Annual Report
2017
Year Ended March 31, 2017

Masayoshi Matsumoto

Osamu Inoue

Chairman & CEO

President & COO

Contents
01 Message for the 120th Anniversary

18

Expanding Business on the World Stage

02 Profile and History

20

Research & Development

04 Financial Highlights

22

11 Review of Operations
12

34

Consolidated Statements ofIncomeDirectors, Audit & Supervisory Board
Members and Executive Officers

36

Consolidated Statements of
Changes in Net Assets

24

Corporate Governance

38

Automotive

27

Compliance

Consolidated Statements ofCash Flows

Infocommunications

28

Risk Management40

13Notes to Consolidated
Financial Statements

14Electronics

29

65

Independent Auditor’s Report

15

Environment and Energy

Five-Year Financial Dataand Indexes

History

Industrial Materials and Others

Management’s Discussion
and Analysis

66

16

30

67

Company Information

32

Consolidated Balance Sheets

06 To Our Stakeholders

17 Topics

Forward-Looking Statements
This presentation material contains various outlook and perspective information derived from our own presumptions and judgements based on currently available information on conditions
and prospects of each market and economic circumstances such as currency exchange rate fluctuations. All figures and statements with respect to the future performances, projections, andbusiness plans of Sumitomo Electric and its affiliated companies are constituted by the aforementioned outlook and perspective information.
Factors that could cause actual results to differ materially include but are not limited to:
1. Market and economic conditions in the U.S., Europe, Japan and other Asian countries, especially increases and decreases in personal consumption and capital expenditures.
2. Fluctuations in currency exchange rates, especially between the Japanese yen and the U.S. dollar, the euro and Asian currencies.
3. The ability of Sumitomo Electric and its affiliated companies to cope with rapid technological developments.

Sumitomo Electric Industries, Ltd. celebrates its 120th anniversary this year. The
Company would like to express its sincere appreciation to customers and all other parties
concerned for their long-term support, which has enabled the Company to continue tooperate for so many years.
The Company's history dates back to April 1897, to the establishment of Sumitomo
Copper Rolling Works. Originating from the manufacture of electric wire and cable, theCompany, including its group companies, has steadily expanded the field of operations
over the years. While promoting diversification of operations starting from around 1960,
and then globalization, and by making unwavering efforts to achieve technologicaldevelopments, the Company has been extensively contributing to the development andprogress of society not only in Japan but also in other parts of the world.
As a company that underpins the social infrastructure and people's daily lives,
Sumitomo Electric continues to accommodate new needs generated by social change
through the innovation and integration of the wide variety of products and technologicalassets accumulated so far. The Company continues to demonstrate ingenuity in creating
excellent, original technologies, thereby contributing to society.

4. Changes in financial, management, environmental and other assumptions.
5. Current and future laws and regulations in other countries involving trade and other activities.
6. Changes in the market value of securities owned by Sumitomo Electric and its affiliated companies.
There are possibilities that actual sales and profits may be materially different from those described in this material. Sumitomo Electric and its affiliated companies are not obliged to update or
make public any future performances, projections or business plans after releasing this material.

SUMITOMO ELECTRIC Annual Report 20171

Profile and History
Since being founded in 1897, the Sumitomo Electric Group has built a strong history over these 120 years. In
keeping with the Sumitomo business spirit, we have always pursued the most advanced technology that
underpins the foundations of society and industry in every era, and have provided support for the development ofmodern Japan. Today, the fields in which we are active span the globe, and we are using our capabilities to help
resolve such issues as the rapid urbanization of emerging countries and we provide increasingly sophisticated1890s1890 s1920 sIn 1897, Sumitomo Electric is founded as Sumitomo Copper Rolling
Works, marking the beginning of the Company’s history. The
Company began by manufacturing copper electric cables,
contributing toward the development of domestic production ofhigh-voltage underground power transmission cables, which had all
been imported up to that time.

In 1922, the Company succeeded in manufacturing and laying asubmarine cable from Niihama in Ehime Prefecture to Shisakajima.
At 21 km, it was the longest cable of its type in the world. Buffeted
by violent storms, the cable used in this difficult project was dogged
by faults caused by dropping resistance in the insulation andrequiring repeated repairs.

Photo by courtesy of Sumitomo Historical Archives

Photo by courtesy of Sumitomo Historical Archives

1900s

1910s

1920s

1930s

1950s

1910 s1930 sDevelops contact wires. The first generation of this product was
supplied in 1916 to the City of Tokyo, the present-day Tokyo
Metropolitan Government. Since then, in addition to supplying
domestic railways, the Company also supplied the entire Taiwan
High Speed Rail network, which began operating in 2007. In thisway, we contribute to the development of the railways that are
indispensable for daily life.

1930 saw the start of the Research Division, and the developmentof new products accelerated. The product lineup of the current
mainstay businesses of the Group were built on technology born at
this time.

IGETALLOY TM cemented carbide tools

2

1940s

SUMITOMO ELECTRIC Annual Report 2017

Special steel wire

infrastructure in developed countries, as we are called upon to make a broader contribution to social progress.
The strength of our Group lies in a deep understanding of customer needs across a wide range of industries,
including automotive, information technology, electronics, environmental energy and industrial materials, and indrawing together and providing solutions for these industries. We manifest this strength through repeated effort
and innovation to remain a vital presence for all our stakeholders around the world.

1960 s1980 s2010 sIn 1969, we began making flexible printed
circuits (FPCs). This technology made asignificant contribution to the spread of
portable electronic devices, such as modern
smartphones and notebook PCs.

In 1982, the Company succeeded in the
single-crystal synthesis of a diamond with adiameter of 6 mm (1.2 carats). It was listed
in the 1984 edition of the Guinness Book ofRecords as the world’s largest synthetic
diamond. In 1989, we began volume
production of large single-crystal synthetic
diamonds of around 1 cm.

The electric wiring used in wire harnesses incars is typically made of copper because of its
superior conductivity, but the Group developed
new aluminum alloy wires that have the same
conductivity, though only half the weight. The
aluminum harnesses made from these wires
were positively received by both domestic andoverseas auto manufacturers, and have now
been adopted for a large number of models,thus contributing to reduced vehicle weights
and cost.

1960s

1970s

1980s

1990s

1970 s
A communication network project in Nigeria that was awarded to theCompany by the Nigerian Ministry of Communications in 1976 wasat that time unprecedented anywhere in the world: the largest urban
telephone network construction work order taken on by a single
company. Three-hundred Japanese employees and 2,000 local
people worked on this project, which took 11.5 years to go fromorder to completion.

2000s

2010s

Recently

Recently
We continue to move ahead with projects that supportsocial infrastructure both in Japan and overseas, including
the manufacture of cables linking Montenegro with Italy anddemonstration tests performed jointly with Hokkaido ElectricPower Co., Inc. at the Minami Hayakita substation for oneof the world’s largest redox flow battery installations, andwork by the Company and subsidiary J-Power Systems
on the design, manufacture, cable laying, servicing
and maintenance of a transmission cable systemproviding unbroken links between the UK
and Belgium.

SUMITOMO ELECTRIC Annual Report 20173

Overview

Financial Highlights
Overview

Sumitomo Electric Industries, Ltd. and Consolidated Subsidiaries
Thousands of
U.S. dollars

Millions of yen

FY2016FY2015FY2014FY2013

FY2012FY2016

Mar. 31, 2017

Mar. 31, 2016

Mar. 31, 2015

Mar. 31, 2014

Mar. 31, 2013

Mar. 31, 2017

¥2,814,483¥2,933,089¥2,822,811¥2,568,779¥2,159,942$25,086,755

Operating income

150,503

143,476

134,457

120,058

76,7901,341,501

Profit before income taxes

167,792

154,859

167,067

123,833

84,084

1,495,606

Profit attributable to owners of the parent

107,562

91,001

119,771

66,74837,955

958,749

Capital expenditures*1

183,693

167,282

148,213150,823

147,883

1,637,338

Depreciation and amortization

134,532

134,371

126,663

113,271

90,6291,199,144

R&D expenses

115,155

110,839

105,604

99,52094,287

1,026,428¥2,903,584¥2,742,848¥2,925,785¥2,554,819¥2,297,567$25,880,952

510,989

457,145

550,839

534,641

485,569

4,554,675

1,626,502

1,561,289

1,646,913

1,379,912

1,244,695

14,497,745

Net cash provided by operating activities¥209,233¥240,779¥153,509¥147,705¥124,849$1,864,988

Net cash used in investing activities(194,829)(117,387)(86,888)(174,102)(172,066)(1,736,599)(4,763)(115,912)(64,037)

113

64,922(42,455)

For the Year:Business Review

Net sales

At Year-End:Total assets
Total interest-bearing liabilities
Total net assets*2

Basis for Growth

Cash Flows:

Net cash provided by (used in) financing activities

Yen

FY2016FY2015

U.S. dollars

FY2014FY2013

FY2012FY2016Per Share Data:
Profit attributable to owners of the parent*3 : Basic¥137.61¥114.73¥151.00¥84.15¥47.85$1.227

Diluted137.24

—

—

—

—

1.223

40.00

35.00

30.00

22.00

20.00

0.357

1,814.90

1,715.28

1,804.34

1,499.76

1,352.09

16.177

5.3

4.9

4.8

4.7

3.6

Profit attributable to owners of the parent/net sales (%)

3.8

3.1

4.2

2.6

1.8

Operating income/invested assets (ROA) (%)

7.2

6.8

6.5

6.6

4.8

Return on owner’s equity (%)

7.7

6.5

9.1

5.9

3.7

Owner’s equity ratio (%)

48.7

49.6

48.9

46.6

46.7

Current ratio (Times)

1.7

1.8

1.7

1.6

1.7

R&D expenses/net sales (%)

4.1

3.8

3.7

3.9

4.4

Financial Information

Cash dividends*4
Owner’s equity*5

Financial Indexes:
Operating income/net sales (%)

Corporate Information*6

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at the rate of ¥112.19 to U.S. $1.00,
the approximate exchange rate prevailing on March 31, 2017.
*1 Capital expenditures are recorded as property, plant and equipment.
*2 See page 50.
*3 From the year ended March 31, 2014 to the year ended March 31, 2016, there were no potential common shares.
For the year ended March 31, 2013, there were no dilutive potential common shares.
*4 Cash dividends per share for the year ended March 31, 2017 include 2 yen as commemorative dividends for the 120th anniversary.
*5 Owner’s equity is the sum of total shareholders’ equity and total accumulated other comprehensive income.
*6 Invested assets = Total assets - interest-free liabilities

4

SUMITOMO ELECTRIC Annual Report 2017

Operating Income /Operating Income Ratio(Billions of yen)

Profit Attributable to Ownersof the Parent(Billions of yen / %)2,823

2,933 2,814

2,160

3.6

143

134

120

(Billions of yen)

5.3

4.9

4.8

4.7

2,569

Overview

Net Sales

120

151

108
91
67
Business Review

77
38

2012

2013

■ Automotive■ Infocommunications■ Electronics

2014

2015

2016 (FY)■ Environment and Energy■ Industrial Materials and Others■ Eliminations

Invested Assets / ROA

2012

2013

2014

2015

2016 (FY)

2013

2014

2015

2016 (FY)■ Operating Income● Operating Income Ratio

Owner’s Equity /Return on Owner’s Equity(Billions of yen / %)2012

Free Cash Flows(Billions of yen)

2,198 2,018
1,915
6.5
6.8
6.6

2,137
7.2

1,431

1,361
9.1

1,190

4.8

123

1,416
7.7

1,072

1,730

Basis for Growth(Billions of yen / %)

67

6.5

5.9

14
3.7

–26
–47
2013

2014

2015

2016 (FY)■ Invested Assets
● ROA

2012

2013

2014

2015

2016 (FY)

2012

2013

2014

2015

2016 (FY)

Financial Information

2012■ Owner’s Equity● Return on Owner’s Equity

Capital Expenditures

R&D Expenses(Billions of yen)(Billions of yen)

Basic Profit Attributable to Ownersof the Parent per Share
(yen)

184
167
148

151

94

148

100

106

111

115
151.00137.61
Corporate Information

114.73
84.15
47.85

2012

2013

2014

2015

2016 (FY)

2012

2013

2014

2015

2016 (FY)

2012

2013

2014

2015

2016 (FY)SUMITOMO ELECTRIC Annual Report 20175

Business Review

Financial Information

Basis for GrowthBusiness Review

Overview

To Our Stakeholders

Corporate Information

Osamu Inoue President & COO

6

SUMITOMO ELECTRIC Annual Report 2017

Overview

although a moderate recovery trend continued in general,the business climate remained unpredictable, mainly due
to the increasing uncertainty triggered by the UK’s
decision to withdraw from the EU and the inauguration of

Net Sales / Operating Income(Billions of yen)

Automotive
Infocommunications
Electronics
Environment and Energy
Industrial Materials and Others
Eliminations

Business Review

When looking at the global economy for FY 2016,

the new administration in the United States, as well as
concerns over the slowdown in the growth of emerging
economies. At the same time, the Japanese economy

Net Sales

Net Sales

1,502.4

1,493.7

Net Sales

1,439.4

Operating
Incomealso came to a standstill, mainly because of sluggish

90.6

consumer spending.

Operating
Income103.4

Net Sales

1,312.1

Now that I have assumed the position of president inthis very obscure and uncertain time, I am feeling how
Basis for Growthh e a v y m y r e s p o n s i b i l i t y i s . H o w e v e r, C h a i r m a n
Matsumoto continues to be involved in the managementof the Sumitomo Electric Group, and I will dedicate

Operating
Income52.9

Operating
Incomemyself wholeheartedly to the Group’s development in

47.1

compliance with the Sumitomo Spirit with over 400 yearsof history.
I would like to ask all of you at the Group to continue
offering your generous cooperation and support.

Financial Information

The business environment surrounding the Sumitomo
Electric Group was severe. The demand for someproducts, such as automotive wiring harnesses, opticalfiber cables, and optical and electronic devices, wassteady especially outside Japan. However, we wereconsiderably affected by the decline in demand forappreciation of the yen, and the decline in copper prices.

1st half

2nd half

1st half

2nd half

FY2015 Results

FY2016 Results

For the year ended Mar. 31, 2016

For the year ended Mar. 31, 2017

Corporate Information

flexible printed circuits (FPCs) for mobile devices, the

SUMITOMO ELECTRIC Annual Report 20177

Business Review

Overview

To Our Stakeholders

Under these circumstances, our business results on aconsolidated basis for FY2016 were as follows: net salesof 2,814,483 million yen (previous fiscal year: 2,933,089
Business Review

million yen, down 4.0%); operating income of 150,503
million yen (previous fiscal year: 143,476 million yen, up
4.9%); ordinary income of 173,872 million yen (previous
fiscal year: 165,658 million yen, up 5.0%); and profit
attributable to owners of the parent company of 107,562
million yen (previous fiscal year: 91,001 million yen, up
18.2%). Although net sales decreased from the previous
fiscal year, each of the income items marked an increase
from the previous fiscal year as a result of our cost

Basis for Growth

reduction efforts as well as development and sales

Financial Information

expansion of new products.

FY2017 Forecast
Billions of yen

FY2016 Results

1H Forecast (1)2H Forecast (2)Year Total (1)+(2)¥ 2,814.5¥ 1,400¥ 1,600¥ 3,000

Operating income

150.5

65

110

175

Ordinary income

173.9

9

11

20

(29)

(51)

(80)

45

70

115

Net sales

Corporate Information

FY2017

Net extraordinary loss

(5.9)

Profit before income taxes

167.8

Income taxes, loss attributable to non-controlling interests*(60.2)

Profit attributable to owners of the parent*

107.6

Note: The assumed average exchange rate for FY2017 is ¥110 against the U.S. dollar. The exchange rate was ¥108.34 for FY2016.

8

SUMITOMO ELECTRIC Annual Report 2017

Overview

become a global comprehensive components

access network equipment, thereby aiming to further

manufacturer. To this end, we will accelerate ourincrease our profitability.

development and sales expansion of durable, high-In our electronics-related business, we recorded

strength aluminum wiring harnesses, which will contributesluggish business results in FY 2016 in the field of FPCs

to weight reduction in automobiles; high-voltage wiring

for mobile devices, mainly due to shrinking demand andharnesses for environment-friendly automobiles; andintensified competition, as well as the delay in the launch

electronic equipment and high-speed communicationof new products. However, while committing ourselves toconnectors for the increasingly complicated andthorough quality improvement, cost reduction, and sales

sophisticated electronic control systems.

expansion on a global scale, we will strengthen ourMoreover, while striving to increase our share of

profitability by leveraging the integrated capabilities of themarkets targeting overseas customers, we will focus on

Sumitomo Electric Group to develop new products withfurther cost reductions. At the same time, Sumitomo Rikoadvanced features, such as increased high-definition,Co., Ltd. will take advantage of the production bases,

ultra-thinness, or high heat-resistance, and to grow oursales channels, technologies, and other assets that thebusiness in the in-car product market. Furthermore, incompany has obtained by acquiring an overseas

the field of electronic wires and irradiated tubes, we willbusiness in the field of anti-vibration rubber and hoses foralso accelerate our efforts on a global scale to reinforce

automobiles to expand sales on a global basis andproduction and expand sales.

improving profitability.

In our business related to the environment and energy,
last November, we concluded a long-term agreementwith the Saudi Arabian national oil company, Saudi

continue to catch steady overseas demand for opticalArabian Oil Company regarding submarine power cables.

fiber cables, 100 Gbps high-speed optical devices, andIn addition, this March, we agreed to cooperate with thegallium nitride (GaN) devices for mobile base stations. In

German company Siemens for high-voltage direct current

addition, we will make further efforts to expand the sales

transmission. By combining advanced technologies,

of ultra-low-loss optical fibers for submarine cables, ultra-

such as the company’s converters and our high-voltage

high-fiber-count optical cables used in data centers, anddirect current power cables, we will provide optimized

intelligent transport systems. We will also continue tosolutions for our customers, thereby accelerating sales

Corporate Information

In our infocommunications-related business, we will

Financial Information

continue to reinforce the business structure, thereby

Business Review

focus on the sales expansion of new products related toBasis for Growth

In our automotive-related business, we are aiming to

SUMITOMO ELECTRIC Annual Report 20179

Business Review

Overview

To Our Stakeholders

expansion on a global scale. Moreover, we will continue
to improve our profitability through cost reductions andBusiness Review

reinforce our product quality. We will also continue toexpand the sales of flat magnet wires for motors andporous metals for batteries used in environmentallyfriendly vehicles, and work in cooperation with Nissin
Electric Co., Ltd. and Sumitomo Densetsu Co., Ltd., toexpand the business related to renewable energy andsmart grids.
In our business related to industrial materials, lastSeptember, we acquired the major U.S. sintered powder

Basis for Growth

metal parts manufacturer, Keystone Powdered Metal
Company. Through this acquisition, we will strive toimprove our presence in the sintered powder metal parts
business in the United States and win many more global
business opportunities. For cemented carbide tools, wewill work hard, more than ever before, to capture demandin the markets of emerging economies such as China,
Taiwan, and India, and continue to reinforce our raw
materials procurement system. In addition to the main
Financial Information

automotive field, we will accelerate our efforts to develop
new products and expand sales in the fields of aircraft
and precision processing, which are expected to grow in
the future. Furthermore, we have also committed
ourselves to expansion of our global production systemand sales in the fields of prestressed concrete steel andspring steel wire.

Corporate Information

August 201710

SUMITOMO ELECTRIC Annual Report 2017

Osamu Inoue
President and COO

Business Review

Review of Operations
Net Sales

Business Overview

Main Products

Net sales

The Sumitomo Electric Group isa global supplier of wiring
harnesses and anti-vibration
rubber, as well as safe,
comfortable and environmentfriendly automotive components
and systems.

• Wiring harnesses• Anti-vibration rubber• Automotive hoses• Car electrical equipment

Building on its communication cabletechnologies accumulated for more than
100 years, the Sumitomo Electric Groupsupplies products and systems that
support today’s Internet services such as
optical fiber cable, opto-electronic
devices, gigabit Ethernet-passive optical
network (GE-PON), and other devices.
We also supply traffic control systems
and other systems drawing on our
telecoms expertise and portfolio ofcontrol technologies.

• Optical ﬁber cables• Telecommunication cables
and equipment• Fusion splicers• Optical/wireless devices suchas optical transceivermodules/wirelesscommunication devices• Network system products
such as access network
equipment (GE-PONs,
content delivery networks,
CATV-related products,
traﬃc control)• Compound semiconductors

Using its proprietary materials
technologies, the Sumitomo
Electric Group supports theincreasing use of electronics
devices in society through adiverse range of products suchas electronic wires, flexible
printed circuits, other highly
functional wiring materials andfluorine resin products.

• Electronic wire products• Metallic material forelectronic parts• Electric-beam irradiation
products• Flexible printed circuits• Fluorine resin products• Micro ﬁltration membrane
moduleSince its inception, theSumitomo Electric Group has
helped underpin modern daily life
through its energy transmission
businesses, supplying products
such as cables for power
distribution, railway trolley wires,and wire coils used in home
appliances, automobiles, andother applications.

• Electric conductors• Power transmission
wires/cables/equipment• Magnet wires• Air cushions for railroad
vehicles• Power systems• Equipment such as substationequipment/control systems• Charged beam equipment
and processing• Electrical/power supply workand engineering, porous
metalsThrough the manufacture ofelectric wire and cable, theSumitomo Electric Group has
developed and built up
proprietary technologies andproducts that underpin industry
and society. Its cutting tools havecontributed to greater efficiency
in manufacturing and its sinteredparts and special metal wires areused in automotive and a wide
range of other industrial fields.

• Tensioning materials forprestressed concrete• Precision spring steel wires,
steel tire cords, cemented
carbide tools• Diamond and CBN tools,
laser optics, sintered powder
metal parts• Semiconductor heatspreader
materials• Grinding tools• Tungsten and molybdenummaterials• Heat sinks¥1,513.2

Share of net sales

Net sales¥198.2

Infocommunications

billionShare of net sales

7%

Net sales¥251.1

Electronics

billionShare of net sales

8%

Net sales¥621.4

Environment
and Energy

billionShare of net sales

22%

Net sales¥303.9Industrial Materials
and Others

Share of net sales

10%

billion

SUMITOMO ELECTRIC Annual Report 2017

Business Review%

Basis for Growth53

Financial Information

Automotive

billionCorporate Information

Segment

Overview

Sumitomo Electric operates in five segments: Automotive, Infocommunications, Electronics, Environment andEnergy, and Industrial Materials and Others businesses.

11Automotive

Net Sales

Operating Income
and Operating Income Ratio

R&D Expenses
and Capital Expenditure(Billions of yen)(Billions of yen / %)(Billions of yen / %)Wiring Harnesses
Others

1,351

R&D Expenses
Capital Expenditure

Operating Income
Operating Income Ratio

1,488 1,542 1,513

89

99

89

88

5.3

2013

2014

2015

2016 (FY)

76

6.5

72

2013

6.0

2014

5.7

2015

2016 (FY)

76

62

64

68

2013

2014

2015

71

77

2016 (FY)

Performance in FY2016 and forecast for FY2017
As a result of capturing demand from the growth in adoption of wiring harnesses, automotive electronic parts and anti-vibration rubber in
new models, sales volumes rose overseas, particularly in China. On the other hand, net sales were hit by the stronger yen and the fall incopper prices, declining by ¥28.8 billion (1.9%) year on year to ¥1,513.2 billion. Operating income came in at ¥98.6 billion, rising ¥9.9
billion (11.2%) year on year owing to progress made in cost reductions at global production bases, which offset the impact of thestronger yen. For FY2017, we forecast net sales of ¥1,550 billion and operating income of ¥93.0 billion.

Net sales
FY2016 result¥1,513.2 billion

FY2017 target¥1,550.0 billion 2.4%

UP

Operating income
FY2016 result¥98.6 billion

FY2017 target¥93.0 billion 5.7%

DOWN

Initiatives in FY2017(1) Development of high-strength aluminum wiring harnesses, high-voltage wiring harnesses for environmentally friendly
vehicles, connectors for high-speed communication, and electric components for EVs and automatic driving systems(2) Further sales promotion to overseas customers and cost reduction(3) Global sales promotion by accelerating contribution of the company purchased by Sumitomo Riko Company Limited.

12

SUMITOMO ELECTRIC Annual Report 2017

Infocommunications

Net Sales

Operating Income
and Operating Income Ratio

R&D Expenses
and Capital Expenditure(Billions of yen)(Billions of yen / %)(Billions of yen / %)Operating Income
Operating Income Ratio

Fiber∙Cable / Accessories
Optical & Electronic Devices
Access Network Equipment
OthersR&D Expenses
Capital Expenditure

24
10.8

165

172

185

22

198
6.4

13

12
-1

15

17
14

17
13

9

2.2
4

-0.7
2013

2014

2015

2016 (FY)

2013

2014

2015

2016 (FY)

2013

2014

2015

2016 (FY)

Performance in FY2016 and forecast for FY2017
Although the segment was affected by the strong yen, demand for optical fiber cable and for optical and electronic devices grew
primarily in overseas markets, including China and the US, leading to net sales of ¥198.2 billion, an increase of ¥13.6 billion (7.3%) year
on year. Operating income was ¥21.5 billion. In addition to growing demand, improved profitability stemming from the capture of demandfor optical fiber used in data centers, and progress in cost reductions led to an increase in profit of ¥9.6 billion. For FY2017, we forecast
net sales of ¥250.0 billion and operating income of ¥24.0 billion.

Net sales
FY2016 result¥198.2 billion

FY2017 target¥250.0 billion 26.1%

UP

Operating income
FY2016 result¥21.5 billion

FY2017 target¥24.0 billion 11.6%

UP

Initiatives in FY2017(1) Capturing steady demand for optical fiber cables, 100G optical devices, and GaN devices to be used at mobile basestations(2) Sales promotion of optical fibers for submarine cables and ultra-high-fiber-count optical cables for data centers.

SUMITOMO ELECTRIC Annual Report 201713

Electronics

Net Sales

Operating Income
and Operating Income Ratio

R&D Expenses
and Capital Expenditure(Billions of yen)(Billions of yen / %)(Billions of yen / %)263

R&D Expenses
Capital Expenditure

Operating Income
Operating Income Ratio

FPCs
Semiconductors
Fine Polymer
Electronic Wires
Others

34
292

312

29

10
251

5

5
2.0

1.9

3.3
15

12
-4.4

5

4

-11
2013

2014

2015

2016 (FY)

2013

2014

2015

2016 (FY)

2013

2014

3

3

2015

2016 (FY)

Performance in FY2016 and forecast for FY2017
Although the sales volume of electronic wires increased as a result of the development of new sources of demand, demand for FPCs formobile devices declined and sales volume fell due to delays in starting production of new products. Price competition intensified, andthe strong yen also had an effect. As a result, net sales were ¥251.1 billion, down ¥60.9 billion (19.5%) year on year. The operating loss
was ¥10.9 billion, with worsening profitability caused in part by the fall in FPC production volumes, contributing to a drastic deteriorationof ¥21.1 billion. For FY2017, we forecast net sales of ¥240.0 billion and operating income of ¥5.0 billion.

Net sales
FY2016 result¥251.1 billion

FY2017 target¥240.0 billion 4.4%

DOWN

Operating income
FY2016 result¥(10.9) billion

FY2017 target¥5.0 billion 145.8%

UP

Initiatives in FY2017(1) Further global quality improvements and cost reduction for FPCs by utilizing all resources(2) Development of ultra-thin, fine-pitch, and high-temperature resistant FPCs and expansion of automotive business

14

SUMITOMO ELECTRIC Annual Report 2017

Environment and Energy

Net Sales

Operating Income
and Operating Income Ratio

R&D Expenses
and Capital Expenditure(Billions of yen)(Billions of yen / %)(Billions of yen / %)Operating Income
Operating Income Ratio

Copper Wire Rods
Electric Power Cables
Magnet Wires & Others
Sumitomo Densetsu
Nissin Electric

R&D Expenses
Capital Expenditure

24
564

637

660

621

14
2.1

2013

2014

2015

2016 (FY)

2013

27

21

4.3

2014

3.3

13
2.0

2015

2016 (FY)

24

20

18
13

14

15

16

2013

2014

2015

2016 (FY)

Performance in FY2016 and forecast for FY2017
Due to the fall in copper prices, net sales were ¥621.4 billion, declining ¥38.1 billion (5.8%) year on year. Despite a loss posted due to thecorrection of inappropriate accounting for previous fiscal years at an overseas subsidiary of Sumitomo Densetsu Co., Ltd., cost reductions in
the production of electric power cables, demand captured by Nissin Electric Co., Ltd. for its ion implanter used in the manufacture of highdefinition small and medium-sized flat panel displays, as well as progress made in improving profitability, led to a rise in operating income of¥7.4 billion (55.2%) year on year to ¥20.8 billion. For FY2017, we forecast net sales of ¥710.0 billion and operating income of ¥24.0 billion.

Net sales
FY2016 result¥621.4 billion

FY2017 target¥710.0 billion 14.3%

UP

Operating income
FY2016 result¥20.8 billion

FY2017 target¥24.0 billion 15.3%

UP

Initiatives in FY2017(1) Acceleration of power cable sales through promotions to meet high demand in the overseas submarine power cable
market, execution of large projects (already on hand) without delay, establishment of production systems to increase
production capacity, and enhancement of cost and quality competitiveness.
(2) Business expansion in new energy and smart grid markets in cooperation with Sumitomo Densetsu and Nissin Electric.
(3) Acceleration of development and demonstration of new energy system related products targeting at domestic andoverseas markets. (Redox flow batteries, CPV systems, etc.)

SUMITOMO ELECTRIC Annual Report 201715

Industrial Materials and Others

Net Sales

Operating Income
and Operating Income Ratio

R&D Expenses
and Capital Expenditure(Billions of yen)(Billions of yen / %)(Billions of yen / %)Operating Income
Operating Income Ratio

Special Steel Wires
Sintered Parts
Hard Metal
A.L.M.T.
Others

303

317

312

304

R&D Expenses
Capital Expenditure

23

21

7.2
6.8

2013

2014

2015

2016 (FY)

2013

19

20
6.2

2014

2015

24

6.7

2016 (FY)

24

25

22

8

8

8

8

2013

2014

2015

2016 (FY)

Performance in FY2016 and forecast for FY2017
Due to the effects of the strong yen and other factors, net sales declined by ¥8.2 billion (2.6%) to ¥303.9 billion. As a result of suchfactors as the removal in the fiscal year under review of the mark-to-market valuation loss on raw materials recorded by A.L.M.T. Corp. in
the previous fiscal year resulting from falling prices for tungsten and molybdenum, and the progress made overseas in cost reductions
for steel tire cords that led to improvements in profitability, operating income rose ¥1.3 billion (6.5%) year on year to ¥20.5 billion. For
FY2017, we forecast net sales of ¥340.0 billion and operating income of ¥29.0 billion.

Net sales
FY2016 result¥303.9 billion

FY2017 target¥340.0 billion 11.9%

UP

Operating income
FY2016 result¥20.5 billion

FY2017 target¥29.0 billion 41.5%

UP

Initiatives in FY2017(1) Acceleration of global deployment for sintered parts through the purchased US company, Keystone Powdered Metal
Company(2) Establishment of new business models centering material technology
Hard Metal: Sales expansion to aircraft and precision processing markets as well as such emerging economies as
China, Taiwan, and India.
Allied Material: Intensive cost reduction and concentration of resources in growing areas
Prestressed Concrete Steel wire and Steel Wire for Springs: Sales and production promotion to the US, Indonesia,
and other countries.

16

SUMITOMO ELECTRIC Annual Report 2017

Topics
J-Power Systems Saudi Concludes Long-Term Supply Agreementwith Saudi Arabian Oil Company for Submarine Power Cables
J-Power Systems Saudi Co., Ltd. (JPS Saudi), a submarine power cable manufacturer located in the Kingdom of Saudi
Arabia (KSA), has concluded a long-term supply agreement (LTA) with the Saudi Arabian Oil Company (Saudi Aramco), thelargest oil company in the world. Under the agreement, JPS Saudi, a subsidiary of J-Power Systems, Inc. (JPS), itself asubsidiary of Sumitomo Electric, will provide submarine power cables, accessories and services for offshore platforms.
Saudi Aramco requires contracted vendors and suppliers to strictly comply with Saudi Arabian Government policies andguidelines, including localization and Saudization. In full compliance with the standards and regulations of Saudi Aramco,
JPS Saudi concluded the LTA to supply "Made in KSA" submarine power cables with the same quality and reliability asJapanese-made cables with more timely delivery.

Sumitomo Electric Acquires Keystone, a US Powdered
Metal Component Manufacturer
Sumitomo Electric has decided to acquire Keystone Powdered Metal Company,
a US manufacturer of powdered metal components, which is headquartered in
Pennsylvania, USA. The powdered metal components business of theSumitomo Electric Group has expanded globally from Sumitomo Electric
Sintered Alloy Ltd. as the mother plant, and supplies a variety of products
primarily to Japanese manufacturers of cars, air conditioners, and automotive
components. This acquisition will enable us to expand sales networks for US
car manufacturers and auto parts manufacturers, enhance our presence in the
United States and capturing further business opportunities.

SUMITOMO ELECTRIC Annual Report 201717

Business Review

The Sumitomo Electric Group is expanding marketing bases and optimally reconfiguring production bases around theworld to respond more precisely to growing global demand driven by emerging economies. As a result, sales of theCompany and its consolidated subsidiaries outside Japan (overseas sales) totaled ¥1,653.7 billion in FY2016, a
decrease of ¥92.4 billion from the previous fiscal year. Overseas sales were 58.8% of total sales on a consolidated basis,a year-on-year decrease of 0.7 percentage points.

Number of Consolidated Subsidiaries and Equity-Method Affiliates

Business Review

Overview

Expanding Business on the World Stage

394

Basis for Growth69

Financial Information

Europe andOthers(As of March 31, 2017)

163

114

48
Americas

Japan

Asia

Overseas Sales

Geographical Segment Sales(Billions of yen)Segment Information byGeographic Area
(Billions of yen)Japan
Europe and Others
Asia
Americas

Europe and Others
Asia
Americas

1,249
346

344

1,161

Corporate Information

194
806

876

2012

403

495

526

520
495
294

2013

2014

2015

2016

SUMITOMO ELECTRIC Annual Report 2017

326

293
185

(FY)

18

331

830

561

294

1,266

1,208

329

298

716

1,274

2012

671
396

2013

761
482

2014

307

818

753

516

488

2015

2016
(FY)

Overview

Americas

Sales in China decreased by ¥52.6 billion year on year to ¥479.4 billion, or 17.0% of all consolidated sales.
Sales in other Asian markets increased ¥6.8 billion to ¥350.9 billion, accounting for 12.5% of total sales on aconsolidated basis.
Sales of consolidated subsidiaries in Asia, including China, (to external customers) totaled ¥753 billion, adecrease of ¥64.1 billion from the previous fiscal year. Operating income also decreased ¥6.0 billion year on yearto ¥71.4 billion. Operating income generated in this region was 47.3% of total operating income on aconsolidated basis.

Europe and Others

Financial Information

Sales in Europe and other regions came to ¥328.7 billion, or 11.7% of total consolidated sales. This was adecrease of ¥15.0 billion compared with the previous fiscal year.
At the same time, sales of consolidated subsidiaries (to external customers) decreased ¥19.3 billion to ¥307.0
billion. Operating income was ¥5.2 billion, down ¥0.9 billion. Operating income generated was 3.5% of total
operating income on a consolidated basis.

Global Human Resource Management Policy

Corporate Information

Currently, the Sumitomo Electric Group employs around 240,000 people in diversified technological andregional occupations in over 40 countries. It is essential for us to make full use of all of our resources if weare to survive and thrive amid global competition in terms of technology, products and business model. It isalso vital to attract and mobilize highly talented employees to support our business. The Group has longemphasized the importance of human resources, as stated in the Sumitomo Spirit. In September 2011, theGroup compiled the Global Human Resource Management Policy, clearly laying down its basic humanresource policy. This policy explicitly commits Sumitomo Electric to further accelerating the globalization ofhuman resources and organizational systems and providing training for fostering global players and leadersand career opportunities regardless of nationality, race, ethnicity, religion or gender. The policy has been
widely promulgated internally and externally. We are promoting specific policies for cross-border personnel
exchanges and training, and for compiling global guidelines for personnel deployment.
Global Human Resource Management Policy Website: http://global-sei.com/ghrm/

SUMITOMO ELECTRIC Annual Report 2017

Basis for Growth

Asia

Business Review

In FY2016, sales in the Americas decreased by ¥31.6 billion year on year to ¥494.7 billion, or 17.6% of all
consolidated sales.
Sales of consolidated subsidiaries in the Americas (to external customers) declined ¥27.6 billion year on yearto ¥488 billion, while operating income decreased ¥10.0 billion to ¥24.4 billion. Operating income generated in
the region was 16.1% of consolidated operating income.

19

Basis for Growth

Overview

Research & Development
In line with our commitment in the Sumitomo Electric Group Corporate Principles to build technical expertise, realizechanges and strive for consistent growth, we focus on growing business areas and develop original businesses andnew products with strong earnings potential. Anticipating future technological needs, we are committed to identifying
and developing new research areas that will drive next-generation growth.

Business Review

In FY2016, ended March 31, 2017, consolidated R&D expenses totaled ¥115.2 billion.

R&D Expenses by Segment

Number of Patent
Applications by Region(Billions of yen)

Automotive
Infocommunications
Electronics
Environment and Energy
Industrial Materials and Others

57.9

62.1

Japan
Outside Japan

64.4

68.4

70.9
3,122

Basis for Growth

3,156

13.5

12.6

15.2

16.9

16.9

5.2
11.0
6.7

4.6
12.6

3.9

3.4

14.2

14.5

3.4
16.0

7.6

7.9

2012

2013

2014

7.6

2015

Financial Information

Innovators in 2016 by awards program sponsor Clarivate Analytics(head office: Philadelphia, USA). The Top 100 Global Innovators
Award is given to leading companies and organizations in the global
business arena that have used intellectual property rights (IPR) to
protect the idea of an original invention, and have then successfully
Corporate Information

2,511

2,412

2,588

2,888

3,248
2,205

2012

2013

2014

2015

2016
(CY)

Sumitomo Electric Receives Top 100 Global Innovators Award 2016
from Thomson Reuters

The Company was chosen as one of the Top 100 Global

commercialized it. This was the fifth time that the Company has
won one of these awards.

20

2,726

8.0

2016
(FY)

Topics

2,869

SUMITOMO ELECTRIC Annual Report 2017

Overview

TopicsSumitomo Electric Demonstrates Concentrator Photovoltaic Plant
in the Kingdom of Morocco

The Company has completed a 1-MW
concentrator photovoltaic (CPV) project
under a demonstration contract with theBusiness Review

Moroccan Agency for Sustainable Energy(MASEN). A completion ceremony was held
on November 10, 2016. The ceremony wasattended by more than 100 people from thegovernments of both countries as well asother organizations, including H.E. Mr.
Tsuneo Kurokawa, Ambassador Extraordinary and Plenipotentiary of Japan to the Kingdom of Morocco, and Mr. Mustapha Bakkoury,
President of MASEN.

Sumitomo Electric Begins Demonstration of Redox Flow Battery
for Large Battery System in California

In cooperation with the State of California
and major public utility company San Diego
Gas & Electric (SDG&E), the Company
began a demonstration project for the largest
redox flow battery system in the US. A
commencement ceremony was held at thesite in San Diego on March 16, 2017. The
Company, assigned this work by Japan’s
New Energy and Industrial Technology
Development Organization (NEDO), carried itout on NEDO's behalf. The ceremony was attended by Mr. Makoto Watanabe, NEDO Executive Director, Mr. Junji Itoh, Sumitomo
Electric Managing Director, Ms. Caroline A. Winn, SDG&E Chief Operating Officer, and Mr. Akira Chiba, the Consul General of Japan in
Los Angeles, in addition to others from governments and other organizations.

Financial Information

TopicsBasis for Growth*Official titles were current at the time.

TopicsSumitomo Electric Sets New World Recordfor Lowest Transmission Loss of Optical Fiber

For optical fiber-related equipment, the Company has been moving ahead with R&D on low-loss, low-nonlinearity optical fiber forsubmarine cables. The goal is to make further gains in speed and distance for optical fiber. The Company is also developing technology
for improved stability in mass production and other improvements. For example, in fiscal 2016 the Company set a new world record forthe lowest loss in optical fiber, which was announced at the Optical Fiber Conference (OFC) in March 2017.

SUMITOMO ELECTRIC Annual Report 201721

Corporate Information*Official titles were current at the time.

Overview
Basis for GrowthBusiness Review

Directors, Audit & Supervisory Board Members
and Executive Officers

Directors

11

9

Financial Information

14

5

7
13

1

6

8
2

10
3

12
4

1

Masayoshi Matsumoto : Chairman & CEO

8

Yoshitomo Kasui : Managing Director

2

Osamu Inoue : President & COO

9Takahiro Nakano : Managing Director

3

Fumikiyo Uchioke : Executive Vice President

10

Akira Nishimura : Managing Director

4

Mitsuo Nishida : Executive Vice President

11

Masaki Shirayama : Managing Director

5

Nozomi Ushijima : Senior Managing Director

12

Hideo Hato : Managing Director

6

Makoto Tani : Senior Managing Director

13

Kazuo Hiramatsu : Director*

7

Junji Itoh : Managing Director

14

Hiroshi Sato : Director*

Corporate Information* Mr. Kazuo Hiramatsu and Mr. Hiroshi Sato are Outside Directors.

22

SUMITOMO ELECTRIC Annual Report 2017

Overview
Business Review
Basis for GrowthManaging
Executive Officers

Executive
Officers

Satoru Ogura

Hiroyasu Torii

Yutaka Nishide

Akira Hayashi

Yasuhiro Miyata

Takashi Yoshioka

Kan Hayashi*

Toshiaki Kakii

Kikaku Tokumaru

Katsuaki Watanabe*

Tetsuya Hayashi

Saburo Narahashi

Michiko Uehara*

Kazushi Shimizu

Hiroshi Shikata* Mr. Kan Hayashi, Mr. Katsuaki Watanabe
and Ms. Michiko Uehara
are Outside Corporate Auditors.

Shigeru Nakajima

Hiroshi Iwano

Yoshihiro Matsushita

Tomoaki Nagano

Takafumi Uemiya

Takaaki Yamamoto

Kenichi Urushibata

Yasuyuki Shibata

Masahiro Kobayashi

Nobuyuki Kobayashi

Financial Information

Audit & Supervisory
Board Members

Hiroshi Kiyokawa
Yoshiyuki Ogata
Corporate Information

Soichiro Seki
Hisashi Togawa
Mitsuhiro Goto
Hiroshi Hayami
Yuichi Sano
Toshiyuki Sahashi
Masataka Inoue
SUMITOMO ELECTRIC Annual Report 201723

Basis for Growth

Corporate Information

Financial Information

Basis for GrowthBusiness Review

Overview

Corporate Governance
Basic Policy for Corporate GovernanceThe consistent basic policy of the Sumitomo Electric Group is tocontinue to make a positive contribution to society through the
pursuit of fair business practices, aligned with the Sumitomo Spirit
and the Sumitomo Electric Group Corporate Principles. Whilemaintaining this basic stance, the Group is working to ensuretransparent and fair management based on sound corporate
governance, and to determine and implement innovation-focused
growth strategies that make the most of operational resources,
recognizing that these endeavors are important for bothsustaining growth and increasing corporate value over the
medium to long term.

2. Current Framework for Internal Audits andA u d i t s b y A u d i t & S u p e r v i s o r y B o a rd
Members
The Company receives three types of audits—Audit & Supervisory
Board members’ audits, internal audits, and accounting audits—
to ensure the legality and appropriateness of its business
management. In the Audit & Supervisory Board members’ audits,
five Audit & Supervisory Board members, three of whom areoutside auditors, inspect the performance of the Board of
Directors in business execution, supported by the corporate
auditor assistants (the Office of Audit & Supervisory Board
members).

1. Overview of the Corporate Governance
System and Reasons for Adopting It

3. Outside Directors and Outside Audit &Supervisory Board Members

Sumitomo Electric chose to adopt an Audit & Supervisory Board
system since the roles of such a board and its members under
this system are clearly intended for ensuring sound management.
With the Board of Directors, executive officers, and Audit &Supervisory Board members clearly specified, the Company
intends to pursue sustainable growth and increase its corporate
value over the medium and long term according to the following
basic principles.

Sumitomo Electric has two outside directors for the purpose of
improving the supervisory function of the Board of Directors froman external standpoint, as well as increasing the transparency andobjectivity of management. To enhance its supervisory systemand ensure that management is conducted appropriately andwithin the scope of the law, the Company has three outside Audit& Supervisory Board members—the majority of its Audit &Supervisory Board members—with diverse perspectives andbroad areas of expertise.

• Under the Audit & Supervisory Board system, the Company’s
Board of Directors is responsible for making decisions on theexecution of business and supervising those operations. To
enable the Board of Directors to make sound decisions onimportant matters that could affect the future course of theCompany, and to effectively carry out its supervisory duties,
deliberations on particular matters, such as investments, arelimited to those of high importance. Management decisions are
implemented while placing importance on deliberations on themedium-term management plan and fiscal year plans, as wellas analysis of the results for each fiscal quarter.
• When carrying out its supervisory duties, the Board of Directors
pays serious attention to the opinions of independent officers,
particularly outside directors, to ensure a more independent andobjective standpoint. To help make the Board of Directors more
effective, the Company established an advisory committee
responsible for decisions regarding the nominations andremuneration of directors and executive managers, chaired byan outside director and comprised of a majority of outside
directors.

24

SUMITOMO ELECTRIC Annual Report 2017

Outside Directors
Kazuo Hiramatsu
Administrative Trustee, Kwansei Gakuin
From June 2008, Director of the Company
Reasons for election: The high degree of knowledge he has
gained as a university professor in accounting, his main field of
research, as well as his extensive experience in such areas asuniversity management as president of Kwansei Gakuin University.

Hiroshi Sato
Senior Adviser and Director, Kobe Steel, Ltd.
From June 2016, Director of the Company
Reasons for election: His extensive experience and high degreeof knowledge in all aspects of corporate management derived
from his involvement with a company engaged in a range ofbusiness domains, including materials (primarily steel), machineryand energy.

Overview

Sumitomo Electric Group’s Corporate Governance Structure

General Meeting of Shareholders

Management
Conference

Board of Directors

Audit

Audit &
Supervisory Board

President

Accounting
Audit

Audit &
Supervisory Board
Members

Business Review

Appointment / Dismissal

Accounting
Auditors

Sales Units

Affiliates inJapan and Overseas

R&D Unit

Affiliates inJapan and Overseas

Production Units

Affiliates inJapan and Overseas

Audit

Basis for Growth

Cooperation

Internal Auditing
Department

Risk Management Committee

Compliance Committee

Corporate Environment Committee

Information Management Committee

CSR Committee

Corporate Information

Corporate Staff
Group

Financial Information

Cross-Sectional Risk Management
Activity, etc.

SUMITOMO ELECTRIC Annual Report 201725

Basis for Growth

Overview

Corporate GovernanceOutside Audit & Supervisory Board Members

Business Review

Kan Hayashi
Until June 2010, CEO of PricewaterhouseCoopers Tax Japan
From June 2010, Audit & Supervisory Board Member of theCompany
Reasons for election: His specialized knowledge and experience
as a certified public accountant and licensed tax accountant,which covers the field of international taxation, in addition to his
deep insight into the global business activities of companies thathe accumulated during his practice, including corporate
acquisitions and restructuring, as well as when he lived overseas.

Katsuaki WatanabeMichiko Uehara
Attorney at Law
From June 2016, Audit & Supervisory Board Member of theCompany
Reasons for election: Her extensive experience and high degreeof knowledge in relation to corporate law, including compliance,
derived from her work in the judicial system as a judge andattorney.
The Sumitomo Electric Corporate Governance Guidelines areavailable online:
http://global-sei.com/company/governance.html

Corporate Information

Financial Information

Basis for Growth

Advisor, Toyota Motor Corporation
From June 2013, Audit & Supervisory Board Member of theCompany
Reasons for election: His extensive experience and high degreeof knowledge of all aspects of corporate management derived
from his involvement over many years with a company that
expanded its business activities globally.

26

SUMITOMO ELECTRIC Annual Report 2017

Basis for Growth

1. Compliance Manual
The Company’s Compliance Manual is a reference work with reallife examples showing employees how to behave in a sociallyacceptable way from a legal and ethical perspective. The manualis distributed not only to Sumitomo Electric employees but also to
employees of group companies in Japan.

The Sumitomo Electric Group established the Compliance
Committee, chaired by the president, as an organization that
promotes measures necessary to develop and further strengthen
its compliance system. The committee engages in various
activities, including preparing and distributing the Sumitomo
Electric Group Compliance Manual and organizing compliancetraining seminars. In addition, the committee identifies andanalyzes group-wide compliance risks, disseminates preventive
measures and monitors compliance activities implemented byeach division and subsidiary.

3. Speak-Up System
Offices have been established both in Sumitomo Electric andoutside legal offices to enable employees of group companies
and other parties to raise matters of concern to attention, allowing
the Company to discover compliance problems and to correct
them. Information offered in this way is quickly investigated by theCompliance Committee, which then takes appropriate measures.
The Speak-Up System is publicized monthly in the Company’s
internal newsletter.
4. Competition Law Compliance System
The Competition Law Compliance Office has been set up within
the Corporate Staff Group to investigate suspicious behavior
involving the Group, including cartels and bid rigging, as well as toimplement compliance education based on the Competition Law.
In partnership with dedicated organizations within each business
unit, or with the Competition Law Compliance promotion leaders,
this office manages and monitors the state of compliance basedon the Competition Law Compliance Action Guidelines, including
rules restricting contact with competitors in the same industry.

Corporate Information

Compliance Committee

2. Compliance Education
To check compliance risks, ensure implementation of preventive
measures, as well as enhance and spread awareness ofcompliance, the Compliance Committee organizes regular training
seminars for all officers and managers every year. New employees
and newly promoted personnel are also provided with training
seminars. At overseas consolidated subsidiaries, a business codeof conduct in line with local laws is being introduced along withcompliance training.

Business Review

Compliance with laws and regulations and maintenance of ourcorporate ethics form the core of Sumitomo Electric’s
management and are part of our social responsibility. At the sametime, they are the absolute foundation of the Company’s
continued existence and development. For this reason, we havelong operated a compliance system. Since the Japan Fair Trade
Commission gave Sumitomo Electric a cease and desist warning
based on the Antimonopoly Act in February 2003, the Company
has made every effort to strengthen the compliance system.

Basis for Growth

Initiatives to Deepen Awareness of Compliance

Financial Information

Basic Stance on Compliance

Overview

Compliance

SUMITOMO ELECTRIC Annual Report 201727

Basis for Growth

Basic Policy for Risk Management

Business Continuity

Sumitomo Electric has established the Risk Management
Committee, chaired by the president, to promote measures thatmitigate risks associated with business activities such as risks
related to safety, disasters, quality and the environment. A crisis
management system was formed by the Risk Management Office
to promptly and properly manage risks coming to the surface
based on our basic policy for risk management.

As part of the Company's risk management initiatives, Sumitomo
Electric developed business continuity plans (BCPs) to ensurethat important and core businesses can continue to operate evenin the event of natural disasters, pandemics and unexpected
accidents, and that we can swiftly resume operations should they
be interrupted. Since then, we have improved the plans on aregular basis. To confirm the effectiveness of the plans, we willcontinue to hold drills and training programs.

Business Review

Overview

Risk Management

Basic Policy for Risk Management

Personal Information Protection

Give top priority to ensuring quality and safety as a product and service
providerMaintain favorable relations with stakeholders, including customers,
shareholders, local communities, and employees
Ensure that compliance with laws and regulations and adherence to corporate
ethics constitute the basis of Sumitomo Electric Group's management

Basis for Growth

Honor the Sumitomo Spirit, the Sumitomo Electric Group Corporate Principles,
and the Sumitomo Electric Group Charter of Corporate Behavior

Risk
Risk Management
Management System
SystemStrengthening Our Information Security
Management System

Board of Directors

Company-wide Committees

Management Conference

Compliance Committee

Risk Management Committee

CSR Committee

Risk Management Steering Committee

Public Relations Committee

Risk Management OfficeEnvironment Committee

Corporate Staff Group

Financial Information

Risk manager

Legal, Public Relations, Accounting, Information Systems,
Procurement, Logistics, Safety & Environment,
Plant & Production Systems Engineering
Business Units, Sales Units,
Research & Development Unit
Divisions

Risk manager

Affiliates
Risk manager

Corporate Information

Risk manager

28

To protect information on individuals involved in our business suchas customers, business contacts, and employees, the Company
declares that it will observe laws and regulations relating topersonal information protection and other codes, and will establish
voluntary rules and frameworks. This is stipulated in our Personal
Information Protection Policy, which was implemented in April
2005. Through employee training programs and other means, theCompany works to develop and improve the in-house system forpersonal information management.

SUMITOMO ELECTRIC Annual Report 2017

To better manage information security, the Company drew up theInformation Security Policy in October 2003. This policy is used topromote maintenance and to improve the Group global security
management system as well as to establish security
countermeasure standards related primarily to internal information
systems, to prevent information leaks from our information
systems and for risk management. Furthermore, in October 2016,
based on the idea that maintaining a high level of security for theCompany's products is a social duty, the SEI-CSIRT Office started
operations to oversee the information security of the entire Group,working on initiatives to further strengthen the information security
management system that covers the Company's products andproduction plants.

Financial Information

Five-Year Financial Data and Indexes

FY2016FY2015FY2014FY2013

FY2012FY2016

Mar. 31, 2017

Mar. 31, 2016

Mar. 31, 2015

Mar. 31, 2014

Mar. 31, 2013

Mar. 31, 2017

Net sales¥2,814,483¥2,933,089¥2,822,811¥2,568,779¥2,159,942$25,086,755

Cost of sales

2,284,190

2,397,166

2,310,606

2,104,728

1,785,052

20,360,014

Selling, general and administrative expenses

379,790

392,447

377,748

343,993

298,100

3,385,239

Operating income

150,503

143,476

134,457

120,058

76,7901,341,501

Profit before income taxes

167,792

154,859

167,067

123,833

84,084

1,495,606

Profit attributable to owners of the parent

107,562

91,001

119,771

66,74837,955

958,749

Capital expenditures*1

183,693

167,282

148,213150,823

147,883

1,637,338

Depreciation and amortization

134,532

134,371

126,663

113,271

90,6291,199,144

R&D expenses

115,155

110,839

105,604

99,52094,287

1,026,428¥2,903,584¥2,742,848¥2,925,785¥2,554,819¥2,297,567$25,880,952

510,989

457,145

550,839

534,641

485,569

4,554,675

1,626,502

1,561,289

1,646,913

1,379,912

1,244,695

14,497,745

Business Review

Thousands of
U.S. dollars

Millions of yen

For the Year:

Overview

Sumitomo Electric Industries, Ltd. and Consolidated Subsidiaries

Total assets
Total interest-bearing liabilities
Total net assets

*2

Yen

Per Share Data:

Basis for Growth

At Year-End:

U.S. dollars

FY2016FY2015FY2014FY2013

FY2012¥137.61¥114.73¥151.00¥84.15¥47.85$1.227FY2016

Profit attributable to owners of the parent :Basic
Diluted137.24

—

—

—

—

1.223

*4

Cash dividends

40.00

35.00

30.00

22.00

20.00

0.357

*5

Owner’s equity

1,814.90

1,715.28

1,804.34

1,499.76

1,352.09

16.177Weighted average number of shares outstanding(in thousands)

781,638

793,189

793,194

793,200

793,206

Number of employees (at year-end)

248,330

240,865

240,798

225,484

206,323

Average number of temporary employees(38,168)(39,124)(34,553)(34,457)(30,317)

5.3

4.9

4.8

4.7

3.6

Profit attributable to owners of the parent/net sales (%)

3.8

3.1

4.2

2.6

1.8

Operating income/invested assets (ROA) (%)

7.2

6.8

6.5

6.6

4.8

Return on owner’s equity (%)

7.7

6.5

9.1

5.9

3.7

Owner’s equity ratio (%)

48.7

49.6

48.9

46.6

46.7

Current ratio (Times)

1.7

1.8

1.7

1.6

1.7

R&D expenses/net sales (%)

4.1

3.8

3.7

3.9

4.4

Financial Information*3

Operating income/net sales (%)*6

Corporate Information

Financial Indexes:

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at the rate of ¥112.19 to U.S. $1.00, the approximate exchange rate prevailing on March 31, 2017.
*1 Capital expenditures are recorded as property, plant and equipment.
*2 See Note 9.
*3 From the year ended March 31, 2014 to the year ended March 31, 2016, there were no potential common shares.
For the year ended March 31, 2013, there were no dilutive potential common shares.
*4 Cash dividends per share for the year ended March 31, 2017 include 2 yen as commemorative dividends for the 120th anniversary.
*5 Owner’s equity is the sum of total shareholders’ equity and total accumulated other comprehensive income.
*6 Invested assets = Total assets - interest-free liabilities

SUMITOMO ELECTRIC Annual Report 201729

Financial Information

Business Conditions in FY2016

Segment Information

In the 2016 consolidated fiscal year ended on March 31, 2017,
the overall trend of a moderate recovery in the global economy
continued. However, due to increased unpredictability — caused
by factors such as the decision of the UK to leave the EU, a newadministration in the US, and the impact of slowing growth inemerging economies — concern grew over uncertainty for the
future. Also, the Japanese economy came to a standstill due tolow consumer spending.

Automotive
Sales volumes rose overseas, particularly in China, due to ourworldwide initiatives to capture demand for wiring harnesses,
automotive electronic parts, and anti-vibration rubber to be usedin new models. On the other hand, net sales were affected by thestrong yen and a drop in copper prices, falling by ¥28.8 billion(1.9%) to ¥1,513.2 billion. Operating income came in at ¥98.6
billion, rising ¥10.0 billion year on year owing to progress made in
reducing costs at production bases around the world, which
offset the impact of the strong yen. The operating income margin
improved by 0.8 percentage points to 6.5%.

Review of Operations in FY2016
For the business environment surrounding us, demand grewstrongly for automotive wiring harnesses, optical fiber cables, andoptical and electronic devices, primarily in overseas markets. On theother hand, demand fell for flexible printed circuits (FPCs) used in
mobile devices, and there was a significant impact from the strong
yen and falling copper prices, leading to challenging circumstances
for our operations. Against this backdrop, consolidated net sales for
FY2016 came in at ¥2,814.5 billion (a decrease of 4.0% from
¥2,933.1 billion in FY2015), a relative decline from the previous
fiscal year. For profits, however, we pushed ahead with worldwide
cost reduction initiatives, new product development, and sales
expansion programs. As a result, operating income came to ¥150.5
billion (an increase of 4.9% over ¥143.5 billion in FY2015). Profit
attributable to owners of the parent was ¥107.6 billion, rising 18.2%
from ¥91.0 billion in FY2015. Consequently, every profit category
posted a year-on-year increase.

Financial Information

Basis for GrowthBusiness Review

Overview

Management’s Discussion and Analysis

Net Sales

Infocommunications
Although this segment was affected by the strong yen, demandfor optical fiber cables and optical and electronic devices grew
primarily in overseas markets, including China and the US, leading
to net sales of ¥198.2 billion, an increase of ¥13.6 billion (7.3%)
year on year. Operating income was ¥21.5 billion. In addition torising demand, profits grew from capitalizing on the demand for
optical fibers used in data centers, and further cost cutting led to
an increase in profits of ¥9.6 billion. The operating income margin
improved by 4.4 percentage points to 10.8%.

Electronics
Although sales of electronic wires increased as a result ofdeveloping new sources for sales, demand declined for FPCs formobile devices. FPC sales volume fell due to delays in beginning
production of new products, intensified price competition, and thestrong yen. As a result, net sales were ¥251.1 billion, down ¥60.9
billion (19.5%) year on year. The operating loss was ¥10.9 billion,a sharp fall of ¥21.1 billion.

Operating Income /Operating Income Ratio(Billions of yen)

Profit Attributable to Ownersof the Parent /Return on Owner’s Equity(Billions of yen / %)(Billions of yen / %)Operating Income
Operating Income Ratio

2,569

2,823 2,933 2,814
3.6

2,160
Corporate Information

4.7
120

4.8
134

Profit Attributable to Owners of the Parent
Return on Owner’s Equity

5.3

4.9
143

9.1

151

120

7.7
6.5

77

3.7

108

91

5.9
67

38

2012

30

2013

2014

2015

2016

(FY)

SUMITOMO ELECTRIC Annual Report 2017

2012

2013

2014

2015

2016

(FY)

2012

2013

2014

2015

2016

(FY)

Overview

The consolidated fiscal year-end balance of cash and cash
equivalents was ¥180.0 billion, a year-on-year increase of ¥5.9
billion.
Net cash provided by operating activities declined by ¥31.5
billion from the previous fiscal year to ¥209.2 billion. This was theresult of several factors, including the change in working capitalbeing subtracted from profit before income taxes of ¥167.8 billion
as well as depreciation and amortization of ¥130.7 billion.
Net cash used in investment activities was ¥194.8 billion (anincrease of ¥77.4 billion over the previous fiscal year). This wasdue, among other factors, to capital expenditure driving
purchases of property, plant, and equipment of ¥175.2 billion.
Free cash flow, calculated by deducting net cash used ininvestment activities from net cash provided by operating
activities, was ¥14.4 billion, compared with ¥123.4 billion for theprevious fiscal year.
Net cash used in financing activities was ¥4.8 billion (comparedwith ¥115.9 billion for the previous fiscal year). Although there
were proceeds from issuing corporate bonds, this was offset by
disbursements to purchase treasury shares and to pay dividends.

Industrial Materials and Others
Due to the effects of the strong yen and other factors, net sales
declined by ¥8.2 billion (2.6%) to ¥303.9 billion. Operating income
rose ¥1.3 billion year on year to ¥20.5 billion as a result of suchfactors as the removal in the period under review of the mark-tomarket valuation loss on raw materials recorded by A.L.M.T. Corp.
due to falling prices for tungsten and molybdenum in the previous
consolidated accounting period and the progress made overseas
in cost cutting for steel tire cords that led to improvement in
profitability. The operating income margin improved by 0.5
percentage points to 6.7%.

Invested Assets / ROA(Billions of yen / %)

58.3
1,647

48.6

59.5
1,746

58.8
1,654

1,417

6.6
4.8
1,730

1,049

2012

2013

2014

(Billions of yen)

Invested Assets
ROA

Overseas Sales
Overseas Sales Ratio

55.2

Capital Expenditures /Depreciation and Amortization(Billions of yen / %)

2015

2016

(FY)

2012

Capital Expenditures
Depreciation and Amortization

6.5
2,198

1,915

6.8
2,018

7.2

184
167

151

148

148
127

2,137

135

134

113
91

2013

2014

2015

2016

(FY)

2012

2013

2014

2015

Corporate Information

Overseas Sales /Overseas Sales Ratio

Business Review

Due primarily to falling copper prices, net sales were ¥621.4
billion, declining ¥38.1 billion (5.8%). Operating income rose ¥7.4
billion year on year to ¥20.8 billion, despite a posted loss due tothe correction of inappropriate accounting for previous fiscal years
at an overseas subsidiary of Sumitomo Densetsu Co., Ltd. The
positive factors for this segment were cost cutting in electric
power cable production, more demand captured by Nissin
Electric Co., Ltd. for ion implanters used to make small andmedium-sized high-definition flat panel displays, and progress in
improving profitability. The operating income margin improved by
1.3 percentage points to 3.3%. Orders received for plant andinstallation work reached ¥293.0 billion, a decrease of ¥26.9
billion (8.4%) from the previous fiscal year.

Basis for Growth

Cash Flows

Financial Information

Environment and Energy

2016

(FY)

SUMITOMO ELECTRIC Annual Report 201731

Consolidated Balance Sheets
Overview

SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES
Thousands of
U.S. dollars(Note 1)Millions of yen
FY2015FY2016

As of March 31, 2017

FY2016

March 31, 2016

March 31, 2017

¥ 180,034¥ 174,686$1,604,724

648,411

622,9445,779,579

792

57

7,059

Inventories (Note 7)

449,070

422,976

4,002,763

Deferred tax assets (Note 12)49,734

48,764443,302

Other current assets

101,245

91,359902,442

Allowance for doubtful receivables(2,733)(3,590)(24,360)

1,426,553

1,357,196

12,715,509

ASSETS
Current Assets:
Cash and time deposits (Notes 3 and 4)
Trade notes and accounts receivable (Note 4)
Business Review

Securities (Notes 3, 4 and 5)

Total current assets

Non-Current Assets:
Property, Plant and Equipment (Note 8):
Basis for Growth

Buildings and structures
Machinery, equipment and others
Land
Construction in progress

620,088

5,740,743

1,511,016

14,300,036

87,90487,512

783,528

46,81348,505417,265

2,383,092

2,267,121

21,241,572(1,559,907)(1,487,001)(13,904,153)

Net property, plant and equipment

823,185

780,120

7,337,419

Intangible Assets

54,316

51,733484,143

283,540

264,986

2,527,320

Investment securities (Notes 4 and 5)

153,792

155,773

1,370,817

Net defined benefit assets (Note 13)

98,73975,728880,105

Deferred tax assets (Note 12)

19,68017,829175,417

Other

46,21940,911

411,971

Allowance for doubtful receivables(2,440)(1,428)(21,749)

Total investments and other assets

599,530

553,799

5,343,881

Total non-current assets

1,477,031

1,385,652

13,165,443

Total assets¥2,903,584¥2,742,848$25,880,952

Accumulated depreciation

Financial Information

644,054
1,604,321

Investments and Other Assets:
Investments in unconsolidated subsidiaries and affiliates

Corporate Information(Note 4)

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

-332

SUMITOMO ELECTRIC Annual Report 2017

Thousands of
U.S. dollars(Note 1)Millions of yen
FY2016

Overview

Consolidated Balance Sheets

FY2015FY2016

As of March 31, 2017

March 31, 2016

March 31, 2017

¥ 378,110¥ 349,360$3,370,265

Short-term debt (Notes 4 and 8)

179,584

162,2131,600,713

Current portion of bonds (Notes 4 and 8)

15,00010,610133,702

Accrued income taxes

17,797

19,279158,633

Other current liabilities (Notes 8 and 12)

233,684

229,7112,082,930

824,175

771,173

7,346,243

LIABILITIES
Trade notes and accounts payable (Note 4)

Total current liabilities

Business Review

Current Liabilities:

Bonds (Notes 4 and 8)

60,00025,000534,807

Long-term debt (Notes 4 and 8)

253,862

256,239

2,262,786

Deferred tax liabilities (Note 12)65,98859,228588,181

Net defined benefit liabilities (Note 13)

54,55351,562486,255

Other non-current liabilities (Note 8)

18,504

18,357

164,935

452,907410,386

4,036,964

1,277,082

1,181,559

11,383,207

99,737

99,737889,001

Total non-current liabilities
Total liabilities

Basis for Growth

Non-Current Liabilities:

Contingent Liabilities (Note 14)
NET ASSETS (Note 9)
Shareholders' Equity:
Common stock:
Authorized─3,000,000 thousand shares in FY2016 andFY2015
Capital surplus
Retained earnings
Treasury stock, at cost: 14,049 thousand shares in FY2016
and 754 thousand shares in FY2015
Total shareholders' equity

170,849

171,314

1,522,854

1,061,374

981,4139,460,504(20,736)(677)(184,829)

1,311,224

1,251,787

11,687,530

76,78474,629684,410

Financial Information

Issued─793,941 thousand shares in FY2016 and FY2015

Net unrealized holding gains on available-for-sale securities

227

2,134

2,023

Foreign currency translation adjustments

6,547

27,68058,357

Remeasurements of defined benefit plans

20,644

4,309

184,009

Total accumulated other comprehensive income

104,202108,752

928,799

Deferred gains or losses on hedges

211,076

200,750

1,881,416

Total net assets

1,626,502

1,561,289

14,497,745

Total liabilities and net assets¥2,903,584¥2,742,848$25,880,952

Non-Controlling Interests

Corporate Information

Accumulated Other Comprehensive Income:-4SUMITOMO ELECTRIC Annual Report 201733

Consolidated Statements of Income
Overview

SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES
Thousands of
U.S. dollars(Note 1)Millions of yen
FY2015FY2016

For the years ended March 31, 2017

FY2016

March 31, 2016

March 31, 2017

Net Sales¥2,814,483¥2,933,089$25,086,755

Cost of Sales

2,284,190

2,397,166

20,360,014

Gross profit

530,293535,923

4,726,740

379,790

392,447

3,385,239

150,503

143,476

1,341,501

Selling, General and Administrative Expenses
Business Review

Operating income
Other Income (Expenses):
Interest and dividend income

4,833

5,271

43,079Interest expenses(4,831)(5,271)(43,061)

28,20029,645

251,359

14,43232,186

128,639

Share of profit of investments
accounted for using the equity method
Gain on sales of investment securities

ー(3,907)ー

Loss on disposal of property, plant and equipment(4,331)(3,275)(38,604)

Impairment loss on fixed assets (Notes 15 and 16)ー(12,479)ー(6,046)(6,046)(53,891)

ー

(524)

ー

Settlement package(10,135)(20,661)(90,338)

Other, net(4,833)(3,556)(43,079)

Foreign exchange losses

Restructuring expenses (Note 16)
Basis for Growth

Special transportation expenses (Note 17)17,28911,383

154,105

167,792

154,859

1,495,606

Current

39,06850,002

348,231

Deferred

2,379

(176)

21,20541,447

49,826369,436

Profit for the year

126,345

105,033

1,126,170

Profit Attributable to Non-Controlling Interests(18,783)(14,032)(167,421)

Profit before Income Taxes

Financial Information

Income Taxes (Note 12):

¥ 107,562

Profit Attributable to Owners of the Parent¥

91,001$

958,749

U.S. dollars(Note 1)

Yen

Corporate Information

Per Share of Common Stock (Note 10):
Basic

¥137.61¥114.73$1.227

Diluted137.24ー

1.223

Cash dividends

40.00

35.00

0.357

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

-534

SUMITOMO ELECTRIC Annual Report 2017

Consolidated Statements of Comprehensive Income

Thousands of
U.S. dollars(Note 1)Millions of yen
FY2016FY2015FY2016

For the years ended March 31, 2017

March 31, 2016

March 31, 2017

¥126,345¥ 105,033$1,126,170

Net unrealized holding gains on available-for-sale securities

4,501(54,798)

40,119Deferred gains or losses on hedges(2,015)

3,193(17,961)

Foreign currency translation adjustments(15,283)(53,685)(136,223)

Remeasurements of defined benefit plans

18,095(27,300)

161,289(11,304)(13,394)(100,758)(6,006)(145,984)(53,534)¥120,339¥ (40,951)$1,072,636

Owners of the parent

102,824(38,300)

916,517

Non-controlling interests

17,515(2,651)

156,119

Profit for the year

Overview

SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

Share of other comprehensive income (loss) of affiliates accounted
for using equity method
Total other comprehensive income (loss)
Comprehensive Income (Loss)

Business Review

Other Comprehensive Income (Loss) (Note 11):Comprehensive income (loss) attributable to:

Corporate Information

Financial Information

Basis for Growth

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

-6SUMITOMO ELECTRIC Annual Report 201735

Consolidated Statements of Changes in Net Assets
Overview

SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES
Millions of yen
Shareholders' Equity

Balance at Beginning of
FY2015

Commonstock

CapitalsurplusRetainedearnings¥99,737¥171,020¥920,850

Accumulated Other Comprehensive Income

Business Review¥127,416¥ (838)¥88,444¥25,224¥1,646,913(27,767)

Profit attributable to ownersof the parent for the year

91,00191,0010

Effect arising from net
change in scope of
consolidation

(10)

(10)

0

0

(61)

Change in ownershipinterests arising fromtransactions with
non-controllingshareholders
Other (Note 9)

(61)

294

294

(2,610)

Balance at End of FY2015¥99,737

Balance at Beginning of
FY2016¥99,737¥171,314¥981,413¥171,314¥ 981,413¥(677)¥(677)(52,787)

2,972(60,764)(20,915)(14,977)(149,081)¥ 74,629¥2,134¥27,680¥ 4,309¥200,750¥1,561,289¥ 74,629¥2,134¥27,680¥ 4,309¥200,750¥1,561,289

Cash dividends(27,541)(27,541)

Profit attributable to ownersof the parent for the year

107,562

107,562

Purchases of treasury
stock
Disposal of treasury stock0

Effect arising from net
change in scope of
consolidation

Balance at End of FY2016(20,059)(20,059)

0

0

(60)

Change in ownershipinterests arising fromtransactions with
non-controllingshareholders
Other

(60)

(465)

¥99,737¥170,849(465)¥1,061,374¥(20,736)

2,155(1,907)(21,133)

16,335

10,326

5,776¥76,784¥ 227¥ 6,547¥20,644¥211,076¥1,626,502

Corporate Information

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

-736¥215,727(27,767)

Disposal of treasury stock

Basis for Growth¥(667)

Total
net assets(Note 9)Cash dividends

Purchases of treasury
stock

Financial Information

Net unrealized
Foreign
Remeasureholding gains Deferred gains
Non-controllingcurrency
ments ofon availableor losses oninterests
translation defined benefit
for-salehedgesadjustments
plans
securities

Treasurystock

SUMITOMO ELECTRIC Annual Report 2017

Overview

Consolidated Statements of Changes in Net Assets

Thousands of U.S. dollars (Note 1)

Commonstock

Balance at Beginning of
FY2016

CapitalsurplusRetainedearnings$889,001 $1,526,999 $8,747,776

Cash dividends
Profit attributable to ownersof the parent for the year
Purchases of treasury
stock
Disposal of treasury stock

Change in ownershipinterests arising fromtransactions with
non-controllingshareholders
Other
Balance at End of FY2016

Net unrealized
Foreign
Remeasureholding gains Deferred gains
Non-controllingcurrency
ments ofon available- or losses oninterests
translation defined benefit
hedgesfor-saleadjustments
plans
securities

Treasurystock$(6,034)$665,202$19,021$246,724$38,408$1,789,375

Total
net assets(Note 9)$13,916,472(245,485)(245,485)

958,749

958,7490Effect arising from net
change in scope of
consolidation

Accumulated Other Comprehensive Income(178,795)(178,795)

0

0

(536)

(536)

(4,145)$889,001 $1,522,854 $9,460,504

Business Review

Shareholders' Equity(4,145)$(184,829)

19,208(16,998)（188,367)

145,601

92,041

51,485$684,410$ 2,023$ 58,357$184,009$1,881,416$14,497,745

Corporate Information

Financial Information

Basis for Growth

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

-8SUMITOMO ELECTRIC Annual Report 201737

Consolidated Statements of Cash Flows
Overview

SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESFY2016FY2015

Thousands of
U.S. dollars(Note 1)FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Millions of yen

For the years ended

Cash Flows from Operating Activities:¥ 167,792¥ 154,859$ 1,495,606

Depreciation and amortization

130,700

131,117

1,164,988

Impairment loss on fixed assets

2,391

15,40521,312

Amortization of goodwill

1,806

3,844

16,098Interest and dividend income(4,833)(5,271)(43,079)

Interest expenses

4,831

5,271

43,061(28,200)(29,645)(251,359)(14,403)
6,208
1,871
10,135(32,170)
3,644
843
20,661(128,380)
55,335
16,677
90,338(29,405)

2,714(262,100)(Increase) decrease in inventories(29,509)

7,952(263,027)

Increase (decrease) in trade notes and accounts payable

29,848(8,157)

266,049

Increase in net defined benefit assets and liabilities

1,406

2,590

12,531Business Review

Profit before income taxes
Adjustments to reconcile profit before income taxes to net
cash provided by operating activities:

Share of profit of investments accounted for using
the equity method

Basis for Growth

Net gain on sales of investment securities
Loss on disposal of property, plant and equipment
Loss on valuation of investment securities
Settlement package(Increase) decrease in trade notes and accounts
receivable

Other, net

9,037

13,88680,550Subtotal

259,675

287,5432,314,600

Interest and dividend received

10,903

14,386

97,183

Interest paid

(4,884)(5,675)(43,533)

Settlement package paid

(21,006)(17,634)(187,236)

Income taxes paid

(35,455)(37,841)(316,026)

209,233

240,779

1,864,988(175,170)(160,309)(1,561,369)

4,852

5,823

43,248Net cash provided by operating activities
Financial Information

Cash Flows from Investing Activities:
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities(13,507)(4,159)(120,394)

Proceeds from sales of investment securities

19,98456,472

178,126

Net cash for the acquisition of shares of newly consolidated
subsidiaries(6,205)－(55,308)

Other, net

Corporate Information

Net cash used in investing activities-938

SUMITOMO ELECTRIC Annual Report 2017(24,783)(15,214)(220,902)(194,829)(117,387)(1,736,599)

FY2016

FY2015

Thousands of
U.S. dollars(Note 1)FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Millions of yen

For the years ended

Overview

Consolidated Statements of Cash Flows

33,200(64,008)

295,927

Proceeds from long-term debt

32,27918,756

287,717

Redemption of bonds and repayments of long-term debt

(62,295)(32,115)(555,263)

Proceeds from issuance of bonds

50,000－445,673

Payments for purchase of treasury stock(20,002)(6)(178,287)

Cash dividends paid

(27,541)(27,767)(245,485)

Dividends paid to non-controlling interests(9,815)(10,023)(87,486)(1,230)(908)(10,964)

641

159

5,713

(4,763)(115,912)(42,455)(3,544)(10,554)(31,589)

6,097(3,074)54,345174,055

177,107

1,551,431

－

(8)

－

545

30

4,858

(695)

－

(6,195)¥ 180,002¥ 174,055$ 1,604,439

Payments from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation
Other, net
Net cash used in financing activities
Effect of Exchange Rate Changes on Cash andCash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Decrease in Cash and Cash Equivalents from Change in
Closing Period of Consolidated Subsidiaries
Increase in Cash and Cash Equivalents from Newly
Consolidated Subsidiaries
Decrease in Cash and Cash Equivalents Resulting from
Exclusion of subsidiaries from consolidation
Cash and Cash Equivalents at End of Year (Note 3)

Basis for Growth

Net increase (decrease) in short-term debt

Business Review

Cash Flows from Financing Activities:

Corporate Information

Financial Information

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

SUMITOMO ELECTRIC Annual Report 201739

Notes to Consolidated Financial Statements
SUMITOMO ELECTRIC INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES
Overview

March 31, 2017 and 2016

Business Review

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
Sumitomo Electric Industries, Ltd. (the “Company”) and its domestic consolidated subsidiaries maintain their accounts andrecords in Japanese yen and in accordance with the provisions set forth in the Japanese Corporate Law (the “Law”), theJapanese Financial Instruments and Exchange Act and its related accounting regulations and in conformity withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as toapplication and disclosure requirements from International Financial Reporting Standards.
The accounts of overseas consolidated subsidiaries are prepared in accordance with either International Financial
Reporting Standards or U.S. generally accepted accounting principles, with adjustments for the specified following four
items as applicable.
a) Goodwill not subject to amortizationb) Actuarial gains and losses of defined benefit retirement plans recognized outside profit and lossc) Capitalized expenditures for research and development activitiesd) Fair value measurement of investment properties and revaluation of property, plant and equipment and intangible

Basis for Growth

assets
The accompanying consolidated financial statements have been restructured and translated into English, with some
expanded descriptions, from the consolidated financial statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance in Japan as required by
the Japanese Financial Instruments and Exchange Act. Some supplementary information included in the statutory
consolidated financial statements prepared in Japanese, but not required for fair presentation, is not presented in theaccompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March 31, 2017, which was ¥112.19 to U.S. $1.00. Thesetranslations 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 of exchange.

Financial Information

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa) Consolidation
The consolidated financial statements include the accounts of the Company and all of its significant subsidiaries. All
significant intercompany transactions and balances have been eliminated. The difference between the cost of investments
in consolidated subsidiaries and the underlying equity at dates of acquisition is treated as goodwill.
Investments in unconsolidated subsidiaries and affiliates are, with minor exceptions, accounted for using the equity
method.
Investments in unconsolidated subsidiaries and affiliates not accounted for using the equity method are stated at cost.
All but 5 of the overseas consolidated subsidiaries that have a fiscal year ending other than March 31 have processed
additional annual financial closings at March-end for consolidation purposes, aiming at a more appropriate disclosure.
The remaining 5 overseas consolidated subsidiaries that have a fiscal year ending December 31 reported on a calendar
year for consolidation purpose in fiscal year 2016. Any significant transactions that occurred between January 1 andMarch 31, 2017 have been adjusted for, if necessary.
b) Translation of Foreign Currencies
All assets and liabilities of overseas subsidiaries and affiliates are translated into Japanese yen at current exchange rates
at the respective fiscal year end, revenues and expenses are translated at the average exchange rates, and shareholders'equity is translated at historical rates. The resulting foreign currency translation adjustments are shown as a separate
component of net assets, net of Non-controlling interests.

Corporate Informationc) Cash and Time Deposits
Cash and time deposits include cash on hand, readily available deposits and deposits with a maturity of one year or less.
d) Securities
The Company and its domestic consolidated subsidiaries classify and account for securities as follows:
Held-to-maturity debt securities are stated at amortized cost. Investments in unconsolidated subsidiaries and affiliates,
excluding those accounted for using the equity method, are stated at cost.
Debt and equity securities not classified as above are classified as available-for-sale securities. Available-for-salesecurities which have fair values are stated at the fair value at the fiscal year end, and unrealized gains and losses, net of- 11 40

SUMITOMO ELECTRIC Annual Report 2017

Notes to Consolidated Financial Statements

Overview

related taxes and non-controlling interests, are reported as a separate component of net assets. Available-for-salesecurities which do not have fair values are stated at moving average cost. Realized gains and losses on sales of suchsecurities are computed using moving average cost.
Held-to-maturity debt securities and available-for-sale securities maturing within one year from the fiscal year end, andhighly liquid investment funds are included in securities in current assets. Other securities are included in investments inunconsolidated subsidiaries and affiliates and investment securities.

Business Reviewe) Derivatives and Hedging Transactions
The Company and its consolidated subsidiaries utilize hedge accounting for foreign currency forward exchange contracts
hedging foreign currency monetary assets and liabilities, foreign currency swap contracts hedging foreign currency debt
and others, interest rate swap contracts hedging interest on debt and others and commodity forward contracts, etc.,
hedging raw materials.
Derivative financial instruments are stated at fair value. If the derivative financial instruments meet certain hedging
criteria, the Company and its consolidated subsidiaries defer the recognition of gains or losses until the hedgedtransactions occur. Certain foreign currency forward exchange contracts and foreign currency swap contracts meetingcertain conditions, are accounted for as a part of translating foreign currency monetary assets and liabilities in the
consolidated balance sheets. In cases in which an interest rate swap contract is used as a hedge and meets certain
hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted fromthe interest on the assets or liabilities for which the swap contract was executed.
The Company and its consolidated subsidiaries utilize hedging instruments to hedge risks of future changes in foreignexchange rates, interest rates and prices of raw materials in accordance with respective internal policies and procedureson risk control.
The Company and its consolidated subsidiaries assess the effectiveness of each hedge contract by comparing the total
cash flow fluctuation of hedging instruments and hedged items, except in cases in which interest rate swap contracts areused as hedges and meet certain hedging criteria.

Basis for Growthf) Allowance for Doubtful Receivables
The allowance for doubtful receivables is provided based upon estimated uncollectible amounts for individually identified
doubtful receivables and historical loss experience for other receivables.
g) Inventories
Inventories are mainly stated at the lower of the cost using the weighted average method or net realizable value.
h) Property, Plant and Equipment (Excluding Leases)
The Company and its consolidated subsidiaries use the straight-line method over the estimated useful life to depreciateproperty, plant and equipment.

Financial Informationi) Goodwill
Goodwill is amortized on a straight-line basis over a period within 20 years (mostly 5 or 10 years).
j) Revenue Recognition (Construction contracts)
For construction contracts, when the outcome of individual contracts can be estimated reliably, the percentage-ofcompletion method is applied, otherwise the completed contract method is applied. The percentage of completion at theend of the reporting period is measured by the proportion of the cost incurred to the estimated total cost.

Corporate Informationk) Research and Development
Expenses relating to research and development activities are charged to expenses as incurred and totaled ¥115,155
million (US$1,026,428 thousand) and ¥110,839 million for the years ended March 31, 2017 and 2016, respectively.

- 12 -SUMITOMO ELECTRIC Annual Report 201741

Notes to Consolidated Financial Statements

Overviewl) Retirement Benefits(1) Method of attributing expected benefit to periods of service
When calculating retirement benefit obligations, a benefit formula basis is used for attributing expected retirement benefits
to periods of service.

Business Review(2) Method for calculating expenses for actuarial gains and losses and past service cost
The amount for defined benefit liabilities (assets) is based on the benefit obligation and fair value of plan assets at the endof the fiscal year.
Past service cost is amortized on a straight-line basis over certain periods within the average remaining service years of
employees (mainly 15 years) from the year in which it arises, or accounted for as an expense when it arises at someconsolidated subsidiaries.
Actuarial gains and losses are amortized on a straight-line basis over certain periods within the average remaining
service years of employees (mainly 15 years) from the year following that in which they arise. At some consolidated
subsidiaries, it is accounted for as an expense when it arises.
m) Income Taxes
Income tax expense comprises current and deferred tax.
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any
adjustment to the tax payable or receivable in respect of previous years. It is measured using tax rates enacted (orsubstantively enacted at the reporting date).
Deferred tax is accounted for under the asset-liability method. Deferred tax assets and liabilities are determined basedon the financial statements carrying amounts and tax bases of assets and liabilities, using the effective tax rates in effectfor the year in which the temporary differences are expected to be recovered or settled. Deferred tax assets are also
recognized for the estimated future tax effects attributable to operating loss carryforwards.

Basis for Growthn) Leases
Finance leases which do not transfer ownership are accounted for as purchase and sale transactions and are depreciatedto a residual value of zero by the straight-line method over their lease terms.
o) Consolidated Statements of Cash Flows
In preparing the consolidated statements of cash flows, cash on hand, readily available deposits 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.
p) Appropriation of Retained Earnings
The Company and its domestic consolidated subsidiaries record, as a charge directly to retained earnings, cash dividends
in the fiscal year in which the appropriation of retained earnings is approved at the shareholders' meeting.

Financial Informationq) Use of Estimates
The management has made estimates and assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities in preparing these financial statements in conformity
with generally accepted accounting principles. Actual results could differ from those estimates.
r) Reclassifications and Restatements
Certain prior year amounts are reclassified and restated to conform to the current year presentation. These
reclassifications and restatements have no effect on previously reported results of operations or retained earnings.
s) Accounting for Consumption Taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.

Corporate Informationt) Adoption of Consolidated Taxation System
The Company and its wholly owned domestic consolidated subsidiaries have adopted the consolidated taxation system.

42

SUMITOMO ELECTRIC Annual Report 2017

- 13 -

Notes to Consolidated Financial Statements

Overviewu) Additional Information
Effective from the fiscal year ended March 31, 2017, the Company and its domestic subsidiaries have adopted “Revised
Implementation Guidance on Recoverability of Deferred Tax Assets” (Accounting Standards Board of Japan (“ASBJ”)
Guidance No. 26, March 28, 2016).
v) Standard Issued but Not Yet Adopted
・Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries, etc. for Consolidated Financial
Statements (ASBJ PITF No. 18 revised on March 29, 2017)
・Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method(ASBJ PITF No. 24 revised on March 29, 2017)(1) Summary

Business Review

PITF No.18, etc., are amended to include domestic subsidiaries and affiliates which apply the designated IFRSs or
Japan's Modified International Standards to their consolidated financial statements prepared and disclosed in accordancewith Financial Instruments and Exchange Act.
(2) Effective Date
Effective from the beginning of the fiscal year ending March 31, 2018.
(3) Impact of Adoption
The Company is currently in the process of estimating the effects of the revised practical solutions on the consolidated
financial statements.

FY2016FY2015

Thousands of
U.S. dollars
FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Millions of yen
As of¥180,034792(824)¥180,002¥174,68657(688)¥174,055$1,604,724
7,059(7,344)$1,604,439

Corporate Information

Financial Information

Cash and time deposits
Cash equivalents included in securities
Deposits placed with banks with a maturity of over three months
Cash and cash equivalents

Basis for Growth

3. CASH AND CASH EQUIVALENTS
The reconciliations between cash and time deposits in the consolidated balance sheets and cash and cash equivalents inthe consolidated statements of cash flows as of March 31, 2017 and 2016 are as follows:- 14 -SUMITOMO ELECTRIC Annual Report 201743

Notes to Consolidated Financial Statements

Overview

4. FINANCIAL INSTRUMENTSa) Qualitative Information on Financial Instruments(1) Policies for using financial instruments
The Company and its consolidated subsidiaries finance investment in equipment and operating capital for business mainly
through borrowings from banks and the issuance of bonds based on their cash flow planning. Temporary excess cash is
managed with low risk financial assets. The Company and its consolidated subsidiaries use derivative transactions only tohedge risks of future changes in cash flows and fair values not for trading purpose.

Business Review(2) Details of financial instruments used and the exposures to risk and how they arise
Trade notes and accounts receivable are exposed to the credit risks of customers, but the Company and its consolidated
subsidiaries try to reduce the risk according to rules for credit control. Operating receivables denominated in foreign
currency are exposed to foreign exchange risks, but the Company and its consolidated subsidiaries hedge the risks using
forward exchange contracts, etc., for the net position of foreign currency operating receivables and payables. Securities
and investment securities are held mainly to build and maintain good trading relationships and are exposed to market
value fluctuation risks. The Company and its consolidated subsidiaries review the circumstances periodically and evaluate
the fair value of the securities and investment securities and the financial condition of the issuers, which are generallybusiness counterparties.
Payment terms of operating payables such as trade notes and accounts payable are mostly less than one year.
Operating payables denominated in foreign currency are exposed to foreign exchange risks, but it is consistently less than
the accounts receivable balance denominated in the same foreign currency. The main purpose of holding debt andissuing bonds is to secure financing for equipment and operating capital. The derivative transactions entered into
comprise forward exchange contracts to hedge exchange risks of foreign currency debts and credits, interest swap
contracts to hedge fluctuation risks of interest rates and fair value for debt and bonds and commodity forward transactions
to hedge the risk of price fluctuation for raw materials. The Company and its consolidated subsidiaries manage andcontrol these risks according to management's rules for derivative transactions.

Basis for Growthb) Fair Value of Financial Instruments
The carrying amounts and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2017and 2016 are as follows. Financial instruments whose fair value is hard to determine are not included in the table.
Millions of yen
As ofThousands of U.S. dollars

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Carrying
amountFair value¥180,034¥180,034¥－ ¥ 174,686 ¥ 174,686

648,411

648,411－

622,944348,381

548,312

199,931

1,176,826

1,376,757

378,110378,110

Short-term debt

179,584

Bonds

75,000Long-term debt
Total liabilities

Cash and time deposits
Trade notes and accounts
receivable

Difference

Carrying
amountFair value

Difference¥－$1,604,724$1,604,724$－

622,944－5,779,579

5,779,579－

327,993455,109

127,116

3,105,277

4,887,352

1,782,075

199,931

1,125,623

1,252,739

127,116

10,489,580

12,271,655

1,782,075－

349,360

349,360－

3,370,265

3,370,265－

179,584－

162,213

162,213－1,600,713

1,600,713－

75,164

164

35,61036,124

514

668,509669,971

1,462

253,862

258,115

4,253

256,239

263,3767,137

2,262,786

2,300,695

37,909886,556

890,973

4,417

803,422

811,073

7,651

7,902,273

7,941,644

39,371

280

280

－

2,101

2,101

－

2,496

2,496

－

Difference

Carrying
amountFair value

Securities, investments in
Financial Information

unconsolidated
subsidiaries and affiliates
and investment securities
Total assets
Trade notes and accounts
payableCorporate Information

Derivative transactions

44

SUMITOMO ELECTRIC Annual Report 2017- 15 -

Notes to Consolidated Financial Statements

Overview(1) Valuation approach for the fair value of financial instruments
Cash and time deposits, trade notes and accounts receivable:
The carrying amount approximates fair value because of the short maturity.
Securities, investments in unconsolidated subsidiaries and affiliates and investment securities:
Securities in current assets are stated at the carrying amount which approximates fair value because they are settled in
the short term. Investments in unconsolidated subsidiaries and affiliates and investment securities which have a quoted
market value are stated at the fair market value. The fair value of those which do not have a quoted market value isestimated based on the present value of future cash flows using appropriate current discount rates.

Business Review

Trade notes and accounts payable:
The carrying amount approximates fair value because of the short maturity.
Short-term debt:
The carrying amount approximates fair value because of the short maturity of one year or less.
Bonds:
The fair value of bonds is stated at the fair market value.
Long-term debt:
The fair value of long-term debt is estimated based on the present value of future cash flows using appropriate current
discount rates.

Basis for Growth

Derivative transactions:
See Note 6.
(2) Financial instruments whose fair value is hard to determine
Thousands of
U.S. dollars

Millions of yen
FY2015FY2016

As of March 31, 2017

FY2016

March 31, 2016

March 31, 2017

Unlisted securities (available-for-sale securities)¥6,247¥ 7,736$55,682

Unlisted investments in unconsolidated subsidiaries and affiliates

83,49685,087744,237

Corporate Information

Financial Information

These financial instruments do not have quoted market values and their future cash flows cannot be estimated. Because
the fair value is hard to determine, these instruments are not included in “Securities, investments in unconsolidated
subsidiaries and affiliates and investment securities.”- 16 -SUMITOMO ELECTRIC Annual Report 201745

Notes to Consolidated Financial Statements

Overview

5. SECURITIESThe carrying amounts of securities in current assets and investment securities as of March 31, 2017 and 2016 consist of
the following:Thousands of
U.S. dollars

Millions of yen
As of

FY2016FY2016FY2015

March 31, 2017

March 31, 2016

March 31, 2017

¥792

¥57

$7,059

－

－

－

¥792

¥57

$7,059¥153,792¥155,773$1,370,817－－¥153,792¥155,773

Securities in current assets:
Available-for-sale securities
Held-to-maturity debt securities
Investment securities:
Business Review

Available-for-sale securities
Held-to-maturity debt securities$1,370,817

Available-for-sale securities with fair values or quoted market values included in securities in current assets andinvestment securities as of March 31, 2017 and 2016 are as follows:
Millions of yen

FY2016Equity securities
Basis for Growth

Other

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Fair value)¥25,828¥111,377¥(49)¥137,156

10,792389－

11,181¥36,620¥111,766¥(49)¥148,337

Millions of yen

FY2015Equity securities
Other

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Fair value)¥26,024¥111,762¥(412)¥137,374

10,156564－

10,720¥36,180¥112,326¥(412)¥148,094

Thousands of U.S. dollars

Financial Information

FY2016Equity securities
Other

Acquisition cost

Gross unrealized
gains

Gross unrealized
lossesBook value(Fair value)$230,217$992,753$(437)$1,222,533

96,194

3,467－

99,661$326,411$996,220$(437)$1,322,194

Corporate Information

Proceeds from sales of available-for-sale securities were ¥20,290 million (US$180,854 thousand) and ¥38,265 million
for the years ended March 31, 2017 and 2016, respectively. The net realized gains on those sales were ¥14,408 million(US$128,425 thousand) and ¥32,063 million for the years ended March 31, 2017 and 2016, respectively. Impairment loss
on securities during fiscal year 2016 amounted to ¥1,871 million (US$16,677 thousand), which consist of ¥26 million(US$232 thousand) for available-for-sale securities, ¥1,838 million (US$16,383 thousand) for investments inunconsolidated subsidiaries and ¥7 million (US$62 thousand) for investments in affiliated companies not accounted forusing the equity method. Impairment losses of securities during fiscal year 2015 amounted to ¥843 million, which consistof ¥63 million for available-for-sale securities, ¥286 million for the investments in unconsolidated subsidiaries and ¥494
million for investments in affiliated companies not accounted for using the equity method.

46

SUMITOMO ELECTRIC Annual Report 2017- 17 -

Notes to Consolidated Financial Statements

Overview

6. DERIVATIVE TRANSACTIONSThe Company and its consolidated subsidiaries have entered into foreign currency forward exchange contracts andforeign currency swap contracts to hedge risks of exchange rate fluctuations in connection with foreign currency monetary
assets and liabilities, interest rate swap contracts to hedge risks of interest rate fluctuations and commodity forward
contracts, etc., to hedge risks of fluctuations in the price of raw materials. The Company and its consolidated subsidiaries
use derivative transactions for managing market risk related to recorded assets and liabilities as well as for futurecommitments and not for speculation or dealing purposes. The Company and its consolidated subsidiaries deal withhighly rated international financial institutions and trading concerns as counterparties to these transactions to minimize
credit risk exposure. Derivative transactions are entered into by each operational division, and the processing of thetransactions is controlled and reviewed by administrative divisions in accordance with established policies that restrictdealing in derivatives, including limits on authorities and amounts.

FY2016FY2015Contracts for which hedge
accounting is not adopted
Contracted
amountFair
value

Business Review

Additional information for derivative transactions as of and for the years ended March 31, 2017 and 2016 is as follows:
Millions of yen

Recognizedgain (loss)

Contracts for which
hedge accounting is
adopted*Contracted
Fair
amountvalue

Contracts for which hedge
accounting is not adopted
Contracted
amountFair
value

Recognizedgain (loss)

Contracts for which
hedge accounting is
adopted*Contracted
Fair
amountvalue¥20,350

¥(18)

¥(18)

¥ 21,833¥ 45¥ 25,005¥ (856)¥ (856)¥ 20,323¥ (56)

Sell
Interest rate andcurrency swap
contracts
Commodity forward
contracts (copper,
nickel and aluminum):Buy71,658507

507

171,258(266)

92,546

2,027

2,027

157,832

1,014

－

－

－

144

22

－

－

－

439

57

737

0

0

1,064

(27)

1,169

(2)

(2)

203

(5)

Sell
Commodity swap
contracts (copper andsilver)

739

4

4

4,723

(101)

2,823

(10)

(10)

4,261

81

－

－

－

1,399

114

－

－

－

1,675

(149)

¥93,484

¥493

¥493

¥200,421¥(213)¥121,543¥1,159¥1,159¥184,733

¥ 942

Buy

Basis for Growth

Foreign currency
forward exchange
contracts:

Thousands of U.S. dollars
FY2016
Contracts for which
hedge accounting is
adopted*Recognized Contracted
Fair
gain (loss)
amount
value

Fair
value

$181,389$ (160)$ (160) $ 194,607

$ 401

Sell
Interest rate andcurrency swap
contracts
Commodity forward
contracts (copper,
nickel and aluminum):Buy638,720

4,519

4,519

1,526,500(2,371)

－

－

－

1,284

196

6,569

0

0

9,484

(241)

Sell
Commodity swap
contracts (copper andsilver)

6,587

36

36

42,098

(900)

－

－

－

12,4701,016$833,265$4,395$4,395$1,786,443$(1,899)

Corporate Information

Foreign currency
forward exchange
contracts:
Buy

Contracted
amountFinancial Information

Contracts for which hedge
accounting is not adopted* Certain foreign currency forward exchange contracts meeting certain hedging criteria except forecasted transactions are
excluded from the fair value of the table above for the years ended March 31, 2017 and 2016, respectively. Certain
interest rate swap contracts (contracted amount ¥151,013 million (US$1,346,047 thousand) and ¥152,896 million for theyears ended March 31, 2017 and 2016, respectively) meeting certain hedging criteria are excluded from the table above.

- 18 -SUMITOMO ELECTRIC Annual Report 201747

Notes to Consolidated Financial Statements

Overview

7. INVENTORIESInventories as of March 31, 2017 and 2016 consist of the following:Thousands of
U.S. dollars

Millions of yen
As of

FY2016FY2016FY2015

March 31,2017

March 31,2017

March 31,2016

Merchandise and finished goods¥138,595¥134,696$1,235,360

Work in process

167,635

153,257

1,494,206

Raw materials and supplies

142,840

135,023

1,273,197¥449,070¥422,976$4,002,763

Business Review

8. INTEREST-BEARING LIABILITIESa) Short-Term Debt and Bonds in Current Liabilities
Short-term debt and bonds in current liabilities at March 31, 2017 and 2016 consist of the following:Thousands of
U.S. dollars

Millions of yen

As of

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

¥146,733¥113,453$1,307,897

32,851

48,760292,816

Short-term debt, principally from banks, with a weightedaverage interest rate of 1.51% at March 31, 2017
Current portion of long-term debt, principally from banks andinsurance companies, with a weighted-average interest rate of
0.93% at March 31, 2017

15,00010,610133,702¥194,584¥172,823$1,734,415

Basis for Growth

Current portion of bonds, interest rate of 0.288%b) Bonds and Long-Term Debt
Bonds and long-term debt at March 31, 2017 and 2016 consist of the following:Thousands of
U.S. dollars

Millions of yen

As of

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

¥ 75,000¥ 35,610$ 668,509

286,713304,9992,555,602

361,713340,6093,224,111(47,851)(59,370)(426,518)¥313,862¥281,239$2,797,593

Unsecured bonds, due 2018 to 2031, interest rate of
0.08%-0.936%
Financial Information

Long-term debt, principally from banks and insurancecompanies, due 2017 to 2024, with a weighted-averageinterest rate of 0.51% at March 31, 2017
Current portion of bonds and long-term debt

The aggregate annual maturities of bonds and long-term debt at March 31, 2017 are as follows:(Bonds)March 31

Millions of yen

Corporate Information2018 (= current portion)¥15,000$133,702

2019

ー

ー

2020

ー

ー

2021

ー

ー

2022

10,00089,1352023 and thereafter48

Thousands of
U.S. dollars

SUMITOMO ELECTRIC Annual Report 2017

50,000445,672¥75,000$668,509- 19 -

Notes to Consolidated Financial Statements(Long-term debt)

2018 (= current portion)

Millions of yen

Thousands of
U.S. dollars¥ 32,851$ 292,816

2019

47,230420,982

2020

56,104500,0802021

45,928403,7612022

34,900311,079

2023 and thereafter

69,700626,884¥286,713$2,555,602

Overview

March 31

Business Review

The following assets were pledged as collateral for short-term debt and long-term debt, including the current portion, at
March 31, 2017 and 2016．
Thousands of
U.S. dollars

Millions of yen

As of

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

¥2,956¥3,044$26,348

Property, plant and equipment, net of accumulated
depreciationc) Lease Obligations

Lease obligations are disclosed as other current liabilities and other non-current liabilities in the consolidated balance
sheets.

March 31

Thousands of
U.S. dollars$ 4,617

151

1,346

2020

186

1,658

2021

158

1,408

2022

155

1,382

1,375

12,256¥2,543$22,6672023 and thereafter

Financial Information

¥ 518

2019

Corporate Information2018 (= current portion)

Millions of yen

Basis for Growth

The aggregate annual maturities of lease obligations at March 31, 2017 are as follows:- 20 -SUMITOMO ELECTRIC Annual Report 201749

Notes to Consolidated Financial Statements
9. NET ASSETS
Overview

Under the Law, the entire amount of the issue price of shares is required to be accounted for as common stock. However
a company may, by a resolution of the Board of Directors, account for an amount not exceeding 50% of the issue price ofthe new shares as additional paid-in capital, which is included in capital surplus. However, an increase resulting from ashare exchange can be included in capital surplus up to the full amount.
The Law provides that the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capitalor legal earnings reserve, in cases in which a dividend distribution of surplus is made.
Under the Law, additional paid-in capital may be used to eliminate or reduce a deficit or may be capitalized by aresolution of the shareholders' meeting, and legal earnings reserve may be used to eliminate or reduce a deficit by aresolution of the shareholders' meeting. Legal earnings reserve is included in retained earnings in the accompanying
financial statements.
Business Review

Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional
paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained earnings,
respectively, which are potentially available for dividends.
The maximum amount that a company can distribute as dividends is calculated based on its non-consolidated financial
statements in accordance with the Law.
a) Stock Information
Changes in number of shares issued and outstanding during the years ended March 31, 2017 and 2016 are as follows:
Thousands of shares
FY2015FY2016

Common stock outstanding

Basis for Growth

For the years ended

March 31, 2017

March 31, 2016

Balance at beginning793,941

793,941

Balance at end

793,941

793,941

Treasury stock outstanding
For the years ended

March 31, 2017

March 31, 2016

754

749

13,245－

Increase due to purchase of odd-lot stocks

2

3

Other, net

48

2

14,049754

Balance at beginning
Increase due to purchase of shares ofcommon stocks

Corporate Information

Financial Information

Balance at end

50

Thousands of shares
FY2015FY2016

SUMITOMO ELECTRIC Annual Report 2017- 21 -

Notes to Consolidated Financial Statements

Total amount
Record date

Effective dateMillions of yen

Thousands of
U.S. dollars

June 24, 2016

March 31, 2016

June 27, 2016

¥14,280$127,284

Board of Directors on
November 1, 2016

September 30, 2016

December 1, 2016¥13,261$118,201

Dividend paid after March 31, 2017 with respect to fiscal year 2016
Record date

Effective dateMillions of yen

Thousands of
U.S. dollars

March 31, 2017

June 29, 2017¥17,942$159,925

Resolution
Shareholders' meeting on
June 28, 2017

Total amount

Dividends paid in fiscal year 2015
Resolution
Shareholders' meeting on
June 25, 2015
Board of Directors on
October 29, 2015

Record date

Effective dateMillions of yen

March 31, 2015

June 26, 2015

¥14,280

September 30, 2015

December 1, 2015

¥13,487

Dividend paid after March 31, 2016 with respect to fiscal year 2015
Resolution
Shareholders' meeting on
June 24, 2016

Total amountBasis for Growth

Shareholders' meeting on

Business Review

Dividends paid in fiscal year 2016
Resolution

Overviewb) Dividend Information

Total amount

Record date

Effective dateMillions of yen

March 31, 2016

June 27, 2016

¥14,280c) OtherIn fiscal year 2015, other changes in retained earnings of ¥(1,631) million are a result of affiliates accounted for using theequity method that have a fiscal year ending December 31 having changed the method for calculating retirement benefit
obligation and service cost pursuant to "Accounting Standard for Retirement Benefits" (ASBJ Statement No. 26, May 17,2012) and "Guidance on Accounting Standard for Retirement Benefits" (ASBJ Guidance No. 25, March 26, 2015) and
Financial Information¥(979) million as a result of some overseas consolidated subsidiaries having changed their fiscal year-end from

Corporate Information

December 31 to March 31 or having processed additional financial closings at March-end for consolidation purposes.

- 22 -SUMITOMO ELECTRIC Annual Report 201751

Notes to Consolidated Financial Statements
10. AMOUNTS PER SHARE
Overview

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding
during each period. Diluted earnings per share is computed based on the weighted average number of shares of common
stock outstanding increased by the number of shares which would have been outstanding assuming the conversion of all
dilutive bonds and the exercise of all dilutive share warrants at the beginning of the period after giving effect to the dilutive
potential of shares. The related interest expense, net of income taxes, has been eliminated for the purpose of thiscalculation.
Cash dividends per share in the consolidated statements of income are dividends applicable to the respective years
including dividends to be paid after the end of the consolidated fiscal year.
11. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Reclassification adjustments and tax effects on other comprehensive income (loss) for the years ended March 31, 2017

Business Review

and 2016 were as follows:
Thousands ofMillions of yen

For the years ended

U.S. dollars

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Net Unrealized Holding Gains on Available-for-Sale Securities:
Increase (decrease) during the year

¥ 9,349¥ (47,766)$ 83,332

Reclassification adjustments(8,473)(31,967)(75,524)

Subtotal, before tax
Tax effects

Basis for Growth

Subtotal, net of tax

876(79,733)

7,808

3,625

24,93532,311¥ 4,501¥ (54,798)$ 40,119¥(2,898)¥ 4,098$(25,831)

Deferred Gains or Losses on Hedges:
Increase during the year
Reclassification adjustments
Subtotal, before tax
Tax effects
Subtotal, net of tax

(17)

254

(152)

(2,915)

4,352(25,983)900(1,159)8,022¥(2,015)¥ 3,193$(17,961)¥(15,315)¥(53,420)$(136,508)

32

(265)

285

(15,283)(53,685)(136,223)－－－¥(15,283)¥(53,685)$(136,223)$204,475

Foreign Currency Translation Adjustments:
Increase (decrease) during the year
Reclassification adjustments
Financial Information

Subtotal, before tax
Tax effects
Subtotal, net of tax
Remeasurements of Defined Benefit Plans¥22,940¥(41,963)

Reclassification adjustments

3,426

2,006

30,537

Subtotal, before tax

26,366(39,957)

235,012

Increase (decrease) during the year

(8,271)

12,657(73,723)¥18,095¥(27,300)$161,289¥ (9,424)¥ (17,038)$ (84,001)(1,880)3,644(16,757)

Subtotal, net of tax¥(11,304)¥ (13,394)$(100,758)

Total other comprehensive income (loss)¥ (6,006)¥(145,984)$ (53,534)

Tax effects
Subtotal, net of tax

Corporate Information

Share of Other Comprehensive Income (Loss) of Affiliates
Accounted for Using Equity Method:
Increase (decrease) during the year
Reclassification adjustments* Reclassification adjustments of portion of other comprehensive income (loss) of affiliates accounted for using the equity

method include adjustments for the acquisition cost of assets.
52

SUMITOMO ELECTRIC Annual Report 2017

- 23 -

Notes to Consolidated Financial Statements
12. INCOME TAXES
Overview

The Company and its domestic consolidated subsidiaries are subject to several taxes based on income which, in theaggregate, result in a statutory tax rate of approximately 30.8% and 33.0% for the years ended March 31, 2017 and 2016,
respectively.
The following table summarizes the significant differences between the statutory tax rate and the effective tax rate for

For the years ended

FY2016

March 31, 2017

FY2015

March 31, 2016

Statutory tax rate

30.8%

33.0%

Share of profit of investments accounted for using the equity method

(5.1)

(6.2)

Expenses not deductible for tax purposes

0.2

0.2

Dividend income from overseas consolidated subsidiaries

0.5

0.6

Tax credits

(1.2)

(1.3)

Effect of lower tax rates for overseas consolidated subsidiaries

(3.8)

(5.7)

Change in valuation allowance

1.6

3.9

Intercompany profits

(0.1)

(0.7)

Change in undistributed earnings of consolidated subsidiaries and affiliates

(2.0)

0.1

Amortization of goodwill

0.3

2.4

Other

3.5

5.9

24.7%

32.2%

Effective tax rate

Business Review

financial statement purposes for the years ended March 31, 2017 and 2016:

Deferred tax assets and liabilities included in the consolidated balance sheets at March 31, 2017 and 2016 are as
follows:

As ofDeferred tax assets (current assets)
Deferred tax assets (investments and other assets)
Other current liabilities

FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

¥ 49,734¥ 48,764$ 443,302

19,68017,829175,417

(814)

(55)

(7,256)(65,988)(59,228)(588,181)¥ 2,612¥ 7,310$ 23,282

Corporate Information

Financial Information

Deferred tax liabilities (non-current liabilities)

FY2016

Basis for Growth

Thousands of
U.S. dollars

Millions of yen- 24 -SUMITOMO ELECTRIC Annual Report 201753

Notes to Consolidated Financial Statements

Overview

Significant components of the deferred tax assets and liabilities at March 31, 2017 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen
FY2016FY2015FY2016

As of March 31, 2017

March 31, 2016

March 31, 2017

Deferred tax assets:¥ 52,943¥ 56,544$ 471,905

Fixed assets

18,16919,241

161,948

Net defined benefit liabilities

17,343

16,491

154,586

Accrued expenses

13,345

13,344

118,950

Inventories

10,923

10,122

97,362

Intercompany profits

9,901

10,00388,252

Investment securities

3,961

3,954

35,306

Business Review

Net operating loss carryforwards

Allowance for doubtful receivables

1,606

1,424

14,315

Other

30,831

34,376274,811

159,022

165,499

1,417,435

Valuation allowance(60,322)(62,015)(537,677)

Total deferred tax assets

98,700103,484

879,758(33,700)(37,293)(300,383)(23,162)(26,349)(206,453)

Net defined benefit assets(22,831)(16,695)(203,503)

Accelerated depreciation of overseas consolidated subsidiaries(5,756)(4,623)(51,306)(5,495)(5,406)(48,979)(978)(1,001)(8,717)(4,166)(4,807)(37,135)

Deferred tax liabilities:
Net unrealized holding gains on available-for-sale securities
Undistributed earnings of consolidated subsidiaries andBasis for Growthaffiliates

Excess of fair value over the book value of assets and liabilities
of consolidated subsidiaries at the acquisition dates
Reserve for deferred gains on sales of fixed assets
Other(96,088)

Net deferred tax assets (liabilities)¥ 2,612

Corporate Information

Financial Information

Total deferred tax liabilities

54

SUMITOMO ELECTRIC Annual Report 2017- 25 -¥(96,174)(856,476)

7,310$ 23,282

Notes to Consolidated Financial Statements
13. RETIREMENT BENEFITS
Overview

The Company and most of its domestic consolidated subsidiaries have contributory and noncontributory defined benefit
plans and lump-sum retirement benefit plans, while the Company and some of its subsidiaries have defined contributionplans and prepaid retirement allowance plans. Some overseas subsidiaries have defined benefit plans and defined
contribution plans. And some subsidiaries apply the simplified method for the computation of benefit obligations.
a) Defined benefit plans(1) Movements in retirement benefit obligations, except plans applying the simplified method
Thousands of
U.S. dollars

Millions of yen
FY2016FY2016FY2015

March 31, 2017

March 31, 2016

March 31, 2017

¥301,449¥288,032$2,686,951

Service cost

13,60812,662

121,294

Interest cost

3,772

4,474

33,622395

10,634

3,521

Benefits paid

(14,185)(12,940)(126,437)

Net change as a result of business combinations

10,481-

93,422(79)(1,413)(705)¥315,441¥301,449$2,811,668

Balance at beginning of year

Actuarial gains and losses

Other
Balance at end of year

Business Review

For the years ended(2) Movements in plan assets, except plans applying the simplified method

For the years ended

FY2016FY2016FY2015

March 31, 2017

March 31, 2016

March 31, 2017

$2,917,203¥327,281¥355,915

Expected return on plan assets

3,899

3,454

34,754

Actuarial gains and losses

23,465(35,014)

209,154

Contributions paid by the employer

10,42813,58092,949Benefits paid

(9,229)(8,529)Net change as a result of business combinations

5,916

-

52,732

Other

(298)

(2,125)(2,656)¥361,462¥327,281$3,221,874

Balance at beginning of year

Balance at end of year

Basis for Growth

Thousands of
U.S. dollars

Millions of yen(82,262)

Thousands of
U.S. dollars

Millions of yen
FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Balance at beginning of year

¥1,666¥1,986$14,850Retirement benefit costs

859

404

7,657

Benefits paid

(64)

(111)

(570)

Contributions paid by the employer

(106)

(136)

(945)

Other

(520)

(477)

(4,636)¥1,835¥1,666$16,356

For the years ended

Corporate Information

Balance at end of year

Financial Information(3) Movements in net defined benefit liabilities (or assets) for defined benefit plans applying the simplified method- 26 -SUMITOMO ELECTRIC Annual Report 201755

Notes to Consolidated Financial Statements(4) Reconciliation from retirement benefit obligations and plan assets to net defined benefit liabilities (assets) in the
Overview

consolidated balance sheets, including the defined benefit plans applying the simplified method
Thousands of
U.S. dollars

Millions of yen

Business Review

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Funded retirement benefit obligations¥ 286,055¥275,493$2,549,737

Plan assets(363,569)(330,870)(3,240,654)(77,514)(55,377)(690,917)

As of

Unfunded retirement benefit obligations

33,32831,211

297,067

Total net defined benefit liabilities (assets)¥ (44,186)¥ (24,166)$ (393,850)

Net defined benefit liabilities¥ 54,553¥ 51,562$ 486,255

Net defined benefit assets(98,739)(75,728)(880,105)¥ (44,186)¥ (24,166)$ (393,850)

Total net defined benefit liabilities (assets)(5) Retirement benefit costs

Thousands of
U.S. dollars

Millions of yen
FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Service cost

¥13,608¥12,662$121,294Interest cost

3,772

4,474

33,622

Expected return on plan assets(3,899)(3,454)(34,754)

3,627

5,796

32,329

(11)

(141)

(98)

859

404

7,657

For the years ended

Basis for Growth

Amortization:
Actuarial gains and losses
Past service cost
Retirement benefit costs from plans applying the simplified
method

189

183

1,685

¥18,145¥19,924$161,735

Other
Total retirement benefit costs

In addition to the retirement benefit costs listed above, an extra payment of retirement benefits in the amount of ¥1,146
million (US$10,215 thousand) and ¥1,202 million were recognized as restructuring expenses in the consolidated

Financial Information

statements of income for fiscal years 2016 and 2015, respectively.
(6) Remeasurements of defined benefit plans (before tax)Thousands of
U.S. dollars

Millions of yen
For the years ended

FY2016

March 31, 2017¥

Past service cost

FY2015

March 31, 2016

454

¥

235

FY2016

March 31, 2017

$

4,047

Actuarial gains and losses(26,820)

39,722(239,059)

Total¥(26,366)¥39,957$(235,012)

Corporate Information(7) Accumulated remeasurements of defined benefit plans (before tax)Thousands of
U.S. dollars

Millions of yen
As of

56

FY2016

March 31, 2017

FY2015

March 31, 2016

FY2016

March 31, 2017

Unrecognized past service cost

¥

(37)

¥(491)

Unrecognized actuarial gains and losses(26,842)(22)(239,255)

Total¥(26,879)¥(513)$(239,585)

SUMITOMO ELECTRIC Annual Report 2017

- 27 -$(330)

Notes to Consolidated Financial Statements(8) Plan assets
FY2016FY2015Equity securities

48.3%

46.9%

Bonds

25.3

26.8

General account

11.5

12.1

Cash and cash equivalents

2.0

2.2

Other

12.9

12.0

Total

100.0%

100.0%

Overview

1. Plan assets comprise:

2. Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets have been
Business Review

considered in determining the long-term expected rate of return.
(9) Actuarial assumptions
The principal actuarial assumptions at March 31, 2017 and 2016 (expressed as weighted averages) are as follows:
FY2016FY2015
Discount rate

1.2%

1.2%

Long-term expected rate of return

1.2%

1.1%

The Company and some of its consolidated subsidiaries do not apply expected rates of pay raises to calculate theretirement benefit obligations because they adopt a point basis.
b) Defined contribution plans and prepaid retirement allowance plans
Basis for Growth

The amount of required contributions to the defined contribution plans and the prepaid retirement allowance plans of theCompany and its consolidated subsidiaries was ¥5,150 million (US$45,904 thousand) and ¥5,927 million for FY2016 andFY2015, respectively.
14. CONTINGENT LIABILITIESContingent liabilities as of March 31, 2017 and 2016 are as follows:

FY2016FY2015FY2016

March 31, 2017

March 31, 2016

March 31, 2017

Notes receivable discounted¥ 782¥1,558$ 6,970

Notes receivable endorsed

390

608

3,476

4,841

4,878

43,150

431

878

3,842

1,043

1,595

9,297

As of

Financial Information

Thousands of
U.S. dollars

Millions of yen

Guarantees:
Guarantees for debt of employees, unconsolidated subsidiaries
and affiliates
Contingent guarantees for debt of unconsolidated subsidiaries
and affiliates
Keepwell agreements and letters of awareness for debt ofCorporate Information

unconsolidated subsidiaries and affiliates- 28 -SUMITOMO ELECTRIC Annual Report 201757

Notes to Consolidated Financial Statements

Overview

15. IMPAIRMENT LOSS ON FIXED ASSETSThe Company and its consolidated subsidiaries grouped long-lived assets into asset groups by business segment andconducted impairment tests with the conclusion that the carrying amounts should be reduced by ¥2,391 million(US$21,312 thousand) and ¥15,405 million to the recoverable amounts in FY2016 and FY2015, respectively.
The recoverable amount is mainly the net selling price.
Impairment loss on fixed assets for each reportable segment are disclosed in Note 18 b), for the years ended March 31,2017 and 2016.
Details of impairment loss on fixed assets for the years ended March 31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
FY2016
Buildings and structures¥1,293$11,525
482

Business Review

Machinery, equipment and others
Other

4,296

616

5,491

¥2,391*1$21,312*1*1 The amount of ¥2,391 million (US$21,312 thousand) is included in "Restructuring expenses" (Note 16) in the
consolidated statement of income for fiscal year 2016.

FY2015
Goodwill

Millions of yen¥ 7,315

Machinery, equipment and others

5,338

Buildings and structures

1,651

Other

1,101

Basis for Growth¥15,405*2*2 The amount of ¥12,479 million is shown as "Impairment loss on fixed assets," and the amount of ¥2,926 million is
included in "Restructuring expenses" (Note 16) in the consolidated statement of income for fiscal year 2015.

Financial Information

16. RESTRUCTURING EXPENSES
In fiscal year 2016, restructuring expenses of ¥6,046 million (US$53,891 thousand) are related to the reorganization of thebusiness locations, to improve the efficiency of tensioning materials for prestressed concrete business and Brazil wiring
harnesses business, etc.
In fiscal year 2015, restructuring expenses of ¥6,046 million are related to the reorganization of the business locations
and the restructuring of some part of the R&D themes to make work productivity more efficient and strengthen new
product development of the Company and certain consolidated subsidiaries in response to the rapid deceleration of thebusiness environment. The expenses are also related to optimizing the work force according to the size of the business tostrengthen profitability.
The major details of the expenses for the years ended March 31, 2017 and 2016 are as follows:
Thousands ofMillions of yen
FY2016
U.S. dollars
Impairment loss on fixed assets (Note 15)¥2,391$21,312

1,877

16,731

Loss on disposal of property, plant andequipment

Corporate Information

FY201558

Millions of yen

Impairment loss on fixed assets (Note 15)¥2,926Extra payment of retirement benefits

1,202

SUMITOMO ELECTRIC Annual Report 2017- 29 -

Notes to Consolidated Financial Statements
17. SPECIAL TRANSPORTATION EXPENSES
Overview

In fiscal year 2015, special transportation expenses were incurred in connection with significantly increased transportation
costs for imported products and materials in some consolidated subsidiaries in the U.S., due to the long delay in cargohandling caused by the rapid deterioration of the labor-management relations at harbor facilities on the West Coast of the
U.S.
18. SEGMENT INFORMATIONa) Reportable Segments
The reportable segments of the Company are business areas of which divided financial information is available for the
President, the supreme decision maker of the Company, to make decisions regarding management resource allocation
and, evaluate each business result.
The Company has adopted a business unit system based upon the similarity in each product category, methods for

Business Review

manufacturing and sales markets, etc., and devises comprehensive strategies for the Company and its affiliates bydividing businesses such as product development, manufacturing, sales and supplementary services into the following
five classifications: "Automotive," "Infocommunications," "Electronics," "Environment and Energy" and "Industrial Materials
and Others." Therefore, the Company considers the above five classifications as reportable segments.
The method of calculation for sales, profit or loss, assets and other items by reportable segment is pursuant to theaccounting policies stated in Note 2． Intersegment sales are stated at current market value.
Automotive:
Wiring harnesses, anti-vibration rubber products and other automotive parts
Infocommunications:
Optical fiber cables, optical fiber fusion splicers, optical data links and other optical components, access network systemproducts such as GE-PON, set-top box, CATV related products and traffic control systems

Basis for Growth

Electronics:
Electronic wires, irradiated products and flexible printed circuits (FPCs)
Environment and Energy:
Copper wire rods, electric power cables, magnet wires, power system equipment such as substation equipment,
supervisory telecontrol equipment and power cable construction works
Industrial Materials and Others:
Special steel wires, cutting tools, diamond and CBN tools, sintered parts and heatspreader materials
Reportable segment information for the years ended March 31, 2017 and 2016 is as follows:
Millions of yen

FY2016

Infocommunications

Electronics

Environment &EnergyIndustrial
Materials &OthersAdjustments¥

Consolidated

Sales to customers¥1,511,739¥196,173¥235,981¥607,494¥263,096

Intersegment sales

1,482

2,067

15,132

13,92440,847(73,452)－

Net sales¥1,513,221¥198,240¥251,113¥621,418¥303,943¥ (73,452)¥2,814,483

Segment profit or loss¥

98,616¥ 21,509¥(10,898)¥ 20,807¥ 20,491¥(22)¥ 150,503

Segment assets¥1,302,039¥243,473¥215,210¥621,281¥585,908¥ (64,327)¥2,903,584¥

69,896¥ 11,749¥ 17,744¥ 15,504¥ 19,639¥－¥ 134,532

1,144

4

131

54

473

－

1,806

181,32236,045685

5,838

48,915－

272,805

85,36125,89435,16725,22025,278－

196,920

amortization
Amortization of goodwill
Investments in equity
method affiliates
Amount of increase intangible and intangible
fixed assets¥2,814,483

Corporate Information

Depreciation and－

Financial Information

Automotive- 30 -SUMITOMO ELECTRIC Annual Report 201759

Notes to Consolidated Financial Statements

Overview

Millions of yen
Automotive
FY2015

Electronics

Environment &EnergyIndustrial
Materials &OthersAdjustments¥

Consolidated

Sales to customers¥1,540,817¥182,685¥297,330¥641,515¥270,742Intersegment sales

1,168

2,003

14,691

18,02841,412(77,302)－

Net sales¥1,541,985¥184,688¥312,021¥659,543¥312,154¥ (77,302)¥2,933,089

Segment profit or loss¥

88,654¥ 11,903¥ 10,203¥ 13,404¥ 19,234¥78¥ 143,476

Segment assets¥1,242,498¥218,229¥215,032¥571,483¥541,037¥ (45,431)¥2,742,848¥

71,696¥ 11,368¥ 15,949¥ 14,577¥ 20,781¥－¥ 134,371

1,342

5

181

2,278

38

－

3,844

178,562

26,178488

6,197

39,714ー

251,139

86,052

15,23029,69328,902

22,948ー

182,825

Adjustments

Consolidated

Depreciation andamortization
Amortization of goodwill
Investments in equity

Business Review

Infocommunications

method affiliates
Amount of increase intangible and intangible
fixed assets¥2,933,089－

Thousands of U.S. dollars
Automotive

Basis for Growth

FY2016

Infocommunications

Electronics

Environment &EnergyIndustrial
Materials &Others$Sales to customers$13,474,811$1,748,578$2,103,405$5,414,868$2,345,093

Intersegment sales

13,20918,424

134,878

124,111364,088(654,710)

ーNet sales$13,488,020$1,767,002$2,238,283$5,538,979$2,709,181$(654,710)$25,086,755

Segment profit or loss$

879,009$ 191,719$ (97,139)$ 185,462$ 182,646

$

(196)

$1,341,501

Segment assets$11,605,660$2,170,185$1,918,264$5,537,757$5,222,462$(573,376)$25,880,952$

623,015$ 104,724$ 158,160$ 138,194$ 175,051$

ー$ 1,199,144

10,197

36

1,168

481

4,216

ー

16,0981,616,205

321,2856,10652,037436,001ー

2,431,634

760,861

230,805

313,459

224,797

225,315ー

1,755,237

Depreciation andamortization
Amortization of goodwill
Investments in equity
method affiliates
Amount of increase intangible and intangible
fixed assets$25,086,755

ー

Financial Information

1. Segment profit or loss included in Adjustments of \(22) million (US$196 thousand) and \78 million for FY2016 andFY2015, respectively, consists mainly of unrealized profits caused by intersegment transactions.
2. Segment assets included in Adjustments of \(64,327) million (US$(573,376) thousand) and \(45,431) million as ofMarch 31, 2017 and 2016, respectively, consist mainly of elimination of receivables caused by intersegment
transactions, cash and time deposits and investment securities owned by the Company.
3. Segment profit or loss is reconciled with operating income in the consolidated statements of income.
b) Related Information(1) Information about products and services
FY2016
Sales to customers

Millions of yen
OthersWiring harnesses¥1,091,006¥1,723,477

Total¥2,814,483

Millions of yen

Corporate Information

FY2015
Sales to customers

Wiring harnesses

Others¥1,116,901¥1,816,188

Total¥2,933,089

Thousands of U.S. dollars
FY2016
Sales to customers

60

SUMITOMO ELECTRIC Annual Report 2017

Wiring harnesses

Others$9,724,628- 31 -$15,362,127

Total$25,086,755

Notes to Consolidated Financial Statements

Overview(2) Information about geographical areas
Sales to customers
Millions of yen
FY2016
Sales to customers

Asia¥1,160,752

Americas

China

OthersU.S.

OthersEurope andOthersConsolidated¥479,360¥350,949¥359,854¥134,825¥328,743¥2,814,483

Japan

FY2015
Sales to customers¥1,186,951

Americas

China

OthersU.S.

OthersEurope andOthersConsolidated¥531,989¥344,189¥386,912¥139,338¥343,710¥2,933,089

Japan

Business Review

Millions of yen
Asia

Thousands of U.S. dollars
FY2016
Sales to customers

Asia$10,346,305

Americas

China

OthersU.S.

OthersEurope andOthersConsolidated$4,272,752$3,128,167$3,207,541$1,201,756$2,930,234$25,086,755

Americas

Europe andOthersConsolidated¥84,445¥69,045¥823,185

Americas

Europe andOthersConsolidated¥69,928¥69,808¥780,120

Americas

Europe andOthersConsolidated$752,696$615,430$7,337,419

Japan

Net property, plant and equipment

FY2016
Net property, plant andequipmentJapan¥426,319

China

Others¥79,781¥163,595

Basis for GrowthMillions of yen
Asia

Millions of yen
FY2015
Net property, plant andequipmentJapan¥404,251

Asia
China

Others¥88,460¥147,673

FY2016
Net property, plant andequipmentJapan$3,799,973

China

Others$711,124$1,458,196

Financial Information

Thousands of U.S. dollars
Asia

Corporate Information(3) Information about major customers
This information is omitted because the Company does not have any major customers that account for 10% or more of
net sales in the consolidated statements of income for FY2016 or FY2015.

- 32 -SUMITOMO ELECTRIC Annual Report 201761

Notes to Consolidated Financial Statements(4) Information about impairment loss on fixed assets by reportable segment
Overview

Millions of yen
Automotive
FY2016
Impairment loss on fixed
assetsIndustrial
InfocommuniEnvironment
Electronics
Materials & Adjustments
cations& Energy
Others

¥446

¥190

¥547

¥262

¥946

¥ー

Total
¥2,391Millions of yen
Automotive

Business Review

FY2015
Impairment loss on fixed
assetsIndustrial
InfocommuniEnvironment
Electronics
Materials & Adjustments
cations& Energy
Others¥2,500¥158¥752¥7,003¥3,636¥1,356

Total¥15,405

Thousands of U.S. dollars
Automotive
FY2016
Impairment loss on fixed
assetsIndustrial
InfocommuniEnvironment
Electronics
Materials & Adjustments
cations& Energy
Others$3,975$1,694$4,876$2,335$8,432$ー

Total$21,312Basis for Growth(5) Information about goodwill by reportable segment
Millions of yen
Environment &EnergyIndustrial
Materials &OthersAutomotive

Electronics

FY2016
Amortization

Infocommunications¥1,144

¥ 4

¥131

¥54

¥ 473

¥ 1,806

Balance at end¥6,801

¥－

¥ 13

¥81

¥4,062¥10,957

Total

Financial Information

Millions of yen
Environment &EnergyIndustrial
Materials &OthersAutomotive

Electronics

FY2015
Amortization

Infocommunications¥1,342¥5¥181¥2,278¥ 38¥3,844

Balance at end¥8,440

¥4

¥168

¥ 135

¥140

¥8,887

Total

Thousands of U.S. dollars

FY2016
Amortization

Infocommunications$10,197$36$1,168$481$ 4,216$16,098

Balance at end$60,620

$－

$ 116

$722

$36,207$97,665

Corporate Information

Electronics

62

SUMITOMO ELECTRIC Annual Report 2017

- 33 -

Environment &EnergyIndustrial
Materials &OthersAutomotive

TotalNotes to Consolidated Financial Statements
19. RELATED PARTY INFORMATION
Overview

Notes to significant affiliates
Condensed financial information of a significant affiliate, Sumitomo Rubber Industries, Ltd., that has a fiscal year ending

FY2016
Total current assets

Millions of yen

Thousands of
U.S. dollars¥412,559$3,677,324

Total non-current assets

485,075

4,323,692

Total current liabilities

252,0032,246,216

Total non-current liabilities

186,090

1,658,704

Total equity

459,541

4,096,096

Sales revenue

756,696

6,744,772

Profit before tax

70,093624,770

41,364

368,696

Business Review

December 31, at the end of FY2016 is as follows:

Profit for the year attributable to:
Owners of the parent company

Condensed financial information of a significant affiliate, Sumitomo Rubber Industries, Ltd., that has a fiscal year ending
December 31, at the end of FY2015 is as follows:
Millions of yen¥433,408

Total non-current assets

502,746

Total current liabilities

284,170

Total non-current liabilities

198,216

Total net assets

453,768

Sales

848,663

Profit before income taxes

73,929Profit attributable to owners of
the parent

Basis for Growth

FY2015
Total current assets

55,834

20. OTHER
The Company is in negotiations with some automakers for compensation regarding violation of antitrust law in the

Corporate Information

Financial Information

Automotive segment.

- 34 -SUMITOMO ELECTRIC Annual Report 2017

63

64

SUMITOMO ELECTRIC Annual Report 2017

Corporate Information

Financial Information

Basis for GrowthBusiness Review

Overview

SUMITOMO ELECTRIC Annual Report 2017

65

Corporate Information

Financial Information

Basis for GrowthBusiness Review

Overview

Corporate Information

Overview

History

1897

Establishment
The history of Sumitomo Electric Industries, Ltd., started in1897 when the House of Sumitomo established theSumitomo Copper Rolling Works to manufacture and market
bare copper wire.

1970 Started production of compound semiconductors
1971 Opened the Kanto Works
1974 Started production of optical fiber cables

1900 Started production of coated wires
1975 Contracted to construct a power transmission line in Iran1908 Started production of power cables
Received an order for a large telecommunications network

Business Review

1909 Started trial production of telecommunication cables

Delivered and put into operation the world’s first bidirectional

1911

Established Sumitomo Electric Wire & Cable Works
Laid first Japan-made high-voltage underground cables

1978 fiber optics CATV system called Hi-OVIS

1916

Opened a new factory (now the Osaka Works)
Started production of enamel wires

1981 time

1920 limited company

Sumitomo Electric Wire & Cable Works incorporated as a1982 diamonds (1.2 carats)

1931 Started production of cemented carbide tools

1996 voltage superconducting wires

1932 Started production of special steel wires
Basis for Growth

1976 construction project in Nigeria

Changed to current company name, Sumitomo Electric

1939 Industries, Ltd.

1941 Opened the Itami Works
Started production of vibration-proof rubber products and fuel1943 tanks

1946 Opened a branch office in Tokyo (now the Tokyo Head Office)

Delivered and installed fiber optic LAN systems for the first

Succeeded in producing the world’s-largest-class synthetic

Developed technology for producing long-length oxide high-1998 Developed and started marketing ecology wires and cables
Sumitomo Electric Fine Polymer, Inc. (fine polymer products)

1999 started operation

J-Power Systems Corporation (high-voltage power cables)

2001 started operation

Sumitomo Electric Networks, Inc. (network equipment),
Sumitomo (SEI) Steel Wire Corp. (special steel wires) and2002 Sumitomo Electric Wintec, Inc. (magnet wires) started
operation

1948 Started marketing sintered powder metal products

Financial Information

1949

2003 Corp. (powder metal and diamond products) started

Delivered the first Japan-made television broadcasting

2004 A.L.M.T. Corp. became a wholly owned subsidiary1957 antennas
1961

1962

Opened the Yokohama Works
Delivered wiring harnesses for four-wheel vehicles for the
first time
Started production of IrraxTM tube electron beam irradiation
tubes
Moved head office from Osaka’s Konohana Ward to present
location in Chuo Ward

Corporate Information

1963 Started production of disc brakes
1964 Started production of electron beam irradiation wires
1968 Entered the traffic control systems business
Established first overseas production subsidiary in Thailand

1969 (SIAM Electric Industries Co., Ltd.)Started development of flexible printed circuits (FPCs)

66

Sumiden Hitachi Cable Ltd. (wires and cables for buildings
and industrial equipment) and Sumitomo Electric HardmetalEntered the construction business with overhead transmission
lines

SUMITOMO ELECTRIC Annual Report 2017

operation

The HTS cable used in a power transmission grid in the U.S.

2006 started supplying electricity

Sumitomo Wiring Systems, Ltd. became a wholly owned

2007 subsidiary

Nissin Electric Co., Ltd. became a consolidated subsidiary2008 Opened the Technical Training Center
Eudyna Devices Inc. became a wholly owned subsidiary and2009 changed its trade name to Sumitomo Electric Device
Innovations, Inc.

Opened WinD Lab, a new laboratory building at Osaka Works

2010 SEI Optifrontier Co., Ltd. started in the lightwave network
product business2014 J-Power Systems became a wholly owned subsidiaryCorporate Information

ESTABLISHED1897
NUMBER OF EMPLOYEES
Consolidated: 248,330
Non-Consolidated: 5,034
DOMESTIC WORKS
Osaka Works
1-1-3, Shimaya, Konohana-ku,
Osaka 554-0024, Japan
Main Products:
Electric conductors, electric power cables,
power line construction and engineering,
information systems, control systems,
high-frequency products, hybrid products
Itami Works
1-1-1, Koyakita, Itami,
Hyogo 664-0016, Japan
Main Products:
Special steel wires, powdered alloys,
sintered powder metal products, diamond products,
compound semiconductors
Yokohama Works
1, Taya-cho, Sakae-ku,
Yokohama 244-8588, Japan
Main Products:
Optical fiber cables, telecommunication cables,
optical connectors, optical fiber fusion splicers,
optical amplifiers, optical transmission components
COMMON STOCK
Issued: 793,940,571 shares

Shareholding
Percentage(%)

Japan Trustee Services Bank, Ltd.
(trust account)

61,136

7.84

The Master Trust Bank of Japan, Ltd.
(trust account)

49,536

6.35

Nippon Life Insurance Company

24,703

3.17

SUMITOMO LIFE INSURANCE COMPANY

15,556

1.99

Japan Trustee Services Bank, Ltd.
(trust account 5)

14,4901.86

Japan Trustee Services Bank, Ltd.
(trust account 9)

14,099

1.81

GOVERNMENT OF NORWAY

11,851

1.52

STATE STREET BANK WEST CLIENT –TREATY 505234

11,475

1.47

Japan Trustee Services Bank, Ltd.
(trust account 7)

10,907

1.40

Japan Trustee Services Bank, Ltd.
(trust account 1)

10,739

1.38

Total

224,496

28.78

Business Review

HEAD OFFICE (TOKYO)
Akasaka Center Building, 1-3-13, Motoakasaka,
Minato-ku, Tokyo 107-8468, Japan

Number of
Shares Held(Thousands)

Basis for Growth

HEAD OFFICE (OSAKA)
5-33, Kitahama 4-chome, Chuo-ku, Osaka 541-0041, Japan

PRINCIPAL SHAREHOLDERSSHARE PRICE
(Yen)
2,000

1,800
1,600
1,400
1,200
1,000

Apr.

May

Financial Information

Sumitomo Electric Industries, Ltd.
(As of March 31, 2017)

Overview

Company Information

Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.
2016

2017

BREAKDOWN OF SHAREHOLDERS
Financial Institutions
320,768 thousand shares
40.40% (Shareholders: 172)

Securities Companies

STOCK EXCHANGE LISTINGS
Three domestic stock and securities exchanges:
Tokyo, Nagoya, and Fukuoka
Ticker Code: 5802
SHAREHOLDER REGISTER MANAGER
Sumitomo Mitsui Trust Bank, Limited.
1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan

19,685 thousand shares
2.48% (Shareholders: 57)

Other Corporations
36,081 thousand shares
4.54% (Shareholders: 605)

Corporate Information

NUMBER OF SHAREHOLDERS
53,832

Individuals and Others
85,450 thousand shares
10.76% (Shareholders: 52,220)

Foreign Investors
318,102 thousand shares
40.07% (Shareholders: 777)

Treasury Stock

13,853 thousand shares
1.75%

SUMITOMO ELECTRIC Annual Report 201767

4-5-33, Kitahama, Chuo-ku, Osaka 541-0041, Japan
Tel: +81 (6) 6220-4141
Fax: +81 (6) 6222-3380
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