Annual Business Report

April 1, 2016 through March 31, 2017

NIPPON SHARYO, LTD. and Consolidated Subsidiaries

Financial Highlights
Comparison of Sales by Segment
Business Segment(Unit: millions of yen)

188th period(2016-2017)

187th period(2015-2016)

Railway rolling stock

48,55448.0

Transportation equipment
and Steel structure

21,983

Construction equipment%

Increase/(Decrease)65,85859.3

21.8

19,06822,420

22.2

Other

8,137

Total

101,094%%(17,304)(26.3)

17.2

2,915

15.3

21,138

19.0

1,282

6.1

8.0

4,943

4.5

3,194

64.6

100.0

111,007

100.0(9,913)(8.9)

Change in Operating Performance and Asset Status(Unit: millions of yen except Net income per share)

Titles of account

188th period(2016-2017)

187th period(2015-2016)

186th period(2014-2015)

Net sales

101,094

111,007

96,299Ordinary income (loss)(5,149)(10,174)(8,234)

Net income (loss) attributableto owners of the parent(5,124)(16,130)(14,568)

Net income per share (loss)(¥35.50)(¥111.74)(¥100.91)

Total assets

129,194

132,265

145,137

Total equity

28,10933,38451,461Comparison of Sales by Segment(Millions of Yen)

140,000
120,000

Other

100,000

Construction equipment

80,00060,000Transportation equipment
and Steel structure

40,000Railway rolling stock

20,0000

188th period

187th period

186th period

Contents
Message from the President

2

Review by Segment

4

Investment in Plant and Equipment

6

Financing Activities

6

Consolidated Financial Statements and Independent Auditor's Report

7

Corporate Information

41

Directory

41

N700A Shinkansen Super-express E.M.U

1

Message from the President
Review of Business Operations
During the fiscal term under review, the Japanese economy showed improvement in employment as aresult of various economic policies and continued to recover as overseas economies showed moderatelevels of recovery although production and exports were sluggish due to the influence of the economic
slowdown of emerging nations.
Under this business environment, our performance showed a decrease in sales of railway rollingstock, totaling ￥101,094 million, down 8.9% from the previous year. In terms of profits, we madeprovisions for losses from some overseas railway rolling stock projects. As a result, the operating
loss was ￥5,104 million (the operating loss in the previous year was ￥10,172 million) and the ordinary
loss was ￥5,149 million (the ordinary loss in the previous year was ￥10,174 million), and the net loss
attributable to owners of the parent was ￥5,124 million (the net loss in the previous year was ￥16,130
million).

The Outlook
In the railway rolling stock business, the overall trend in the domestic market suggests that the midto long-term market expansion will remain poor and demands will mainly come from replacement
demands of existing railcars, thus the business environment is presumed to remain challenging. In
such a situation, we will continue to make efforts to enhance a competitive edge by differentiating
ourselves from competitors through technological developments as well as cost reductions throughimprovements in efficiency of production processes, etc. In terms of Asian markets, we will makeefforts in keeping losses in check by reviewing project execution structures in the large railway
rolling stock project for Indonesia. As for our North American business especially for the large
railway rolling stock project for the U.S.A. which makes a huge loss, we have consistent approach to
implement the project stably and consistently by taking actions such as assigning dedicated personnel
in the design department. However, we were faced with technical challenges while responding todesign changes and we offered the customer about the difficulty to execute this project as planned andcurrently in negotiation with them. We will continue to discuss with the customer to decide upon adirection to properly carry out this project. We are working toward early resolution of these issues andimprovement of performance.
In the transportation equipment and steel structure business, the transportation equipment businessis facing difficulties in winning orders. We will, however, continue to make efforts in developing
products which promptly capture market trends, further reducing costs in order to secure orders, anddevelop new customers. Our efforts in the steel structure business will be focused on enhancing ourability to propose technological solutions that match customer needs and reducing costs in terms oforders of new bridges. As we continue to secure incoming orders, we will also develop our business inperipheral areas such as repair/maintenance projects.
In the construction equipment business, we will capture business opportunities by maintaining andconsolidating the production system to respond to steadily growing domestic demands and responding
to local needs in Asia and other overseas markets in a flexible manner.
2

In other businesses, we will make efforts in securing profits by proposing products that cater to market
needs.
Our major products - such as railcars and bridges - are mostly built to order and order units are also
relatively large; therefore, the breakdown of the production and sales numbers changes greatly fromyear to year. This fluctuation poses permanent challenges to us; we must level the capacity utilization
rate and effectively handle various specifications. Most of our projects require a long period of timefrom order to delivery, which greatly affects management performance because of changes in raw
material costs and fluctuations in foreign exchange rates. We will make efforts to curtail cost increases
by taking measures such as optimization of raw material procurement timing, yield increase, andmaterial changes. We will also make efforts to reduce risks against foreign exchange fluctuation byhedging, such as foreign exchange contracts.
We anticipates a loss in the large railway rolling stock project for Indonesia,, as well as a loss
associated with railcars delivered to compensate for the option rights attached to the railway rollingstock project in the U.S.A. In another large railway rolling stock project in the U.S.A., a further
increase in manufacturing cost is expected due to the review of the design of the basic vehicle
structure. We rationally calculated these losses and recorded a provision in this consolidated fiscal
year. As a result, an operating loss was recorded for three consecutive years.
Considering these circumstances, we are well aware of events and situations which may raisesignificant doubt concerning the ongoing viability of our company. In such a circumstance with issues
in each business segment requiring resolution, we will make efforts to enhance the profitability not
only by aiming at improvement of our overseas business but also by promoting a further reductionof the raw material costs and expenses and trying to increase sales in the domestic business. As forfinancial arrangements, we participate in the CMS (Cash Management System) operated by ourparent company (Central Japan Railway Company (hereinafter called as "JR Central")) group andcan raise operating funds promptly from CMS, thanks to a strong coordination with the parent
company. Therefore, we are able to secure funds which
can sufficiently meet demands anticipated from thefunding plan. In addition, factory assets were transferredto the parent company and some non-business assets
were transferred to some domestic businesses as ofthe end of the consolidated fiscal year. Proceeds fromthese transactions were used to repay, in advance, thefull amount of long-term loans remaining with financial
institutions as of the end of this consolidated fiscal year.
We are making these efforts to optimize the management
resources and improve the financial health of ourcompany. As we are taking measures to resolve issues andimprove the situation, we consider that there is no criticaluncertainty for any going concern.
Kazuhiro Igarashi
President and Chief Executive Officer
3

Review by Segment
Railway Rolling Stock BusinessIn the railway rolling stock business, oursales to the JR Companies amounted to￥21,822 million. It was achieved throughthe sales of the N700A Shinkansen
trains to JR Central and West Japan
Railway Company. Our sales for the
public and private railways reached￥12,478 million, including the sales of

N700A Shinkansen trains for JR Central and JR Westthe Series 1000 trains for Tokyo Metro Ginza
Line; the Model N3000 trains for Nagoya City’s
Transportation Bureau; the Series 2200, 3150,
and 3300 trains for Nagoya Railroad Co., Ltd.;the Model 12-600 trains for the Oedo Line of the
Bureau of Transportation Tokyo Metropolitan
G o ver n m ent ; t he Mo d el 3 0 0 0 t r a i n s forTransportation Bureau, City of Yokohama; andthe Model 3000 trains for Keisei Electric Railway
Series 2200 Trains for Nagoya Railroad Co., Ltd.

Co., Ltd. For railcars for overseas, we had sales of￥14,254 million, including Gallery type EMU andpassenger cars for the U.S.A. and diesel cars for the
U.S.A.
Consequently, our total sales for railway rollingstock recorded ￥48,554 million, down 26.3% fromthe previous year, with a reduction in railcars foroverseas.
Series 1000 trains for Tokyo Metro Ginza Line

Transportation Equipment andSteel Structure BusinessIn the transportation equipment business, sales ofcontainer freight cars increased and sales of LPG
tank lorries are steadily in good shape. As a result,sales reached ￥13,379 million, up 26.8% from theprevious year.

LPG Tank Lorry4

In the steel structure business, sales included
new bridge constr uction work of Hakur y u
Ohashi Bridge for the East Nippon Expressway
Company, Fukushigawa Second Bridge for theCentral Nippon Expressway Company, as well as
construction work of Tokiwagawa Overpass, andFujigawa First Overpass. In addition, large-scale

Sasashima live 24 East-West Deckrenovation work for the Tokaido Shinkansen isincluded in sales and sales were up 1.0% from the previous year to ￥8,605 million.
In all, sales for the transportation equipment and steel structure businesses were ￥21,983 million, up
15.3% from the previous year.

Construction Equipment BusinessIn the construction equipment business, the domestic sales in large
pile driving rigs showed an increase, due to reconstruction works arise
from the Great East Japan Earthquake and demands in public works
in anticipation of the Tokyo Olympic Games. The export businessincluded large pile driving rigs to South Korea. As a result, the salesof construction equipment totaled ￥19,282 million, up 9.2% from theprevious year.
The generator business saw ani ncrease i n sales of domestic

Pile driving rig

products although sales ofoverseas products were sluggish. The sales of generators were
￥3,138 million, down 9.7% from the previous year.
In all, sales in our construction equipment business were ￥22,420
Generator

million, up 6.1% from the previous year.

Other Businesses
Our main sales included; mechanical equipment for theSuperconducting Maglev system for JR Central; vehicle
inspection/repair facilities; repair work of agricultural
plants for Agricultural Cooperatives all over Japan;
paper-manufacturing equipment for household paper
5

Grinding device for the Front Nosemanufacturers; laser processing machines; and railway memorabilia. As a result, sales in otherbusinesses areas totaled ￥8,137 million, up 64.6% from the previous year thanks to an increase in
vehicle inspection/repair facilities.
The overseas sales for the year under review amount to ￥18,801 million, representing 18.6% of total
sales, which includes ￥14,254 million for the railway rolling stock business and ￥4,168 million for theconstruction equipment business.
The order on hand at the end of the year under review reached ￥156,877 million. These comprised￥125,500 million for the railway rolling stock business (￥54,838 million for rolling stock for JR
companies such as the N700A Shinkansen trains, ￥19,205 million for railcars for other public andprivate railway companies, ￥51,456 million for rolling stock for overseas), ￥25,959 million for thetransportation equipment and steel structure businesses (￥10,917 million for the transportationequipment, ￥15,042 million for steel structure businesses), ￥2,575 million for the construction
equipment business, and ￥2,843 million for other businesses.

Investment in Plant and Equipment
Plant and equipment investment during the year under review totaled ￥2,362 million. Investment
was mainly targeted at renewal of IT systems to streamline production control for the construction
equipment business and renewal of equipment to maintain/improve the production capacity at eachplant.

Financing Activities
As for the year under review, no significant borrowing occurred.

6

NIPPON SHARYO, LTD. ANDCONSOLIDATED SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2017AND
INDEPENDENT AUDITOR’S REPORT

7

INDEPENDENT AUDITOR’S REPORTTo the Board of Directors of NIPPON SHARYO, LTD.:
We have audited the accompanying consolidated balance sheet of NIPPON SHARYO, LTD. (the “Company”) and its
consolidated subsidiaries as of March 31, 2017, and the related consolidated statements of operations, comprehensive
income, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies andother explanatory information, all expressed in Japanese yen.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordancewith accounting principles generally accepted in Japan, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making thoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of theconsolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not forthe purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of NIPPON SHARYO, LTD. and its consolidated subsidiaries as of March 31, 2017, and theconsolidated results of their operations and their cash flows for the year then ended in accordance with accounting principles
generally accepted in Japan.

8Emphasis of Matter
As discussed in Note 2 n. to the consolidated financial statements, the Company had difficulty in the execution of a large
railway rolling stock project in the United States of America as scheduled to a customer. Depending on the result of thecurrent discussion with the customer about the direction of future project execution, the amount of loss could vary.
As discussed in Note 19 (transfer of fixed assets) to the consolidated financial statements, the Company sold its factory assets
to its parent company, Central Japan Railway Company on April 20, 2017 and its non-business use assets to domestic privatesector companies on April 27, 2017 and May 29, 2017.
As discussed in Note 19 (early redemption of long-term debt) to the consolidated financial statements, the Company early
redeemed its long-term debt from financial institutions on April 20, 2017 in full of the carrying amount as of March 31, 2017.
Accordingly, all collaterals pledged for long-term debt as of March 31, 2017 were released, and no debt is subject to financial
covenants.
Our opinion is not modified in respect of these matters.

Convenience Translation
Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S.
dollar amounts are presented solely for the convenience of readers outside Japan.

June 29, 2017

9

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Balance Sheet
March 31, 2017
Thousands of
U.S. Dollars(Note 1)Millions of Yen
ASSETS

2017

2016

2017

CURRENT ASSETS:¥

Cash and cash equivalents (Notes 14 and 17)

11,713¥

13,247$

104,584

Notes and accounts receivable (Notes 3, 14 and 17)

31,361

21,220280,010Inventories (Notes 2.i and 4)

30,09740,305

268,720

Deferred tax assets (Note 13)

60

80

536

Other current assets (Note 9)

1,824

2,169

16,280Total current assets

75,05577,021

670,130

Land (Note 9)

15,06515,089134,508

Buildings and structures (Note 9)27,622

28,042

246,627

Machinery and equipment

35,01834,850312,664

Construction in progress

171

109

1,525

77,87678,090695,324(47,887)(46,817)(427,563)

29,98931,273

267,761

Investment securities (Notes 5, 9 and 14)

16,765

16,975

149,689

Investments in an unconsolidated subsidiary and associatedcompanies

1,661

1,511

14,831

Asset for employees’ retirement benefits (Note 8)

4,082

3,982

36,449

86

91

768

1,556

1,412

13,88924,15023,971

215,626

PROPERTY, PLANT AND EQUIPMENT:

Total
Accumulated depreciation
Net property, plant, and equipment

INVESTMENTS AND OTHER ASSETS:

Deferred tax assets (Note 13)
Other assets (Note 9)
Total investments and other assets
¥

TOTAL

129,194¥

132,265$

1,153,517(Continued)

10

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Balance Sheet
March 31, 2017

Thousands of
U.S. Dollars(Note 1)
2017

Millions of Yen
LIABILITIES AND EQUITY

2017

2016

CURRENT LIABILITIES:¥

Short-term borrowings (Notes 7, 14 and 17)

1,595

¥

362

$

14,241

Current portion of long-term debt (Notes 7, 9 and 14)

5,000

-

44,643Current portion of lease obligations (Notes 11 and 14)

825

770

7,366

Notes and accounts payable (Notes 6 and 14)

23,00322,473205,387

Accrued expenses

9,708

9,988

86,676

Advances received

10,191

15,602

90,990

Income taxes payable (Note 14)

565

50

5,045

Allowance for work in process on construction contracts

430

117

3,842

Provision for loss on orders received (Note 2.n)

16,606

13,679148,265

Other current liabilities (Note 13)

2,456

257

21,934

Total current liabilities

70,37963,298628,389

19,174

24,174

171,193

259

242

2,310

Lease obligations (Notes 11 and 14)

1,764

1,600

15,754

Allowance for PCB disposal expenses

461

334

4,116

Provision for compensation for health damage from asbestos

92

134

821

8,680

8,746

77,502

276

353

2,463

30,70635,583274,159

LONG-TERM LIABILITIES:Long-term debt (Notes 7,9 and 14)
Liability for employees’ retirement benefits (Note 8)

Deferred tax liabilities (Note 13)
Other long-term liabilities
Total long-term liabilities
COMMITMENTS AND
CONTINGENT LIABILITIES (Notes 10 and 15)
EQUITY (Note 12):
Common stock, authorized, 328,000,000 shares;

11,811

11,811

105,453

Capital surplus

issued, 146,750,129 shares in 2017 and 2016

12,045

12,045

107,555

Retained earnings(3,157)

1,967(28,201)

(515)

(513)

(4,597)

6,905

7,013

61,6545(2)48

Foreign currency translation adjustments(2,068)(2,261)(18,472)

Defined retirement benefit plans

2,993

3,241

26,723

7,835

7,991

69,953

90

83

806

28,10933,384

250,969

Treasury stock, at cost, 2,402,654 shares in 2017and 2,396,024 shares in 2016
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting

Total accumulated other comprehensive income
Noncontrolling interests
Total equity
¥

TOTAL

129,194¥

132,265$

1,153,517(Concluded)

See notes to consolidated financial statements.

11

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Operations
Year Ended March 31, 2017

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2017¥

NET SALES (Note 17)
COST OF SALES (Notes 2.i, 2.m and 2.u)

2016¥

101,0942017

111,007$902,622

98,501

114,067

879,470

2,593(3,060)23,152

7,697

7,112

68,725(5,104)(10,172)(45,573)

Interest and dividend income (Note 17)

265

344

2,370

Interest expense (Note 17)

(178)

(189)

(1,588)Equity in earnings of associated companies

150

188

1,338

Gain on sales of investment securities, net (Note 5)

23

2

207

Loss on impairment of property, plant and equipment (Note 16)

(2)

(50)

(20)

Gain (loss) on sales and disposals of property, plant andequipment, net

603

(30)

5,382

Other – net

(291)

(347)

(2,601)

570

(82)

5,088

(4,534)(10,254)(40,485)

Current

450

117

4,016

Deferred

130

5,750

1,162

580

5,867

5,178

(5,114)(16,121)(45,663)

10

9

93

Gross profit (loss)

SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES (Note 2.u)Operating loss
OTHER INCOME (EXPENSES)

Other income (expenses) – net
LOSS BEFORE INCOME TAXESINCOME TAXES (Note 13):

Total income taxes
NET LOSSNET INCOME ATTRIBUTABLE TO NONCONTROLLINGINTERESTS
NET LOSS ATTRIBUTABLE TO OWNERS OF THE PARENT¥(5,124)¥(16,130)$(45,756)

U.S. Dollars

Yen
PER SHARE OF COMMON STOCK (Note 2.v):¥

Basic net loss
Cash dividends applicable to the year

(35.50)-See notes to consolidated financial statements.

12¥(111.74)-$(0.32)-

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Comprehensive Income
Year Ended March 31, 2017

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2017¥

NET LOSS2016(5,114)¥

2017(16,121)$(45,663)

OTHER COMPREHENSIVE LOSS (Note 18):
Unrealized loss on available-for-sale securities

(124)

(477)

(1,106)242

23

Foreign currency translation adjustments

202

(133)

1,803

Defined retirement benefit plans(248)(1,467)(2,218)

12

33

103

(156)

(2,002)(1,395)

Deferred gain on derivatives under hedge accounting

Share of other comprehensive income in associatedcompanies
Total other comprehensive loss
COMPREHENSIVE LOSS¥

(5,270)¥(18,123)$(47,058)¥(5,280)¥(18,132)$(47,151)TOTAL COMPREHENSIVE (LOSS) INCOME
ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests

10

See notes to consolidated financial statements.

13

9

93

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Changes in Equity
Year Ended March 31, 2017
Millions of Yen

Number ofshares ofcommon stock
outstanding
BALANCE, APRIL 1, 2015

144,361,501

Net loss attributable to owners of
the parent¥

CommonCapitalRetained

Treasurystock

surplusearnings

stock

11,811¥

12,045¥18,049

¥

(511)

-

-

-

(16,130)-(7,396)

-

-

-

(2)

Change due to increase in numberof associated companies

-

-

-

48

-

Net changes in the year

-

-

-

-

-

144,354,105

11,811

12,045

1,967

(513)

-

-

-

(5,124)-(6,630)

-

-

-

(2)

-

-

-

-

-

Increase in treasury stock, net

BALANCE, MARCH 31, 2016
Net loss attributable to owners of
the parent
Increase in treasury stock, net
Net changes in the year
BALANCE, MARCH 31, 2017

144,347,475¥

11,811¥

12,045¥(3,157)¥(515)

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2016$

CommonCapitalRetained

Treasurystock

surplusearnings

stock

105,453$

107,555$

17,555$(4,582)Net loss attributable to ownersof the parent--(45,756)-

Increase in treasury stock, net

-

-

-

(15)

Net changes in the year

-

-

-

-

BALANCE, MARCH 31, 2017$

105,453

See notes to consolidated financial statements.

14$

107,555$(28,201)$(4,597)

Millions of Yen
Accumulated other comprehensive income
Unrealized
gain onavailable-forsale securities

Deferredgain (loss) on
derivatives
under hedge
accounting

Foreigncurrencytranslation
adjustments

¥

¥

¥

¥

7,486

(47)

Total
accumulated
othercomprehensive
incomeDefinedretirement
benefitplans(2,155)

¥

4,709

¥

9,993

Noncontrolling

Totalinterests

equity¥74¥

51,461

-

-

-

-

-

-

(16,130)

-

-

-

-

-

-

(2)

-

(45)

56

-

11

-

59

(473)

90

(162)

(1,468)(2,013)9(2,004)

7,013

(2)

(2,261)

3,241

7,991

83

33,384

-

-

-

-

-

-

(5,124)

-

-

-

-

-

-

(2)

(108)

7

193

(248)

(156)

7

(149)

6,905

¥

5

¥

(2,068)

¥

2,993

¥

7,835

¥

90

¥

28,109Thousands of U.S. Dollars (Note 1)
Accumulated other comprehensive income
Unrealized
gain onavailable-forsale securities

Deferredgain (loss) on
derivatives
under hedge
accounting

Foreigncurrencytranslation
adjustments

Definedretirement
benefit plans

Total
accumulated
othercomprehensive
income

$

$

$

$

$

$

62,614(18)(20,190)

28,941

71,347

Noncontrolling

Totalinterests

equity$738$

298,066

-

-

-

-

-

-

(45,756)

-

-

-

-

-

-

(15)

(960)

66

(1,718)(2,218)(1,394)68(1,326)

61,654$48$(18,472)$

26,723

15$

69,953$806$

250,969

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Cash Flows
Year Ended March 31, 2017
Thousands of U.S.
Dollars(Note 1)

Millions of Yen
2017

2016

2017

OPERATING ACTIVITIES:¥

Loss before income taxes(4,534)¥(10,254)$(40,485)

Adjustments for:
Income taxes-refund (paid)

423

(333)

3,777

2,730

2,888

24,3772

50

20(Gain) loss on sales and disposals of property, plant and equipment

(623)

4

(5,561)Gain on sales of investment securities

(23)

(2)

(207)

(10,685)8,599(95,404)

9,064

7,974

80,930

Increase in trade notes and accounts payable

659

116

5,885

Increase in allowance for work in process on construction contracts

314

108

2,800

3,638

4,113

32,479

(42)

(15)

(375)

(4,547)(13,215)(40,599)

17

13

153

1,269

2,288

11,331(2,338)2,334(20,879)(1,077)(1,704)(9,620)

Proceeds from sales of property, plant and equipment

898

86

8,013

Purchases of investment securities

(4)

(15)

(32)

Proceeds from sales of investment securities

34

2

302

(405)

14

(3,606)(554)(1,617)(4,943)

1,268(9,618)

11,326

Proceeds from long-term debt-

19,174-

Dividends paid

(0)

(1)

(4)

Other-net

(93)

(86)

(829)

1,175

9,469

10,493

183

(120)

1,635

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS(1,534)

10,066(13,694)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

13,2473,181

118,277

Depreciation
Loss on impairment of property, plant and equipment

Changes in assets and liabilities:(Increase) decrease in trade notes and accounts receivable
Decrease in inventories

Increase in provision for loss on orders received
Decrease in provision for compensation for health damage from asbestos
Decrease in advances received
Increase in liability for employees’ retirement benefits
Other-net
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES:
Purchases of property, plant and equipment

Other-net
Net cash used in investing activities
FINANCING ACTIVITIES:Net increase (decrease) in short-term borrowings

Net cash provided by financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS¥

CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

16

11,713¥

13,247$

104,584

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Year Ended March 31, 2017─────────────────────────────
1. BASIS OF PRESENTATION OF CONSOLIDATEDFINANCIAL STATEMENTS

unrealized profit included in assets resulting fromtransactions within the Group is also eliminated.
T he number of the consolidated subsidiaries,
unconsolidated subsidiary, and associated companies forthe years ended March 31, 2017 and 2016, was as follows:

The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forthin the Japanese Financial Instruments and Exchange Act
and its related accounting regulations and in accordancewith accounting principles generally accepted in Japan(“Japanese GA A P”), which are different in certain
respects as to the application and disclosure requirementsof International Financial Reporting Standards (IFRS).

Consolidated subsidiaries
Unconsolidated subsidiary stated at cost
Associated companies accounted for by the equity method
Associated company stated at cost

2017
6
1
3
1

2016
6
1
3
1

T he fiscal year- end of N I PPON SH A RYO U.S. A .,I N C . a n d i t s s u b s i d i a r i e s , N I P P O N S H A RYO
MANUFACTURING, LLC, and NIPPON SHARYOENGINEERING & MARKETING, LLC is December 31
and their financial statements with the closest closing dateprior to that of the Company are used for consolidation
pu r p o s e s . Ne c e s sa r y adju st ment s for sig n i f ic a nt
transactions from January 1 to March 31 are made forconsolidation purposes.

In preparing these consolidated financial statements,
certain reclassifications and rearrangements have been
made to the consolidated financial statements issued
domestically in order to present them in a form which
is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2016
consolidated financial statements to conform to theclassifications used in 2017.
The consolidated financial statements are stated inJapanese yen, the currency of the country in which NIPPONSHARYO, LTD. (the “Company”) is incorporated andoperates. The translations of Japanese yen amounts into
U.S. dollar amounts are included solely for the convenienceof readers outside Japan and have been made at the rateof ¥112 to $1, the approximate rate of exchange at March
31, 2017. Such translations should not be construed as
representations that the Japanese yen amounts could be
converted into U.S. dollars at that or any other rate.

For the equity method associated companies that havea different fiscal year from that of the Company, theassociated companies’ financial statements with the closest
closing date prior to that of the Company are used forconsolidation purposes.
b. Unification of accounting policies applied to foreignsubsidiaries for the consolidated financial statements
Under Accounting Standards Board of Japan (“ASBJ”)
Practical Issues Task Force (“PITF”) No. 18, “Practical
Solution on Unification of Accounting Policies Applied
to Foreign Subsidiaries for the Consolidated Financial
Statements,” the accounting policies and procedures
applied to a parent company and its subsidiaries for similartransactions and events under similar circumstances
should, in principle, be unified for the preparation of theconsolidated financial statements. However, financial
statements prepared by foreign subsidiaries in accordancewith either IFRS or generally accepted accounting
principles in the United States of America (Financial
Accounting Standards Board Accounting Standards
Codification-“FASB ASC”) tentatively may be used forthe consolidation process, except for the following items
that should be adjusted in the consolidation process so thatnet income is accounted for in accordance with Japanese
GAAP, unless they are not material: (a) amortization of
goodwill; (b) scheduled amortization of actuarial gain orloss of pensions that has been recorded in equity throughother comprehensive income; (c) expensing capitalized
development costs of research and development (R&D);
and (d) cancellation of the fair value model of accounting
for proper t y, plant and equipment and i nvestment
properties and incorporation of the cost model accounting.

─────────────────────────────
2 . SU M M A RY OF SIGN I F ICA N T ACCOU N T I NG
POLICIES
a. Consolidation
The consolidated financial statements as of March 31, 2017,
include the accounts of the Company and its significant
subsidiaries (together, the “Group”). Under the control
and influence concepts, those companies in which theCompany, directly or indirectly, is able to exercise control
over operations are fully consolidated and those companies
over which the Group has the ability to exercise significant
influence are accounted for by the equity method.
Investment in associated companies are accounted forby the equity method. Investments in the remaining
unconsolidated subsidiary and associated company arestated at cost. If the equity method of accounting had been
applied to the investments in these companies, the effecton the accompanying consolidated financial statements
would not be material.
All significant intercompany balances and transactions
have been eliminated in consolidation. All material17

c. Unification of accounting policies applied to associatedcompanies for the equity method
A SBJ Statement No. 16, “Accounting Standard for
Equity Method of Accounting for Investments,” requires
adjustments to be made to conform the associate’s
accounting policies for similar transactions and events
under similar circumstances to those of the parent
company when the associate’s financial statements are used
in applying the equity method, unless it is impracticable todetermine adjustments.

cost determined by the moving-average method. For otherthan-temporary declines in fair value, investment securities
are reduced to net realizable value by a charge to income.
g. Derivatives and hedging activities
The Group uses derivative financial instruments tomanage its exposures to fluctuations in foreign exchange
and interest rates. Forward foreign currency contracts,
currency swaps, and interest rate swaps are utilized by theGroup to reduce foreign currency exchange and interest
rate risks. The Group does not enter into derivatives for
trading or speculative purposes.

d. Business combinations
Business combinations are accounted for using thepurchase method. Acquisition-related costs, such asadvisory fees or professional fees, are accounted for as
expenses in the periods in which the costs are incurred.
If the initial accounting for a business combination isincomplete by the end of the reporting period in which
the business combination occurs, an acquirer shall reportin its financial statements provisional amounts for theitems for which the accounting is incomplete. During themeasurement period, which shall not exceed one year fromthe acquisition, the acquirer shall retrospectively adjust
the provisional amounts recognized at the acquisition
date to reflect new information obtained about facts
and circumstances that existed as of the acquisition date
and that would have affected the measurement of theamounts recognized as of that date. Such adjustments
shall be recognized as if the accounting for the businesscombination had been completed at the acquisition date.
A parent’s ownership interest in a subsidiary might change
if the parent purchases or sells ownership interests in
its subsidiary. The carrying amount of noncontrollinginterest is adjusted to reflect the change in the parent’s
ownership interest in its subsidiary while the parent retains
its controlling interest in its subsidiary. Any difference
between the fair value of the consideration received or
paid and the amount by which the noncontrolling interestis adjusted is accounted for as capital surplus as long as theparent retains control over its subsidiary.

Derivative financial instruments and foreign currencytransactions are classified and accounted for as follows: 1)
all derivatives are recognized as either assets or liabilities
and measured at fair value and gains and losses onderivative transactions are recognized in the consolidated
statement of operations and 2) for derivatives used forhedging purposes, if such derivatives qualify for hedge
accounting because of high correlation and effectivenessbetween the hedging instruments and the hedged items,
gains and losses on derivatives are deferred until maturityof the hedged transactions.
The forward foreign currency contracts are utilized tohedge foreign currency exposures in sales of merchandiseand finished goods to overseas customers and procurementof raw materials from overseas suppliers. Trade receivables
and payables denominated in foreign currencies aretranslated at the contracted rates if the forward contracts
qualify for hedge accounting. The currency swaps are
utilized to hedge foreign currency exposures in long-term
debt. Long-term debt is translated at the contracted rates
if the currency swaps qualify for hedge accounting.
The interest rate swaps, which qualify for hedge accounting
and meet specific matching criteria, are not remeasured atmarket value, but the differential paid or received under
the swap agreements is recognized and included in interest
expense or income.

e. Cash equivalents
Cash equivalents are short-term investments that arereadily convertible into cash and exposed to insignificant
risk of changes in value.

h. Allowance for doubtful accounts
An allowance for doubtful accounts is provided for at
the aggregate amount of estimated credit loss based on
an individual analysis of certain doubtful or troubled
receivables and a general reserve for other receivables iscalculated based on the historical loss experience.

C a sh equ i va lent s i nclude ti me dep osit s a nd C a sh
Management System (“CMS”) funds due from Central
Japan Railway Company (“CJR”) group, all of whichmature or become due within three months from the dateof acquisition. CJR is the parent company of the Company.

i. Inventories
Inventories are stated at the lower of cost, determinedprincipally by the specific identification method formerchandise, finished goods and work in process andby the moving-average method for semi-finished goods,
raw materials, and supplies, or net selling value, which
is defined as the selling price, less additional estimatedmanufacturing costs and estimated direct selling expenses.
The replacement cost may be used in place of the net
selling value, if appropriate. Write-downs of inventories
in the amounts of ¥3,684 million ($32,889 thousand) and¥3,427 million for the years ended March 31, 2017 andf. Investment securities
Investment securities are classified and accounted for,depending on management’s intent, as follows:
Available-for-sale securities are reported at fair value,with unrealized gains and losses, net of applicable taxes,
reported in a separate component of equity.
Nonmarketable available-for-sale securities are stated at

18

n. Provision for loss on orders received
A provision for loss on orders received, except for
construction contracts, is recorded based on an estimateof the total loss in respect to contracts on which eventual
losses are deemed inevitable and the amounts of the loss
can be reasonably estimated.

2016, respectively, were included in cost of sales.
j. Property, plant and equipment
Property, plant and equipment, including significant
renewals and additions, are stated at cost and are
depreciated principally by the straight-line method forbuildings and building improvements and structuresacquired on or after April 1, 2016, and by the decliningbalance method for other property at rates based on theestimated useful lives of the assets.

With regard to the order received amounting to ¥38,661
million ($345,184 thousand) for a large railway rollingstock project, a loss of ¥22 ,777 m i l lion ($2 03, 363
thousand) was reasonably estimated as of March 31, 2017,of which an amount of ¥10,404 million ($92,893 thousand)was recognized as a provision for loss on orders received
after offsetting with the inventories associated with therespective project in the amount of ¥12,373 million($110,470 thousand). Technological problems to respondto design changes caused the difficulty in the scheduled
execution of the project. Depending on the result of thecurrent discussion with the customer about the direction of
the future project execution, the amount of loss could vary.

Depreciation of leased assets relating to financial leasetransactions without transfer of ownership is computed by
the straight-line method over the leased period.
The range of useful lives is principally from 10 to 60 years
for buildings and structures and from six to 17 years formachinery and equipment.
Pursuant to an amendment to the Corporate Tax Act,
the Group adopted ASBJ PITF Force No. 32 “Practical
Solution on a change in depreciation method due to Tax
Reform 2016” and changed the depreciation method forbuilding improvements and structures acquired on or after
April 1, 2016 from the declining-balance method to thestraight-line method.

o. Retirement and pension plans
The Company has a lump-sum retirement benefit plan, adefined contribution pension plan and a defined benefit
pension plan. The Company’s domestic consolidated
subsidiaries have similar retirement benefit plans.

The effect of this change on profit/loss for the fiscal year
ended March 31, 2017 is immaterial.

Liabilities for employees’ retirement benefits are calculated
based on the projected benefit obligations and plan assets
at the consolidated balance sheet date. The projected
benefit obligations are attributed to periods on a benefit
formula basis. Prior service costs are amortized on astraight-line basis over 15 years, which is within the averageremaining service period. Actuarial gains and losses areamortized on a straight-line basis mainly over 15 years,
which is within the average remaining service period in thefollowing the fiscal year.

k. Long-lived assets
The Group reviews its long-lived assets for impairment
whenever events or changes in circumstance indicate thatthe carrying amount of an asset or asset group may not
be recoverable. An impairment loss is recognized if thecarrying amount of an asset or asset group exceeds thesum of the undiscounted future cash flows expected toresult from the continued use and eventual disposition of
the asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is thehigher of the discounted cash flows from the continued use
and eventual disposition of the asset or the net selling value
at disposition.

p. Allowance for Polychlorinated Biphenyl (PCB) disposal
expensesAn allowance for PCB disposal expenses has been provided
based on the published estimated disposal fee scheduleissued by the Japan Environmental Safety Corporation.
q. Provision for compensation for health damage from asbestos
A provision for compensation for health damage fromasbestos has been recorded based on the estimatedcompensation amount for former employees who sufferedhealth damage from asbestos.

l. Intangible assets
Intangible assets that are included in other assets areamortized by the straight-line method. Software costs areamortized over five years.
m. Allowance for work in process on construction contracts
An allowance for work in process on construction contracts
is provided based on an estimate of the total loss inrespect to construction projects on which eventual losses
are deemed inevitable and the amounts of the loss canbe reasonably estimated. Provisions for work in process
on construction contracts in the amounts of ¥314 million($2,800 thousand) and ¥108 million for the years ended
March 31, 2017 and 2016, respectively, were included incost of sales.

r. Income taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statementof operations. The asset and liability approach is used
to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets
and liabilities. Deferred taxes are measured by applying
currently enacted tax rates to the temporary differences.
The Company applied ASBJ Guidance No. 26, “Guidance19

on Recoverability of Deferred Tax Assets,” effective April
1, 2016. There was no impact from this for the year ended
March 31, 2017.

construction revenue, an estimated loss on the contract
should be immediately recognized by providing for a loss
on such construction contracts.

s. Foreign currency transactions
All short-term and long-term monetary receivables andpayables denominated in foreign currencies are translated
into Japanese yen at the exchange rates at the consolidatedbalance sheet date. The foreign exchange gains andlosses from translation are recognized in the consolidated
statement of operations to the extent that they are nothedged by forward exchange contracts.

x. Accounting changes and error corrections
Under ASBJ Statement No. 24, “Accounting Standard for
Accounting Changes and Error Corrections” and ASBJ
Guidance No. 24, “Guidance on Accounting Standard for
Accounting Changes and Error Corrections,” accounting
treatments are required as follows: (1) Changes in
Accounting Policies—When a new accounting policy isapplied following revision of an accounting standard,
the new policy is applied retrospectively, unless therevised accounting standard includes specific transitional
provisions, in which case the entity shall comply withthe specific transitional provisions. (2) Changes in
Presentation —W hen the presentation of f i nancial
statements is changed, prior-period financial statements
are reclassified in accordance with the new presentation.
(3) Changes in Accounting Estimates—A change in an
accounting estimate is accounted for in the period of
the change if the change affects that period only, and isaccounted for prospectively if the change affects both theperiod of the change and future periods. (4) Correctionsof Prior-Period Errors—When an error in prior-period
consolidated financial statements is discovered, thosestatements are restated.

t. Foreign currency financial statements
The balance sheet accounts of the consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the consolidated balance sheet date,
except for equity, which is translated at the historical rate.
Revenue and expense accounts of consolidated foreignsubsidiaries are translated into yen at the average exchange
rate. Differences arising from such translation are
shown as foreign currency translation adjustments underaccumulated other comprehensive income in a separate
component of equity.
u. R&D expenses
Expenses related to R&D activities are charged to income
as incurred. R&D expenses amounted to ¥1,579 million($14,094 thousand) and ¥1,440 million for the years ended
March 31, 2017 and 2016, respectively, and are included ingeneral and administrative expenses and manufacturingcosts in the accompanying consolidated statement ofoperations.
v. Per share information
Basic net loss per share is computed by dividing net loss
attributable to common shareholders by the weightedaverage number of shares of common stock outstanding
during the respective year. Weighted-average numberof shares of common stock for the years ended March
31, 2017 and 2016, were 144,351 thousand shares and144,357 thousand shares, respectively. Diluted net loss
per share for the years ended March 31, 2017 and 2016,
was not applicable because the Company had no dilutive
common shares. Cash dividends per share presented in
the accompanying consolidated statement of operations
are dividends applicable to the respective years, including
dividends to be paid after the end of the year.
w. Construction contracts
C on st r uc t ion revenue a nd c on st r uc t ion c o st s a rerecognized by the percentage-of-completion method if
the outcome of a construction contract can be estimatedrel iabl y. W hen tot a l c on st r uc t ion revenue, tot a lconstruction costs and the stage of completion of thecontract at the consolidated balance sheet date can bereliably measured, the outcome of a construction contract
is deemed to be estimated reliably. If the outcome of aconstruction contract cannot be reliably estimated, thecompleted-contract method should be applied. When it isprobable that the total construction costs will exceed total20───────────────────────────────────────────────────────
3. NOTES AND ACCOUNTS RECEIVABLE
Notes and accounts receivable as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Trade notes receivable¥- Unconsolidated subsidiary and associated companies
Trade accounts receivable- CJR, unconsolidated subsidiary and associated companies
Other
Less allowance for doubtful accounts
¥
Total

2017
7,057
154
18,4455,634
76(5)31,361

¥

¥

2016
3,789
134
13,801
2,857
641
(2)
21,220Thousands of
U.S. Dollars
2017
63,011$
1,376
164,692
50,301675(45)
280,010$

Note: Allowance for doubtful accounts was not recognized for accounts receivable-other, which was included in Other above.
───────────────────────────────────────────────────────
4. INVENTORIESInventories as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Merchandise
Finished goods
Work in process and semi-finished goods
Raw materials
Total

¥

¥

2017
161
1,645
26,2882,003
30,097

¥

2016
93
1,312
36,1662,734
40,305¥

Thousands of
U.S. Dollars
2017
1,429
$
14,691
234,717
17,883
268,720$Work in process and allowance for work in process on construction contracts are presented in the gross amount in the
consolidated balance sheet. At March 31, 2017 and 2016, allowance for work in process on construction contracts of ¥2
million ($15 thousand) and ¥2 million, respectively, was provided and included in work in process and semi-finished goods
above.
───────────────────────────────────────────────────────
5. INVESTMENT SECURITIESInvestment securities as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Equity securities
Total

¥
¥

2017
16,765
16,765¥¥

2016
16,975
16,975

Thousands of
U.S. Dollars
2017
149,689$
149,689$

The costs and aggregate fair values of investment securities as of March 31, 2017 and 2016, were as follows:

Cost
Securities classified as available-for-sale:
Equity securities
Total

¥
¥

6,056
6,056

21

Millions of Yen
2017
Gross unrealized Gross unrealized
gains
lossesFair andcarrying value

¥
¥

¥
¥

9,833
9,833

¥
¥

-

15,88915,889

Cost
Securities classified as available-for-sale:
Equity securities
Total

¥
¥

6,063
6,063

Cost
Securities classified as available-for-sale:
Equity securities
Total

$
$

54,07154,071Millions of Yen
2016
Gross unrealized Gross unrealized
gains
lossesFair andcarrying value

¥
¥

¥
¥

10,042
10,042

¥
¥

(14)
(14)

16,091
16,091Thousands of U.S. Dollars
2017
Gross unrealized Gross unrealized
gains
lossesFair andcarrying value

$
$

$
$

87,79887,798$$-141,869
141,869

The information of available-for-sale securities which were sold for the years ended March 31, 2017 and 2016, was as follows:

Proceeds
Available-for-sale:
Equity securities
Total

¥
¥

34
34

Proceeds
Available-for-sale:
Equity securities
Total

¥
¥

2
2

Millions of Yen
2017Realized gains

Realized losses

¥
¥

¥
¥

23
23

-

Millions of Yen
2016
Realized gains

Realized losses

¥
¥

¥
¥

2
2

-

Thousands of U.S. Dollars
2017
Proceeds
Realized gains Realized losses
Available-for-sale:
Equity securities
Total

$
$

302
302

$
$

207
207

$
$

-

No impairment losses were recognized on available-for-sale equity securities for the years ended March 31, 2017 and 2016.
───────────────────────────────────────────────────────
6. NOTES AND ACCOUNTS PAYABLE
Notes and accounts payable as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Trade notes payable
Electronically recorded obligations-operating-Unconsolidated subsidiary and associated companies
Trade accounts payable-Unconsolidated subsidiary and associated companies
Other
Total

¥

¥

2017
1,534
10,190
24
9,364
27
1,864
23,003

22

¥

¥

2016
1,103
9,149
16
10,26230
1,913
22,473Thousands of
U.S. Dollars
2017
13,695$90,994
211
83,606
241
16,640205,387$───────────────────────────────────────────────────────
7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2017 and 2016, consisted of the following:
Millions of Yen
CMS with average interest rate of 0.43%¥
Unsecured bank loans with average interest rate of 0.59%
Total
¥

2017
1,595
1,595

2016
362
362

¥
¥

Thousands of
U.S. Dollars
201714,241$
14,241$Long-term debt as of March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Secured bank loans due in 2022 with averageinterest rate of 0.72%
Unsecured bank loans due in 2022 with averageinterest rate of 0.71%
Less current portion
Total

¥

2016

24,174¥--¥

24,174(5,000)19,174¥

24,174$

215,836-$(44,643)
171,193

The aggregate annual maturities of long-term debt as of March 31, 2017, were as follows:
Years ending March 31
2018
2019
2020
2021
2022
2023 and thereafter
Total

Millions of Yen¥

5,000
19,174
24,174¥

Thousands of U.S. Dollars$$

44,643
171,193
215,836

Note: Subsequent to March 31, 2017, the long-term debt was early redeemed in full prior to maturity. Please Refer to Note 19“Subsequent Events.”
Long-term debt including current portion in the amount of ¥21,674 million ($193,515 thousand) is subject to the following
financial covenants.
・In the consolidated balance sheet as of the end of each fiscal year, the borrower shall maintain net assets of not lessthan 70% of the net assets reported in the consolidated balance sheet as of March 31, 2016 or as of the most recent
fiscal year-end, whichever is higher.
・The borrower shall not report loss before taxes and certain items for two consecutive fiscal years in the consolidated
statement of operations for the years ending March 31, 2017 and thereafter.
After March 31, 2017, such a debt was not subject to financial covenants as the long-term debt above was early redeemed infull. Please refer to Note 19 “Subsequent Events.”───────────────────────────────────────────────────────
8. RETIREMENT AND PENSION PLANS
Employees who terminate their service with the Company and its domestic consolidated subsidiaries are entitled toretirement benefits generally determined by reference to the basic rate of pay at the time of termination, length of service
and conditions under which the termination occurs. The Company has a lump-sum retirement benefit plan, a defined
contribution pension plan and a defined benefit pension plan, which are assumed to cover retirement benefits for employees
who have retired voluntarily. The Company contributed certain assets to the employee retirement benefit trust. The
Company’s domestic consolidated subsidiaries have similar retirement benefit plans.
(1) Defined benefit plans

23

(a) The changes in defined benefit obligation for the years ended March 31, 2017 and 2016, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Balance at beginning of year
13,807
14,011$
123,275¥¥
Current service cost
721
738
6,440
Interest cost
122
124
1,090
Actuarial gains
(240)
(150)
(2,140)(964)(916)(8,617)
Benefits paid
13,446
13,807$
120,048¥¥
Balance at end of year(b) The changes in plan assets for the years ended March 31, 2017 and 2016, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Balance at beginning of year
17,547
19,677$
156,668¥¥
Expected return on plan assets
227
230
2,025
Actuarial losses(375)(2,127)(3,352)Contribution from the employer
387
316
3,462
(517)
(549)
(4,616)
Benefits paid
17,26917,547$
154,187¥¥
Balance at end of year(c) Reconciliation between the liability (asset) recorded in the consolidated balance sheet and the balances of defined benefit
obligation and plan assets as of March 31, 2017 and 2016, was as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Funded defined benefit obligation
13,187
13,565$
117,738¥¥(17,269)(17,547)(154,187)
Plan assets
Total(4,082)(3,982)(36,449)
259
242
2,310
Unfunded defined benefit obligation(3,823) ¥(3,740) $(34,139)¥
Net asset arising from defined benefit obligation
Asset for employees’ retirement benefits
Liability for employees’ retirement benefits
Net asset arising from defined benefit obligation¥¥(4,082)259(3,823)¥¥(3,982)242(3,740)$$(36,449)
2,310(34,139)(d) The components of net periodic benefit costs for the years ended March 31, 2017 and 2016, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Service cost (Note)
726
742
$
6,481
¥
¥
Interest cost
122
124
1,090
Expected return on plan assets
(227)
(230)
(2,025)
Recognized actuarial gains
(216)
(279)
(1,927)
(4)
(4)
(39)
Amortization of prior service cost
401
353
$
3,580
¥
¥
Net periodic benefit costs
Note: Retirement benefit costs of the consolidated subsidiaries applying the simplified method are included in service cost.
(e) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans for the years ended March 31, 2017 and 2016
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Prior service cost
4
39
4
$
¥
¥
352
2,256
3,139
Actuarial losses
356
2,260
$
3,178
¥
¥
Total

24

(f) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined
retirement benefit plans as of March 31, 2017 and 2016
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Unrecognized prior service cost(35) ¥(39) $(313)¥(4,253)(4,605)(37,972)
Unrecognized actuarial gains(4,288) ¥(4,644) $(38,285)¥
Total(g) Plan assets(i) Components of plan assets
Plan assets consisted of the following:
Debt investments
Equity investments
Cash and deposits
Other
Total

2017
13%
78%
3%
6%
100%

2016
12%
83%
2%
3%
100%

Note: The employees’ retirement benefit trusts for the contributory pension plans accounted for 17% and 18% of total plan assets
for the years ended March 31, 2017 and 2016, respectively.
(ii)Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the current and future asset portfolio and the longterm rates of return which are expected currently and in the future from the various components of the plan assets.
(h) Assumptions used for the years ended March 31, 2017 and 2016, were set forth as follows:
Discount rate
Expected rate of return on plan assets

2017
0.9%
2.0%

2016
0.9%
2.0%

(2) Defined contribution plans
The required contribution of the Company and its consolidated subsidiaries amounted to ¥128 million ($1,147 thousand)and ¥124 million for the years ended March 31, 2017 and 2016, respectively.
───────────────────────────────────────────────────────
9. ASSETS PLEDGED AS COLLATERAL(1) Assets pledged as collateral for long-term debt (including current portion) in the amount of ¥24,174 million ($215,836
thousand) and none as of March 31, 2017 and 2016, respectively, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Land
11,975
106,923¥¥$(thereof: factory foundation mortgages)(11,975)(-)(106,923)
Buildings and structures
3,915
34,951(thereof: factory foundation mortgages)(3,915)(-)(34,951)
Investment securities
11,740104,826(-)(-)(-)(thereof: factory foundation mortgages)
Total
27,630246,700$¥¥(15,890)(-)(141,874)(thereof: factory foundation mortgages)
Note: After March 31, 2017, the above collateral was released as the respective long-term debt was early redeemed in full. Pleaserefer to Note 19 “Subsequent Events.”25

(2) Other assets pledged as collateral as of March 31, 2017 and 2016, were as follows:
Millions of Yen
Other current assets (Note 1)¥
Other assets under Investments and Other Assets (Note 2)
¥
Total

2017
58
10
68

¥

2016
60
10
70

¥

Thousands of
U.S. Dollars
2017
520
$
89
609
$

Notes 1: Deposit required by insurance contracts
2: Guarantee deposit required by the Building Lots and Buildings Transaction Business Law───────────────────────────────────────────────────────
10. CONTINGENT LIABILITIESIn some cases, the Company sells its construction equipment products through leasing companies. Some of these leasing
companies request that the Company enter into lease credit guarantee contracts. Under these contracts, if the lease credits
are unrecoverable from users of the Company’s construction equipment products, the Company guarantees payment of theamount defined by the contract to the leasing companies. Such guarantees as of March 31, 2017 and 2016, amounted to¥512 million ($4,569 thousand) and ¥657 million, respectively.
───────────────────────────────────────────────────────
11. LEASE TRANSACTIONSThe Group uses certain machinery and equipment under finance lease contracts.
All finance lease transactions are accounted for in a manner similar to ordinary sale or purchase transactions.
The aggregate annual maturities of lease obligations as of March 31, 2017, were as follows:
Years ending March 31

Thousands of
U.S. Dollars
$
7,366
5,464
3,420
3,106
3,590
174
$
23,120Millions of Yen
¥

2018
2019
2020
2021
2022
2023 and thereafter
Total

825
612
383
348
402
19
2,589

¥

A consolidated subsidiary subleases machinery.
Investments in leases and lease obligations, which include an interest portion, resulting from sublease transactions as ofMarch 31, 2017 and 2016, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
2016
2017
Investments in leases:
Due within one year
170
190
$
1,511
¥
¥
337
367
3,012
Due after one year
507
557
$
4,523
¥
¥
Total
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Lease obligations:Due within one year
Due after one year
Total

¥

2016
177
380
557

¥

26

¥
¥

198
402
600

$
$

1,583
3,390
4,973

───────────────────────────────────────────────────────
12. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the
Companies Act that affect financial and accounting matters are summarized below:(1) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end
dividend upon resolution at the shareholders’ meeting. Additionally, for companies that meet certain criteria including (1)having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term ofservice of the directors being prescribed as one year rather than the normal two-year term by its articles of incorporation,
the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the company
has prescribed so in its articles of incorporation. However, the Company cannot do so because it does not meet all the above
criteria.
The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to a certain
limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles ofincorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available
for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to theshareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(2) Increases/decreases and transfer of common stock, reserve and surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity
account charged upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in
capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal
reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional
paid-in capital, other capital surplus and retained earnings can be transferred among the accounts within equity undercertain conditions upon resolution of the shareholders.
(3) Treasury stock and treasury stock acquisition rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolutionof the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution
to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisition rights arepresented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component ofequity or deducted directly from stock acquisition rights.
───────────────────────────────────────────────────────
13. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate,
resulted in a normal effective statutory tax rate of approximately 30.5% and 32.6% for the years ended March 31, 2017 and2016, respectively.

27

The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets andliabilities as of March 31, 2017 and 2016, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2017
Deferred tax assets:
Loss on write-downs of inventories
Tax loss carryforwards
Liability for employees’ retirement benefits
Provision for loss on orders received
Loss on impairment of fixed assets
Accrued bonuses to employees
Other

¥

Less valuation allowance
Total
Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Revaluation of property
Deferred gain on sales of property
Other
Total
Net deferred tax liabilities

¥

2016

5,492
4,918
2,535
2,029
1,748
452
3,717
20,891(20,730)
161(2,955)(2,059)(1,201)(2,483)(8,698)(8,537)

¥

2017

4,790
4,834
2,535
102
1,930
454
3,061
17,706(17,509)197(3,031)(2,059)(1,213)(2,485)(8,788)(8,591)¥$$49,032
43,912
22,63618,112
15,605
4,033
33,199186,529(185,091)
1,438(26,384)(18,387)(10,723)(22,171)(77,665)(76,227)

Deferred tax assets and liabilities as of March 31, 2017 and 2016, were recorded as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Deferred tax assets:
Current
Noncurrent
Deferred tax liabilities:
Other under Current Liabilities
Noncurrent
Net deferred tax liabilities

¥

¥

2016
60
86

(3)
(8,680)(8,537) ¥

¥

80
91
(16)
(8,746)(8,591) $

$

536
768
(29)
(77,502)(76,227)

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in theaccompanying consolidated statement of operations for the year ended March 31, 2017, with the corresponding figures for
2016, is as follows:
2017
2016
Normal effective statutory tax rate
30.5 %
32.6 %
Increase (decrease) due to:
Expenses not deductible for income tax purposes(16.4)(31.1)
Tax-exempt income
0.5
0.2
Changes in valuation allowance(69.4)(94.3)Per capita inhabitant tax
(0.8)
(0.3)
Transfer price adjustments on consolidation
35.2
30.8
Lower income tax rates applicable to income in
3.5
1.7
certain foreign countries
Effect of changes in tax rate
2.2
4.1
1.0
Other
(12.8) %(57.2) %Actual effective income tax rate28───────────────────────────────────────────────────────
14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group policy for financial instruments
The Group finances capital investments and necessary funds mainly internally, with bank loans and with CMS provided bya consolidated subsidiary of CJR. The Company also operates funds by utilizing CMS. Derivative transactions are used, notfor speculative purposes, but to manage exposure to financial risks as described in (2) below.
(2) Nature and extent of risks arising from financial instruments
Receivables, such as notes and accounts receivable, are exposed to customer credit risk.
Although receivables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, theposition, net of payables in foreign currencies, is hedged by using forward foreign currency contracts. Investment securities,
mainly equity instruments of customers and suppliers of the Group, are exposed to the risk of market price fluctuations.
Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign
currencies are exposed to the risk of fluctuation in foreign currency exchange rates, the position, net of receivables in foreign
currencies, is hedged by using forward foreign currency contracts.
Short-term borrowings are mainly used for financing operating capital and long-term debt and lease obligations areprimarily used for financing capital investments. Although a part of long-term debt is exposed to market risks from changes
in variable interest rates, those risks are mitigated by using derivatives of currency swaps and interest rate swaps.
Derivatives mainly include forward foreign currency contracts, which are used to manage exposure to risks associated withfluctuations in foreign currency exchange rates related to receivables and payables denominated in foreign currencies andforecasted transactions denominated in foreign currencies, and currency swaps and interest rate swaps, which are used to
manage exposure to exchange fluctuations and interest rate fluctuations on long-term debt. Please see Note 15 for more
information about derivatives.
(3) Risk management for financial instruments
Credit risk management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to thecontractual terms. The Group manages its credit risk from receivables by monitoring financial position, payment terms andbalances of customers to identify default risk of customers at an early stage.
Market risk management (foreign exchange risk and interest rate risk)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency
exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency contracts. In addition, when
foreign currency trade receivables and payables are expected from forecasted transactions, forward foreign currency
contracts may be used.
Currency swaps and interest rate swaps are used to manage exposure to market risks from changes in foreign currency
exchange rates and the interest rates of long-term debt.
Investment securities are managed by monitoring the market values and the financial position of issuers on a regular basis.
Liquidity risk management
The Group establishes or updates its cash management plan according to the monthly cash management plan from eachsubsidiary in order to monitor its liquidity risk associated with operating payables and short-term borrowings and long-term
debt.
(4) Fair values of financial instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, otherrational valuation techniques are used instead. Please see Note 15 for the details of the fair value of derivatives.

29

(a) Fair value of financial instruments

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Total

Millions of Yen
2017
Carrying amount
Fair value
Unrealized gain (loss)
11,713
11,713¥¥31,361
31,361
15,88915,88958,96358,963¥¥¥¥

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Total

Millions of Yen
2016
Carrying amount
Fair value
Unrealized gain (loss)
13,247
13,247¥¥
21,22021,22016,091
16,091
50,55850,558¥¥¥23,003
1,595
565
24,174
2,589
51,926¥

Notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt, including current portion
Lease obligations, including current portion
Total

¥

¥

¥

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Total

Thousands of U.S. Dollars
2017
Carrying amount
Fair value
Unrealized gain (loss)
104,584
104,584$$
280,010280,010
141,869
141,869
526,463
526,463$$$$205,387
14,241
5,045
215,836
23,120463,629¥$$

22,473362
50
24,7962,365
50,046

¥

(391)
17
(374)

Notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt, including current portion
Lease obligations, including current portion
Total

Notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt, including current portion
Lease obligations, including current portion
Total

22,473362
50
24,1742,370
49,429¥23,003
1,595
565
24,565
2,572
52,300205,387
14,241
5,045
219,324
22,969466,966

¥
¥

$
$

(622)
5
(617)

(3,488)151(3,337)

AssetsCash and cash equivalents, and notes and accounts receivable
The carrying values of cash and cash equivalents, and notes and accounts receivable approximate fair value because of theirshort maturities.
Investment securities
The fair values of investment securities are measured at the quoted market prices of the stock exchange. The informationon the fair value of investment securities by classification is included in Note 5.
Liabilities
Notes and accounts payable, short-term borrowings and income taxes payable
The carrying values of notes and accounts payable, short-term borrowings, and income taxes payable approximate fair value
since they are scheduled to be settled in a short period of time.

30

Long-term debt and lease obligations
The fair values of long-term debt (including current portion) and lease obligations are measured at the present value of thetotal of the principal and interest discounted by the interest rate applied to new loans.
Derivative transactions
Information on the fair value of derivatives is included in Note 15.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined

884

Thousands of
U.S. Dollars
2017
7,820
$

1,511

14,831Millions of Yen
Unlisted securities
Investments in an unconsolidated subsidiary andassociated companies

¥

2017
876

¥

2016

1,661

(5) Maturity analysis for financial assets and securities with contractual maturities

Due in one
year or less
Cash and cash equivalents
Notes and accounts receivable
Total

¥
¥

11,713
31,11042,823

Due in one
year or less
Cash and cash equivalents
Notes and accounts receivable
Total

$
$

104,584
277,766
382,350

Millions of Yen
2017
Due after one
Due after five
year throughyears throughfive years
10 years
240
11
¥
¥
240
11
¥
¥
Thousands of U.S. Dollars
2017
Due after one
Due after five
year throughyears throughfive years
10 years
2,145
99
$
$
2,145
99
$
$

Due after
10 years-

Due after
10 years-

Please see Note 7 for annual maturities of long-term debt and Note 11 for obligations under finance leases.
───────────────────────────────────────────────────────
15. DERIVATIVE TRANSACTIONSThe Group enters into forward foreign currency contracts to hedge foreign exchange risk associated with certain assets
and liabilities denominated in foreign currencies. The Group also enters into currency and interest rate swap contracts tomanage its foreign currency and interest rate exposures on long-term debt.
All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within its
business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged
assets or liabilities.
Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate theauthorization and credit limit amount.

31

Derivative transactions to which hedge accounting is applied for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen

2017
Hedgeditem

Contract
amountAdvancepayments
Advancepayments
Advancepayments¥

Contract
amountdue after
one year

Fair
value

Contract
amount2016
Contract
amountdue after
one year

Fair
value

Currency:
Forward foreign currency contracts
BuyingUSD
EUR
CNY
Interest rate:
Interest rate currency swap contracts(USD floating rate receipt/
JPY fixed-rate payment)Interest rate swap contracts(floating rate receipt/
fixed-rate payment)

8

-

-

-

-

-

Long-term¥ 16,072
debt¥ 13,572
5,602Long-term
debt

6,902

¥

(0)

¥

¥

10

-

(0)

-

10

-

(1)

-

22

-

(1)

Note

¥ 16,072¥ 16,072

Note

Note

6,902

6,902

Note

Thousands of U.S. Dollars
2017
Hedgeditem

Contract
amountAdvancepayments$

Contract
amountdue after
one year

Fair
value

Currency:
Forward foreign currency contracts
Buying
USD
Interest rate:
Interest rate currency swap contracts(USD floating rate receipt/
JPY fixed-rate payment)Interest rate swap contracts(floating rate receipt/
fixed-rate payment)

74

-

$

(1)

Long-term$ 143,498 $ 121,177
debt

Note

Long-term
debt

Note

61,62350,016

Note: Fair values of interest rate currency swaps, which qualify for hedge accounting, and those of interest rate swaps, which
qualify for hedge accounting and meet specific matching criteria, are included in the fair values of the long-term debt inNote 14. After March 31, 2017, the balance of long-term debt as of March 31, 2017 was early redeemed in full. Please refer
to Note 19 “Subsequent Events.”───────────────────────────────────────────────────────
16. LOSS ON IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENTThe Group recognized impairment losses on the following asset groups.
For the year ended March 31, 2017:
Asset group
Idle real estate

Location
Kani, Gifu

Account
Land
Total

Millions of Yen
2017
2
¥
2
¥

Thousands of U.S. Dollars
2017
20
$
20
$

The Group reviewed its long-lived assets for impairment as of March 31, 2017.
For the year ended March 31, 2017, the Group recognized an impairment loss for idle real estate by writing down theproperty to its net selling value (based on reasonably adjusted amount of property tax assessment value).

32

For the year ended March 31, 2016:
Asset group
Railway rolling stockbusiness property

Location
Illinois, the UnitedStatesMillions of Yen
2016

Account
Machinery andequipment, etc.
Total

¥

50

¥

50

The Group reviewed its long-lived assets for impairment as of March 31, 2016.
For the year ended March 31, 2016, the Group recognized impairment losses for railway rolling stock business property of
NIPPON SHARYO U.S.A., INC. and two other subsidiaries by writing down the property to its net selling value (primarily
determined at real estate appraisal values) due to their consecutive operating losses in recent years. As a result, impairment
losses were recognized on machinery and equipment, construction in progress, and other in the amounts of ¥25 million, ¥7
million, and ¥18 million, respectively.
───────────────────────────────────────────────────────
17. RELATED-PARTY DISCLOSURES(1) Parent and major shareholders
CJR directly owned 51.2% of the total shares of the Company as of March 31, 2017 and 2016. The Company distributes
transportation vehicles to CJR.
Transactions of the Company with CJR for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
Sales
Interest income¥

2017
18,351-¥

2016
21,302
1

Thousands of
U.S. Dollars
2017
163,845$-

The balances due to or from CJR as of March 31, 2017 and 2016, were as follows:
Millions of Yen
Accounts receivable
Short-term loans

¥

2017
5,544
-

¥

2016
2,746
5,976

Thousands of
U.S. Dollars
2017
49,497$-(2) Fellow subsidiaries and subsidiaries of other affiliates
Transactions of the Company with the fellow subsidiaries for the years ended March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Tokai Rolling Stock & Machinery Co., Ltd.
Sales
JR Central Financial Management Co., Ltd.
Interest expense

¥

2016

2,922

¥

-

3

$

-

26,087
24

The balances due to or from the fellow subsidiaries as of March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Tokai Rolling Stock & Machinery Co., Ltd.
Notes and accounts receivable
JR Central Financial Management Co., Ltd.
Short-term borrowings

¥

1,786
1,595

33

2016
¥

-

$

15,94914,241───────────────────────────────────────────────────────
18. OTHER COMPREHENSIVE LOSS
The components of other comprehensive loss for the years ended March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars
2017

Millions of Yen
2017
Unrealized loss on available-for-sale securities:
Losses arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred gain on derivatives under hedge accounting:
Gains arising during the year
Income tax effectTotal
Foreign currency translation adjustments:
Adjustments arising during the year
Total
Defined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Share of other comprehensive income inassociated companies
Gains arising during the year
Income tax effectTotal
Total other comprehensive loss

¥

2016
(172)
(23)
(195)
71
(124)

¥

¥

¥

¥

$

23
23

202
202

¥
¥

(133)
(133)

$
$

1,803
1,803

(136)
(220)
(356)
108
(248)

¥

(1,977)(283)(2,260)793(1,467)$(1,213)(1,965)(3,178)960(2,218)

¥
¥
¥
¥

¥

$

(1,531)(207)(1,738)632(1,106)

$

¥

¥

$

65
(23)
42

2
2

¥

(932)
0
(932)
455
(477)

¥

6
6
12

¥

(156)

¥
¥

$
$

¥

34
(1)
33

$

53
50
103

¥

(2,002)$(1,395)───────────────────────────────────────────────────────
19. SUBSEQUENT EVENTSTransfer of fixed assets
1. Reason for the transfer
To make effective utilization of the Company’s resources and improvement of the Company’s financial position, theCompany early redeemed its long-term debt including the current portion in full of the carrying amount of ¥24,174 million($215,836 thousand) as of March 31, 2017 by selling its factory assets to CJR, and its non-business use assets to domestic
private-sector companies.

34

2. Transfer of factory assets(1) Summary of assets transferred

Description of asset
and location

Millions of Yen
Transfer
price

Carrying
amount“Toyokawa Plant”
2-20 Honohara, Toyokawa, Aichi
Land: 229,655.60 m²
Building: 121,222.66 m²(Land)
4,560¥(Buildings)
2,131“Kinuura Plant”
20 11-gochi, Handa, Aichi
Land: 331,678.72 m²
Building: 52,199.25 m²(Land)
4,726(Buildings)
1,240“Narumi Plant”
80 Ryucho, Narumi-cho, Midori-ku,
Nagoya, Aichi
Land: 63,098.67 m²
Building: 32,805.12 m²(Land)
2,689

Description of asset
and location

16,111

Carrying
amount(Land)
40,719$(Buildings)
19,024“Kinuura Plant”
20 11-gochi, Handa, Aichi
Land: 331,678.72 m²
Building: 52,199.25 m²(Land)
42,196(Buildings)
11,077“Narumi Plant”
80 Ryucho, Narumi-cho, Midori-ku,
Nagoya, Aichi
Land: 63,098.67 m²
Building: 32,805.12 m²(Land)
24,009

7,746-

Manufacturing plant of theCompany for steel structures

5,589

-

Manufacturing plant of theCompany for industrial andelectrical equipment

21,000$¥-143,852$

Current conditions-

Manufacturing plant of theCompany for rolling stocks,
transportation equipment, etc.

69,161-

Manufacturing plant of theCompany for steel structures

49,902-

Manufacturing plant of theCompany for industrial andelectrical equipment

68,437(Buildings)
6,827$

Manufacturing plant of theCompany for rolling stocks,
transportation equipment, etc.

¥

Thousands of U.S. Dollars
Transfer
Net gain
price(Note)“Toyokawa Plant”
2-20 Honohara, Toyokawa, Aichi
Land: 229,655.60 m²
Building: 121,222.66 m²

Total

¥

Current conditions

-

7,665

(Buildings)
765
¥

Total

¥

Net gain(Note)

187,500$$-

Note: The above transfer of factory assets was not treated as a buying and selling transaction and accordingly, no gain was
accordingly recognized since the relevant factory assets were transferred to CJR, and the Company continues to utilize therelevant factory assets as before based on a lease agreement concluded between the Company and CJR after the transfer.
The total transfer price in the amount of ¥21,000 million ($187,500 thousand) is expected to be recorded as long-term debt
since the relevant transactions do not fall under finance lease transaction.
(2) Name of the transferee
Central Japan Railway Company(3) Schedule
Resolution by the Board of Directors: March 22, 2017Conclusion of transfer agreement:
  March 30, 2017
Date of delivery:
April 20, 201735

(4) Conclusion of lease agreement
To further utilize the transferred factory assets, which are the Company’s business-use assets, a lease agreement relating
to the factory assets was concluded between the Company and CJR. The Company continues to utilize the relevant factory
assets as before.
(5) Matters related transactions with CJR
In the relevant transactions, CJR is the transferee of the factory assets as well as the lessor of the respective factory assets.
The Company sells the finished goods such as rolling stocks to CJR where the selling prices and other terms and conditions
are determined in consideration of market value transaction on an arm’s length basis. Furthermore, the conclusion ofsignificant agreement with CJR is subject to deliberations and confirmation by the Board of Directors that the interests of
the other shareholders are not harmed. In this connection, the following measures were taken for the relevant transactions:i) Measures taken for ensuring the fairness and avoiding conflicts of interest
With regard to determining the transfer prices of the relevant factory assets, the Company obtained multiple appraisal
valuation reports from independent third-party appraisers and then negotiated with CJR on an arm’s length basis. With
regard to concluding the lease agreement for the relevant factory assets, the Company also negotiated with CJR based on anarm’s length basis. For above reasons, the Company’s independence and autonomy were ensured.
In addition, none of the Company’s directors are considered a special interested person. Mr. Mamoru Tanaka, an audit& supervisory board member of the Company, however, is an executive person of CJR, but did not participate in any
deliberations of the Board of Directors concerning the relevant transactions.
ii) Outline of the written opinions that the relevant transactions are not disadvantageous to the interests of noncontrollingshareholders obtained from the disinterested persons with CJRThe Company consulted with disinterested persons with CJR, namely independent directors; Mr. Tsutomu Saito and Mr.
Atsushi Niimi (both: outside director) and Mr. Kiyoshi Mizutani and Ms. Michiko Kato (both: outside audit & supervisoryboard members) and obtained their written opinions dated March 21, 2017 that, with regard to the transfer of factory assets
and conclusion of the lease agreement, the relevant transactions were not disadvantageous to the interests of noncontrollingshareholders of the Company based on their comprehensive judgement from the viewpoints of the purpose, procedures in
the course of the negotiation, reasonableness of terms and conditions of the agreement, etc.
3. Transfer of non-business use assets(1) Summary of assets transferred

Description of asset
and location
101-2, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 16,298.30 m²
101-1, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 5,438.76 m²
503-1, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 6,611.79 m²
Total

Millions of Yen
Transfer
price

Carrying
amount
¥

¥

36

¥

7,770

Net gain(Note)¥

Current conditions

5,015

Leased to a third party
company

13

2,800

2,109

Leased to a third party
company

1

2,210

1,960

Monthly contracted parking

50¥

12,780

36

¥

9,084

Description of asset
and location
101-2, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 16,298.30 m²
101-1, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 5,438.76 m²
503-1, Sanbonmatsu-cho, Atsuta-ku,
NagoyaLand: 6,611.79 m²
Total

Carrying
amount$$Thousands of U.S. Dollars
Transfer
Net gain
price(Note)

326$

69,375$Current conditions

44,773

Leased to a third party
company

113

25,00018,833

Leased to a third party
company

8

19,732

17,498Monthly contracted parking

447$

114,107$

81,104

Note: Net gain is the amount of transfer price less carrying amount, expenses relating to the transfer and the measures against soil
contamination.
(2) Name of the transferee
Not disclosed as agreed with the transferees. The transferees are domestic private-sector companies and have no particularmatters in respect of capital, personal and business relationship as well as related parties.
(3) Schedule
Resolution by the Board of Directors: March 22, 2017Conclusion of transfer agreement:
  March 30, 2017
Date of delivery:
April 27 and May 29, 2017
4. Impact on consolidated profit/loss of the relevant event
With regard to the transferred factory assets, no gain was recognized since a lease agreement relating to the relevant factory
assets was concluded between the Company and CJR and the Company continues to utilize the relevant factory assets as
before. On the other hand, with respect to the transferred non-business use assets, gain on sales of property, plant andequipment in the amount of ¥9,084 million ($81,104 thousand) is expected to be recognized under “other income” during
the year ending March 31, 2018.
Early redemption of long-term debt
To make effective utilization of the Company’s resources and improvement of the Company’s financial position, theCompany early redeemed its long-term debt from financial institutions on April 20, 2017 in full of the carrying amount of¥24,174 million ($215,836 thousand) including the current portion as of March 31, 2017 by appropriating the proceeds fromthe above fixed asset transfer.
Accordingly, all collateral pledged for long-term debt as of March 31, 2017 were released, and no debt is no longer subject tofinancial covenants.
As a result of the early redemption of long-term debt, interest expenses for the year ending March 31, 2018 through thematurity decreased in the amount of ¥774 million ($6,910 thousand) while expenses for penalty payment due to thecancellation is expected to be recognized in the amount of ¥1,077 million ($9,612 thousand) for the year ending March 31,2018.
───────────────────────────────────────────────────────
20. SEGMENT INFORMATION
1. Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Guidance No.
20, “Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial
and descriptive information about its reportable segments. Reportable segments are operating segments or aggregationsof operating segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported
on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources
to operating segments.

37(1) Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by
the Company’s management is being performed in order to decide how resources are allocated among the Group.
The Group has operational headquarters by each product or service. Each of the operational headquarters develops
comprehensive strategies and engages in business activities relating to each product and service. Accordingly, the Groupis comprised of segments organized by products or services based on the operational headquarters and there are threereportable segments: “Railway Rolling Stock,” “Transportation Equipment and Steel Structure,” and “Construction
Equipment.”“Railway Rolling Stock” consists of manufacture and sales of rolling stock, such as EMUs and railway motor cars.
“Transportation Equipment and Steel Structure” consists of manufacture and sales of transportation equipment, such as
freight cars, tank trucks, heavy-duty industrial vehicles and manufacture and construction of roadway and railway bridges.
“Construction Equipment” consists of manufacture and sales of pile driving rigs, crawler cranes, casing rotators, portable
diesel generator sets and emergency generators.
(2) Method of measurement for the amount of sales, profit (loss), assets and other items for each reportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2 “Summary of Significant
Accounting Policies.” Reporting segment profit represents operating income. Intersegment transactions are based uponarm’s-length transactions.
(3) Information of sales, profit (loss), assets and other items was as follows:
Millions of Yen
2017
Reportable segment
Railway Transportation
Construction
Equipment andRolling
Equipment
Steel Structure
Stock
Net sales
Sales to external customers
Intersegment sales or transfers
Total

¥
¥

Segment profit (loss)¥
Segment assets¥
Other:
Depreciation¥
Increase in property, plant, andequipment and intangible assets

Other

Total

Reconciliations

Consolidated

48,554 ¥366
48,920 ¥21,983 ¥336
22,319 ¥22,420 ¥7
22,427 ¥

8,137 ¥ 101,094
191
900 ¥
8,328 ¥ 101,994 ¥- ¥ 101,094(900)(900) ¥ 101,094(9,837) ¥57,786 ¥1,760 ¥
19,971 ¥4,195 ¥
23,105 ¥273 ¥ (3,609) ¥4,710 ¥ 105,572 ¥(1,495) ¥ (5,104)
23,622 ¥ 129,194

1,250 ¥

386 ¥

734

747

82

1,400

¥

25

¥

2

2,395

¥

335 ¥

2,730

131

2,362

Reconciliations

Consolidated

2,231

Millions of Yen
2016
Reportable segment
Railway Transportation
Construction
Equipment andRolling
Equipment
Steel Structure
Stock
Net sales
Sales to external customers
Intersegment sales or transfers
Total

¥

Other

Total

65,858 ¥30
65,888 ¥19,068 ¥208
19,276 ¥21,138 ¥5
21,143 ¥4,943 ¥ 111,007
196
439 ¥
5,139 ¥ 111,446 ¥- ¥ 111,007(439)(439) ¥ 111,007

Segment profit (loss)¥ (13,115) ¥Segment assets¥ 65,253 ¥Other:
Depreciation
1,368 ¥¥
Increase in property, plant, and1,177
equipment and intangible assets

488 ¥18,413 ¥3,307 ¥
19,763 ¥338 ¥ (8,982) ¥3,148 ¥ 106,577 ¥(1,190) ¥ (10,172)
25,688 ¥ 132,265

404 ¥

747

272

947

¥

38

¥

33
12

¥

2,552
2,408

¥

336 ¥

2,888

249

2,657

Thousands of U.S. Dollars
2017
Reportable segment
Railway Transportation
Construction
Equipment andRolling
Equipment
Steel Structure
Stock
Net sales
Sales to external customers
Intersegment sales or transfers
Total

Other

$ 433,517 $ 196,280 $ 200,175 $
3,273
2,999
61
$ 436,790 $ 199,279 $ 200,236 $Segment profit (loss)$ (87,827) $ 15,715 $ 37,453 $Segment assets$ 515,951 $ 178,314 $ 206,294 $Other:
Depreciation
3,448 $
6,558 $
$ 11,159 $Increase in property, plant, and
6,675
735
12,490equipment and intangible assets

Total

Reconciliations

72,650 $ 902,622
1,704
8,037 $
74,354 $ 910,659 $Consolidated- $ 902,622(8,037)(8,037) $ 902,622

2,435 $ (32,224) $ (13,349) $ (45,573)
42,051 $ 942,610 $ 210,907 $1,153,517
223

$

21

21,388$19,921

2,989

$

1,166

24,37721,087

Note: 1. “Other” represents businesses that are not included in any reportable segment, which includes manufacture and sales ofRailway Rolling Stock inspection/maintenance systems, agricultural plants, and pulp and paper plants, and real estate
rental for the years ended March 31, 2017 and 2016.
2. “Reconciliations” in segment profit (loss) include corporate expenses of ¥(1,537) million ($(13,727) thousand) and¥(1,196) million for the years ended March 31, 2017 and 2016, respectively, adjustments in inventories of ¥31 million($274 thousand) for the year ended March 31, 2017, and elimination of intersegment transactions of ¥9 million for theyear ended March 31, 2016. Corporate expenses principally consist of general and administrative expenses that are not
attributable to any reportable segment.
3. “Reconciliations” in segment assets include total corporate assets of ¥21,149 million ($188,831 thousand) and ¥27,672
million, elimination of intersegment balances of ¥(123) million ($(1,097) thousand) and ¥(4,531) million, andadjustments in inventories of ¥(81) million ($(723) thousand) and ¥(112) million as of March 31, 2017 and 2016,
respectively. Total corporate assets principally consist of investment securities and general management properties as ofMarch 31, 2017 and 2016.
4. Segment profit (loss) is reconciled to operating loss in the consolidated statement of operations.
Associated Information(1) Information about products and services is not disclosed since similar information is disclosed above.
(2) Information about geographical areas for the years ended March 31, 2017 and 2016, was as follows:

Net sales

Net sales

Net salesJapan¥ 82,293

Japan¥ 79,086

Japan$ 734,758

U.S.A.
¥ 12,725

Millions of Yen
2017
Asia
¥ 6,013

¥

Other
63

Total
¥ 101,094

U.S.A.
¥ 22,156

Millions of Yen
2016
Asia
¥ 6,710

¥

Other
3,055

Total
¥ 111,007

U.S.A.
$ 113,620

Thousands of U.S. Dollars
2017
Asia
$ 53,686

$

Other
558

Total
$ 902,622

Other

Total

Note: Sales are based on the location of the customers and grouped by country or area.

Japan
Property, plant andequipment¥ 24,965

Millions of Yen
2017
Asia

U.S.A.
¥

¥

5,024

39

0

¥

0

¥ 29,989

JapanProperty, plant andequipment

Property, plant, andequipment¥ 25,618

Millions of Yen
2016
Asia

U.S.A.
¥

¥

5,654

Japan

U.S.A.

$ 222,900$ 44,859

Other
¥

1

Thousands of U.S. Dollars
2017
Asia
$

Total
¥ 31,273

0

Other
$

2

Total
$ 267,761

0(3) Information about major customers
Net sales
2016

Thousands of
U.S. Dollars
201721,302$ 163,845

Railway Rolling Stock,
Transportation equipment
and Steel structure

19,590101,202

Railway Rolling StockMillions of Yen
Name of major customer

2017
¥

CJR
Sumitomo Corporation of Americas¥

18,351
11,335

Relatedsegment(4) Information about loss on impairment of property, plant and equipment by reportable segment
Millions of Yen
2017

Impairment loss

Reportable segment
Transportation Construction
Railway
Equipment andRolling
Steel Structure Equipment
Stock
¥

Other

Reconciliations Consolidated

Total
-

¥

-

2

¥

2

Millions of Yen
2016

Impairment loss

Reportable segment
Transportation Construction
Railway
Equipment andRolling
Steel Structure Equipment
Stock
50
¥

Other

Reconciliations Consolidated

Total
-

¥

50

-

¥

50

Thousands of U.S. Dollars
2017

Impairment loss

Reportable segment
Transportation Construction
Railway
Equipment andRolling
Steel Structure Equipment
Stock
$

Other

Reconciliations Consolidated

Total
-

$

-

20

$

Note: The amount of “Reconciliations” is related to the idle property which is not attributable to any reporting segment.

40

20

Corporate Information
Corporate Profile
Company Name: NIPPON SHARYO, LTD.
Capital Stock
Common Stock:Authorized

328,000,000 shares

Common Stock:Issued

146,750,129 shares

Number of Shareholders

14,721 persons(March 31, 2017)

Line of BusinessCompany History
Sep. 1896 Established in Nagoya City.
Jun. 1938 Founded Narumi Plant.
May. 1949 Re-listed on Tokyo Security Exchange.
Jan. 1959 Began Construction Machinery Business.
Oct. 1961 Started Bridge Manufacturing.
Jul. 1964 Founded Toyokawa Plant.
Jun. 1975 Founded Kinuura Plant.
Sep. 1996 100th Anniversary.
Aug. 2008 Equity and business tie-up entered into with		Central Japan Railway Company.
Sep. 2010 Manufactured 3000th Shinkansen EMU.
Jul. 2012 Founded Rochelle Plant of NIPPON SHARYO		 U.S.A., INC.

Overview of the Main Segments
NIPPON SHARYO manufactures and sells the following products:
Business segment
Railway rolling stock
Transportation equipment
and Steel structure
Construction equipment

Other

Lines of business
EMUs, DMUs, Passenger Cars, Linear Motor Cars, Track Maintenance Machines,
Rolling Stock Components, and Automated Guideway Transit Systems
Freight Cars, Locomotives, Tank Trucks, Tank Trailers, Storage Tanks, Heavy-duty
Industrial Vehicles, Containers, Automated Guided Vehicles, Roadway Bridges,
Railway Bridges, Water Gates
Pile Driving Rigs, Crawler Cranes, Hydraulic Hammers, Casing Rotators, Other
Products Related to Foundation Work, Portable Diesel Generator Sets, Emergency
Generators, Various Products Related to Electric Machines
Agricultural Plants, Grain Complex, Seed Processing Plants, Railway Rolling Stock
Inspection/Maintenance System, Pulp and Paper Plants, Real Estate Rental

Directory
OFFICEHEAD OFFICE (NAGOYA)TOKYO OFFICEOSAKA BRANCHthth

12 Fl. Marunouchi Central Bldg.
1-9-1 Marunouchi,
Chiyoda-ku, Tokyo 100-0005 JAPAN
Phone: +81-3-6688-6808
Fax : +81-3-6688-6813

14 FL,North Gate Building.
3-1-3 Umeda,
Kita-ku, Osaka 530-0001, JAPAN
Phone: +81-6-6341-4455
Fax : +81-6-6341-4487

TOYOKAWA PLANT

NARUMI PLANTKINUURA PLANT

2-20 Honohara,
Toyokawa, Aichi-pref 442-8502, JAPAN
Phone: +81-533-85-4900
Fax : +81-533-85-4123

80 Ryucho, Narumi-cho,
Midori-ku, Nagoya 458-8502, JAPAN
Phone: +81-52-623-3529
Fax : +81-52-623-4349

20 11-gouchi,
Handa, Aichi 475-0831, JAPAN1-1 Sanbonmatsu-cho,Atsuta-ku, Nagoya 456-8691, JAPAN
Phone: +81-52-882-3316
Fax : +81-52-882-3781

PLANT(Railway rolling stock & other transportation equipment)(Construction equipment)(Steel structure)

41

NIPPON SHARYO U.S.A.,INC.
2340 S. Arlington Heights Road,
Suite 605 Arlington Heights,
IL 60005 U.S.A.
Phone: +1-847-228-2700
Fax : +1-847-228-5530