Shinonome 1-chome, Koto ward, Tokyo
Land surface area: 2,989.73 ㎡
Total floor area: 2,835.09 ㎡
Note: MES has no notable capital, personal, or transactional relationships with the acquirers. Furthermore, the acquirers do not constitute a related party of MES.
58

(3) Timing of transfer
Date of Board of Directors’ resolution: February 25, 2016
Contract date: February 26, 2016
Scheduled date of property transfer: September 30, 2016(4) Impact on consolidated gains and losses
MES projects that gain on sales of non-current assets of approximately ¥16,804 million ($149,130 thousands) will be recorded in the second
quarter of fiscal year 2016.

(v) Changes in accounting and reporting policies"Accounting Standard for Business Combinations" (ASBJ Statement No. 21, September 13, 2013, hereinafter "Business Combinations
Accounting Standard"), "Accounting Standard for Consolidated Financial Statements" ASBJ Statement No. 22, September 13, 2013,
hereinafter "Consolidated Accounting Standard"), and "Accounting Standard for Business Divestitures" (ASBJ Statement No. 7, September 13,
2013, hereinafter "Business Divestitures Accounting Standard") are applied from the beginning of this consolidated fiscal year. Differences
due to fluctuations in the equity of subsidiaries remaining under control of the parent company are recorded as capital surplus and changed
to the accounting treatment of recording acquisition related cost as expenses for the consolidated accounting period.
For business combination conducted after the beginning of this consolidated fiscal year, MES conducted a review of amounts allocated asacquisition costs based on the use of provisional accounting treatments and reflecting this in the consolidated financial statements for the
consolidated fiscal year during which the date of the business combination falls. Additionally, MES changed the indication of net income andchanged from the indication of minority interests to non-controlling interests. To reflect these changes, the consolidated financial statements
for the previous fiscal year were modified.
The application of accounting standards related to business combination is in accordance with the transitional handling outlined in Business
Combinations Accounting Standard No. 58-2(4), Consolidated Accounting Standard No. 44-5(4), and Business Divestitures AccountingStandard No. 57-4(4). These standards will be applied moving forward as of the beginning of the fiscal year under review.
As a result, operating income for the consolidated accounting period decreased by ¥415 million ($3,683 thousands), and profit before income
taxes decreased by ¥1,259 million ($11,173 thousands). Furthermore, capital surplus as of the end of the fiscal year under review increased by¥564 million ($5,005 thousands).
In the consolidated cash flow statement for the fiscal year under review, cash flow related to the sale of subsidiary stock not requiring a change
in the scope of consolidation is recorded under "Cash flow from financing activities" and cash flow related to expenses incurred due to theacquisition of subsidiary stock requiring a change in the scope of consolidation is recorded under "Cash flow from operating activities."
Capital surplus in Consolidated Statements of Changes in Net Assets of the fiscal year under review increased by ¥564 million ($5,005
thousands). The effect on per-share information is recorded in the relevant place.

2. Marketable Securities and Investment Securities(a) The following tables summarize acquisition costs, book values and fair values of securities
with available fair values as of March 31, 2016 and 2015:
Japanese Yen (millions)

2016:
Available-for-sale securities:
Securities with book values exceeding acquisition costs:
Equity securities
Sub Total
Securities with book values not exceeding acquisition costs:
Equity securities
Sub Total
Total

Acquisition cost¥¥

Securities with book values not exceeding acquisition costs:
Equity securities
Sub Total
Total

Securities with book values not exceeding acquisition costs:
Equity securities
Sub Total
Total¥

Acquisition cost¥¥

26,302
26,302

6,310
6,310
32,612¥¥

10,783
10,783

(959)
(959)
9,824

22,08822,088

4,032
4,032
26,120Book value¥¥

45,40445,404

3,283
3,283
48,687

Differences¥¥

23,31623,316(749)(749)
22,567U. S. Dollars (thousands)

2016:
Available-for-sale securities:
Securities with book values exceeding acquisition costs:
Equity securities
Sub Total

7,269
7,269
22,788¥Differences

Japanese Yen (millions)

2015:
Available-for-sale securities:
Securities with book values exceeding acquisition costs:
Equity securities
Sub Total

15,51915,519Book value

Acquisition cost$$

137,726
137,726

64,51064,510202,236

Book value$$

233,422233,42255,99955,999289,421

Differences$$

95,696
95,696(8,511)(8,511)
87,18559

(b) Proceeds from sales of available-for-sale securities and realized gains and losses on sales ofavailable-for-sale securities for the years ended March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)

2016
Proceeds from sales of available-for-sale securities
Securities
Bonds
Realized gains on sales of available-for-sale securities
Securities
Bonds
Realized losses on sales of available-for-sale securities
Securities
Bonds

The aggregate annual maturities of long-term indebtedness are summarized below:

U.S.Dollars (thousands)

2015

2016

¥

6,316
500

¥

340
-

$

56,053
4,437

¥

3,297
-

¥

137
-

$

29,260
-

169
-

¥

-

$

¥

1,500
-

Year ended March 31,

Japanese Yen (millions)

2017
2018
2019
2020
2021 and thereafter

41,12647,04741,38827,07755,375
212,013¥¥

U.S.Dollars (thousands)$

7. Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at the Group as of March 31, 2016 was as follows:
Japanese Yen (millions)

3. Investments in Unconsolidated Subsidiaries and Affiliates
Investments in unconsolidated subsidiaries and affiliates included in investment securities as of March 31, 2016 and 2015 were ¥46,300 million($410,898 thousand) and ¥33,492 million, respectively. Investments in unconsolidated subsidiaries and affiliates included in other assets as ofMarch 31, 2016 and 2015 were ¥5,964 million ($52,929 thousand) and ¥5,978 million, respectively.

4. Pledged Assets
Assets pledged as collateral for short-term borrowings and long-term indebtedness as of March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)

2016
Land
Buildings and structures
Machinery, equipment and vehicles
Investment securities
Cash and deposits

2015
5,123
305
15,084530
625
21,667¥¥

U.S.Dollars (thousands)

2016
5,123
325
16,674151
22,273¥¥45,465
2,707
133,866
4,704
5,546
192,288$$

Short-term borrowings and long-term indebtedness secured by the above pledged assets as of March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)2016
Short-term borrowings
Long-term loan payable¥¥

U.S.Dollars (thousands)

2015
15,787
15,7872016
1,100
17,241
18,341¥¥

140,105
140,105$$

364,980
417,527
367,306
240,300
491,436
1,881,549$

Total overdraft facilities and lending commitments
Less amounts currently executed
Unexecuted balance

64,4252,142
62,283¥¥

U.S.Dollars (thousands)
571,752
19,010552,742$$

8. Net Assets and Per Share Data
Under the Japanese Corporate Law (“the Law”) and regulations, the entire amount paid for new shares is required to be designated ascommon stock. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one-half the price ofthe new shares as additional paid-in capital, which is included in capital surplus.
In cases where a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% ofcommon stock over the total of additional paid-in-capital and legal earnings reserve must be set aside as additional paid-in-capital or legal
earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a deficit by a resolution in the shareholders'meeting or could be capitalized by a resolution in the shareholders' meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in-capital and alllegal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available fordividends.
The maximum amount that MES can distribute as dividends is calculated based on the non-consolidated financial statements of MES inaccordance with Japanese laws and regulations.
At the annual shareholders’ meeting held on June 28, 2016, the shareholders approved cash dividends amounting to ¥3,232 million ($28,683
thousand). Such appropriations have not been accrued in the consolidated financial statements as of March 31, 2016. This type ofappropriations is recognized in the period in which they are approved by the shareholders.
Net income per share is based on the weighted average number of shares of common stock outstanding during each period. Cash dividends
per share represent the cash dividends declared applicable to the respective year.

9. Liability for Severance and Retirement Benefits(a) Overview of adopting severance and retirement benefits plans

5. Short-Term Borrowings
Short-term borrowings represent notes payable to banks due within twelve months. The average interest rate for each term is summarized below:

Average interest rate for each term

2016

2015

0.69%

1.10%

The Group has system of funded and unfunded severance and retirement benefits, and defined contribution pension plans.
Severance and retirement benefits (all funded) pay out lump-sum payment or annual pension based on salary and length of service.
Part of funded severance and retirement benefits is entrusted.
Lump-sum payment (part of which becomes funded as a result of benefit trust although the system is unfunded) is paid out based on salaryand length of service as retirement benefits.
Some domestic Subsidiaries have adopted a “simpler method” to calculate liability for severance and retirement benefits for employees.

(b) Breakdown of information concerning severance and retirement benefits

6. Long-Term Indebtedness
Japanese Yen (millions)2016
Secured by mortgages on plant and equipment0.40% to 2.27% loans from Japanese banks, due on various dates through 2021
Unsecured or non-guaranteed0.92% bonds, due January 28, 2016
1.08% bonds, due June 15, 20171.47% bonds, due January 26, 2018
1.14% bonds, due December 12, 2019
0.63% bonds, due December 12, 2019
0.62% bonds, due September 14, 2020
1.03% bonds, due December 10, 2021
1.01% bonds, due September 14, 2022
0.22% to 2.27% loans from banks, insurance companies andtrading companies due on various dates through 2027¥

Less: Current portion included in current liabilities¥

60

Japanese Yen (millions)i) Movements of severance andretirement benefit obligation:

Long-term indebtedness as of March 31, 2016 and 2015 is summarized below:

15,787

U.S.Dollars (thousands)

2015¥

17,241

2016$

140,106

10,000
5,000
5,000
5,000
5,000
5,000
5,000

10,00010,000
5,000
5,000
5,000
5,000
-

88,74844,37344,37344,37344,37344,37344,373

156,226

113,605

1,386,457

212,013(41,126)
170,887

170,846(42,834)
128,012

1,881,549(364,980)
1,516,569¥$

Balance at beginning of year
Cumulative effect of change in accounting policy
Restated balance at beginning of year
Current service costs
Interest costs
Actuarial differences on pension plan obligation
Benefits paid
OthersBalance at end of year

2016
¥

¥

U.S.Dollars (thousands)

2015
47,81147,811
2,407
468
2,855
(4,858)34
48,717¥¥

2016
46,8192,574
49,393
2,306
566
2,106
(6,306)(254)
47,811$$

424,308424,308
21,361
4,153
25,337(43,113)302
432,348

61

Japanese Yen (millions)ii) Movements of pension assets:

2016
Balance at beginning of year
Expected return on pension assets
Actuarial differences on pension assets
Contribution to pension plans
Benefits paid
OthersBalance at end of year¥¥

Japanese Yen (millions)

2016

Japanese Yen (millions)2016

Contribution paid to the defined contribution pension plan

U.S.Dollars (thousands)

2015
248

¥

2016
192

¥

¥

12,068

8,180
¥

2,593

12,318(250)¥

12,068(a) Expenses for stock options and account titles at March 31, 2016 and 2015 are as follows:

¥

¥

2,593

¥

vi) Unrecognized actuarial differences(before deducted tax effects):¥

21,361
4,153
89
11,005(311)
36,297

$

2016
4
3,796
1,929
(156)
5,573

¥

¥

27
(91,463)204(91,232)

$

$

2016
(3)
8,161
8,158

¥
¥

$
$

(62)
163,898
163,836

2016¥

FY2014 Stock option

79

$

763

FY2013 Stock option

Persons granted

Directors of MES: 14
Deputy directors of MES: 19

Class and number of shares
Grant dateCommon stock 366,000 shares
August 22, 2014

Common stock 624,000 shares
August 23, 2013

Vesting conditions

It continues in the position of Director or Deputy
director until (June 30, 2015 or March 31, 2015) ondata of vested after (August 22, 2014) on date of grant.

It continues in the position of Director or Deputy
director until (June 30, 2014) on data of vested after(August 23, 2013) on data of grant.

Service period(Directors of MES)
From July 1, 2014 to June 30, 2015
(Deputy directors of MES)
(continuously - appointed)
From July 1, 2014 to March 31, 2015
(Deputy directors of MES)(newly - appointed)
From April 1, 2014 to March 31, 2015

From July 1, 2013 to June 30, 2014

Exercise period

From August 23, 2014 to August 22, 2044

From August 24, 2013 to August 23, 2043

Persons granted

Directors of MES: 9（including executive officers additional post）
Executive officers of MES: 13（excluding directors additional post）
Deputy directors of MES: 17

Class and number of shares
Grant dateCommon stock 497,000 shares
August 21, 2015

Vesting conditions

It continues in the position of Director, Executive
officer or Deputy director until (June 30, 2016 or
March 31, 2016) on data of vested after (August 21,2015) on date of grant.

FY2015 Stock option

U.S.Dollars (thousands)

2015
(7)
18,46818,461

107,099

$

2015

2016

¥

$

U.S.Dollars (thousands)

Japanese Yen (millions)¥

109,318(2,219)2015
86

Directors of MES: 14
Deputy directors of MES: 21

2016
2,306
566
11
627
(61)
1,929
5,378

¥

2016
3
(10,306)23(10,280)

107,099¥

U.S.Dollars (thousands)(b)The stock options outstanding at March 31, 2016 are as follows:

U.S.Dollars (thousands)

Japanese Yen (millions)

¥

$

2015
2,407
468
10
1,240
(35)
4,090

2016

73,925

11,277(8,684)

Japanese Yen (millions)¥

358,422(325,248)

$

2,201

$

10. Stock options

Selling, general and administrative expenses

2016
39,631(45,218)8,330v) Remeasurements of defined benefit plans(before deducted tax effects):

Unrecognized prior service costs
Unrecognized actuarial differences
Total

$

The contribution paid to the defined contribution
pension plan is summarized below:

U.S.Dollars (thousands)

¥

2016

Prior service costs
Actuarial differences
Net transition obligation
OthersTotal

401,30589(76,287)
1,464(1,651)
328
325,248$

2015
40,387(36,649)¥iv) Severance and retirement benefit expenses:
Current service costs
Interest costs
Expected return on pension assets
Amortization of actuarial differences
Amortization of prior service costs
Amortization of net transition obligation
Severance and retirement benefit expenses

2016
40,071
11
5,070
187
(152)
31
45,218¥(c) Defined contribution pension plan

Japanese Yen (millions)iii) Reconciliation of projected retirement benefit
obligation and net defined benefit assets/
liabilities recorded in the consolidated balance sheets:
Retirement benefit obligation (funded non-contributory)
Less fair value of pension assets
Retirement benefit obligation(Unfunded termination and retirement allowance plan)
Net defined benefit assets/liabilities recordedin the consolidated balance sheets
Defined benefit liabilities
Defined benefit assets
Net defined benefit assets/liabilities recordedin the consolidated balance sheets

2015
45,21910(8,596)
165
(186)
37
36,649¥U.S.Dollars (thousands)

Service period
Exercise period（Directors of MES）
From July 1, 2015 to June 30, 2016
（Executive officers of MES）
From April 1, 2015 to March 31, 2016
（Deputy directors of MES）
From April 1, 2015 to March 31, 2016
From August 22, 2015 to August 21, 2045(c) The numbers of and changes in stock options during the year ended March 31, 2016 are as follows:vii) The major categories of pension assets:

Percentage of composition

2016
Bonds
Securities
Cash and deposits
OthersTotalviii) The principal actuarial assumptions at reporting
date are summarized below:
Discount rate
Expected rate of return on pension plan assets

2015
3%
84%
10%
3%
100%

3%
79%
14%
4%
100%

2016

2015

0.0% - 0.8%

0.1% - 1.7%

Not applicableNot applicable

To determine the expected rate of return on pension plan assets, allocation of pension assets expected in present and future, and long-term rate of
return on portfolio assets expected in present and future are considered.
62

Non-vested:
Outstanding at March 31, 2015
GrantedForfeited
VestedOutstanding of non-vested at March 31, 2016
Vested:Outstanding at March 31, 2015
VestedExercised
Forfeited
Outstanding of non-vested at March 31, 2016
Exercise price - Yen (U.S. Dollars)
Average share price at exercise -Yen (U.S. Dollars)
Fair value price at grant date -Yen (U.S. Dollars)¥¥

FY2015 Stock option

FY2014 Stock option

497,000
1,000
258,000
238,000

250,000
250,000--

258,000
258,000
1 ($0.009)
169 ($1.500)

114,000
250,000
364,000
1 ($0.009)
191 ($1.695)

616,000
616,000
1 ($0.009)
144 ($1.278)¥¥

FY2013 Stock option

¥
¥

63

(d) Estimation method for stock options issued during the year ended March 31, 2016 is as follows:

Correction of amounts of Deferred tax assets and Deferred tax liabilities due to changes in Corporation Tax Rates, Etc.

The fair value of stock options granted is estimated by using Black-Scholes option pricing model with the following assumptions:
FY2015 Stock option
Volatility of stock price (note: i)
Estimated remaining outstanding period (note: ii)
Estimated dividend (note: iii)
Interest rate with risk free (note: iv)

46.700%15 years¥2 per share
0.750%

notes:
i. Annual volatility rate estimated based on daily stock prices in the past 15 years (closing prices on each day from August 21, 2000 to August 21, 2015).
ii. Remaining outstanding period was estimated in the middle of exercisable period, since it is difficult to make reasonable estimate.
iii. Based on actual year-end dividend for the preceding year (March 31, 2015 year-end dividend).
iv. The yield on national government bonds with the period corresponding to the expected residual period.

12.Business Combination(e) Calculation method for the number of rights vested
Only actual forfeited number of the vested stock option is used for calculation for the number of rights vested, since it is difficult to reasonably
estimate the number of options that will forfeited in the future.

11. Income Taxes
MES and domestic Subsidiaries are subject to a number of income taxes, which, in the aggregate, indicate a statutory rate in Japan of approximately
36.0% for the year ended March 31, 2015 and 33.1% for the year ended March 31, 2016.
The following table summarizes the significant differences between the statutory tax rate and the Group’s effective tax rate for financial statement
purposes for the years ended March 31,2016 and 2015:

2016

2015
33.1％
42.4
(0.5)
1.2
1.5
0.6
(9.0)
(4.4)
(0.3)
(7.3)
4.4
61.7％

Statutory tax rate
Valuation allowance
Revaluation of land
Non-deductible expenses for tax purposes
Amortization of consolidated difference
Taxation on per capita basis
Equity in earning of unconsolidated subsidiaries and affiliates
Income of foreign subsidiaries taxed at lower than Japanese normal rate
Non-taxable dividend income
Gain on bargain purchase
Increase of deferred tax assets, net of liabilities at fiscal year-end by the change of tax rate
Others
Effective tax rate

36.0％
49.6
(0.5)
1.1
1.1
0.7
(8.9)
(7.2)
(1.8)
(10.7)(24.3)
3.0
38.1％

Japanese Yen (millions)2016
Deferred tax assets:
Net defined benefit liabilities
Unrealized inter-company profit
Tax loss carry forward
Losses on revaluation of inventories
Accrued expenses
Provision for product warranty
Allowance for doubtful accounts
Provision for losses on construction contracts
Loss on impairment of non-current assets
Losses on revaluation of marketable and investment securities
OthersTotal deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Net unrealized holding gains on securities
Accelerated depreciation on non-current assets
Reserve for advanced depreciation of non-current assets
Gains on contribution of securities to trust for employees' retirement benefit
Losses on progress basis contract
Unrealized gain on assets and liabilities
Unrealized gain on foreign currency assets and liabilities
OthersTotal deferred tax liabilities

64(16,991)2016
111,768
96,707100,781
2,583
25,151
18,14918,04225,45368,326
3,807
138,560
609,327(174,787)
434,540

10,263
10,934
14,031
269
3,479
1,917
1,420
6,068
10,500576
16,49375,950(22,848)
53,102(4,222)(5,409)(3,357)(1,637)(3,562)(45,790)(1,072)(906)(65,955)¥

U.S.Dollars (thousands)

2015

12,594
10,897
11,356
291
2,834
2,045
2,033
2,868
7,699
429
15,61368,659(19,695)
48,964(37,469)(48,003)(29,792)(14,528)(31,612)(406,372)(9,514)(8,040)(585,330)(8,680)(2,093)(3,722)(1,728)(2,282)(48,141)(1,726)(991)(69,363)¥

Business combination by acquisition(a) Outline of the transactioni) Name and business of the combined entity
Name: TGE Marine AG
Business: Engineering and manufacturing supervision related to fuel carriers and other gas plantsii) Reason of business combination
TGE Marine AG (hereinafter "TGE") is involved in the EPCS business, including pressurized gas tanks for small- and medium-sized gas carriers,
gas handling system design, equipment procurement, and manufacturing supervision. In addition to the high share of the global market forsmall-sized LNG carriers and small-scale ethylene carriers, moving forward the Group is planning to expand its business related to design andmanufacturing supervision for fuel supply systems for gas fuel ships and floating storage and regasification units (FSRU).
Through new initiatives to incorporate TGE's gas ship technology and their customer base, the Group will aim to establish a firm position in
global market for small- and medium-sized gas carriers, a market expected to see future growth, as well as maximize synergy with our existing
technology and increase the overall corporate value of the Group.
iii) Date of the transaction:
October 1, 2015iv) Legal Form of the Business Combination:
Acquisition of shares in consideration of cashv) Name of the combined entity after the transaction
There is no change.
vi) Acquired ratio of voting right:
99.98%
vii) The main reason that led to the decision to acquire the company
MES Germany Beteiligungs GmbH, our consolidated subsidiary, acquired shares of TGE Marine AG and its two consolidated subsidiaries inconsideration of cash.
(b) The period of financial result of the combined entity included in the consolidated financial statement:
From October 1, 2015 to March 31, 2016

Significant components of deferred tax assets and liabilities as of March 31, 2016 and 2015 were as follows:

Net deferred tax assets

The “Act for Partial Revision of the Income Tax Act, etc.” (Law No.15 of 2016) and “Act for Partial Revision of the Local Tax Act, etc.” (Law No.13 of 2016)
were established in the Diet on March 29, 2016, as a result of which MES is subject to the reduction such as corporate tax rates from the consolidated
fiscal year beginning on or after April 1, 2016. The corporation income tax in Japan consists of a corporation tax, an enterprise tax, resident tax. In
conjunction with this promulgation, the effective statutory tax rate used to measure deferred tax assets and deferred tax liabilities with respect to thetemporary difference expected to be eliminated in the consolidated fiscal year beginning on April 1, 2016 and 2017 are changed from the previous
32.3% to 30.8% and 30.6% from the consolidated fiscal year beginning April 1, 2018.
As a result of this change, deferred tax assets (after deduction of deferred tax liabilities) increased by ¥1,432 million ($12,709 thousands). Income taxes(deferred) decreased by ¥1,502 million ($13,330 thousands) and remeasurements of defined benefit plans decreased by ¥337 million ($2,991
thousands). Net unrealized holding gains on securities increased by ¥232 million ($2,059 thousands) and unrealized gain or loss on hedging
derivatives increased by ¥34 million ($302 thousands).
Also deferred tax liabilities on revaluation reserve for land decreased ¥756 million ($6,709 thousands), and revaluation reserve for land increasedsame amounts.

(16,261)$(c) Consideration transferred for the acquisition
Consideration for the acquisition (Cash): €165 million
Acquisition Cost: €165 million ($ 196,353 thousand)(d) Amount of incidental acquisition related cost and its purpose
Advisory fee, etc: €4 million ($ 4,624 thousand)(e) Amount and reason of goodwill, method and period of amortizationi) Amount of goodwill: € 108 million ($ 128,435 thousand)ii) Reason of goodwill
Because the acquisition cost of the acquired company exceeds the net amount of assets accepted and liabilities underwritten from the acquiredcompany, the excess portion is treated as goodwill.
iii) Method and period of amortization
Straight-line method for 16 years(f) Identifiable assets acquired and assumed liabilities in business combination
Japanese Yen (millions)
Current assets
Non-current assets
Total assets¥

Current liabilities
Non-current liabilities
Total liabilities¥¥

10,762
8,904
19,666

Japanese Yen (millions)¥(7,501)(4,510)(12,011)

U.S.Dollars (thousands)$$

95,51079,020174,530

U.S.Dollars (thousands)$$(66,569)(40,025)(106,594)($150,790)

65

15. Comprehensive Income(g) Amounts other than goodwill distributed as intangible fixed assets and a breakdown of other major categories, and the weighted averageamortization period for total assets and by major category
Japanese Yen (millions)Classification
Customer-related assets
Technology-related assets
Total

Weighted averageamortization period

U.S.Dollars (thousands)

Japanese Yen (millions)
8,247
577
8,824

¥
¥

73,1905,121
78,311$$

16 years
12 years
16 years(h) Estimate of impact on the consolidated income statement for the consolidated fiscal year if the business combination is completed on the start ofthis consolidated fiscal year under review, and said estimate method
Japanese Yen (millions)
Net sales
Operating income
Profit attributable to owners of parent

10,324
62(88)¥

U.S.Dollars (thousands)
91,622
550
(781)

$

(Estimate value calculation method)
The difference between the net sales and gains and loss information estimated as assuming the business combination is completed on the start of thisconsolidated fiscal year and net sales and gains and loss information recorded on the consolidated income statement as the estimated impact value.
Also, the amortization value on the goodwill related to business combination is treated as having occurred on the start of this consolidated fiscal year.
Furthermore, an audit certificate for the estimated impact values is not issued.

13.Contingent Liabilities
Contingent Liabilities of the Group as of March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)

2016

Guarantees of bank loans and other indebtedness¥

141,679

U.S.Dollars (thousands)

2015¥

175,2262016$

1,257,357

14. Loss on Impairment on non-current assets
The Group adopted the accounting standard for impairment of non-current assets. The non-current assets are grouped by each segment. Idle
non-current assets are grouped individually. The book value of the non-current assets is reduced to the collectable amount.
The loss on impairment of non-current assets for the years ended March 31, 2016 and 2015 were comprised of the following.

2016
Location
Major use
Asset category
AmountReasonOita City, Oita Prefecture etc.
Idle assets
Land, Building¥341 million ($ 3,026 thousand)
Decline in market value

2016
Net unrealized holding gains on securities：
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effectNet unrealized holding gains on securities
Unrealized gains (losses) on hedging derivatives
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effectUnrealized gains (losses) on hedging derivatives
Revaluation reserve for land:
Amount of generation at this fiscal term
Before adjusting the tax effectTax effectRevaluation reserve for land
Foreign currency translation adjustments：
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effectForeign currency translation adjustments
Remeasurements of defined benefit plans：
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effectRemeasurements of defined benefit plans
Share of other comprehensive income of affiliates accounted for using equity method：Amount of generation at this fiscal term
Amount of rearrangement adjustment
Share of other comprehensive income of affiliates accounted for using equity method
Total

¥

U.S.Dollars (thousands)

2015(9,891)(3,105)(12,996)
4,456(8,540)¥11,066(531)
10,535(2,813)
7,722

2016
$

(87,780)(27,556)(115,336)
39,546(75,790)

4,444
(155)
4,289
(1,301)
2,988(4,100)(207)(4,307)
1,403(2,904)39,439(1,375)38,064(11,546)
26,518

(128)
(128)
6,117
5,989

2,438
2,438

(1,136)(1,136)54,28653,150

718
95
813
(37)
776

7,615
(215)
7,400
(255)
7,145

6,372
843
7,215
(328)
6,887

(11,110)830(10,280)
2,926(7,354)

3,245
2,328
5,573
(2,236)
3,337(98,598)
7,366(91,232)
25,968(65,264)(3,676)2,829(847)(6,988)

670
(321)
349
18,087(32,623)
25,106(7,517)(62,016)¥¥$

16. Leases(a) Lesseei) Unexpired lease payments of operating lease transactions as of March 31, 2016 and 2015 were as follows:

2015

66

Each component of other comprehensive income for the years ended of March 31, 2016 and 2015 was the following:

Location
Major use
Asset category
AmountReasonSaga Prefecture
Floating wind & Current Hybrid Power Generation
Construction in progress¥605 million
Decline in use value

Location
Major use
Asset category
AmountReasonOita City, Oita Prefecture, Tamano City, Okayama Prefecture, Akishima City, Tokyo Metropolis etc.
Idle assets
Land etc.
¥809 million
Decline in market value

Location
Major use
Asset category
AmountReasonIchihara City, Chiba Prefecture, Tamano City, Okayama Prefecture etc.
Business assets
Land, Building, Machinery and Equipment etc.
¥1,276 million
Deterioration of shipbuilding and subsidiaries’ business environment

Japanese Yen (millions)2016
Due within one year
Due after one year
Total

¥

1,365
6,639
8,004

¥

U.S.Dollars (thousands)

2015
¥

2016
1,289
1,938
3,227

¥

$

12,11458,91971,033$(b) Lessori) Unexpired lease receivables of operating lease transactions as of March 31, 2016 and 2015 were as follows:
Japanese Yen (millions)2016
Due within one year
Due after one year
Total

¥
¥

U.S.Dollars (thousands)

2015
3,920
10,057
13,977

¥
¥

2016
3,871
11,942
15,813$$34,78989,253
124,04267

17. Financial Instruments(a) Articles concerning status of financial instruments
1) Policies for financial instruments
The Group restricts the fund management to short-term financial instruments. The Group transfers funds to each other through an inter-company
cash management systems (CMS).
Short-term working capital is financed through bank loans and issuance of commercial paper (CP). Long term equipment fund and working capitalis financed through bank loans and issuance of bonds. Derivative financial instruments are utilized to hedge the risks described hereinafter and not
for speculative transactions as a matter of policy.
2) Substances and risks of financial instruments
Trade and other receivables are exposed to credit risks of customers. Foreign currency trade and other receivables of MES and certain Subsidiaries are
exposed to currency fluctuation risks. Forward foreign exchange contracts are applied to these hedged items in principle. Investments securities,
mainly of companies with business relationships, are exposed to market fluctuation risks. Short-term and long-term loans for operating funds andcapital expenditures of SPC’s, which are established for charter project of FPSO or for generating electricity, are exposed to credit risks of customers.
Almost all of the trade payables are due within one year. Foreign currency trade payables for overseas procurement are exposed to currency
fluctuation risks, but those trade payables are controlled not to exceed the balance of trade receivables in the same foreign currencies.
Short-term borrowings are mainly for the purpose of funding commercial transactions. Long-term borrowings, bonds, and lease obligations aremainly for the purpose of funding investment in plant and equipment. Although the portion of that debt with floating interest rates is exposed tointerest rate fluctuation risks, interest rate swap contracts are applied to hedge the risks.
Derivative transactions are the above mentioned forward foreign exchange contracts as well as interest rate swap contracts. They are for the
purpose of hedging currency fluctuation risks and rising interest rate risks.
As to details on hedging instruments, hedging items, hedging policy and method of evaluating the effectiveness of hedging, please refer to “1.
Significant Accounting and Reporting policies (e) Derivative Transaction and Hedge Accounting. ”
3) Managing of financial instrumentsⅰ) Management of credit risks ( Breach of contracts risks )The Group monitors due dates and balances of trade receivables and regularly investigate the credit standings of main customers for early
detection and reduction of default risks according to internal regulation. Certain Subsidiaries reduce their balance of loan receivables by
arranging project finance or through cooperation with business partners such as general trading companies.
As to derivative transactions, credit risks are minimized by dealing solely with top-ranked financial institutions.
ⅱ) Management of market risks ( Exchange rate or interest rate fluctuation risks )MES and certain Subsidiaries utilize forward foreign exchange contracts, interest rate swap contracts, and interest rate and currency swap
contracts. Forward foreign exchange contracts are for the purpose of hedging currency fluctuation risks arising from foreign currency
receivables and payables in principle, and the others are utilized for the purpose of hedging interest rate risks arising from short-termborrowings, long-term borrowings and bonds.
Holding position of investment securities are continuously reviewed by researching fair market value and financial status of important customers
regularly and taking into account of market condition and relationship with customers.
Execution and management of derivative transactions are based on each company’s internal regulation restricting scope of authority.
As to derivative transactions, the Group utilizes them to offset risks within the range of trade demand.
ⅲ) Management of liquidity risks of raising funds ( Default risks )The Finance & Accounting department of the Group makes and updates finance plans, and maintains a certain level of liquidity on hand tominimize liquidity risks.
4) Supplementary explanation about fair value of financial instruments
Fair value of financial instruments includes not only fair market value based on market price but also reasonably estimated value if market price is
not available. Reasonably estimated fair value may fluctuate because it depends on an estimation process which is based on certain preconditions.
The contract amounts for derivatives stated in the following “(b) Articles concerning fair value of financial instruments,” do not indicate the market
risks of derivatives.

(b) Articles concerning fair value of financial instruments
Consolidated balance sheet amounts, fair value of financial instruments and the differences between them for the fiscal years ended March 31, 2016 and2015 are as follows. Financial instruments in which the fair value is considered to be extremely difficult to recognize are not included in the list below.
Japanese Yen (millions)

2016(1)Cash and time deposits(2)Trade receivables
Less allowance for doubtful accounts *1¥(3)Short-term loans(4)Investments securities
Available-for-sale securities(5)Long-term loans
Less allowance for doubtful accounts *1
Assets total¥(1)Trade payables(2)Short-term borrowings(3)Current portion of long-term loan payable(4)Current portion of bonds(5)Accrued income taxes(6)Bonds(7)Long-term loan payable
Liabilities total¥

Derivative transactions *2
ⅰDerivative transactions for which hedge accounting has not been applied
ⅱDerivative transactions for which hedge accounting has been applied
Derivative transactions total

68

Japanese Yen (millions)

2015

¥

¥
¥

Book value
139,374
282,420(1,757)
280,663
22,591
32,612
28,313(196)
28,117503,357¥¥

245,636
27,861
41,126
6,894
40,000130,887
492,404

¥

687
179
866

¥

¥

¥

Fair value
139,374

Differences¥-

280,663
22,5910-

32,612-

28,114503,354245,636
27,861
41,274
6,894
41,467
131,878495,010

687
179
866

¥
¥

¥

¥
¥

(3)
(3)
148
1,467
991
2,606

-

(1)Cash and time deposits(2)Trade receivables
Less allowance for doubtful accounts *1¥(3)Short-term loans(4)Investments securities
Available-for-sale securities(5)Long-term loans
Less allowance for doubtful accounts *1
Assets total(1)Trade payables(2)Short-term borrowings(3)Current portion of long-term loan payable(4)Current portion of bonds(5)Accrued income taxes(6)Bonds(7)Long-term loan payable
Liabilities total
Derivative transactions *2
ⅰDerivative transactions for which hedge accounting has not been applied
ⅱDerivative transactions for which hedge accounting has been applied
Derivative transactions total¥

48,68722,287(197)
22,090520,936¥

247,656
17,46832,83410,000
9,942
30,00098,013445,913¥(2,868)(10,447)(13,315)$(3)Short-term loans(4)Investments securities
Available-for-sale securities(5)Long-term loans
Less allowance for doubtful accounts *1
Assets total$(1)Trade payables(2)Short-term borrowings(3)Current portion of long-term loan payable(4)Current portion of bonds(5)Accrued income taxes(6)Bonds(7)Long-term loan payable
Liabilities total$

Derivative transactions *2
ⅰDerivative transactions for which hedge accounting has not been applied
ⅱDerivative transactions for which hedge accounting has been applied
Derivative transactions total¥

Fair value
85,352Differences-¥

309,776
55,027(4)-

48,687-¥23,225522,067¥

247,656
17,46832,934
10,061
9,942
30,514
98,718447,293¥(2,868)(10,447)(13,315)

¥

1,135
1,131

¥

100
61
514
705
1,380

¥

-

U.S. Dollars (thousands)

2016(1)Cash and time deposits(2)Trade receivables
Less allowance for doubtful accounts *1

Book value
85,352
310,973(1,193)309,780
55,027$$$

Book value
1,236,901
2,506,390(15,593)2,490,797
200,488289,421251,269(1,739)249,530
4,467,137$$

2,179,943
247,258
364,980
61,182354,988
1,161,581
4,369,932

$

6,097
1,588
7,685

$

$

$

Fair value
1,236,901

Differences$-

2,490,797
200,4880-289,421-249,5034,467,110
2,179,943
247,258
366,294
61,182368,007
1,170,376
4,393,060

6,097
1,588
7,685

$
$

$

$
$

(27)
(27)
1,314
13,0198,795
23,128-*1 Allowance for doubtful accounts is deducted from each account.
*2 Net credit or debt arising from derivative transactions is indicated by the offset amount and which is indicated as ( ) in case of the offset amount is debt.
(note 1) Articles concerning calculation method of fair value, marketable securities and derivative transactions.

Assets(1) Cash and time deposits、(3) Short-term loans
Fair value of these accounts is stated at the book value because these accounts are settled in the short term, so they are considered to be close to
the balance sheet amounts.
(2) Trade receivables
Fair value of these accounts is stated at the present value discounted over the maturity term of each receivable divided into certain classified term(4) Investment securities
Fair value of these accounts is based on available market price.
(Please see 2. Marketable Securities and Investment Securities)(5) Long-term loans
Fair value of these accounts is stated at the present value using future cash flows discounted by the premium added rate on the appropriate index
like yield on government bonds.

69

Liabilities(note 4) The expected redemption amount of bonds and long-term loan payable after the fiscal years ended March 31, 2016 and 2015 are as follows.

(1) Trade payables, (5) Accrued income taxes
Fair value of these accounts is stated at book value because these accounts are settled in the short term, so they are considered to be close to thebalance sheet amounts.
(2) Short-term borrowings, (3) Current portion of long-term loan payable, (7) Long-term loan payable
Fair value of borrowings at fixed interest rates is calculated using the total amount of the principal and interest discounted by the interest rate on
condition that the borrowing is newly executed at the date of fair value evaluation.
Fair value of long-term borrowings at variable interest rates is stated at balance sheet amounts because variable interest rates reflects the latest
market conditions and MES’s credit standings is considered to be almost same as when funds were borrowed, so fair value is considered to beclose to the balance sheet amounts.
Some borrowings at variable interest rates are subjected to batch treatment of interest rate swaps that fulfill special treatment requirements, aswell as interest rate and currency swaps. Those fair values are based on quotes from financial institutions.
(4) Current portion of bonds, (6) Bonds
These fair values consist of both the fair value based on fair market value and the present value using the total of the principal and interest
discounted by a risk-free interest rate over the remaining term of each bond.

Derivative transactions
Please refer to “18. Derivative Transactions.”(note 2) Financial instruments in which the fair value is considered to be extremely difficult to recognize are as follows.
Japanese Yen (millions)

U.S.Dollars (thousands)

Book value

Book value

2016(1)Unlisted equity securities(2)Bonds(3)Trust property
Total

¥

¥

2015

48,894140
49,034¥¥

Japanese Yen (millions)2016
Short-term borrowings
Bonds payable
Long-term borrowings
Lease obligations
Other interest-bearing debt
Total

Within one year¥¥

27,861
41,1262,146
2,234
73,367

Over one year but
within two years¥¥

15,00032,0471,892
127
49,066

Over two years but Over three years but Over four years but
within three years
within four years
within five years¥¥

41,3881,194
97
42,679¥¥10,00017,077778
91
27,946¥¥

5,000
24,5802,484
82
32,146

Over five years¥¥

10,00015,795958
238
26,991

Japanese Yen (millions)2015
Short-term borrowings
Bonds payable
Long-term borrowings
Lease obligations
Other interest-bearing debt
Total

Within one year¥¥

17,46910,00032,834
2,662
609
63,574

Over one year but
within two years¥¥

29,033
1,912
134
31,079Over two years but Over three years but Over four years but
within three years
within four years
within five years¥¥

15,00022,8691,756
127
39,752¥¥30,702
1,154
97
31,953¥¥

10,0006,312
725
9017,127

Over five years
¥

¥

5,000
9,096
3,083
321
17,5002016
36,563500
81
37,144$$433,9191,243
435,162

As to these financial instruments, there’s no available fair market price and it is considered to cost a great deal to estimate future cash flows. So thesefinancial instruments are not included in investment securities because it is considered to be extremely difficult to recognize fair value.
(note 3) The expected redemption amount of monetary credit and securities with maturity after the fiscal years ended March 31, 2016 and 2015 are as
follows.

Japanese Yen (millions)2016
Short-term borrowings
Bonds payable
Long-term borrowings
Lease obligations
Other interest-bearing debt
Total

Within one year$$

247,258
364,980
19,04519,826651,109

Over one year but
within two years$$

133,120
284,407
16,791
1,128
435,446

Over two years but Over three years but Over four years but
within three years
within four years
within five years$$

367,306
10,596
861
378,763$$

88,747
151,5536,904
808
248,012$$44,373
218,140
22,045728
285,286

Over five years$$

88,747140,1768,502
2,112
239,537

Japanese Yen (millions)

2016
Cash and time deposits
Trade receivables
Short-term loans
Investments securities
Available-for-sale securities
Long-term loans
Total

Within one year¥¥

138,205
279,773
22,591
1
440,570¥¥

Over one yearbut
within five years

Over five years but
within ten years

289
2,636
-

33
10
-

6,973
9,898

¥

¥

10,74010,783

Over ten years-¥¥

10,601
10,601

Japanese Yen (millions)2015
Cash and time deposits
Trade receivables
Short-term loans
Investments securities
Available-for-sale securities
Long-term loans
Total

Over one yearbut
within five years

Within one year¥¥

85,218
310,588
55,027450,833

¥

¥

374
500
7,845
8,719

Over five years but
within ten years
¥

¥

10
4,134
4,144

Over ten years-¥¥

10,30910,309U.S. Dollars (thousands)

2016
Cash and time deposits
Trade receivables
Short-term loans
Investments securities
Available-for-sale securities
Long-term loans
Total

70

Over one yearbut
within five years

Within one year$$

1,226,527
2,482,898
200,48893,909,922

$

$

2,565
23,394
61,88387,842

Over five years but
within ten years
$

$

293
89
95,314
95,696

Over ten years$$

94,081
94,08171

18. Derivative Transactions(b) Derivative transactions for which hedge accounting has been applied

Derivative transactions of the Group for market value information as of March 31, 2016 and 2015 were as follows:

2016(a) Derivative transactions for which hedge accounting has not been applied

Hedged items

Japanese Yen (millions)

2016
Currency related derivatives
Forward contracts
To buy U.S. Dollars
Euro
Norwegian Krone
Swiss Franc
Chinese Yuan
To sell U.S. Dollars

Contract amountDue after one year
Total

¥

¥

Interest swap
To receive float, pay fix

¥
¥

1,612
3,170
3,438
709
296
15,82425,049¥26,991
26,991¥¥¥

Fair value-¥

24,051
24,051¥¥¥

Unrealized gain(loss)

(10)
(292)
(626)
(16)
4
(464)
(1,404)

¥

2,091
2,091

¥

¥

¥

(10)
(292)
(626)
(16)
4
(464)
(1,404)
2,091
2,091

Japanese Yen (millions)

2015
Total
Currency related derivatives
Forward contracts
To buy Euro
Norwegian krone
To sell U.S.Dollars

Contract amountDue after one year

5,247
5,796
14,05225,095

¥

¥

¥

¥

3,430
3,430

Fair value

(378)
(617)
(1,872)(2,867)¥¥

Unrealized gain(loss)

¥

¥

(378)
(617)
(1,872)(2,867)

U.S. Dollars (thousands)

2016
Total
Currency related derivatives
Forward contracts
To buy U.S. Dollars
Euro
Norwegian Krone
Swiss Franc
Chinese Yuan
To sell U.S. Dollars$$

Interest swap
To receive float, pay fix$$

Contract amountDue after one year

14,30628,13330,511
6,292
2,627
140,433
222,302$239,537
239,537$$$

Japanese Yen (millions)Contract amountDue after one year
Total

Fair value-$

213,445
213,445$$$

Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S.Dollars
Euro
STG Pounds
Thai Baht
Singapore Dollars
Norwegian Krone
Japanese Yen
Swiss Franc
Brazil RealTo sell U.S.Dollars
STG Pounds
Euro
Alternative method *1
Currency related derivatives
Forward contracts
To sell U.S. Dollars
Interest swap
Basic treatment：
To receive float,pay fix
Exceptional treatment *2：
To receive float,pay fix
Interest rate and currency swap
Batch treatment *2:
To receive float, pay fix;
To receive U.S. Dollars,
Pay Japanese Yen

Trade payables

Trade receivables

Long-term loan payable$

18,557
18,557

$

$

$

(89)
(2,591)(5,556)(142)
36(4,118)(12,460)
18,557
18,557

Interest swap
Basic treatment：
To receive float,pay fix
Exceptional treatment *2：
To receive float,pay fix

6,019
173
-

562
(17)
(12)
(35)
(10)
(5)
4
(5)
(6)
2,522
(456)
(15)

7,464

¥

2,527

¥

29,823¥25,822¥(2,348)Long-term loan payable

45,00437,034-Long-term loan payable

9,822

7,858

-

84,649¥70,714¥(2,348)Japanese Yen (millions)Contract amountDue after one year
Total

Trade payables¥

Trade receivables

¥

2,462
47
310
-

¥

1,506
(450)
(8)
2
(1)
(237)
(67)
(68)

15,4752,581(9,826)
(677)

523
1,045

-

(156)

¥

208
282
146,587¥

20,875¥(9,982)

¥

4,806

¥

3,800

¥

(465)

Trade receivables

Short-term borrowing ,Long-term loan payable

12,320
8,632
1,917
239
194
1,359
455
1,012

Fair value

101,506
16,895Long-term loan payable

39,564¥72¥¥

Hedged items

Alternative method *1
Currency related derivatives
Forward contracts
To sell U.S.Dollars
Euro

1,154
71
47
-

29
83,5882015

To sell U.S.Dollars
STG Pounds
Currency option cotract
Buying: Put option
Selling: Call option

¥

¥

¥

Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S.Dollars
Euro
STG Pounds
Thai Baht
Singapore Dollars
Norwegian Krone
Japanese Yen
Swiss Franc

7,226
9,805
854
982
1,147
70
113
311
315
48,75412,004
1,978

Trade receivables

Unrealized gain(loss)(89)(2,591)(5,556)(142)
36(4,118)(12,460)¥

Fair value

44,37031,594¥35,394

¥

(465)

73

Contract amountDue after one year
Total

Hedged items
Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S.Dollars
Euro
STG Pounds
Thai Baht
Singapore Dollars
Norwegian Krone
Japanese Yen
Swiss Franc
Brazil RealTo sell

19. Segment Information

U.S. Dollars (thousands)

2016

U.S.Dollars
STG Pounds
Euro

Alternative method *1
Currency related derivatives
Forward contracts
To sell U.S. Dollars
Interest swap
Basic treatment：
To receive float,pay fix
Exceptional treatment *2：
To receive float,pay fix
Interest rate and currency swap
Batch treatment *2:
To receive float, pay fix;
To receive U.S. Dollars,
Pay Japanese Yen

Fair value(a) Overview of Reportable Segment
Reportable Segment is composed of the segment by products and services belonging to headquarter and subject to be reviewed periodically by the
Board of Directors to decide the allocation of management resources and to evaluate the performance.

Trade payables$

Trade receivables

64,12987,016
7,579
8,715
10,179
621
1,003
2,760
2,796

$

10,242
630
417
-

$

53,417
1,535-

432,677
106,532
17,554

4,988
(151)
(107)
(311)
(89)
(44)
35
(44)
(53)
22,382(4,047)(133)

MES organizes headquarters by products and services in Head office. Each headquarter makes strategies of its products and services in both Japanand abroad comprehensively and develops the operation.
Reportable Segment is classified into three segments: Ship & Ocean, Machinery and Engineering. Main products and services of each Reportable
Segment are as follows.
Ship & Ocean: commercial ships, naval ships, high speed passenger/vehicle ferries, FPSOs (floating production storage offloading vessels), offshore
structures, underwater TV vehicles, steel structures
Machinery: marine and stationary diesel engines, marine equipment, gas engines, steam turbines, blowers, process compressors, gas turbines,
cogeneration system, regulating system, container cranes, industrial cranes, container terminal management systems, HWM manipulators,
equipment of radar sensing for underground and construction, bridges, port structures, induction heaters
Engineering: chemical plants, overseas civil works, power generation plants, renewable energy business, waste treatment plants, water treatment
plants, resources recycling plants, PCB disposal plants
There were some changes in businesses between reportable segments from the beginning of the consolidated fiscal year 2016. Segment information
for the consolidated fiscal year 2015 has been restated to reflect the changes.

$

257
741,818$

66,241$

22,426$

264,670$

229,162$(20,838)

Trade receivables

Long-term loan payable
Long-term loan payable

328,665

399,397-(b) Calculation method used for Sales, Operating income and loss, Assets,
Liabilities and other items for each Reportable Segment.
The accounting method used for Reportable Segment is almost same as the method stated in “Significant Accounting and Reporting Policies”
Operating income and loss in Reportable Segment is based on the one in Consolidated Statements of Income.
Inter segment profit and transfer are based on the market price.

(c) Information about Sales, Operating income and loss, Assets, Liabilities andother items for each Reportable Segment.
69,73887,167Long-term loan payable$

751,234$

627,565$

Reportable Segment information for the years ended March 31, 2016 and 2015 were as follows:(20,838)

Japanese Yen (millions)2016*1 When certain conditions are met, translation of foreign currency receivables is based on yen amount fixed by forward contract. The fair value is included in that of the tradereceivables, which is shown in “17. Financial Instruments.
*2 As interest swap subject to exceptional treatment of interest swap and batch treatment of interest swap are accounted for as a single item with underlying long-term loan
payable, which are hedged items, their fair value is included in that of long-term loan payable.

Net Sales:
Outside customers
Inter segment
Total
Operating income (loss)
AssetsDepreciation
Increase in property,
plant and equipment
and intangible assets

Ship & Ocean¥

Machinery¥¥¥¥423,786981
424,767(13,305)
482,808
9,148¥

15,879Engineering
¥

¥
¥
¥

171,690
8,485
180,175
13,806
159,627
3,626

¥

6,959

Sub total¥¥¥¥

171,27114
171,285
8,298
107,757
1,636

¥

1,530

Others¥¥¥¥766,747
9,480
776,227
8,799
750,192
14,410¥24,368Total

Adjustments Consolidated
¥

¥

¥
¥
¥

38,667
1,052
39,7193,014
233,775
3,170

¥
¥
¥

805,414
10,532815,946
11,813
983,967
17,580

¥

1,552

¥

25,920¥¥¥¥–(10,532)(10,532)–
110,076
365

¥

907

¥

805,414–805,414¥
11,813¥ 1,094,043¥
17,94526,827(note 1) “Others” is the segment which is not included in Reportable Segment and includes Transport equipment related business, Systems
development, Real estate lease business and others.
(note 2) Adjustments are as follows:(1) Adjustments of ¥110,076 million recorded for assets include primarily comprised of surplus funds (cash and time deposits), long-term
investment (investment securities) and assets related to the administration divisions of MES of ¥114,686 million that are not allocated to any
Reportable Segment.
(2) Adjustments of ¥365 million recorded for depreciation include depreciation for property, plant and equipment and intangible assets
related to the administration divisions of ¥476 million.
(3) Adjustments recorded for increase in property, plant and equipment and intangible assets include increase in assets related to theadministration divisions.
(note 3) Operating income (loss) is adjusted with operating income in Consolidated Statements of Income.
Japanese Yen (millions)

2015
Net Sales:
Outside customers
Inter segment
Total
Operating income (loss)
AssetsDepreciation
Increase in property,
plant and equipment
and intangible assets

74

Ship & Ocean
¥

¥
¥
¥

481,021866
481,887
9,657
446,721
8,137

¥

8,323

Machinery¥Engineering
¥

¥
¥
¥

167,137
6,675
173,812
10,660159,093
4,201

¥

3,653

Sub total¥¥¥¥

129,616308
129,924(10,633)
99,429
1,780

¥

3,577

Others¥¥¥¥

777,7747,849
785,623
9,684
705,243
14,118¥15,553

Total

Adjustments Consolidated
¥

¥

¥
¥
¥

38,746
1,443
40,1893,615
237,733
2,820

¥
¥
¥

816,520
9,292
825,812
13,299942,976
16,938

¥

5,256

¥

20,809¥¥¥¥–(9,292)(9,292)–
131,587
519

¥

226

¥

816,520–
816,520¥
13,299¥ 1,074,563¥
17,457
21,03575

(note 1) “Others” is the segment which is not included in Reportable Segment and includes Transport equipment related business, Systems
development, Real estate lease business and others.
(note 2) Adjustments are as follows:(1) Adjustments of ¥131,587 million recorded for assets include primarily comprised of surplus funds (cash and time deposits), long-term investment(investment securities) and assets related to the administration divisions of MES of ¥136,350 million that are not allocated to any Reportable
Segment.
(2) Adjustments of ¥519 million recorded for depreciation include depreciation for property, plant and equipment and intangible assets related tothe administration divisions of ¥583 million.
(3) Adjustments recorded for increase in property, plant and equipment and intangible assets include increase in assets related to theadministration divisions.
(note 3) Operating income (loss) is adjusted with operating income in Consolidated Statements of Income.

Ship & Ocean

Net Sales:
Outside customers
Inter segment
Total
Operating income (loss)
AssetsDepreciation
Increase in property,
plant and equipment
and intangible assets

MachineryEngineering

Sub total$ 1,523,695
75,302
1,598,997$ 122,524$ 1,416,640$
32,180$ 1,519,977
124
1,520,101$
73,642$ 956,310$
14,519$ 6,804,641
84,132
6,888,773$
78,088$ 6,657,721$
127,884

$

$

$

$

$

$

140,92161,75913,578216,258

Total

343,158
9,336
352,494$
26,749$ 2,074,681$
28,133
13,774$ 7,147,799
93,4687,241,267$ 104,837$ 8,732,402$
156,017

$

$
$
$

–
(93,468)(93,468)–
976,890
3,239

230,032

$

8,049

$

$ 7,147,799–
7,147,799$ 104,837$ 9,709,292$
159,256$

238,081[Related information](d) Information by products and services

1)Sales
Japanese Yen (millions)

¥

Japan
240,429$Japan
2,251,606

2015

Ship & Ocean Machinery¥
1,977 ¥
255

Engineering¥-

Losses on impairment on non-current assets

2016

Ship & Ocean Machinery
$
– $
53

Engineering$-

Losses on impairment on non-current assets

Others¥Corporate and Elimination
¥
335

¥

Total
341

Corporate and Elimination
¥
164

¥

Total
2,689

Corporate and Elimination
$
2,973

$

Total
3,026

Corporate and Elimination
- ¥
- ¥
-

¥
¥

–

Japanese Yen (millions)¥

Others292

U.S. Dollars (thousands)
Others$-[Information about goodwill amortization amount and year-end balance for each Reportable Segment]
Goodwill

2016
Amortization
Goodwill

2015
Amortization
Goodwill

2016Japanese Yen (millions)Ship & Ocean Machinery
Engineering
¥
913 ¥
- ¥
9 ¥
¥
17,848 ¥- ¥30 ¥OthersTotal
922
17,878Japanese Yen (millions)Ship & Ocean Machinery
Engineering
¥
495 ¥
- ¥
- ¥
¥
4,959 ¥- ¥- ¥OthersCorporate and Elimination
- ¥
- ¥
-

Total
¥
¥

495
4,959

$
$

Total
8,182
158,662

U.S. Dollars (thousands)
Ship & Ocean Machinery
Engineering$
8,102 $
- $80 $$158,396 $
- $
266 $

OthersCorporate and Elimination
- $
- $
-

¥

Brazil205,325¥

Brazil243,792$

Brazil
1,822,196¥

Asia
108,522¥Ghana
91,377

Europe55,742¥¥

Other
182,114¥

Total
805,41478,767¥

Other
162,155¥

Total
816,520

Europe494,693$

Other
1,616,205$

Total
7,147,799

2015
Gain on bargain purchase of ¥4,768 million is recorded under “Others” segment due to additional acquirement of the shares of the subsidiary, Showa
Aircraft Industry Co. Ltd.

Asia¥

U.S. Dollars (thousands)

2016
Net sales

Engineering¥-

Japanese Yen (millions)2015
Net sales

Japanese Yen (millions)Ship & Ocean Machinery
¥
– ¥
6

2016
Not applicable.

(e) Information by geographical area

Japan
253,711

Reportable Segment
Ship & Ocean[Information about gains on negative goodwill for each Reportable Segment]

Information by products and services is the same as Reportable Segment and the description is omitted.

¥

Japanese Yen (millions)96,317[Information about losses on impairment of non-current assets for each Reportable Segment]
Losses on impairment on non-current assets

Amortization
Goodwill

2016¥

Adjustments Consolidated(note 1) “Others” is the segment which is not included in Reportable Segment and includes Transport equipment related business, Systems
development, Real estate lease business and others.
(note 2) Adjustments are as follows:(1) Adjustments of $976,890 thousand recorded for assets include primarily comprised of surplus funds (cash and time deposits), long-term
investment (investment securities) and assets related to the administration divisions of MES of $1,017,803 thousand that are not allocated to
any Reportable Segment.
(2) Adjustments of $3,239 thousand recorded for depreciation include depreciation for property, plant and equipment and intangible assets
related to the administration divisions of $4,224 thousand.
(3) Adjustments recorded for increase in property, plant and equipment and intangible assets include increase in assets related to theadministration divisions.
(note 3) Operating income (loss) is adjusted with operating income in Consolidated Statements of Income.

Net sales

CARIOCA MV27 B.V.

Losses on impairment on non-current assets

Others$ 3,760,969
8,706
3,769,675$ (118,078)$ 4,284,771$
81,1852015

2016

U.S. Dollars (thousands)

2016(f) Information by major customer
Information by major customer for 2016 is not described because there is no customer with the sales amount exceeds 10% of the sales amount inConsolidated Statements of Income.

$Asia
963,099$*Sales amount is based on the place of customer and classified by country or geographical area.
2) Property, plant and equipment
Japanese Yen (millions)

2016
Property, plant and equipment

Japan
¥

Japan

76

Total
35,955¥

Others¥341,470$Japan
3,044,879

379,052¥

Total
36,256¥

377,726

U.S. Dollars (thousands)

2016
Property, plant and equipment¥

Japanese Yen (millions)

2015
Property, plant and equipment

Others343,097

Others$Total
319,090$

3,363,969

77

20. Investment and Rental Property

The profit and loss from investment and rental properties in this fiscal year are shown below.
Japanese Yen (millions)(a) Articles concerning situation of investment and rental property
MES and certain Subsidiaries own rental office building, commercial facilities, and houses (including land) in Tokyo, Osaka, Okayama and other areas.
Idle land is also owned in Tokyo, Kanagawa, Oita and other areas.

(b) Articles concerning fair value of investment and rental property
The book value of investment and rental properties stated in the consolidated balance sheets, the increase or decrease in this fiscal year, and fair value
are shown below.

2016

Japanese Yen (millions)Book value

Usage
Facilities for lease
Idle assets (Land)
Total

Beginning balance asof April 1, 2015
104,477¥
25,215
129,692¥

2,744(2,472)
272

¥

¥
¥

Ending balance asof March 31, 2016
107,221
22,743
129,964

As of March 31, 2016
105,023
23,801
128,824¥¥

Book value

Facilities for lease
Idle assets (Land)
Total

Beginning balance asof April 1, 2015
927,201$
223,775
1,150,976$

24,352(21,938)
2,414

$

$
$

Ending balance asof March 31, 2016
951,553
201,837
1,153,390

As of March 31, 2016$$

932,047
211,226
1,143,273(note 1) Book value stated in the consolidated balance sheets is net of accumulated depreciation and accumulated impairment losses.
(note 2) The increase in rental properties in this fiscal year is mainly due to new acquisitions (¥926 million/ $8,218 thousand) and diversion of land(¥1,197 million/ $10,623 thousand), and the decrease in rental properties is mainly due to depreciation (¥1,404 million / $12,460 thousand),
impairment losses (¥335 million/ $2,973 thousand).
In addition, reclassification amounts (¥1,930 million/ $17,128 thousand) are included both in the increase of rental properties and in thedecrease of idle assets.
(note 3) Fair value at the end of this fiscal year is mainly estimated based on the "Real estate appraising standard" with an adjustment using a certain
indicator.

Japanese Yen (millions)

Facilities for lease
Idle assets (Land)
Total

Rental expenses
8,741
8,741

¥
¥

2016

Affiliate

Difference
5,658
5,658

¥
¥

Affiliate

3,083
3,083

¥
¥

Others(Profit or Loss on sales of assets, etc)
(98)
¥
(336)
(434)
¥

Facilities for lease
Idle assets (Land)
Total

Rental expenses$$

77,57477,57450,21350,213$$27,361
27,361$Category

Facilities for lease
Idle assets (Land)
Total

Contents oftransaction

Transaction
amountAccount
title

Outstandingbalance at
the year end

Charter of
FPSO

Direct9.3%
Indirect10.1%

Time Charterof FPSO

Guarantee
Obligation

23,256--

Business

VotingsharesBusinessrelationshipContents oftransaction

Transaction
amountAccount
title

Outstandingbalance at
the year end

Japanese Yen (millions)
Name ofcompany

Address

Capital(thousands)

CERNAMBISUL MV24 B.V.

Amsterdam,
The Netherlands

EURO
100

Charter of
FPSO

Indirect12.5%

Time Charterof FPSO

Guarantee
Obligation

23,848--CERNAMBI
Amsterdam,NORTE MV26 B.V. The Netherlands

EURO
100

Charter of
FPSO

Indirect12.5%

Time Charterof FPSO

Guarantee
Obligation

24,802--

U.S.Dollars (thousands)
Name ofcompany

Address

CERNAMBI
Amsterdam,NORTE MV26 B.V. The Netherlands

Capital(thousands)

Business

VotingsharesBusinessrelationshipContents oftransaction

Transaction
amountAccount
title

Outstandingbalance at
the year end

EURO
100

Charter of
FPSO

Direct9.3%
Indirect10.1%

Time Charterof FPSO

Guarantee
Obligation

206,390--

Transaction
amountAccount
title

Outstandingbalance at
the year end

Japanese Yen (millions)
Name ofcompany

Address

T.E.N. GHANA
Amsterdam,
MV25
The Netherlands
B.V.

CERNAMBI
Amsterdam,NORTE MV26 The Netherlands
B.V.

Capital(thousands)

Business

VotingsharesBusinessrelationship

EURO
100

Charter of
FPSO

Indirect14.7%

Time Charter The equipment
of FPSO
capital collection

31,424

Short-term
loans

-

Construction of
FPSO

28,566

Receivables

18,924The equipment
capital lending

12,245

Short-term
loans

6,039

Guarantee
Obligation

24,118--The equipment
capital lending

22,355

Short-term
loans

8,695

Time Charter The equipment
of FPSO
capital collection

13,509

Short-term
loans

-

Guarantee
Obligation

46,796--

Construction of
FPSO

48,408

Receivables

19,227The equipment
capital lending

28,253

Short-term
loans

17,646

Guarantee
Obligation

40,209--Construction of
FPSO

69,799Receivables

39,915Time Charter The equipment
of FPSO
capital collection

11,958

Short-term
loans

-

12,846

-

-

EURO
100

EURO
100

Charter of
FPSO

Charter of
FPSO

Indirect
12.5%

Indirect10.1%

Time Charterof FPSO

Japanese Yen (millions)
Beginning balance asof April 1, 2014
105,729¥
8,646
114,375¥

Increase (Decrease)¥¥(1,252)
16,56915,317¥¥

Ending balance asof March 31, 2015
104,477
25,215
129,692¥¥

Fair value
As of March 31,
2015
100,651
27,287
127,938(note 1) Book value stated in the consolidated balance sheets is net of accumulated depreciation and accumulated impairment losses.
(note 2) The increase in rental properties in this fiscal year is mainly due to diversion of land(¥16,379 million) and new acquisitions (¥1,309 million), andthe decrease in rental properties is mainly due to depreciation (¥1,473 million), impairment losses (¥480 million) and termination of contracts(¥423 million).
(note 3) Fair value at the end of this fiscal year is mainly estimated based on the "Real estate appraising standard" with an adjustment using a certain
indicator.

78

Businessrelationship

2016

Others(Profit or Loss on sales of assets, etc)
(870)$
(2,982)(3,852)$

Book value
Usage

EURO
100

Business

Votingshares

1. Guarantee Obligation is deliberately determined in consideration by each project plan.
Transactions between Subsidiaries and related parties for the fiscal years ended March 31, 2016 and 2015 were as follows:
Unconsolidated subsidiaries and affiliates of MES(note 1) Rental expenses include depreciation, repair, insurance and taxes-and-dues. Rental income is recognized as revenue from operations, andrental expenses are recognized as operating expenses.
(note 2) Others include impairment losses and taxes-and-dues. Impairment losses and taxes-and-dues are recognized as other income (expenses).

2015

CERNAMBI
Amsterdam,NORTE MV26 B.V. The Netherlands

CERNAMBI
Amsterdam,
SUL MV24 B.V. The Netherlands

Difference$

Address

Capital(thousands)

2016

U.S.Dollars (thousands)
Rental income¥

Japanese Yen (millions)
Name ofcompany

2015

Category

Usage

¥

3,050
3,050

¥

Transactions between the Group and related parties for the fiscal years ended March 31, 2016 and 2015 were as follows:
Unconsolidated subsidiaries and affiliates of MES

Affiliate

The profit and loss from investment and rental properties in this fiscal year are shown below.

Rental income

¥

5,356
5,356

¥

Others(Profit or Loss on sales of assets, etc)
(80)
¥
(480)
¥
(560)

21. Related Party Transactions

Category

Usage

8,406
8,406

¥

Difference(note 1) Rental expenses include depreciation, repair, insurance and taxes-and-dues. Rental income is recognized as revenue from operations, andrental expenses are recognized as operating expenses.
(note 2) Others include impairment losses and taxes-and-dues. Impairment losses and taxes-and-dues are recognized as other income (expenses).

Fair value

Increase (Decrease)$

Facilities for lease
Idle assets (Land)
Total

Category

U.S. Dollars (thousands)
Usage

Rental expenses

Rental income

Fair value

Increase (Decrease)
¥

Usage

Affiliate

CARIOCA
MV27 B.V.

TARTARUGA
MV29 B.V.

Amsterdam,
The Netherlands

Amsterdam,
The Netherlands

EURO
100

USD
100

Charter of
FPSO

Charter of
FPSO

Indirect
14.7%

Indirect14.7%

Time Charterof FPSO

Contents oftransaction

Guarantee
Obligation

79

2015
Category

Japanese Yen (millions)
Name ofcompany
CERNAMBISUL MV24
B.V.

Business

VotingsharesBusinessrelationship

EURO
100

Charter of
FPSO

Indirect12.5%

Time Charterof FPSO

T.E.N. GHANA
Amsterdam,
MV25
The Netherlands
B.V.

EURO
100

Charter of
FPSO

Indirect12.5%

Time Charterof FPSO

CERNAMBI
Amsterdam,NORTE MV26 The Netherlands
B.V.

EURO
100

Charter of
FPSO

Indirect12.5%

Time Charterof FPSO

Address

Capital(thousands)

Amsterdam,
The Netherlands

Affiliate

CARIOCA
MV27 B.V.

MODEC ANDTOYOOFFSHORE
PRODUCTIONSYSTEMS
PTE.LTD

Amsterdam,
The Netherlands

EURO
100

Singapore

USD
100

Address

Charter of
FPSO

Indirect
12.5%

Constructionof FPSO
Interlocking
directors

Transaction
amountAccount
title

Outstandingbalance at
the year end

The working
capital lending

12,349

Short-term
loans

31,049

Guarantee
Obligation

23,925--Construction of
FPSO

81,439Receivables

41,257

Guarantee
Obligation

18,518--Construction of
FPSO

58,007

Receivables

22,117

Guarantee
Obligation

55,504--

Construction of
FPSO

105,040

Receivables

23,678The equipment
capital lending

21,011--The equipment
capital collection

20,891--

Guarantee
Obligation

57,869--Purchase

91,077Trade
payables

6,256

Transaction
amountAccount
title

Outstandingbalance at
the year end

Constructionof FPSO

Indirect25.0%

Capital(thousands)

Business

VotingsharesBusinessrelationship

EURO
100

Charter of
FPSO

Indirect14.7%

Time Charter The equipment
of FPSO
capital collection

278,878

Short-term
loans

-

Construction of
FPSO

253,514

Receivables

167,945

The equipment
capital lending

108,671

Short-term
loans

53,594

Guarantee
Obligation

214,040--

The equipment
capital lending

198,394

Short-term
loans

77,165Time Charter The equipment
of FPSO
capital collection

119,888

Short-term
loans

-

Guarantee
Obligation

415,300--

Construction of
FPSO

429,606

Receivables

170,634

The equipment
capital lending

250,737

Short-term
loans

156,603

Guarantee
Obligation

356,842--

Construction of
FPSO

619,444

Receivables

354,233

Time Charter The equipment
of FPSO
capital collection

106,124

Short-term
loans

-

114,004--

2016
Category

Time Charterof FPSO

Contents oftransaction

U.S.Dollars (thousands)
Name ofcompany

CERNAMBI
Amsterdam,
SUL MV24 B.V. The Netherlands

T.E.N. GHANA
Amsterdam,
MV25
The Netherlands
B.V.

CERNAMBI
Amsterdam,NORTE MV26 The Netherlands
B.V.

EURO
100

EURO
100

Charter of
FPSO

Charter of
FPSO

Indirect
12.5%

Indirect10.1%

Time Charterof FPSO

Affiliate

CARIOCA
MV27 B.V.

TARTARUGA
MV29 B.V.

Amsterdam,
The Netherlands

Amsterdam,
The Netherlands

EURO
100

USD
100

Charter of
FPSO

Charter of
FPSO

Indirect
14.7%

Indirect14.7%

Time Charterof FPSO

Contents oftransaction

Guarantee
Obligation

1. The transaction amount does not include exchange gains and losses, outstanding balance at the year end includes exchange gains and losses. The
transaction amount does not include sales tax, outstanding balance at the year end includes sales tax.
2. Policies for determining terms and conditions are as follows:(1) FPSO construction and operation trade are deliberately determined in consideration by each project plan.
(2)The equipment capital lending is deliberately determined in consideration by each project plan.
(3)The working capital lending is deliberately determined in consideration by each project plan.
(4)Guarantee Obligation is deliberately determined in consideration by each project plan.

80

81

Company Profile
Company Profile (As of March 31, 2016)

Offices and Works

Company Name

Mitsui Engineering & Shipbuilding Co., Ltd.

Head Office Location

6-4, Tsukiji 5-Chome, Chuo-ku,
Tokyo 104-8439, JapanFounded in

November 14, 1917

Established inJuly 31, 1937

Capital44,385 million Yen

Number of sharesauthorized to be issued

1,500,000,000 Shares

Number ofoutstanding shares

Common Shares 830,987,176 Shares

Number of shareholders

66,543

Employees

12,705 (Consolidated) 3,612 (MES Only)

Hokkaido Office● Head Office / Works● Office / Branch Office

Major Group Companies
Ship & Ocean Project Headquarters

Machinery & Systems Headquarters

Engineering Headquarters

MODEC, Inc.
Niigata Shipbuilding & Repair, Inc.
Shikoku Dockyard Co., Ltd.
Akishima Laboratories (Mitsui Zosen) Inc.
M.E.S Tokki Co., Ltd.
MES Shipping Co., Ltd.
MES-KHI Yura Dock Co., Ltd.
Mitsui Zosen Chiba Kiko Engineering Inc.

Mitsui Zosen Machinery & Service, Inc.
MES Technoservice Co.,Ltd.
Mitsui Meehanite Metal Co., Ltd.
Sanzo Manufacturing & Construction Co., Ltd.
MES Power - Electronics Industry Co., Ltd.
Mitsui Zosen Steel Structures Engineering Co., Ltd.
MES Testing & Research Center Co., Ltd.
DPS Bridge Works Co., Ltd.
Kaji Technology Corporation
Azuma Machinery Co., Ltd.

Mitsui Zosen Plant Engineering Inc.
Mitsui Zosen Environment Engineering Corporation
Sanzo Yuki Recycle K.K.
Hamamatsu Green Wave Co., Ltd.
Green Power Ichihara Co., Ltd.
Betsukai Biogas Power Co., Ltd

Corporate Management Divisions etc.

Tohoku Office
Chubu OfficeKansai Office
Head Office

Kure Branch Office

Makuhari Center Office

Chugoku Office

Showa Aircraft Industry Co., Ltd.

Kyushu Office
Fukuoka Design Office

Mitsui Zosen Systems Research Inc.
MES Facilities Co., Ltd.

Chiba Works

Higashi Kyushu Office

Shareholding situation by each category of shareholders (As of March 31, 2016)
Corporations otherthan financial
institutions or
stock companies
10.8％

Stock companies
2.2％

Foreignnationals
15.9％

Financial
institutions
40.7％

Individuals, etc.
30.4％

Yura Ship Repair Dept

Oita Works

Tamano Works
The total number of shareholders 66,543
Category

Number ofshareholders

Financial institutions

Okinawa Office

Number of
Shares Held

Shareholding
Ratio (%)

73

338,521,252

40.7

Individuals, etc.

65,614

252,867,246

30.4

Foreign nationals

306

131,825,533

15.9

Corporations other than financial
institutions or stock companies

478

89,428,467

10.8

Mitsui Zosen Europe Limited
Simon Carves Engineering Ltd.

Stock companies

72

18,344,678

2.2

TGE Marine AG
Burmeister & Wain Scandinavian Contractor A/S

Oversea Network

MES Technoservice Machinery Construction
Logistics, Industry and Trade Corporation

Major 10 shareholders (As of March 31, 2016)
Number of Shares Held(Thousand Shares)

Shareholding Ratio(%)

Japan Trustee Services Bank, Ltd. (Trust Account)

39,481

4.88%

The Master Trust Bank of Japan, Ltd. (Trust Account)

35,701

4.41%

Hanoi Representative Office

Japan Trustee Services Bank, Ltd. (Trust Account 9)31,396

3.88%

Mitsui & Co., Ltd.

25,500

3.15%

MES Technoservice Middle East WLL.
Mitsui Thanglong Steel Construction Co.,Ltd.

The 114th Bank

25,4603.15%(Trust Account for the retirement allowance for Sumitomo Mitsui Trust Bank, Limited)

23,3162.88%

Mitsui Life Insurance Company, Limited

16,000

1.97%

Trust & Custody Services Bank, Ltd. (Trust Account for securities investment)

NameJapan Trustee Services Bank, Ltd.

82

Beijing Representative Office

15,651

1.93%

Japan Trustee Services Bank, Ltd. (Trust Account 4)

14,7901.82%

Mitsui Sumitomo Insurance Company, Limited

13,647

1.68%

MES Mitr Project Service Co.,Ltd.
MES (Thailand) Ltd.

Shanghai Hudong Sanzo Marine Machinery Co., Ltd.
Mitsui Zosen(Shanghai) Co., LTD.
CSSC-MES Diesel Co., Ltd.
MES Ferrotec China Co.,Ltd.
PACECO Corp.
MES Technoservice (Shanghai) Co., Ltd.
Mitsuizosen Technoservice Taiwan Co.,Ltd.
Mitsuizosen Technoservice HongKong Ltd.
DASH Engineering Philippines Inc.
Mitsui Engineering & Shipbuilding Asia Pte. Ltd.
AZUMA Engineering (S) Pte. Ltd.
Jakarta Representative Office

Engineers and Constructors
International,Inc.
MODEC International, Inc.

http://www.mes.co.jp/
1608FR12SCOP