Annual Business Report

April 1, 2015 through March 31, 2016

NIPPON SHARYO, LTD. and Consolidated Subsidiaries

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

187th period(2015-2016)

186th period(2014-2015)

Railway rolling stock

65,85859.3

Transportation equipment
and Steel structure

19,068Construction equipment％

Increase/(Decrease)55,035

57.1

17.2

16,26021,138

19.0

Other

4,943

Total

111,007

％

19.7

16.9

2,807

17.3

20,311

21.1

827

4.1

4.5

4,693

4.9

251

5.3

100.0

96,299100.0

14,70815.3

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

Titles of account187th period(2015-2016)

186th period(2014-2015)

185th period(2013-2014)

Net sales

111,007

96,299124,311

Ordinary income (loss)(10,174)(8,234)

6,677

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

6,930

Net income per share (loss)(¥111.74)(¥100.91)¥48.00Total assets

132,265

145,137

141,453

Total equity

33,38451,461

63,332(Millions of Yen)％

10,823Comparison of Sales by Segment

140,000
120,000

Other

100,000

Construction equipment

80,000Transportation equipment
and Steel structure

60,000Railway rolling stock

40,00020,0000
187th period

186th period

185th 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

Model KiHa25 Diesel Cars

1

Message from the President
Review of Business Operations
During the fiscal term under review, the Japanese economy saw a delay in recovery of exports andproduction due to the influence of the economic slowdown of emerging nations such as China
although employment and corporate profits showed healthy movement as a result of various economic
policies.
Under this business environment, the Group performance showed an increase in sales of railway
rolling stock this year, totaling ￥111,007 million, up 15.3% from the previous year. In terms of profits,
the Group made provisions for a loss due to the large railway rolling stock project for the U.S.A.
As a result, the ordinary loss was ￥10,174 million (The ordinary loss in the previous year was ￥8,234
million). We also withdrew all our deferred tax assets after careful consideration of the possibility tocollect deferred tax assets. Consequently, the net loss that belongs to the stockholders of the parent
company was ￥16,130 million (The net loss in the previous year was ￥14,568 million).

The Outlook
The environment surrounding the Group is expected to grow difficult in terms of receiving orders.
In the railway rolling stock business, the overall trend in the domestic market suggests that the midto long-term market expansion will remain poor due to replacement demands having come full cycle
as well as factors related to the country’s aging population. Setting our eyes on such a situation, we
continue to make efforts to gain a competitive edge by differentiating ourselves from competitors
through technological developments as well as cost reductions through improvements in efficiency of
production processes, etc. In terms of Asian markets where growth in demand is anticipated, we will
make an effort in acquiring promising projects by analyzing local needs in Taiwan and Southeast Asian
countries. As for our North American business promoted mainly by the railway rolling stock plantin Illinois, U.S.A., we are enhancing our permanent system in the design department for the large
railway rolling stock project for the U.S.A. in which a great loss has occurred, in order to accurately
handle review of the design, etc. We are also making efforts to stably and steadily carry out thisproject by adjusting and reviewing the manufacturing system. The entire Group is working to improve
performance for these measures.
In the transportation equipment and steel structure business segment, the transportation equipment
business is facing difficulties. We will, however, make efforts to secure orders and develop newmarkets by developing products which promptly capture market trends and promote reduction of costs
by improving the efficiency of operation. Our efforts in the steel structure business will be focusedon enhancing our ability to propose technological solutions that match customer needs and reducing
costs in terms of orders of new bridges. At the same time, we will expand our repair/maintenanceprojects, both of which are anticipated to grow, as well as peripheral businesses.
In the construction equipment segment and other businesses, we will capture business opportunities
through monitoring trends in public works and private capital investment in Japan as well as overseas
market situations. We will secure profits by proposing products that cater to market needs.
The Group’s major products such as railway cars and bridges are mostly built to order and order2

units are also relatively large; therefore, the product breakdown of the production and sales numberschanges greatly from year to year. This fluctuation poses permanent challenges to the Group; wemust level the capacity utilization rate and effectively handle specifications that vary by product.
Most of our projects require a long period of time from order to delivery, which greatly affects
management performance because of changes in exchange rates and the cost of steel and othermaterials. The Group will therefore make efforts to reduce risks against foreign exchange fluctuation
by anticipating currency movements and making use of hedging, such as foreign exchange contracts.
As for raw materials, the Group will curtail cost increases by taking measures such as optimization of
procurement timing, yield increase, and material changes.
The Group has decided to review the design of the large railway rolling stock project for the
U.S.A., for which sales are expected in the future. Since the delivery of this project is expected to besignificantly delayed, we calculated the amount of loss that was rationally estimated, which may rise in
the future, and recorded a provision in this consolidated fiscal year. As a result, an operating loss wasrecorded for two consecutive years, following the previous consolidated fiscal year.
In such a circumstance, we will make efforts to enhance the profitability not only by aiming at
improvement of our North American business but also by promoting further reduction of the raw
costs and expenses and trying to increase sales in the domestic business. As for financial arrangements,
we participate in the CMS (Cash Management System) operated by our parent company (Central
Japan Railway Company) and can raise short-term loans fluidly. We also raise long-term loans fromfinancial institutions as necessary to secure funds that can sufficiently meet demands anticipated fromthe funding plan. Thus we take measures to resolve or improve the situation. We consider that there isno critical uncertainty for any going concern.
On July 16, 2015, the chief of the Chubu Regional Bureau of Ministry of Land, Infrastructure,
Transport and Tourism ordered the Group to suspend its construction business based on theregulations of the Construction Business Act because of a violation of antitrust laws in relation to
construction work of grain drying, mixing, and storing
facilities and rice-processing facilities ordered by the
Agricultural Cooperatives, etc. For this issue, the Groupsubmitted an application for the leniency policy in August
2013 to the Fair Trade Commission. Prior to this, theboard of directors has reconfirmed the Group's intentionof non-violation of antitrust laws and reviewed in-housecompliance programs in order to ensure compliance.
Though this issue concerns our business activities before
August 2013, we take this matter seriously and will
redouble our efforts in fulfilling regulatory compliance
as well as consolidating the internal control systems.thismatter seriously and will redouble our efforts in fulfilling
regulatory compliance as well as consolidating the internalKazuhiro Igarashi
control systems.
President and Chief Executive Officer
3

Railway Rolling Stock Business

Review by Segment
Railway Rolling Stock BusinessIn the railway rolling stock business, our sales to the
JR Companies amounted to ￥25,910 million. It wasachieved through the sales of the N700A Shinkansen
trains to JR Central and JR West and the Model KiHa
25 diesel cars to JR Central. Our sales for the public
and private railways reached ￥11,490 million, including
the sales of the Series 1000 trains for the Tokyo Metro
N700A Shinkansen trains for JR Central and JR West

Ginza Line;
the Models

N1000 and 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 OedoLine of the Bureau of Transportation Tokyo Metropolitan
Government; the Model 60000 trains for Odakyu Electric
Railway Co., Ltd.; the Model 3000 trains for Keisei
Electric Railway Co., Ltd; and the Model N800 trains for

Series 2200 Trains for Nagoya Railroad Co., Ltd.

Shin-Keisei Electric Railway Co., Ltd. For railway cars
for overseas, we had sales of ￥28,458 million, including
bi-level EMU for the U.S.A.; diesel cars for Canada;
trains for Venezuela, and EMU with a tilting system for
Taiwan.
Consequently, our total sales for railway rolling stock
recorded ￥65,858 million, up 19.7% from the previous
EMU with Tilting System for Taiwan

year, with an increase in railway cars for overseas.

Transportation Equipment and Steel Structure BusinessIn the transportation equipment business, we hadsales of carriers, AGV, and other heavy-duty industrial
vehicles, as well as LPG tank lorries. There were also
demands for container flat cars and consumer-purpose
LPG bulk tank lorries. As a result, sales reached ￥10,551
million, up 15.5% from the previous year.
In the steel structure business, sales included ShinLPG Tank Lorry

Atsubetsugawa Bridge for the Hokkaido Regional4

Development Bureau; Misakashinden ElevatedBridge for the Kanto Regional Development Bureau;
Fukushigawa Second Bridge for the Central Nippon
Expressway Company; as well as temporary construction
work of the Fujigawa First overpass, Tokiwagawa
overpass, and Fukuda overpass. The sales also included
large-scale repair work for Tokaido Shinkansen. Sales
were up 19.6% from the previous year to ￥8,516 million.
In all, sales for the transportation equipment and steel

Shin-Atsubetsugawa Bridge

structure businesses were ￥19,068 million, up 17.3% from the previous year.

Construction Equipment BusinessIn the construction equipment business, the domestic demandin casing rotators showed healthy movement, thanks torecovery efforts from the Great East Japan Earthquake being
in full swing and the increase in construction work for the
Tokyo Olympic Games. The export business included large
pile driving rigs to South Korea and casing rotators to China.
As a result, sales reached ￥17,664
million, up 6.2% from the previous
year.

Casing Rotator

The generator business showed healthy movement in sales of overseas
products, however, sluggish movement in sales of domestic products. The
sales of generators were ￥3,475 million, down 5.4% from the previous year.
In all, sales in our construction equipment business were ￥21,138 million,
Generator

up 4.1% from the previous year.

Other Businesses
Our main sales included; mechanical equipment for
Maglev trains for JR Central; vehicle inspection/repair
facilities; expansion and repair work of agricultural
plants for Agricultural Cooperatives all over Japan;
paper-manufacturing equipment for household paper
manufacturers; laser processing machines; and railway
memorabilia. Sales in other businesses areas totaled ￥4,943
million, up 5.3% from the previous year.

Agricultural Plant

5

The overseas sales for the year under review amount to ￥31,918 million, representing 28.8% of total
sales, which includes ￥28,458 million for the railway rolling stock business and ￥2,643 million for theconstruction equipment business.
The orders on hand at the end of the year under review reached ￥124,145 million. These comprised￥95,812 million for the railway rolling stock business (￥18,801 million for rolling stock for JR
companies such as the N700A Shinkansen trains, ￥14,012 million for railway cars for other public
and private railway companies, ￥62,999 million for rolling stock for overseas), ￥21,576 million for
the transportation equipment and steel structure businesses (￥11,971 million for the transportationequipment business, ￥9,606 million for the steel structure business), ￥3,125 million for the construction
equipment business, and ￥3,632 million for other businesses.

Investment in Plant and Equipment
Plant and equipment investment during the year under review totaled ￥2,657 million. Investment was
mainly targeted at introduction of IT systems to consolidate design/development capabilities for railway
rolling stock and renewal of power receiving equipment at the Toyokawa Plant. Investment was also
made for renewal of equipment to maintain/improve the production capacity at each plant.

Financing Activities
In June 2015, the Group raised a long-term loan of ￥19,173 million from two financial institutions.

6

NIPPON SHARYO, LTD. ANDCONSOLIDATED SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2016,
AND
INDEPENDENT AUDITOR’S REPORT

7

8

9

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Balance Sheet
March 31, 2016

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

2016

2015

2016

CURRENT ASSETS:¥

Cash and cash equivalents (Notes 14 and 17)

13,247

¥

3,181

$

118,277

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

21,22029,213

189,462

Inventories (Notes 2.i and 4)

40,30548,244359,862

Deferred tax assets (Note 13)

80

2,794

715

Other current assets (Note 9)

2,169

3,115

19,369Total current assets

77,02186,547

687,685Land

15,08915,089134,725

Buildings and structures

28,042

27,783250,376

Machinery and equipment

34,85034,429311,161

Construction in progress

109

333

970

78,09077,634

697,232(46,817)(45,777)(418,013)

31,27331,857279,219

Investment securities (Notes 5 and 14)

16,97518,040151,567

Investments in an unconsolidated subsidiary and associatedcompanies

1,511

1,293

13,488Asset for employees’ retirement benefits (Note 8)

3,982

5,895

35,550

91

87

815

1,412

1,418

12,61023,971

26,733214,030PROPERTY, 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

132,265¥

145,137$

1,180,934(Continued)

10

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Balance Sheet
March 31, 2016

Thousands of
U.S. Dollars(Note 1)
2016

Millions of Yen
LIABILITIES AND EQUITY

2016

2015

CURRENT LIABILITIES:¥

Short-term borrowings (Notes 7, 14, and 17)
Current portion of lease obligations (Notes 11 and 14)362¥

10,015

$

3,231

770

987

6,875

Notes and accounts payable (Notes 6 and 14)

22,47322,499200,649

Accrued expenses

9,988

5,819

89,183

Advances received

15,602

28,766

139,300

Income taxes payable (Note 14)

50

770

442

Allowance for work in process on construction contracts

117

9

1,042

13,6799,576

122,130

257

286

2,311

63,29878,727565,163

24,1745,000

215,836

242

229

2,157

Lease obligations (Notes 11 and 14)

1,600

1,672

14,283

Allowance for PCB disposal expenses

334

334

2,982

Provision for loss on orders received
Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 7 and 14)
Liability for employees’ retirement benefits (Note 8)

Provision for compensation for health damage from asbestos
Deferred tax liabilities (Note 13)
Other long-term liabilities
Total long-term liabilities

134

149

1,196

8,746

6,946

78,086

353

619

3,165

35,583

14,949317,705

11,811

11,811

105,453

COMMITMENTS AND
CONTINGENT LIABILITIES(Notes 10 and 15)
EQUITY (Note 12):
Common stock, authorized, 328,000,000 shares;
issued, 146,750,129 shares in 2016 and 2015
Capital surplus

12,045

12,045

107,555

Retained earnings

1,967

18,04917,555

(513)

(511)

(4,582)

7,013

7,486

62,614

(2)

(47)

(18)

Foreign currency translation adjustments(2,261)(2,155)(20,190)

Defined retirement benefit plans

3,241

4,709

28,941

7,991

9,993

71,347

Treasury stock, at cost, 2,396,024 shares in 2016
and 2,388,628 shares in 2015
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred loss on derivatives under hedge accounting

Total accumulated other comprehensive income
Noncontrolling interests
Total equity
¥

TOTAL

83

74

738

33,38451,461

298,066

132,265¥

145,137$

1,180,934(Concluded)

See notes to consolidated financial statements.

11

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Operations
Year Ended March 31, 2016

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2016¥

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

2015¥

111,0072016

96,299$991,134

114,067

97,134

1,018,456(3,060)(835)(27,322)

7,112

7,343

63,495(10,172)(8,178)(90,817)

Interest and dividend income (Note 17)

344

240

3,074

Interest expense (Note 17)

(189)

(87)

(1,690)Equity in earnings of associated companies

188

40

1,678

2

247

15

Loss on impairment of property, plant, and equipment (Note 16)(50)(4,815)(444)

Loss on sales and disposals of property, plant, andequipment, net

(30)

(23)

(265)

Other – net

(347)

(279)

(3,102)(82)(4,677)(734)(10,254)(12,855)(91,551)

Current

117

1,002

1,044

Deferred

5,750

700

51,338

5,867

1,702

52,382(16,121)(14,557)(143,933)

9

11

85

Gross loss

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

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

Other 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¥(16,130)¥(14,568)$(144,018)

U.S. Dollars

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

Basic net loss
Cash dividends applicable to the year

(111.74)-

See notes to consolidated financial statements.

12¥(100.91)
2.50$(1.00)-

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Comprehensive Income
Year Ended March 31, 2016

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2016¥

NET LOSS2015(16,121)¥2016(14,557)$(143,933)

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

(477)

2,759

(4,258)

42

(59)

377

(133)

(1,817)(1,184)(1,467)

4,103(13,099)

Share of other comprehensive income in associatedcompanies

33

(0)

293

Total other comprehensive (loss) income(2,002)

4,986(17,871)

Deferred gain (loss) on derivatives under hedge accounting
Foreign currency translation adjustments

Defined retirement benefit plans

COMPREHENSIVE LOSS¥

(18,123)¥(9,571)$(161,804)¥(18,132)¥(9,582)$(161,889)

TOTAL COMPREHENSIVE (LOSS) INCOME
ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests

9

See notes to consolidated financial statements.

13

11

85

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Changes in Equity
Year Ended March 31, 2016
Millions of Yen
Number ofshares ofcommon stock
outstanding
BALANCE, APRIL 1, 2014
( as previously reported)
Cumulative effect of accountingchangeBALANCE, APRIL 1, 2014(as restated)

144,370,295¥

CommonCapitalRetained

Treasurystock

surplusearnings

stock

11,811¥

12,045¥34,914

¥

(508)

-

-

-

(1,575)-

144,370,295

11,811

12,04533,339(508)

Cash dividends, ￥5.0 per share

-

-

-

(722)

-

Net loss attributable to ownersof the parent

-

-

-

(14,568)-

Increase in treasury stock, net(8,794)

-

0

-

(3)

-

-

-

-

-

144,361,501

11,811

12,04518,049(511)

Cash dividends

-

-

-

-

-

Net loss attributable to ownersof parent---(16,130)-

Increase in treasury stock, net(7,396)

-

-

-

(2)

Change due to increase in numberof associated companies

-

-

-

48

-

Net changes in the year

-

-

-

-

-

Net changes in the year
BALANCE, MARCH 31, 2015

BALANCE, MARCH 31, 2016

144,354,105¥

11,811¥

12,045

¥

1,967

¥

(513)

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2015$

CommonCapitalRetained

Treasurystock

surplusearnings

stock

105,453$

107,555$

161,144$(4,562)

Cash dividends

-

-

-

-

Net loss attributable to ownersof the parent--(144,018)-

Increase in treasury stock, net

-

-

-

(20)

Change due to increase in numberof associated companies

-

-

429

-

Net changes in the year

-

-

-

-

BALANCE, MARCH 31, 2016$

105,453

See notes to consolidated financial statements.

14$

107,555$

17,555$(4,582)

Millions of Yen
Accumulated other comprehensive income
Unrealized gainonavailable-for-salesecurities
¥

¥

4,728

Deferred loss
on derivatives
under hedge
accounting

Foreigncurrencytranslation
adjustments

Definedretirement
benefit plans

Total
accumulated
othercomprehensive
income

¥

¥

¥

¥

12

(338)

604

5,006

Noncontrolling

Totalinterests

equity¥64¥

63,332

-

-

-

-

-

-

(1,575)

4,728

12

(338)

604

5,006

64

61,757

-

-

-

-

-

-

(722)

-

-

-

-

-

-

(14,568)

-

-

-

-

-

-

(3)

2,758

(59)

(1,817)

4,105

4,987

10

4,997

7,486

(47)

(2,155)

4,709

9,993

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

Thousands of U.S. Dollars (Note 1)
Accumulated other comprehensive income
Unrealized gainonavailable-for-salesecurities

Deferred loss
on derivatives
under hedge
accounting

Foreigncurrencytranslation
adjustments

Definedretirement
benefit plans

Total
accumulated
othercomprehensive
incomeNoncontrollinginterests

$

$

$

$

$

$

$

66,843(424)(19,242)

42,041

89,218665

Total
equity$459,473

-

-

-

-

-

-

-

-

-

-

-

-

-

(144,018)

-

-

-

-

-

-

(20)

-

(398)

502

-

104

-

533

(4,229)804(1,450)(13,100)(17,975)

73(17,902)62,614$(18)$(20,190)$

28,941

15$

71,347$738$

298,066

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Consolidated Statement of Cash Flows
Year Ended March 31, 2016
Thousands of U.S.
Dollars (Note 1)

Millions of Yen
2016

2015

2016

OPERATING ACTIVITIES:¥

Loss before income taxes(10,254)¥(12,855)$(91,551)

Adjustments for:
Income taxes-paid(333)(4,433)(2,975)

Depreciation

2,888

3,021

25,787

Loss on impairment of property, plant, and equipment

50

4,815

444

Loss on sales and disposals of property, plant, and equipment

4

9

39

Gain on sales of investment securities

(2)

(247)

(15)

Decrease in trade notes and accounts receivable

8,599

5,062

76,780Decrease (increase) in inventories

7,974(7,935)71,195

Increase (decrease) in trade notes and accounts payable

116(1,341)

1,039

Increase (decrease) in allowance for work in process on construction contracts

108

(86)

965

4,113

7,994

36,723

(15)

6

(134)

(13,215)

1,020(117,995)

13(1,572)

113

2,288

2,856

20,4282,334(3,686)

20,843(1,704)(4,414)(15,215)

Proceeds from sales of property, plant, and equipment

86

48

765

Purchases of investment securities

(15)

(3)

(137)

Proceeds from sales of investment securities

2

440

18

Other-net

14

(381)

132

(1,617)(4,310)(14,437)

Net (decrease) increase in short-term borrowings(9,618)

4,772(85,873)

Proceeds from long-term debt

19,174-

171,193

Dividends paid

(1)

(722)

(12)

Other-net

(86)

(70)

(765)

9,469

3,980

84,543(120)

152(1,076)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

10,066(3,864)89,873

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

3,181

7,045

28,404

Changes in assets and liabilities:

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

Net cash used in investing activities
FINANCING ACTIVITIES: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.

13,247

¥

3,181

$

118,277(Concluded)

16

NIPPON SHARYO, LTD. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
Year Ended March 31, 2016
the Group is also eliminated.
The number of the consolidated subsidiaries,
unconsolidated subsidiary, and associated companies forthe years ended March 31, 2016 and 2015, was as follows:

1. BASIS OF PRESENTATION OF CONSOLIDATEDFINANCIAL STATEMENTS
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 GAAP”), which are different in certain respects
as to the application and disclosure requirements ofInternational Financial Reporting Standards (IFRS).

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

2016
6
1
3
1

2015
6
1
1
4

NIHONDENSO ALL CO,.LTD. and TAIWAN ROLLING
STOCK, CO., LTD. were included in the scope of
application of the equity method from the year ended
March 31, 2016 due to their increasing materiality.

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 ismore familiar to readers outside Japan. In addition, certain
reclassifications have been made in the 2015 consolidated
financial statements to conform to the classifications usedin 2016.

The fiscal year-end of NIPPON SHARYO U.S.A., INC. andits subsidiaries, NIPPON SHARYO MANUFACTURING,
LLC, and NIPPON SHARYO ENGINEERING &MARKETING, LLC is December 31 and their financial
statements with the closest closing date prior to that of theCompany are used for consolidation purposes. Necessary
adjustments for significant transactions from January 1 toMarch 31 are made for consolidation purposes.

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, 2016. 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
In May 2006, the Accounting Standards Board of Japan(the “ASBJ”) issued ASBJ Practical Issues Task Force(“PITF”) No. 18, “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries for theConsolidated Financial Statements” which was subsequently
revised in February 2010 and March 2015 to reflectrevisions of the relevant Japanese GAAP or accounting
standards in other jurisdictions. PITF No. 18 prescribesthat the accounting policies and procedures applied to aparent company and its subsidiaries for similar transactions
and events under similar circumstances should, in principle,
be unified for the preparation of the consolidated financial
statements. However, financial statements prepared byforeign subsidiaries in accordance with either IFRS orgenerally accepted accounting principles in the UnitedStates of America (Financial Accounting Standards
Board Accounting Standards Codification_“FASB ASC”)
tentatively may be used for the consolidation process,except for the following items that should be adjusted in
the consolidation process so that net income is accounted
for in accordance with Japanese GAAP, unless they are
not material: (a) amortization of goodwill; (b) scheduled
amortization of actuarial gain or loss of pensions that has
been recorded in equity through other comprehensive───────────────────────────────
2 . SU M M ARY OF S IGNIF ICANT ACCOUN TI N GPOLICIES
a. Consolidation
The consolidated financial statements as of March 31, 2016,
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 effect on
the accompanying consolidated financial statements would
not be material.
All significant intercompany balances and transactions havebeen eliminated in consolidation. All material unrealized
profit included in assets resulting from transactions within

17

income; (c) expensing capitalized development costs ofresearch and development (R&D); and (d) cancellation of
the fair value model of accounting for property, plant andequipment and investment properties and incorporation of
the cost model accounting.

interest 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. Under
the previous accounting standard, any difference
between the fair value of the consideration received
or paid and the amount by which the noncontrollinginterest is adjusted is accounted for as an adjustmentof goodwill or as profit or loss in the consolidated
statement of income. Under the revised accounting
standard, such difference is accounted for as capitalsurplus as long as the parent retains control over its
subsidiary.

c. Unification of accounting policies applied to associatedcompanies for the equity method
In March 2008, the ASBJ issued ASBJ Statement No. 16,“Accounting Standard for Equity Method of Accounting
for Investments” which was subsequently revised in linewith the revisions to PITF No. 18 above. The standard
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 inapplying the equity method, unless it is impracticable todetermine adjustments.

(b) Presentation of the consolidated balance sheet—In
the consolidated balance sheet, "minority interest"
under the previous accounting standard is changed to"noncontrolling interest" under the revised accounting
standard.

d. Business combinations
In October 2003, the Business Accounting Council
issued a Statement of Opinion, “Accounting for Business
Combinations,” and in December 2005, the ASBJ issued
ASBJ Statement No. 7, “Accounting Standard for Business
Divestitures,” and ASBJ Guidance No. 10, “Guidance
for Accounting Standard for Business Combinations andBusiness Divestitures.”(c) Presentation of the consolidated statement of income—In the consolidated statement of income, "net income
before minority interest" under the previous accounting
standard is changed to "net income" under the revised
accounting standard, and "net income" under theprevious accounting standard is changed to "net income
attributable to owners of the parent" under the revised
accounting standard.

In December 2008, the ASBJ issued a revised accounting
standard for business combinations, ASBJ Statement No.
21, “Accounting Standard for Business Combinations.”
Major accounting changes under the revised accounting
standard are as follows: (1) The revised standard requires
accounting for business combinations only by the purchasemethod. As a result, the pooling-of-interests method of
accounting is no longer allowed. (2) The previous accounting
standard required the R&D costs to be charged to income
as incurred. Under the revised standard, in-process R&D
costs acquired in the business combination are capitalized
as an intangible asset. (3) The previous accounting standard
provided for a bargain purchase gain (negative goodwill) tobe systematically amortized over a period not exceeding 20
years. Under the revised standard, the acquirer recognizes
the bargain purchase gain in profit or loss immediately on
the acquisition date after reassessing and confirming that allof the assets acquired and all of the liabilities assumed havebeen identified after a review of the procedures used in thepurchase price allocation.

(d) Provisional accounting treatments for a businesscombination—If the initial accounting for a businesscombination is incomplete by the end of the reporting
period in which the business combination occurs,
an acquirer shall report in its financial statements
provisional amounts for the items for which theaccounting is incomplete. Under the previous
accounting standard guidance, the impact ofadjustments to provisional amounts recorded in abusiness combination on profit or loss is recognizedas profit or loss in the year in which the measurement
is completed. Under the revised accounting standard
guidance, during the measurement period, which shallnot exceed one year from the acquisition, the acquirer
shall retrospectively adjust the provisional amounts
recognized at the acquisition date to reflect new
information obtained about facts and circumstancesthat existed as of the acquisition date and that would
have affected the measurement of the amounts
recognized as of that date. Such adjustments shallbe recognized as if the accounting for the businesscombination had been completed at the acquisition
date.

On September 13, 2013, the ASBJ issued revised
ASBJ Statement No. 21, “Accounting Standard forBusiness Combinations,” revised ASBJ Statement No.
22, “Accounting Standard for Consolidated Financial
S t a t e m e n t s , ” a n d r e v i s e d AS B J S t a t e m e n t N o . 7“Accounting Standard for Business Divestitures.” Major
accounting changes are as follows:(e) Acquisition-related costs—Acquisition-related costs arecosts, such as advisory fees or professional fees, which
an acquirer incurs to effect a business combination.
Under the previous accounting standard, the acquirer
accounts for acquisition-related costs by including themin the acquisition costs of the investment. Under therevised accounting standard, acquisition-related costs
shall be accounted for as expenses in the periods inwhich the costs are incurred.

(a) Transactions with noncontrolling interest—A parent's
ownership interest in a subsidiary might change if theparent purchases or sells ownership interests in its
subsidiary. The carrying amount of noncontrolling

18

The Company applied the revised accounting standardsfor (a) transactions with noncontrolling interest, (b)presentation of the consolidated balance sheet, (c)presentation of the consolidated statement of income, and(e) acquisition-related costs above, effective April 1, 2015,
and (d) provisional accounting treatments for a businesscombination above for a business combination which
occurred on or after April 1, 2015. The revised accounting
standards for (a) transactions with noncontrolling interestand (e) acquisition-related costs were applied prospectively
as permitted in the transitional treatment of the revised
standards.

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.

With respect to (b) presentation of the consolidated balance
sheet and (c) presentation of the consolidated statement ofincome, the applicable line items in the 2015 consolidated
financial statements have been accordingly reclassified andpresented in line with those in 2016.

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.

The effects of the application of the revised accounting
standards on the consolidated financial statements wereimmaterial.
e. Cash equivalents
Cash equivalents are short-term investments that are readily
convertible into cash and that are 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.

Cash equivalents include time deposits and CashManagement System (“CMS”) funds due from the parent
company, Central Japan Railway Company (the “Parent”),
all of which mature or become due within three months
from the date of acquisition.

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 ￥3,427 million ($30,599 thousand) and￥3,059 million for the years ended March 31, 2016 and2015, respectively, were included in cost of sales.

f. 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 atcost 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.

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 the declining-balance method for otherproperty at rates based on the estimated useful lives of theassets.

g. Derivatives and hedging activities
The Group uses derivative financial instruments to manage
its exposures to fluctuations in foreign exchange andinterest rates. Forward foreign currency contracts, currency
swaps, and interest rate swaps are utilized by the Group to
reduce foreign currency exchange and interest rate risks.
The Group does not enter into derivatives for trading or
speculative purposes.

Depreciation of leased assets relating to financial leasetransactions without transfer of ownership is computed by
the straight-line method over the leased period.

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

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.

19

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.

and were followed by partial amendments from time totime through 2009.
(a) Under the revised accounting standard, actuarial
gains and losses and prior service costs that are yet to berecognized in profit or loss are recognized within equity(accumulated other comprehensive income), after adjustingfor tax effects, and any resulting deficit or surplus isrecognized as a liability (liability for retirement benefits) or
asset (asset for retirement benefits).
(b) The revised accounting standard does not change how
to recognize actuarial gains and losses and prior service
costs in profit or loss. Those amounts are recognizedin profit or loss over a certain period no longer thanthe expected average remaining service period of theemployees. However, actuarial gains and losses and priorservice costs that arose in the current period and have
not yet been recognized in profit or loss are included inother comprehensive income, and actuarial gains andlosses and prior service costs that were recognized inother comprehensive income in prior periods and thenrecognized in profit or loss in the current period are treatedas reclassification adjustments (see Note 18).

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 can bereasonably estimated. Provisions for work in process on
construction contracts in the amounts of ￥108 million ($965
thousand) and ￥(86) million for the years ended March 31,
2016 and 2015, respectively, were included in cost of sales.

(c) The revised accounting standard also made certain
amendments relating to the method of attributing expected
benefit to periods, the discount rate, and expected futuresalary increases.

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.

This accounting standard and the guidance for (a) and (b)above are effective for the end of annual periods beginningon or after April 1, 2013, and for (c) above are effective forthe beginning of annual periods beginning on or after April
1, 2014, or for the beginning of annual periods beginningon or after April 1, 2015, subject to certain disclosure in
March 2015, all with earlier application being permitted
from the beginning of annual periods beginning on or after
April 1, 2013. However, no retrospective application of thisaccounting standard to consolidated financial statements inprior periods is required.

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 Companies applied the revised accounting standard
and guidance for retirement benefits for (a) and (b) above,effective March 31, 2014, and for (c) above, effective April 1,
2014.

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

With respect to (c) above, the Companies changed themethod of attributing the expected benefit to periods froma straight-line basis to a benefit formula basis and themethod of determining the discount rate, and recorded theeffect of (c) above as of April 1, 2014, in retained earnings.
As a result, retained earnings as of April 1, 2014, decreasedby ￥1,575 million.

ASBJ issued ASBJ Statement No. 26, "Accounting Standard
for Retirement Benefits" in May 2012 and ASBJ Guidance
No. 25, "Guidance on Accounting Standard for Retirement
Benefits” in March 2015, which replaced the accounting
standard for retirement benefits that had been issued by theBusiness Accounting Council in 1998 with an effective dateof April 1, 2000, and the other related practical guidance,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.

20

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.

w. Construction contracts
Construction revenue and construction costs are recognizedby the percentage-of-completion method if the outcome ofa construction contract can be estimated reliably. When
total construction revenue, total construction costs, andthe stage of completion of the contract at the consolidatedbalance sheet date can be reliably measured, the outcome ofa construction contract is deemed to be estimated reliably.
If the outcome of a construction contract cannot be reliably
estimated, the completed-contract method should beapplied. When it is probable that the total construction
costs will exceed total construction revenue, an estimatedloss on the contract should be immediately recognized byproviding for a loss on construction contracts.

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.

x. Accounting changes and error corrections
In December 2009, the ASBJ issued ASBJ Statement No.
24, “Accounting Standard for Accounting Changes andError Corrections,” and ASBJ Guidance No. 24, “Guidanceon Accounting Standard for Accounting Changes and Error
Corrections.” Accounting treatments under this standard
and guidance are as follows: (1) Changes in Accounting
Policies—When a new accounting policy is appliedfollowing revision of an accounting standard, the new policy
is applied retrospectively, unless the revised accounting
standard includes specific transitional provisions, in whichcase the entity shall comply with the specific transitional
provisions. (2) Changes in Presentation—When thepresentation of financial statements is changed, prior-period
financial statements are reclassified in accordance with thenew 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 is accounted for prospectively if the change affects boththe period 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.

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.
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 under accumulated
other comprehensive income in a separate component ofequity.
u. R&D expenses
Expenses related to R&D activities are charged to income
as incurred. R&D expenses amounted to ￥1,440 million($12,853 thousand) and ￥1,130 million for the years ended
March 31, 2016 and 2015, respectively, and are included
in general and administrative expenses and manufacturingcosts in the accompanying consolidated statement ofoperations.
v. Per share information
Basic net income (loss) per share is computed by dividing
net income (loss) attributable to common shareholders
by the weighted-average number of shares of common
stock outstanding during the respective year. Weightedaverage number of shares of common stock for the years
ended March 31, 2016 and 2015, were 144,357 thousand
shares and 144,366 thousand shares, respectively. Diluted
net income (loss) per share for the years ended March 31,
2016 and 2015, was not applicable because the Company
had no dilutive common shares. Cash dividends per sharepresented in the accompanying consolidated statement ofoperations are dividends applicable to the respective years,
including dividends to be paid after the end of the year.

21

3. NOTES AND ACCOUNTS RECEIVABLE
Notes and accounts receivable as of March 31, 2016 and 2015, consisted of the following:
Millions of Yen
Trade notes¥- Unconsolidated subsidiary and associated companies
Trade accounts- The Parent, unconsolidated subsidiary and associated companies
Other
Less allowance for doubtful accounts
¥
Total

2016
3,789
134
13,801
2,857
641
(2)
21,220

¥

¥

2015
3,903
138
21,955
3,186
51
(20)
29,213Thousands of
U.S. Dollars
2016
33,833$
1,193
123,222
25,511
5,723(20)
189,462$

Note: Allowance for doubtful accounts was not recognized for accounts receivable-other, which was included in Other above.
──────────────────────────────────────────────────────
4. INVENTORIESInventories as of March 31, 2016 and 2015, consisted of the following:
Millions of Yen
Merchandise
Finished goods
Work in process and semi-finished goods
Raw materials
Total

¥

¥

2016
93
1,312
36,1662,734
40,305

¥

2015
92
1,297
38,947
7,908
48,244¥

Thousands of
U.S. Dollars
2016
826
$
11,717
322,906
24,413359,862$

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, 2016, allowance for work in process on construction contracts of ￥2 million ($17thousand) was provided and included in work in process above. At March 31, 2015, no such allowance was provided andincluded in work in process.
──────────────────────────────────────────────────────
5. INVESTMENT SECURITIESInvestment securities as of March 31, 2016 and 2015, consisted of the following:
Millions of Yen
Equity securities
Total

¥
¥

2016
16,975
16,975¥¥2015
18,04018,040Thousands of
U.S. Dollars
2016
151,567$
151,567$

The costs and aggregate fair values of investment securities as of March 31, 2016 and 2015, were as follows:

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

¥
¥

6,063
6,063

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

¥
¥

6,060
6,060

22

Millions of Yen
2016
Gross unrealized Gross unrealized
gains
losses¥¥

10,042
10,042

¥
¥

(14)
(14)

Millions of Yen
2015
Gross unrealized Gross unrealized
gains
losses¥¥10,938
10,938¥¥-Fair andcarrying value¥¥

16,091
16,091

Fair andcarrying value¥¥

16,99816,998

Thousands of U.S. Dollars
2016
Gross unrealized Gross unrealized
gains
losses

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

$
$

54,13654,136$$89,65889,658

$
$

(122)
(122)

Fair andcarrying value$$

143,672
143,672

The information of available-for-sale securities which were sold for the years ended March 31, 2016 and 2015, was as follows:

Proceeds
Available-for-sale:
Equity securities
Total

¥
¥

2
2

Proceeds
Available-for-sale:
Equity securities
Total

¥
¥

420
420

Millions of Yen
2016
Realized gains

Realized losses

¥
¥

¥
¥

2
2

-

Millions of Yen
2015
Realized gains

Realized losses

¥
¥

¥
¥

228
228

-

Thousands of U.S. Dollars
2016
Proceeds
Realized gains Realized losses
Available-for-sale:
Equity securities
Total

$
$

18
18

$
$

15
15

$
$

-

No impairment losses on available-for-sale equity securities for the years ended March 31, 2016 and 2015, were recognized.
──────────────────────────────────────────────────────
6. NOTES AND ACCOUNTS PAYABLE
Notes and accounts payable as of March 31, 2016 and 2015, consisted of the following:
Millions of Yen
Trade notes
Electronically recorded obligations-operating-Unconsolidated subsidiary and associated companies
Trade accounts-Unconsolidated subsidiary and associated companies
Other
Total

¥

¥

2016
1,103
9,149
16
10,26230
1,913
22,473

¥

2015
941
8,964
18
10,47839
2,059
22,499¥Thousands of
U.S. Dollars
2016
9,845
$
81,690146
91,617266
17,085
200,649$──────────────────────────────────────────────────────
7. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings as of March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars
2016

Millions of Yen
2016
CMS with average interest rates of 0.49% in 2015

2015

¥

-

¥

648

$

-

Unsecured bank loans with interest rates of 0.59% in 2016
and interest rates ranging from 0.47% to 0.70% in 2015
Total
¥

362
362

¥

9,367
10,015

$

3,231
3,231

23

Long-term debt as of March 31, 2016 and 2015, consisted of the following:
Millions of Yen
2016
Unsecured bank loans due in 2022 and 2018 with average interest¥
rates of 0.71% and 0.55% in 2016 and 2015, respectively
¥
Total

2015

Thousands of
U.S. Dollars
2016

24,174

¥

5,000

$

215,836

24,174

¥

5,000

$

215,836

Note: Long-term debt as of March 31, 2016 and 2015, had no current portion.
The aggregate annual maturities of long-term debt as of March 31, 2016, were as follows:
Years ending March 31
2017
2018
2019
2020
2021
2022 and thereafter
Total

Millions of Yen
5,000¥
19,174
24,174¥

Thousands of U.S. Dollars
44,643$
171,193
215,836$

Long-term debt in the amount of ￥21,674 million ($193,515 thousand) is subject to the following financial covenants.
Financial institutions agreed with a waiver of their right to claim forfeiture of the benefit of time as of March 31, 2016.
(a) Financial covenant in the term loan agreement concluded on March 14, 2013 (outstanding balance: ￥2,500 million ($22,321
thousand))・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, 2012 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.
(b) Financial covenants in the term loan agreement concluded on June 16, 2015 (outstanding balance: ￥13,572 million($121,177 thousand)) and the loan agreement concluded on June 17, 2015 (outstanding balance: ￥5,602 million ($50,016
thousand))・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, 2015 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 ended March 31, 2015 and thereafter.
After March 31, 2016, the above covenants were revised as follows and agreed to by the relevant financial institutions:・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.
Along with the above revision of financial covenants, significant assets were pledged as collateral to the relevant financial
institutions. Refer to Note 19 “Subsequent Event.”──────────────────────────────────────────────────────
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

24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(a) The changes in defined benefit obligation for the years ended March 31, 2016 and 2015, were as follows:
Millions of Yen
Balance at beginning of year (as previously reported)
Cumulative effect of accounting change
Balance at beginning of year (as restated)
Current service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Balance at end of year

¥

¥

2016
14,011
14,011
738
124
(150)
(916)
13,807¥¥2015
11,8802,426
14,306699
125
88(1,207)
14,011Thousands of
U.S. Dollars
2016$
125,102125,1026,591
1,108(1,342)(8,184)$
123,275(b) The changes in plan assets for the years ended March 31, 2016 and 2015, were as follows:
Millions of Yen
Balance at beginning of year
Expected return on plan assets
Actuarial (losses) gains
Contribution from the employer
Benefits paid
Balance at end of year

¥

¥

2016
19,677230(2,127)316(549)
17,547¥¥2015
13,880
205
5,766
456
(630)
19,677

Thousands of
U.S. Dollars
2016$
175,690
2,055(18,992)
2,816(4,901)$
156,668(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, 2016 and 2015, was as follows:
Millions of Yen
Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation
Net asset arising from defined benefit obligation¥

Asset for employees’ retirement benefits
Liability for employees’ retirement benefits
Net asset arising from defined benefit obligation

¥

¥

¥

2016
13,565(17,547)(3,982)242(3,740)(3,982)242(3,740)¥¥2015
13,782(19,677)(5,895)229(5,666)¥(5,895)229(5,666)¥

Thousands of
U.S. Dollars
2016$
121,118(156,668)(35,550)
2,157$(33,393)$$(35,550)
2,157(33,393)(d) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, were as follows:
Millions of Yen
Service cost (Note)
Interest cost
Expected return on plan assets
Amortization of transitional obligation
Recognized actuarial (gains) losses
Amortization of prior service cost
Net periodic benefit costs

¥

2016
742
124
(230)
(279)
(4)
353

¥

¥

¥

2015
719
125
(205)
214
99
(4)
948

Thousands of
U.S. Dollars
2016
$
6,629
1,108
(2,055)(2,490)
(39)
$
3,153

Note: Retirement benefit costs of the consolidated subsidiaries applying the simplified method are included in service cost.

25

(e) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans for the years ended March 31, 2016 and 2015
Thousands ofMillions of Yen
U.S. Dollars
2016
2015
2016
Transitional obligation
(199)
$
¥
¥
Prior service cost
4
4
39
2,256
(5,777)
20,141
Actuarial losses (gains)
2,260(5,972)$
20,180¥¥Total(f) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined
retirement benefit plans as of March 31, 2016 and 2015
Thousands ofMillions of Yen
U.S. Dollars
2016
2015
2016
Unrecognized prior service cost(39) ¥(44) $(352)¥(4,605)(6,860)(41,111)
Unrecognized actuarial gains(4,644) ¥(6,904) $(41,463)¥
Total(g) Plan assets(i) Components of plan assets
Plan assets consisted of the following:
Debt investments
Equity investments
Cash and deposits
Other
Total

2016
12%
83%
2%
3%
100%

2015
11%
84%
2%
3%
100%

Note: The employees’ retirement benefit trusts for the lump-sum retirement benefit plan accounted for 50%, and that for thecontributory pension plans accounted for 18% of total plan assets for the years ended March 31, 2016 and 2015.
(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 long-term
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, 2016 and 2015, were set forth as follows:
Discount rate
Expected rate of return on plan assets

2016
0.9%
2.0%

2015
0.9%
2.0%

(2) Defined contribution plans
The required contribution of the Company and its consolidated subsidiaries amounted to ￥124 million ($1,105 thousand) and￥116 million for the years ended March 31, 2016 and 2015, respectively──────────────────────────────────────────────────────
9. ASSETS PLEDGED AS COLLATERAL
Assets pledged as collateral as of March 31, 2016 and 2015, were as follows:
Millions of Yen
Other current assets (Note 1)¥
Other assets under Investments and Other Assets (Note 2)
¥
Total

2016
60
10
70

¥
¥

2015
10
10

Thousands of
U.S. Dollars
2016
538
$
89
627
$

Notes 1: Deposit required by insurance contracts
2: Guarantee deposit required by the Building Lots and Buildings Transaction Business Law26──────────────────────────────────────────────────────
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, 2016 and 2015, amounted to ￥657
million ($5,869 thousand) and ￥598 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, 2016, were as follows:
Years ending March 31
2017
2018
2019
2020
2021
2022 and thereafter
Total

Millions of Yen
770
¥
662
451
254
233
2,370
¥

Thousands of U.S. Dollars
$
6,875
5,905
4,031
2,267
2,080
$
21,158A consolidated subsidiary subleases machinery.
Investments in leases and lease obligations, which include an interest portion, resulting from sublease transactions as ofMarch 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars
2016

Millions of Yen
2016
Investments in leases:
Due within one year
Due after one year
Total

¥

2015
190
367
557

¥

¥

287
356
643

¥

2016
¥

2015
198
402
600

¥

¥
¥

$

1,692
3,278
4,970

Thousands of
U.S. Dollars
2016

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

$

296
411
707

$
$

1,764
3,591
5,355

──────────────────────────────────────────────────────
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 termof service 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.

27

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 (a componentof retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity accountcharged 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 bereversed 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 under certain 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 are presented
as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stockacquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity
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 32.6% and 35.1% for the years ended March 31, 2016 and2015, respectively.
The tax effects of significant temporary differences and tax loss carryforwards that resulted in deferred tax assets andliabilities as of March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016
Deferred tax assets:
Tax loss carryforwards¥
Loss on write-downs of inventories
Loss on impairment of fixed assets
Accrued bonuses to employees
Amount transferred to defined contribution pension plan
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

¥

4,834
4,790
1,930
454
144
5,554
17,706(17,509)197(3,031)(2,059)(1,213)(2,485)(8,788)(8,591)2015(as restated)
¥

¥

680
7,979
2,058
534
245
4,495
15,991(9,938)6,053(3,486)(2,168)(1,289)(3,175)(10,118)(4,065)

2016$$

43,16042,76817,232
4,049
1,283
49,593
158,085(156,330)
1,755(27,066)(18,387)(10,828)(22,181)(78,462)(76,707)* Although these items were restated for the year ended March 31, 2015 since misstatements had been identified, there wasno effect on the consolidated financial statements for the year ended March 31, 2015.

28

Deferred tax assets and liabilities as of March 31, 2016 and 2015, were recorded as follows:
Millions of Yen
2016
Deferred tax assets:
Current
Noncurrent
Deferred tax liabilities:
Other under Current Liabilities
Noncurrent
Net deferred tax liabilities

¥

2015
80
91

(16)
(8,746)(8,591)

¥

¥

¥

2,794
87
(6,946)(4,065)

Thousands of
U.S. Dollars
2016
$

$

715
815
(151)
(78,086)(76,707)

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, 2016, with the corresponding figures for2015, is as follows:
2016
2015
Normal effective statutory tax rate
32.6 %
35.1 %
Increase (decrease) due to:
Expenses not deductible for income tax purposes(31.1)(0.2)
Tax-exempt income
0.2
0.6
Changes in valuation allowance(94.3)(49.4)Per capita inhabitant tax
(0.3)
(0.3)
Transfer price adjustments on consolidation
32.5
Effect of changes in tax rate
2.2
(0.6)
1.0
1.6
Other
(57.2) %(13.2) %Actual effective income tax rate
New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginningon or after April 1, 2016. The statutory tax rate used to calculate deferred tax assets and deferred tax liabilities was changed
from 31.8% to 30.5% for temporary differences expected to be reversed in the years beginning April 1, 2016 and April 1,
2017, and to 30.2% for temporary differences expected to be reversed in the years beginning on or after April 1, 2018.
As a result of this change, deferred tax liability, net of deferred tax assets, decreased by ￥463 million ($4,130 thousand) while
unrealized gain on available-for-sale securities increased by ￥161 million ($1,434 thousand) in the consolidated balance sheet
as of March 31, 2016, and income taxes - deferred decreased by ￥228 million ($2,033 thousand) in the consolidated statementof operations for the year then ended.
──────────────────────────────────────────────────────
14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group policy for financial instruments
The Group utilizes CMS provided by the Parent to operate and finance funds. The Group finances capital investments
mainly with bank loans. Derivative transactions are used, not for 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 are primarily
used for financing capital investments. Although a part of long-term debt is exposed to market risks from changes in variableinterest rates, those risks are mitigated by using derivatives of currency swaps and interest rate swaps.

29

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.
(a) Fair value of financial instruments

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Total
Notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt, including current portion
Lease obligations, including current portion
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¥¥¥¥22,473362
50
24,1742,370
49,42930¥¥

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

¥
¥

(622)
5
(617)

Cash and cash equivalents
Notes and accounts receivable
Investment securities
Total
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
Notes and accounts payable
Short-term borrowings
Income taxes payable
Long-term debt, including current portion
Lease obligations, including current portion
Total

Millions of Yen
2015
Carrying amount
Fair value
Unrealized gain (loss)
3,181
3,181
¥
¥
29,21329,213
16,99816,99849,39249,392¥¥¥¥

22,49910,015
770
5,000
2,659
40,943¥22,49910,015
770
5,021
2,639
40,944

¥

¥
¥

(21)
20
(1)

Thousands of U.S. Dollars
2016
Carrying amount
Fair value
Unrealized gain (loss)
118,277
118,277$$
189,462
189,462
143,672
143,672
451,411451,411$$$$200,6493,231
442
215,836
21,158441,316$

200,6493,231
442
221,391
21,109446,822$$$(5,555)49(5,506)

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 information on
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.
Long-term debt and lease obligations
The fair values of long-term debt and lease obligations are measured at the present value of the total of the principal andinterest 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

2015
1,042

Thousands of
U.S. Dollars
2016
7,895
$

1,293

13,488Millions of Yen
Unlisted securities
Investments in unconsolidated subsidiary andassociated companies

¥

2016
884
1,511

31

¥

(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

13,247
20,96634,213¥

Due in one
year or less$

Cash and cash equivalents
Notes and accounts receivable
Total

118,277
187,199
305,476$

Millions of Yen
2016
Due after one
Due after five
year throughyears throughfive years
10 years
254
¥
254
¥

Due after
10 years-Thousands of U.S. Dollars
2016
Due after one
Due after five
year throughyears throughfive years
10 years
2,263
$
2,263
$

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 andliabilities denominated in foreign currencies. The Group also enters into currency and interest rate swap contracts to manage
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.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2016 and 2015, were as follows:
Millions of Yen

2016
Hedgeditem

Contract
amountAdvancepayments
Advancepayments
Advancepayments¥

Contract
amountdue after
one year

Fair
value

2015

Contract
amountContract
amountdue after
one year

Fair
value

Currency:
Forward foreign currency contracts
Buying
USD
EUR
CNY

10

-

10

-

22

¥

(0)

¥

¥

112

-

1

(1)

40

-

(1)

-

(1)

-

-

-

-

-

-

786

-

(69)

Long-term¥ 16,072
debt¥ 16,072

Note¥ 2,500¥ 2,500

Note

6,902

Note

1,300

1,300

Note

Selling
USD
Interest rate:
Interest rate currency swap contracts(USD floating rate receipt/
JPY fixed-rate payment)

Advances
received

Long-term
Interest rate swap contracts
debt(floating rate receipt/fixed-rate payment)

6,902

32

Thousands of U.S. Dollars
2016
Hedgeditem

Contract
amountAdvancepayments
Advancepayments
Advancepayments$

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)

$

92

-

88

-

(5)

197

-

(9)

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

Note61,623Note

Long-term
Interest rate swap contracts
debt(floating rate receipt/fixed-rate payment)

61,623(1)

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 in Note 14.
──────────────────────────────────────────────────────
16. LOSS ON IMPAIRMENT OF PROPERTY, PLANT, AND EQUIPMENTThe Group recognized impairment loss on the following asset groups.
For the year ended March 31, 2016:
Asset group
Railway rolling stockbusiness property

Location
Illinois, the UnitedStates

Account

Millions of Yen
2016

Thousands of U.S. Dollars
2016

Machinery andequipment, etc.

¥

50

$

444

Total

¥

50

$

444

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 ($218
thousand), ￥7 million ($62 thousand), and ￥18 million ($164 thousand), respectively.
For the year ended March 31, 2015:
Asset group
Railway rolling stockbusiness property

Location
Illinois, the UnitedStates

Account

Millions of Yen
2015

Buildings and structures,
Machinery andequipment, etc.

¥

4,815

Total

¥

4,815

The Group reviewed its long-lived assets for impairment as of March 31, 2015.
For the year ended March 31, 2015, 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 buildings and structures, machinery and equipment, land, construction in progress, and other in the33amounts of ￥2,674 million, ￥826 million, ￥449 million, ￥366 million, and ￥500 million, respectively.
──────────────────────────────────────────────────────
17. RELATED-PARTY DISCLOSURESThe Parent directly owned 51.2% of the total shares of the Company as of March 31, 2016 and 2015. The Company
distributes transportation vehicles to the Parent.
Transactions of the Company with the Parent for the years ended March 31, 2016 and 2015, were as follows:
Millions of Yen
Sales
Interest income
Interest expense¥

2016
21,302
1-¥

2015
25,99331

Thousands of
U.S. Dollars
2016
190,198$
12-

The balances due to or from the Parent as of March 31, 2016 and 2015, were as follows:
Millions of Yen
Accounts receivable
Short-term loans
Short-term borrowings

¥

2016
2,746
5,976
-

¥

2015
3,048
648

Thousands of
U.S. Dollars
2016
24,519$53,357-──────────────────────────────────────────────────────
18. OTHER COMPREHENSIVE (LOSS) INCOME
The components of other comprehensive (loss) income for the years ended March 31, 2016 and 2015, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2016
2015
2016
Unrealized (loss) gain on available-for-sale securities:(Losses) gains arising during the year(932) ¥
3,920
(8,323)
¥
$
0
(228)
0
Reclassification adjustments to profit or loss
Amount before income tax effect
(932)
3,692
(8,323)
455
(933)
4,065
Income tax effect(477) ¥
2,759
(4,258)¥$
Total
Deferred gain (loss) on derivatives under hedge accounting:
Gains (losses) arising during the year
65(88) $
582
¥
¥
(23)
29
(205)
Income tax effect42(59) $
377
¥
¥
Total
Foreign currency translation adjustments:(133) ¥
(1,817) $(1,184)
Adjustments arising during the year¥(133) ¥
(1,817) $(1,184)¥
Total
Defined retirement benefit plans:
Adjustments arising during the year
(1,977) ¥5,677(17,651)
¥
$
(283)
295
(2,529)Reclassification adjustments to profit or loss
Amount before income tax effect(2,260)
5,972(20,180)793(1,869)
7,081
Income tax effect(1,467) ¥4,103(13,099)¥$
Total
Share of other comprehensive income in associated companies
Gains (losses) arising during the year
34
(0) $
302
¥
¥
(1)
0
(9)
Income tax effect
33
(0) $
293
¥
¥
Total
Total other comprehensive (loss) income¥(2,002)

34

¥

4,986

$

(17,871)──────────────────────────────────────────────────────
19. SUBSEQUENT EVENT
Significant assets pledged as collateral
As described in Note 7 “Short-term Borrowings and Long-term Debt,” the financial covenants attached to long-term debt
were revised. Along with this revision, investment securities (with a carrying amount as of March 31, 2016, of ￥11,973 million($106,898 thousand)) were pledged as collateral for long-term debt of ￥24,174 million ($215,836 thousand) as of April 20,
2016, as requested by the relevant financial institutions. The duration of collateral is from April 20, 2016, through the due
date of the respective long-term debt.
Furthermore, the Company agreed with the financial institutions to pledge additional assets as collateral by establishing afactory foundation mortgage consisting of major assets of the Company’s plants.
──────────────────────────────────────────────────────
20. SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Guidance No. 20,“Guidance on Accounting Standard for Segment Information Disclosures,” an entity is required to report financial anddescriptive information about its reportable segments. Reportable segments are operating segments or aggregations ofoperating 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.
(1) Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by theCompany’s management is being performed in order to decide how resources are allocated among the Group.
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.

35

(3) Information of sales, profit (loss), assets, and other items was as follows:
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

Reconciliations

Consolidated

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

¥

272

¥

747
947

33

¥

12

2,552

¥

2,408

336

¥

2,888

249

2,657

Reconciliations

Consolidated

Millions of Yen
2015
Reportable segment
Railway Transportation
Construction
Equipment andRolling
Equipment
Steel Structure
Stock
Net sales
Sales to external customers
Intersegment sales or transfers
Total

¥

Other

Total

55,035 ¥30
55,065 ¥16,260 ¥622
16,882 ¥20,311 ¥10
20,321 ¥4,693 ¥
246
4,939 ¥

Segment profit (loss)¥ (10,785) ¥Segment assets¥ 75,774 ¥Other:
Depreciation
1,581 ¥¥
Increase in property, plant, and4,037
equipment and intangible assets

407 ¥17,225 ¥3,352 ¥
20,571 ¥(27) ¥ (7,053) ¥2,671 ¥ 116,241 ¥

¥

421

¥

329

655

¥

902

35

¥

48

96,299908 ¥
97,207 ¥

2,692

¥

5,316

- ¥
(908)
(908) ¥

96,29996,299(1,125) ¥ (8,178)
28,896 ¥ 145,137
329

¥

3,021

288

5,604

Reconciliations

Consolidated

Thousands of U.S. Dollars
2016
Reportable segment
Railway Transportation
Construction
Equipment andRolling
Equipment
Steel Structure
Stock
Net sales
Sales to external customers
Intersegment sales or transfers
Total$ 588,020 $ 170,240 $ 188,736 $
265
1,865
44
$ 588,285 $172,105 $ 188,780 $Segment profit (loss)
4,360 $ 29,523 $$ (117,094) $Segment assets
582,613
164,405$$$ 176,454 $Other:
Depreciation
3,607 $
6,674 $
$ 12,210 $Increase in property, plant, and10,5082,433
8,456
equipment and intangible assets

Other

Total

44,138 $ 991,134
1,747
3,921 $
45,885 $ 995,055 $- $ 991,134(3,921)(3,921) $ 991,134

3,019 $ (80,192) $ (10,625) $ (90,817)
28,104 $ 951,576 $ 229,358 $1,180,934
291
111

$

22,78221,508

$

3,005
2,219

$

25,787
23,727

Notes: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, 2016, and 2015.
2. “Reconciliations” in segment profit (loss) include corporate expenses of ￥ (1,196) million ($(10,677) thousand) and ￥ (1,158)
million and elimination of intersegment transactions of ￥ 9 million ($82 thousand) and ￥ 28 million for the years ended
March 31, 2016, and 2015, respectively. Corporate expenses principally consist of general and administrative expenses thatare not attributable to any reportable segment.

36

3. “Reconciliations” in segment assets include total corporate assets of ￥ 27,672 million ($247,069 thousand) and ￥ 24,653
million, elimination of intersegment balances of ￥ (4,531) million ($(40,455) thousand) and ￥ (113) million, and adjustments
in inventories of ￥ (112) million ($(996) thousand) and ￥ (105) million as of March 31, 2016 and 2015, respectively. Total
corporate assets principally consist of investment securities and general management properties as of March 31, 2016 and2015.
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, 2016 and 2015, was as follows:

Net sales

Net sales

Net salesJapan¥ 79,086

Japan¥ 73,317

Japan$ 706,121

U.S.A.
¥ 22,156

Millions of Yen
2016
Asia
¥ 6,710

¥

Other
3,055

Total
¥ 111,007

U.S.A.
¥ 10,594

Millions of Yen
2015
Asia
¥ 7,630

¥

Other
4,758

Total
¥ 96,299

U.S.A.
$ 197,821

Thousands of U.S. Dollars
2016
Asia
$ 59,913

Other$ 27,279

Total$ 991,134

Other

Total

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

Japan
Property, plant, andequipment¥ 25,618

U.S.A.
¥Japan
Property, plant, andequipment

Property, plant, andequipment¥ 26,050

Millions of Yen
2016
Asia
¥

5,654

Millions of Yen
2015
Asia

U.S.A.
¥

¥

5,805

Japan

U.S.A.

$ 228,734$ 50,480

¥

1

Other
¥

2

Thousands of U.S. Dollars
2016
Asia
$

5

0

Total
0

Other
$

¥ 31,273¥ 31,857

Total
0$ 279,219(3) Information about major customers
Net sales
2015

Thousands of
U.S. Dollars
2016

25,993$ 190,198

Railway Rolling Stock,
Transportation equipment
and Steel structure-

174,913

Railway
Rolling StockMillions of Yen
Name of major customer
The Parent
Sumitomo Corporation of Americas

2016
¥

¥

21,302
19,59037

Relatedsegment

(4) Information about loss on impairment of property, plant, and equipment by reportable segment
Millions of Yen
2016

Impairment loss

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

Other

Total
-

¥

50

Reconciliations Consolidated
-

¥

50

Millions of Yen
2015

Impairment loss

Reportable segment
Transportation Construction
Railway
Equipment andRolling
Steel Structure Equipment
Stock¥ 4,815

Other

Total
-

¥

4,815

Reconciliations Consolidated
-

¥

4,815

Thousands of U.S. Dollars
2016

Impairment loss

Reportable segment
Transportation Construction
Railway
Equipment andRolling
Steel Structure Equipment
Stock
444
$

38

Other

Total
-

$

444

Reconciliations Consolidated
-

$

444

〈MEMO 〉

39

〈MEMO 〉

40

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

15,751 persons(March 31, 2016)

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 BRANCHSHANGHAI REPRESENTATIVE OFFICE

1-1 Sanbonmatsu-cho,Atsuta-ku, Nagoya 456-8691, JAPAN
Phone: +81-52-882-3316
Fax : +81-52-882-3781

12th Fl. Marunouchi Central Bldg.
1-9-1 Marunouchi,
Chiyoda-ku, Tokyo 100-0005 JAPAN
Phone: +81-3-6688-6789
Fax : +81-3-6688-6809

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

Tomson Centre Room A1607,
No.228 Zhangyang Road,
Pudong New District,
Shanghai, PRC
Phone: +86-21-5888-8706
Fax : +86-21-5888-8705

TOYOKAWA PLANT

NARUMI PLANTKINUURA PLANTNIPPON SHARYO U.S.A.,INC.

2-20 Honohara,
Toyokawa, Aichi-pref 442-8502, JAPAN
Phone: +81-533-85-4112
Fax : +81-533-85-3619

80 Ryucho, Narumi-cho,
Midori-ku, Nagoya 458-8502, JAPAN
Phone: +81-52-623-3311
Fax : +81-52-623-4349

20 11-gouchi,
Handa, Aichi 475-0831, JAPAN
Phone: +81-569-22-7511
Fax : +81-569-22-7577

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

PLANT(Railway rolling stock & other transportation equipment)(Construction equipment)(Steel structure)41