Research and development costs(Unit: Million yen)

27

2015

2015

801
2016

2016

2017

2017

Japan

China

Others2018-1,341
FY 2014

2018

2015

2016

2017

Net cash used in investing activities totaled 1,019 million yen (net cash of 3,087 million yen used in the previous
fiscal year), mainly comprising funds used in the purchases of property, plant and equipment, despite an increasein proceeds from sales of investment securities.

Cash flow fromfinancing activities
Net cash used byfinancing activities
2,012 million yen

Net cash used in financing activities was 2,012 million yen (net cash of 4,140 million yen provided in the previous fiscal year), primarily owing to repayment of debt.
FY 20142015

Overseas net sales ratio

2016

2018

(Unit: Million yen)

Net cash provided by operating activities amounted to 3,720 million yen (net cash of 1,572 million yen used in
the previous fiscal year), principally due to decreases in trade notes and accounts receivable and inventories.

Cash flow frominvesting activities
Net cash used ininvesting activities
1,019 million yen

2018

Cash flows from financing activities (Unit: Million yen)

-3,0872017

2016-2,012

3,720

FY 20142015

Net sales by region

Cash Flows
Cash flow fromoperating activities
Net cash provided inoperating activities
3,720 million yen

FY 20142017-4,691

Net assets as of May 31, 2019 stood at 24,804 million yen, a decrease of 1,523 million yen compared with theend of the previous fiscal year. This decrease was largely attributable to a 934 million yen decrease in unrealized
holding gain on available-for-sale securities and an 800 million yen decrease in net assets caused by purchasesof treasury stock.

2016

Cash flows from investing activities (Unit: Million yen)

-1,572

Net Assets
Total net assets
24,804 million yen

2015

1,505

Total liabilities as of May 31, 2019 stood at 33,197 million yen, a decrease of 3,766 million yen compared withthe end of the previous fiscal year. This decrease was largely attributable to a decrease of 1,737 million yen in
trade notes and accounts payable.

1,135

Liabilities
Total liabilities
33,197 million yen

1,514

Total assets as of May 31, 2019 stood at 58,001 million yen, a decrease of 5,289 million yen compared with theend of the previous fiscal year. The decrease in total assets was largely attributable to decreases of 2,477 million
yen and 1,825 million yen in trade notes and accounts receivable and investment securities, respectively.

FY 2014

4,140

Cash flows from operating activities (Unit: Million yen)

Financial Position
AssetsTotal Assets
58,001 million yen

2018

2,868

2017

18

2016

-1,0192015

850

FY 2014-937

From a profit perspective, operating income increased 52.0% compared with the previous fiscal year to 557 million yen. Ordinary income decreased 3.8% compared with the previous fiscal year to 495 million yen due to factors including the impact of foreign exchange loss and a decrease in equity in earnings of unconsolidated
subsidiaries and affiliates. Net income attributable to owners of the parent decreased 0.3% to 690 million yen, asa result of efforts to cut some cross-shareholdings.

881

Profit/Loss
Net Income
attributable toowners of the parent
YoY -0.3%-988

Net sales decreased 3.2% compared with the previous fiscal year to 41,172 million yen due to a decrease in theTransportation Systems segment and the Information Equipment Systems segment.

1,090

Net sales
YoY -3.2%

902

Orders received increased 2.7% compared with the previous fiscal year to 40,684 million yen due to an increasein orders received in the Transportation Systems segment and the Industrial Systems segment.

969

Orders received
YoY +2.7%

1,237

731
FY 2014

840

2018

927

Depreciation and amortization (Unit: Million yen)

868

Results of Operation(Unit: Million yen)897

Capital investment 

1,774

Consolidated Operating Results, Consolidated Financial Position, and Consolidated Cash Flow for Fiscal
2017 (from June 1, 2018 to May 31, 2019) are as follows:

Reference Data for Management IndicesFinancial Report

4,772

Financial Review

4,606

Financial Report

2017

2015

2016

2017

2018

2019

Japan

24,54727,09428,00632,124

31,745

China

11,634

8,374

5,882

4,085

3,663

Others

3,435

4,277

6,778

6,317

5,763

Total

39,61739,746

40,66842,527

41,172

Overseas net sales ratio

38.0%

31.8%

31.1%

25.3%

22.9%

2018

Toyo Denki Seizo Report 201928

TOYO DENKI SEIZO K.K.
Consolidated Balance Sheets

As of

May 31,
2019

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)(Note 1)

AssetsCurrent assets:
Cash on hand and in banks (Notes 15 and 17)¥2,240¥1,555$20,486

Trade notes and accounts receivable (Note 15)

14,193

16,961

129,782

Electronically recorded receivables (Note 15)

1,443

1,153

13,198Inventories (Note 2)

7,571

7,832

69,230

Other current assets

573

1,113

5,241

Allowance for doubtful accounts

(1)

(2)

(15)

26,01928,612

237,922

Total current assets

Property, plant and equipment (Note 3):
Buildings and structures

7,091

7,274

64,839Machinery and vehicles

1,442

1,432

13,183

Land

1,301

1,301

11,899Construction in progress

31

321

288

Other

819

838

7,484

10,684

11,166

97,693

17,856

19,681

163,277

Deferred tax assets (Note 10)

165

95

1,504

Intangible assets

692

904

6,332

2,598

2,846

23,761

Allowance for doubtful accounts

(12)

(12)

(114)

Total investments and other assets

21,29923,514

194,760

Total assets (Note 19)¥58,002¥63,292$530,375

Total property, plant and equipment

Investments and other assets (Note 4):
Investment securities (Notes 4, 15 and 16)

Other

29

As of

May 31,
2019

May 31,
2018(Millions of yen)

LIABILITIES AND NET ASSETS
Current liabilities:
Trade notes and accounts payable (Note 15)
Electronically recorded payables (Note 15)
Short-term borrowings and current portion of long-term debt
(Notes 5 and 15)
Income taxes payable (Note 10)
Accrued expenses
Accrued directors' bonuses
Accrued employees' bonuses
Reserve for losses on order acknowledgements (Note 2)
Other
Total current liabilities

May 31,
2019(Thousands of
U.S. dollars)(Note 1)

¥2,6715,945¥4,057
6,295$24,423
54,359

2,462

7,242

22,513

320
679
39
820
570
1,258
14,764

181
841
26
815
690
2,174
22,321

2,929
6,208
352
7,496
5,215
11,507135,002

12,962
1,554
3,893
21
4
18,434

8,930
1,757
3,863
36
58
14,644

118,523
14,21135,599191
38
168,562

Net assets (Notes 7 and 14):
Shareholders' equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders' equity¥4,998
3,178
10,798(1,281)
17,693¥4,998
3,178
10,579(481)
18,274$45,706
29,05598,733(11,706)
161,788

Accumulated other comprehensive income:Unrealized holding gain on securities
Translation adjustments
Retirement benefits liability adjustments (Note 6)
Total accumulated other comprehensive income
Total net assets

7,177
126
(192)
7,111
24,804

8,112
188
(247)
8,053
26,32765,624
1,159(1,760)65,023226,811

Total liabilities and net assets¥58,002¥63,292$530,375

Long-term liabilities:
Long-term debt (Notes 5, 15 and 18)
Deferred tax liabilities (Note 10)
Liability for retirement benefits (Note 6)Long-term payables
Other
Total long-term liabilities
Commitments and contingencies (Note 13)

See notes to consolidated financial statements.

Toyo Denki Seizo Report 201930

TOYO DENKI SEIZO K.K.
Consolidated Statements of Income

For the Years Ended

Net sales (Note 19)
Cost of sales (Note 2)
Gross profit
Selling, general and administrative expenses (Note 8)
Operating income (Note 19)
Non-operating income (expenses):
Interest and dividend income
Interest expense
Equity in earnings of unconsolidated subsidiaries and affiliates
Foreign exchange (loss) gain
Other expenses, net
Ordinary income
Special gains, net (Note 9)
Income before income taxes
Income taxes (Note 10):
Current
Deferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

TOYO DENKI SEIZO K.K.
Consolidated Statements of Changes in Net Assets
May 31,
2019

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)(Note 1)

¥41,173
33,334
7,839¥42,527
34,454
8,073$376,486
304,804
71,682

7,281
558

7,706
367

66,582
5,100

244
(143)
10
(83)
(90)
(62)
496
751
1,247

(Millions of yen)
Shareholders’ equity

236
(148)
116
6
(61)
149
516
449
965

2,234
(1,313)
93
(757)
(822)
(565)
4,535
6,864
11,399Commonstock¥4,998¥3,178¥10,170¥(478)¥17,868¥6,880¥157¥(301)¥6,736¥24,604

Cash dividends paid

—

—

(283)

—

(283)

—

—

—

—

(283)

Net income attributable toowners of the parent

—

—

692

—

692

—

—

—

—

692

—

—

—
—

(3)

—
(3)

—

—

—

—

—
(3)

Balance as of May 31, 2018——
¥4,998——¥3,178—409¥10,579—(3)¥(481)—
406¥18,274

1,232
1,232
¥8,112

31
31
¥188

54
54
¥(247)

1,317
1,317¥8,053

1,317
1,723¥26,327

Balance as of June 1, 2018

¥4,998¥3,178¥10,579¥ (481)¥18,274¥8,112¥188¥(247)¥8,053¥26,327

Cash dividends paid

—

—

(472)

—

(472)

—

—

—

—

(472)

Net income attributable toowners of the parent

—

—

691

—

691

—

—

—

—

691

—

—

—
—

(800)

—
(800)

—

—

—

—

—
(800)

—
—
¥4,998——¥3,178—219¥10,798—(800)¥(1,281)—(581)¥17,693

(935)
(935)
¥7,177

(62)
(62)
¥126

55
55
¥(192)(942)(942)¥7,111(942)(1,523)¥24,804

Total net
assetsChanges during the year

Change in scope of equity
method application
Purchases of treasury stock
Net changes in items
other than those inshareholders' equity
Total changes during the year

449
107
556
691
—
¥ 691

333
(60)
273
692
—
¥ 692

4,103
983
5,086
6,313
—
$6,313

Change in scope of equity
method application
Purchases of treasury stock
Net changes in items
other than those inshareholders' equity
Balance as of May 31, 2019

TOYO DENKI SEIZO K.K.
Consolidated Statements of Comprehensive Income

Other comprehensive (loss) income (Note 11):
Unrealized holding (loss) gain on securities
Translation adjustments
Retirement benefits liability adjustments
Share of other comprehensive (loss) income of affiliates accounted forby the equity method
Total other comprehensive (loss) income

Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeRetainedearnings

Balance as of June 1, 2017

Treasurystock

Unrealized
holding(loss) gain on Translation
securities
adjustments

Capitalsurplus

Total changes during the year

Net income

Total
shareholders’equityChanges during the year

See notes to consolidated financial statements.

For the Years Ended

Accumulated other comprehensive income(Thousands of U.S. dollars) (Note 1)
Shareholders’ equity

May 31,
2019

May 31,
2018(Millions of yen)

¥ 691

May 31,
2019(Thousands of
U.S. dollars)(Note 1)

¥ 692

$ 6,313

Accumulated other comprehensive income
Total
shareholders’equityCommonstock

CapitalsurplusRetainedearnings

Treasurystock$45,706$29,055$96,737$ (4,391) $167,107

Cash dividends paid——

(4,317)—

Net income attributable toowners of the parent

—

—

6,313

—
—

—
—

—
—

—
—
$45,706——$29,055—
1,996$98,733

Balance as of June 1, 2018

Unrealized
holding(loss) gain on Translation
securities
adjustments

Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeTotal net
assets$74,169$1,723$(2,259)$73,633$240,740(4,317)

—

—

—

—

(4,317)

—

6,313

—

—

—

—

6,313

—
(7,315)—(7,315)

—
—

—
—

—
—

—
—

—
(7,315)——(7,315)(5,319)$(11,706) $161,788(8,545)(8,545)$65,624

(564)
(564)
$1,159499
499$(1,760)

Changes during the year

Change in scope of equity
method application

(935)
19
55

1,232
(5)
54

(8,545)
177
499

(81)
(942)

36
1,317

(741)
(8,610)Total changes during the year

Comprehensive (loss) income¥(251)¥2,009$(2,297)

See notes to consolidated financial statements.

Comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests¥(251)—¥2,009—$(2,297)—

Purchases of treasury stock
Net changes in items
other than those inshareholders' equity
Balance as of May 31, 2019(8,610)(8,610)(8,610)(13,929)$65,023 $226,811

See notes to consolidated financial statements.

31

Toyo Denki Seizo Report 201932

TOYO DENKI SEIZO K.K.
Consolidated Statements of Cash Flows

For the Years Ended

TOYO DENKI SEIZO K.K.
Notes to Consolidated Financial Statements
May 31,
2019

May 31,
2018(Millions of yen)

Operating activities
Income before income taxes
Depreciation and amortization(Reversal of) provision for allowance for doubtful accounts
Provision for (reversal of) accrued employees' bonuses
Increase (decrease) in liability for retirement benefits
Interest and dividend income
Interest expense
Gain on sales of investment securities
Loss on sales of property, plant and equipment
Loss on consolidation of plants
Changes in operating assets and liabilities:
Trade notes and accounts receivable
Inventories
Trade notes and accounts payable
Reserve for losses on order acknowledgements
Advances received
Accrued expenses
Other, net
SubtotalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by (used in) operating activities(Thousands of
U.S. dollars)(Note 1)

¥1,247
1,775
(0)
5
37
(244)
143
(804)
—
—

¥ 965
1,237
0
(138)
(46)
(236)
148
(807)
2
66

$11,399
16,229(1)48344(2,234)
1,313(7,354)
—
—

2,527
291
(1,791)
(134)
(129)
(170)
1,076
3,829
260
(146)
(222)
3,721

(1,813)(1,370)
1,568
341
69
(234)
(670)
(918)
244
(148)
(751)
(1,573)

23,1092,660(16,374)(1,228)(1,181)(1,559)9,840
35,011
2,376(1,337)(2,029)34,021

Investing activities
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Payments of loans receivableCollection of loans receivable
Payments for investments in capital of subsidiaries and affiliates
Other, net
Net cash used in investing activities(2,277)
—
(49)
(261)
1,441
—
35
—
92
(1,019)(3,448)
79
(132)
(171)
1,100
(70)
35
(491)
11
(3,087)(20,826)—(452)(2,385)
13,181—
320—
842(9,320)Financing activities(Decrease) increase in short-term loans payable
Increase in long-term debt
Repayment of long-term debt
Purchases of treasury stock
Cash dividends paid
Other, net
Net cash (used in) provided by financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 17)(1,990)4,600(3,356)
(800)
(472)
5
(2,013)
(4)
685
1,555
¥2,240

2,930
5,500
(4,002)
(3)
(284)
(1)
4,140
(16)
(536)
2,091
¥1,555(18,198)
42,063(30,686)(7,316)(4,309)46(18,400)(37)
6,264
14,222$20,486

See notes to consolidated financial statements.

33

May 31,2019

1. Summary of Significant Accounting Policies(a) Basis of presentation
The accompanying consolidated financial statements of TOYO DENKI SEIZO K.K. (the “Company”) and consolidated subsidiaries(collectively the “Group”) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting Standards (IFRS), and are compiled
from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act ofJapan.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.
(b) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The accompanying consolidated financial statements included the accounts of the Company and any significant companies controlled
directly or indirectly by the Company.
Companies over which the Company exercises significant influence in terms of their operating and financial policies have beenaccounted for by the equity method. The Company applies the “Practical Solution of Unification of Accounting Policies Applied toForeign Subsidiaries for Consolidated Financial Statements” (Accounting Standards Board of Japan (ASBJ) Practical Issues Task
Force (PITF) No. 18) and “Practical Solution on Unification of Accounting Policies Applied to Associates Accounted for using Equity
Method” (PITF No. 24). In accordance with these PITF, the accompanying consolidated financial statements have been preparedby using the accounts of foreign consolidated subsidiaries and affiliates prepared in accordance with either IFRS or accounting
principles generally accepted in the United States as adjusted for certain items including goodwill, actuarial differences and capitalized
development costs.
As of May 31, 2019, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 6 and 3 (6and 3 in 2018). A subsidiary, TOYO DENKI USA, INC., for which fiscal year end is December 31, is consolidated by using their pro
forma financial statements as of March 31 which are prepared solely for consolidation purposes and necessary adjustments are madeto their financial statements to reflect any significant transactions from April 1 to May 31. All significant intercompany balances andtransactions have been eliminated in consolidation.
Investments in subsidiaries and affiliates which are neither consolidated nor accounted for by the equity method are carried at costor less. Where there has been a permanent decline in the value of such investments, the Company has written down the investments.
(c) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into yen at the rates of exchange in effect at the balance
sheet date, and differences arising from the translation are included in the consolidated statements of income.
The balance sheet accounts of the foreign consolidated subsidiaries are translated into yen at the rates of exchange in effect at thebalance sheet date, except for the components of net assets excluding non-controlling interests which are translated at their historicalexchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Differences
arising from the translation are presented as translation adjustments in the consolidated financial statements.
(d) Cash and Cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term investmentswith a maturity of three months or less from the date of purchase, which can easily be converted to cash and are subject to little riskof change in value.
(e) Inventories
Inventories are stated principally at the lower of cost or net realizable value, cost being determined principally by the specificidentification method for finished products and work in process and by the moving average cost method for raw material andsupplies.
(f) Short-term investments and investment securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories: trading, held-tomaturity or other securities (available-for-sale securities). Trading securities are carried at fair value and held-to-maturity securities
are carried at amortized cost. Available-for-sale securities with market quotation are carried at fair value with changes in unrealized
holding gain or loss, net of the applicable income taxes, included directly in net assets. Available-for-sale securities without market
quotation are carried at cost. Cost of securities sold is determined by the moving average method.
Toyo Denki Seizo Report 201934

(g) Property, plant and equipment (except for leased assets) and depreciation
Depreciation of property, plant and equipment of the Company and its consolidated subsidiaries is calculated principally by the
declining-balance method based on the estimated useful lives and the residual value, while buildings except for facilities attached tobuildings acquired on or after April 1, 1998 and facilities attached to buildings and structures acquired on or after June 1, 2016 aredepreciated by the straight-line method. The estimated useful lives of these assets are as follows:
Buildings and structures:		
8 to 60 years
3 to 12 years
Machinery and vehicles:		
Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged to income.
(h) Intangible assets (except for leased assets)
Intangible assets are amortized using the straight-line method. Software for internal use is amortized over the internal available period(5 years) using the straight-line method.
(i) Leases
Leased assets capitalized under the finance lease arrangements which do not transfer ownership to the lessee are depreciated overthe lease period without any residual value using the straight-line method.
All other lease transactions are accounted for as operating leases and related payments are charged to income as incurred.
(j) Allowance for doubtful accounts
Allowance for doubtful accounts is provided based on past experience for normal receivables and on an estimate of the collectabilityof receivables from companies in financial difficulty.
(k) Accrued directors’ bonuses
Accrued directors’ bonuses are provided to cover the current fiscal year’s portion of the estimated amounts to be paid in future for the
performance incentive bonuses.
(l) Accrued employees’ bonuses
Accrued employees’ bonuses are provided to cover the current fiscal year’s portion of the estimated amounts to be paid in future.
(m) Reserve for losses on order acknowledgements
Reserve for losses on order acknowledgements is provided based on the amounts expected to be incurred during the current fiscal
year and which are able to estimate the losses reasonably to cover the future losses on order acknowledgements. Provision of reserve
for losses on order acknowledgements in the amounts of ¥(134) million ($(1,228) thousand) and ¥152 million is included in cost of
sales for the years ended May 31, 2019 and 2018, respectively.
(n) Retirement benefits
Retirement benefit obligation is attributed to each period by the benefit formula method over the estimated years of service of theeligible employees.
Prior service cost is amortized as incurred by the straight-line method over a fixed period (10 years) within the average remaining
years of service of the employees.
Actuarial differences are amortized by the straight-line method over a fixed period (10 years) within the average remaining years ofservice of the employees from the following year when incurred.
(o) Income taxes
Deferred tax assets and liabilities have been recognized in the consolidated financial statements with respect to the temporary
differences between the financial reporting and tax bases of the assets and liabilities, and were measured using the enacted tax rates
and laws which will be in effect when the differences are expected to reverse.
(p) Construction revenue and costs
Construction revenue and construction costs are recognized by the percentage-of-completion method, if the outcome of aconstruction contract can be estimated reliably. The percentage of completion is measured based on the percentage of the costs
incurred to the estimated total costs. For other construction contracts, the completed-contract method is applied.

35(q) Research and development expenses
Research and development expenses are charged to income when incurred.
(r) Consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(s) Derivative financial instruments
The Company and certain consolidated subsidiaries enter into various derivative transactions in order to manage certain risks arisingfrom adverse fluctuations in interest rates. Derivative financial instruments are carried at fair value with changes in unrealized gain orloss charged or credited to operations, except for these which meet the criteria for deferred hedge accounting under which unrealized
gain or loss is deferred as a component of net assets.
Deferred hedge accounting is adopted for derivatives which qualify as hedges, under which unrealized gain or loss is deferred.
Hedging instruments are derivative transactions and hedged items are primarily interest on debts. Hedge effectiveness is notassessed if the substantial terms and conditions of the hedging instruments and the hedged items are the same.
(t) Accounting standards issued but not yet adopted
On March 30, 2018, the ASBJ issued “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29) and “Implementation
Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No.30).
(1) Overview
The International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) of the U.S. havejointly developed a comprehensive accounting standard for revenue recognition. In May 2014, the IASB and the FASB each issued“Revenue from Contracts with Customers” (IASB: IFRS 15 and FASB: Topic 606). Considering that IFRS 15 has been applied fromfiscal years beginning on or after January 1, 2018 and Topic 606 has been applied from fiscal years beginning after December 15,
2017, the ASBJ has developed a comprehensive accounting standard for revenue recognition, which was issued together with its
implementation guidance.
As a basic policy in developing the accounting standard for revenue recognition, the ASBJ has incorporated the basic principles of
IFRS 15 from the viewpoint of comparability between financial statements, a factor essential for facilitating consistency with IFRS 15.
In addition, if there are any business practices in Japan for which consideration is required, alternative accounting treatments shall be
added to the accounting standard to the extent that they do not impair comparability.
(2) Scheduled date of adoption
The Company expects to adopt the accounting standard and implementation guidance from the beginning of the fiscal year ending
May 31, 2022.
(3) Impact of the adoption of accounting standard and implementation guidance
The Company is currently evaluating the effect of the adoption of this accounting standard and implementation guidance on its
consolidated financial statements.
(u) Changes in presentation
Partial Amendments to Accounting Standard for Tax Effect Accounting
The Company and its consolidated subsidiaries have adopted “Partial Amendments to Accounting Standard for Tax Effect Accounting”(ASBJ Statement No. 28, February 16, 2018) (hereinafter, the “Partial Amendments”) from the beginning of the year ended May
31, 2019. As such, deferred tax assets and deferred tax liabilities are included within investments and other assets and long-term
liabilities, respectively, and related income tax disclosures in Note 10 “Income Taxes” have been expanded.
As a result, of the amounts previously presented in the consolidated balance sheets as of May 31, 2018, deferred tax assets incurrent assets decreased by ¥533 million and deferred tax assets in investments and other assets increased by ¥84 million, while
deferred tax liabilities in long-term liabilities decreased by ¥449 million.
Deferred tax assets and deferred tax liabilities of the identical taxable entities are offset, and accordingly, total assets decreased by¥449 million compared to those before the change.
Also, Note 10 “Income Taxes” in the Notes to the Consolidated Financial Statements has been expanded in accordance withNotes 8 and 9 of Interpretive Notes to the Accounting Standard for Tax Effect Accounting required in Paragraphs 3 to 5 of the Partial
Amendments. However, comparative information for the year ended May 31, 2018 has not been disclosed in Note 10 in accordancewith the transitional provisions set forth in Article 7 of the Partial Amendments.

Toyo Denki Seizo Report 201936

2. Other Explanatory Information
Note 1. U.S. Dollar Amounts
The accompanying consolidated financial statements are expressed in yen, and solely for the convenience of the reader, havebeen translated into U.S. dollars at the rate of ¥109.36=U.S.$1, the approximate rate of exchange prevailing at May 31, 2019. Thistranslation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.
Note 2. Inventories
Inventories as of May 31, 2019 and 2018 were as follows:

As ofGoods and finished products
Work in process
Raw materials and supplies

May 31,
2019

May 31,
2018(Millions of yen)

¥ 992
3,504
3,075
¥7,571

May 31,
2019(Thousands of
U.S. dollars)¥1,006
3,507
3,319¥7,832$ 9,069
32,044
28,117$69,230

Inventories related to construction contracts which are estimated to make losses were stated after deducting the corresponding
reserve for losses on order acknowledgements in the following amounts:

May 31,
2019

May 31,
2018(Millions of yen)

¥85
13
¥98

Goods and finished products
Work in process

May 31,
2019(Thousands of
U.S. dollars)

¥ 1
57
¥58

$775
119
$894

Note 3. Property, Plant and Equipment
The following table sets forth the acquisition costs and related accumulated depreciation:

As of
Buildings and structures
Machinery and vehicles
Other
Accumulated depreciation

May 31,
2019

May 31,
2018(Millions of yen)

¥ 12,210
8,174
4,411
24,795(15,444)¥ 9,351

May 31,
2019(Thousands of
U.S. dollars)¥ 11,982
7,742
3,954
23,678(14,134)¥ 9,544$ 111,653
74,74640,332
226,731(141,225)$ 85,506

Depreciation of property, plant and equipment for the years ended May 31, 2019 and 2018 were as follows:

For the Years Ended

As ofInvestments in capital

Inventories were stated at the lower of cost or net realizable value and the Company recognized losses on write-down of
inventories held for the ordinary sales purpose due to a decline in profitability in the amount of ¥92 million ($843 thousand) and ¥75
million for the years ended May 31, 2019 and 2018, respectively. These amounts were included in “Cost of sales.”

As ofNote 4. Investments and Other Assets
Investments in unconsolidated subsidiaries and affiliates included in “Investment securities” as of May 31, 2019 and 2018 were as
follows:

May 31,
2019

May 31,
2018(Millions of yen)

¥1,775

May 31,
2019(Thousands of
U.S. dollars)¥1,237

May 31,
2019

May 31,
2018(Millions of yen)

¥1,894

May 31,
2019(Thousands of
U.S. dollars)¥1,980$17,318

Note 5. Short-Term Borrowings and Long-Term Debt
As of May 31, 2019 and 2018, short-term borrowings and the current portion of long-term debt consisted of the following:

As ofLoans, principally from banks
Current portion of long-term debt

May 31,
2019

May 31,
2018(Millions of yen)

¥1,894568¥2,462

May 31,
2019(Thousands of
U.S. dollars)¥3,886
3,356¥7,242$17,315
5,198$22,513

The annual weighted average interest rates applicable to short-term borrowings and current-portion of long-term debt as of May
31, 2019 were 2.134% and 0.725%, respectively.
As of May 31, 2019 and 2018, long-term debts were as follows:

As of

May 31,
2019

May 31,
2018(Millions of yen)

Long-term debt, excluding current portion, serially due from 2020 through 2032

¥12,962

May 31,
2019(Thousands of
U.S. dollars)¥8,930$118,523

The annual weighted average interest rate applicable to long-term debt as of May 31, 2019 was 0.430%.
The maturities of long-term debt are summarized as follows:

Years ended May 31(Millions of yen)(Thousands of
U.S. dollars)

2020
2021
2022
2023
2024 and thereafter¥   568618
585
585
11,174¥13,530$  5,198
5,644
5,352
5,352
102,175$123,721

The assets pledged as collateral for short-term borrowings of ¥2,462 million ($22,513 thousand) and long-term debt of ¥4,362
million ($39,884 thousand) as of May 31, 2019 were as follows:

As of May 31
Buildings and structures
Machinery and vehicles
Other property, plant and equipment
Land(Millions of yen)(Thousands of
U.S. dollars)¥6,043
771
436
1,233
¥8,483$55,261
7,054
3,988
11,270$77,573$16,229

Accumulated depreciation of property, plant and equipment amounted to ¥15,444 million ($141,225 thousand) and ¥14,134
million as of May 31, 2019 and 2018, respectively.

37

Toyo Denki Seizo Report 201938

The following assets included in the above are set by factory foundation fixed collateral security for short-term borrowings of¥1,966 million ($17,974 thousand) and long-term debt of ¥32 million ($293 thousand) as of May 31, 2019:

As of May 31
Buildings and structures
Machinery and vehicles
Other property, plant and equipment(Millions of yen)(Thousands of
U.S. dollars)¥1,615771
436¥2,822$14,766
7,054
3,988$25,808

Retirement benefit obligation as of June 1
Service cost
Interest cost
Actuarial loss
Retirement benefits paid
Retirement benefit obligation as of May 31

May 31,
2019

May 31,
2018(Millions of yen)

¥3,863
293
15
(7)
(271)
¥3,893

May 31,
2019$35,322
2,682
134
(67)
(2,472)$35,599

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of
May 31, 2019 and 2018 for the Company’s and the consolidated subsidiaries’ defined benefit plans:

As of

May 31,
2019

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)

Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,893
3,893¥3,863
3,863$35,599
35,599Liability for retirement benefits
Net liability (asset) for retirement benefits on the consolidated balance sheets¥3,893
3,893¥3,863
3,863$35,599
35,599Note: The plan adopting the simplified method is included.

The components of retirement benefit expenses for the years ended May 31, 2019 and 2018 were as follows:

For the Years Ended
Service cost
Interest cost
Amortization of actuarial loss
Retirement benefit expenses

39

May 31,
2019

May 31,
2018(Millions of yen)

¥293
15
71
¥379

May 31,
2019(Thousands of
U.S. dollars)

¥288
15
74
¥377

May 31,
2018

May 31,
2019(Millions of yen)

¥79
¥79

Actuarial gain
Total

(Thousands of
U.S. dollars)¥3,913
288
15
(4)
(349)
¥3,863

May 31,
2019

As of

Note 6. Retirement Benefit Plans
The Company and its consolidated subsidiaries have retirement benefit plans combined by defined contribution plans and lump-sum
payment plans.
The Company and its consolidated subsidiaries introduced the point system in the lump-sum payment plans, under which
retirement benefit amounts are computed based on the accumulated points granted according to the job ranking and performances.
Under the lump-sum payment plans held by certain consolidated subsidiaries, the liability for retirement benefits and retirement
benefit expenses are calculated using a simplified method.
The changes in the retirement benefit obligation during the years ended May 31, 2019 and 2018 were as follows:

For the Years Ended

Retirement benefits liability adjustments included in other comprehensive income (before tax effect) as of May 31, 2019 and 2018
were as follows:(Thousands of
U.S. dollars)

¥78
¥78

$719
$719

Retirement benefits liability adjustments included in accumulated other comprehensive income (before tax effect) as of May 31,
2019 and 2018 were as follows:

May 31,
2019

As of

May 31,
2018

May 31,
2019(Millions of yen)

¥277
¥277

Unrecognized actuarial gain
Total

(Thousands of
U.S. dollars)

¥356
¥356

$2,537$2,537

Major actuarial assumptions (weighted average) used in accounting for the above plans as of May 31, 2019 and 2018 were as
follows:

May 31,
2019
0.4%

For the Years Ended
Discount rate

May 31,
2018
0.4%

Note: The Company does not use the expected rate of salary increase in computing retirement benefit obligation since the Company adopts the point system.

The amounts of the required contribution to the defined contribution plans of the Company and its consolidated subsidiaries were¥118 million ($1,076 thousand) and ¥118 million for the years ended May 31, 2019 and 2018, respectively.
Note 7. Net Assets
Information regarding changes in net assets for the years ended May 31, 2019 and 2018 was as follows:a. Shares issued and outstanding/ Treasury stock
For the year ended May 31, 2019

Type of shares

Number ofshares as ofJune 1, 2018

Increase

Decrease

Number ofshares as of
May 31, 2019

(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock

9,735,000——

9,735,000

291,907

501,059—

792,966

Details of the increase are as follows:
Increase due to purchase of shares of less than standard unit
Increase due to purchase of treasury stock based on the resolution of the Board of Directors’ meeting

1,059 shares
500,000 shares$2,682134
653$3,469Toyo Denki Seizo Report 201940

For the year ended May 31, 2018

Number ofshares as ofJune 1, 2017

Type of shares

Increase

Decrease

Number ofshares as of
May 31, 2018

(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock

9,735,000——

9,735,000

290,569

1,338—

291,907

Details of the increase are as follows:
Increase due to purchase of shares of less than standard unit

1,338 sharesb. Dividends
1) Dividends paid
For the year ended May 31, 2019
Resolution
Annual general meetingof the shareholders on
August 28, 2018

Type of shares

Total dividends Total dividends
Dividends per(Millions of (Thousands of Dividends per share (U.S.
yen)
U.S. dollars)
share (Yen)dollars)¥472

Common stock$4,317¥50.00$0.46

Cut-off date

Effective date

May 31, 2018 August 29, 2018

For the year ended May 31, 2018
Resolution
Annual general meetingof the shareholders on
August 29, 2017

Type of shares

Total dividends(Millions of Dividends per
yen)share (Yen)Common stock¥283

Cut-off date

Effective date

¥30.00 May 31, 2017 August 30, 2017

Note 8. Selling, General and Administrative Expenses
The main components of “Selling, general and administrative expenses” for the years ended May 31, 2019 and 2018 were as follows:

Salaries and allowances
Provision for accrued directors’ bonuses
Provision for accrued employees’ bonuses
Retirement benefit expenses
Provision for allowance for doubtful accounts
Research and development expenses

41

For the Years Ended
Special gains:
Gain on sales of property, plant and equipment
Gain on sales of investment securities
Other
Special losses:
Loss on consolidation of plants
Commemorative project cost for the 100th anniversary of foundation
Loss on sales of property, plant and equipment
Total

May 31,
2019

May 31,
2018(Millions of yen)

¥1,980
38
327
216
(0)
732

May 31,
2019(Thousands of
U.S. dollars)¥2,006
26
333
213
0
841

$18,105
351
2,989
1,979
(3)
6,689

May 31,
2019

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)

¥—
804
—

¥5
807
3

$—
7,354
—

—
(53)
—
¥751

(340)
(18)
(8)
¥449

—
(490)
—
$6,864

Note 10. Income Taxes
Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants’taxes and enterprise tax, which, in the aggregate, resulted in a statutory rate of approximately 30.6% and 30.9% for the years
ended May 31, 2019 and 2018, respectively. Income taxes of a foreign consolidated subsidiary are based generally on the tax rates
applicable in the country of incorporation.
The reconciliation between the effective tax rates reflected in the consolidated statements of income and the effective statutory tax
rate for the years ended May 31, 2019 and 2018 was as follows:

For the Year Ended

2) Dividends with the cut-off date in the year ended May 31, 2019 and the effective date in the year ending May 31, 2020
Total
dividends Total dividends
Dividends per(Millions of (Thousands of Source of Dividends per share (U.S.
Type of shares
yen)
U.S. dollars) dividends
share (Yen)dollars)Cut-off date Effective date
Resolution
Annual general meetingof the shareholders on
CommonRetained
May 31,
August 29,
August 28, 2019
stock
2019
¥268
$2,453 earnings¥30.00$0.27 2019

For the Years Ended

Note 9. Special Gains (Losses), Net
The components of “Special gains (losses), net” for the years ended May 31, 2019 and 2018 were as follows:

Effective statutory tax rate
Effect of:
Non-deductible expenses for income tax purpose
Non-taxable income such as dividends income, etc.
Per capita inhabitant tax
Valuation allowance
Income from affiliates accounted for by the equity method
Difference arising from the rates used by subsidiaries
Tax deductible loss on valuation of shares of affiliates
Retained profit of affiliates
Research and development tax credit
Other
Effective tax rate

May 31,
2019
30.6%

May 31,
2018
30.9%

2.1
(1.1)
2.3
7.2
(0.2)
2.1
—
3.2
(1.3)
(0.3)
44.6%

2.0
(1.5)
3.0
10.7
(3.7)
2.2
(17.5)
1.1
—
1.0
28.2%

Retained profit of affiliates, which had been included in “Other” in the previous fiscal years, has been separately presented fromthe year ended May 31, 2019 since its materiality increased. In order to reflect this change, items in the above table for the year ended
May 31, 2018 have been restated.
As a result, 2.1% presented in “Other” for the year ended May 31, 2018 has been reclassified to 1.1% of retained profit of affiliates
and 1.0% of “Other.”

Toyo Denki Seizo Report 201942

The significant components of deferred tax assets and liabilities as of May 31, 2019 and 2018 were as follows:

May 31,
2019

As of

May 31,
2018(Millions of yen)

Deferred tax assets:
Write-down of inventories
Liability for retirement benefits
Accrued employees’ bonuses
Reserve for losses on order acknowledgements
Net operating loss carryforwards (Note 1)
Other
Total gross deferred tax assets
Valuation allowance for net operating loss carryforwards (Note 1)
Valuation allowance for deductible temporary differences
Total valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax liabilities(Thousands of
U.S. dollars)

¥210
1,198
257
123
554
259
2,601
(383)
(363)
(746)
1,855

¥209
1,188
255
156
509
285
2,602
—
—
(655)
1,947

$1,921
10,955
2,349
1,129
5,063
2,366
23,783(3,500)(3,320)(6,820)16,963(3,194)(50)(3,244)¥(1,389)(3,597)(11)(3,609)¥(1,662)(29,205)(465)(29,670)$(12,707)(Note 1) The breakdown of net operating loss carryforwards and valuation allowance by expiry date is as follows:Year ended May 31, 2019
Due after
Due after
Due after
Due after
One Year
Two Years
Three YearsFour Years(Millions of yen)Due inthroughthroughthroughthroughDue after
One Year or Less
Two Years
Three YearsFour Years
Five Years
Five Years
Net operating loss carry
¥541
¥—
¥—
¥8
¥5
¥—
forwards (a)Valuation allowance
—
(378)
—
—
(5)
—
163
Deferred tax assets
—
—
8
—
—

(Thousands of U.S. dollars)
Net operating loss carryforwards (a)Valuation allowance
Deferred tax assets

May 31,
2019

Total
¥554
(383)
171(b)

Due after
One Yearthrough
Two Years

Due after
Two Years
throughThree Years

Due afterThree Years
through
Four Years

Due after
Four Years
throughFive Years

Due after
Five Years

Total

$—

$—

$72

$ 46

$—

$ 4,945$ 5,063

—
—

—
—

—
72

(46)
—

—
—

(3,454)
1,491(3,500)1,563(b)Due inOne Year or Less(a) The amount is determined by multiplying the corresponding net operating loss carryforwards by the effective statutory tax rate.
(b) Deferred tax assets of ¥171 million ($1,563 thousand) is recognized on net operating loss carryforwards of ¥554 million ($5,063
thousand) (amount multiplied by the effective statutory tax rate). The said deferred tax assets of ¥171 million ($1,563 thousand)is recognized on the net operating loss carryforwards of ¥155 million ($1,416 thousand) (amount multiplied by the effective
statutory tax rate) of the Company and that of ¥16 million ($147 thousand) (amount multiplied by the effective statutory tax rate)of Toyo Koki Co., Ltd., which is a consolidated subsidiary of the Company. The net operating loss carryforwards which resulted
in deferred tax assets for the Company were generated from the devaluation loss on shares of subsidiaries of ¥552 million whichbecame tax deductible for the year ended May 31, 2018, and the valuation allowance is not recognized because the management
considered it to be recoverable considering the prospects of future taxable income and its plans of selling shares held for strategic
purpose.

43

Note 11. Other Comprehensive (Loss) Income
The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive (loss)
income for the years ended May 31, 2019 and 2018:

For the Years Ended

May 31,
2019

Unrealized holding (loss) gain on securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectUnrealized holding (loss) gain on securities¥ (533)(804)(1,337)402(935)¥2,587
(807)
1,780
(548)
1,232

$ (4,877)(7,354)(12,231)
3,686(8,545)

Translation adjustments
Amount arising during the year
Amount before tax effectTranslation adjustments

19
19
19

(5)
(5)
(5)

177
177
177

Retirement benefits liability adjustments
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effect
Retirement benefits liability adjustments

7
72
79
(24)
55

4
74
78
(24)
54

67
652
719
(220)
499

(81)

36

(741)

(81)
¥ (942)36¥1,317(741)$ (8,610)

Share of other comprehensive (loss) income of affiliates accounted forby the equity method
Amount arising during the year
Share of other comprehensive (loss) income of affiliates accounted forby the equity method
Total other comprehensive (loss) income

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)Note 12. Lease Transactions
The information about finance leases that do not transfer ownership of the leased property to the lessee is omitted since there is nomateriality in terms of value.
Note 13. Contingent Liabilities
As of May 31, 2019 and 2018, the Company was committed to provide guarantees on bank borrowings of the following affiliates:

As of
Changzhou Ruiyang Transmission Technology Co., Ltd.
Beijing Jingche Shuangyang Traction System Co., Ltd.

May 31,
2019

May 31,
2018(Millions of yen)

¥327
79

May 31,
2019(Thousands of
U.S. dollars)

¥198
85

$2,993721

Toyo Denki Seizo Report 201944

Note 14. Amounts Per Share

For the Years Ended
Net income:Basic

May 31,
2019

May 31,
2018(Yen)

May 31,
2019(U.S. dollars)¥75.27¥73.33

$0.69

As of

May 31,
2019

May 31,
2018

May 31,
2019

Net assets¥2,773.87(Yen)(U.S. dollars)¥2,788.01$25.36

Note: Diluted net income per share is omitted since there is no dilution of equity.

The bases for calculation are as follows:
Basic net income per share

For the Years Ended

May 31,
2019

May 31,
2018(Millions of yen)

Net income attributable to owners of the parent
Net income not attributable to common shareholders
Net income attributable to owners of the parent related to common stock

¥691
—
691

Average number of shares of common stock during the year

9,173

May 31,
2019(Thousands of
U.S. dollars)

¥692
—
692

(3) Risk management for financial instruments(a) Monitoring of credit risk (the risk that customers or counterparties may default)
In accordance with the internal policies of the Group for managing credit risk arising from receivables, each related division monitors
credit worthiness of their main customers periodically, and monitors due dates and outstanding balances by individual customer. In
addition, the Group is making efforts to identify and mitigate risks of bad debts from customers who are having financial difficulties.
Investment securities are composed of mainly the shares of common stock of highly rated companies with which the Group hasbusiness relationships. Accordingly, the Group believes that the credit risk deriving from such investment securities is insignificant.
The Group also believes that the credit risk of derivatives is insignificant as it enters into derivative transactions only with financial
institutions which have a sound credit profile.

$6,313—6,313(b) Monitoring of market risks (the risk arising from fluctuations in foreign exchange rates, interest rates and others)
The Group utilizes interest rate swap transactions to reduce interest rate fluctuation risk on long-term debt.
For investment securities, the Group periodically reviews the fair values of such financial instruments and the financial position of
the issuers.
In conducting derivative transactions, the division in charge of each derivative transaction follows the internal policies, which set
forth delegation of authority and maximum upper limit on positions. Monthly reports including actual transactions data are submitted
to the Board of Directors for their review.
(c) Monitoring of liquidation risk (the risk that the Group may not be able to meet its obligations on scheduled due dates)
Based on the report from each division, the Group prepares and updates its cash flow plans on a timely basis to manage liquidation
risk.

(Thousand shares)

9,443

Note 15. Financial Instruments
Overview(1) Policy for financial instruments
The Group raises its necessary funds for capital investments to reinforce and renew production facilities and working capital
principally through bank borrowings. The Group manages temporary cash surpluses through low risk financial assets. The Group
uses derivatives in order to avoid the following risks and does not enter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables—trade notes and accounts receivable and electronically recorded receivables—are exposed to credit risk inrelation to customers. Trade receivables denominated in foreign currencies arising from international business are exposed to foreignexchange fluctuation risk, but the Group utilizes forward foreign exchange contracts to reduce such risk as a hedging instrument.
Investment securities are composed of mainly the shares of common stock of other companies with which the Group has business
relationships and exposed to market risk.
Certain long-term debt raised for the purpose of making capital investments with variable interest rates is exposed to interest rate
fluctuation risk. However, to reduce such risk and fix interest expense for long-term debt bearing interest at variable rates, the Grouputilizes interest rate swap transactions as a hedging instrument.
Regarding hedging instruments and hedged items in hedge accounting, hedging policy, and assessment of the effectiveness ofhedging activities, etc., please see “1. Summary of Significant Accounting Policies (s) Derivative financial instruments.”

45(4) Supplementary explanation of the estimated fair value of financial instruments
The fair value of financial instruments is based on their quoted market price, if available. When there is no quoted market priceavailable, fair value is reasonably estimated. Since various assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives in Note 18, Derivative
Transactions are not necessarily indicative of the actual market risk involved in derivative transactions.
Estimated Fair value of Financial Instruments
Carrying value of financial instruments on the consolidated balance sheets as of May 31, 2019 and 2018 and estimated fair value areshown in the following table. The following table does not include financial instruments for which it is extremely difficult to determine
the fair value (Please refer to Note 2 below):

As of May 31, 2019

Carrying value

Fair value

Difference(Millions of yen)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*¥2,240
14,193
1,443
16,791¥34,667¥2,240
14,193
1,443
16,791¥34,667

¥—
—
—
—
¥—

¥2,671
5,945
1,894
13,530¥24,040¥—¥2,671
5,945
1,894
13,594¥24,104
¥—

¥—
—
—
64
¥64
¥—

Toyo Denki Seizo Report 201946

As of May 31, 2019

Carrying value

Fair value

Difference(Thousands of U.S. dollars)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*2. Financial instruments for which it is extremely difficult to determine the fair value$20,486
129,782
13,198
153,535$317,001$20,486
129,782
13,198
153,535$317,001

$—
—
—
—
$—

$24,423
54,35917,315
123,721$219,818$—$24,423
54,35917,315
124,306$220,403
$—

$—
—
—
585
$585
$—

As of May 31, 2019

Fair value

Difference

As of May 31, 2019

Carrying value(Millions of yen)

Assets1) Cash on hand and in banks2) Trade notes and accounts receivable3) Electronically recorded receivables
4) Investment securities
Total assets
Liabilities
5) Trade notes and accounts payable6) Electronically recorded payables
7) Short-term borrowings
8) Long-term debt
Total liabilities
9) Derivative transactions*¥1,065

May 31,
2019(Thousands of
U.S. dollars)¥946$9,742

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are not included in the above table.
3. Redemption schedule for receivables and securities with maturities on May 31, 2019 and 2018 were as follows:

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Millions of yen)

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables¥2,238
13,882
1,443¥17,563Due in One Yearor Less

¥—
311
—
¥311

¥—
—
—
¥—

¥—
—
—
¥—

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Thousands of U.S. dollars)¥1,555
16,961
1,153
18,735¥38,404¥1,555
16,961
1,153
18,735¥38,404

¥—
—
—
—
¥—

¥4,057
6,295
3,886
12,286¥26,524¥—¥4,057
6,295
3,886
12,272¥26,510
¥—

¥—
—
—
14
¥14
¥—

*Derivative transactions are presented in a net amount of receivables and payables and net payables are shown in parenthesis.
Notes:
1. Methods to determine the estimated fair value of financial instruments and other matters related to securities and derivative transactions
Assets:Cash on hand and in banks, trade notes and accounts receivable and electronically recorded receivables
Since these items are settled in a short period of time, their carrying value approximates fair value.
However, if they are settled in a long period of time, the fair value of receivables is based on the present value of the receivables classified by definite periods discounted
using interest rates on the corresponding period until settlement.
Investment securities
The fair value of stocks is based on quoted market prices. Investment securities held by the Group are classified as available-for-sale securities and please see Note 16“Securities.”
Liabilities:
Trade notes and accounts payable, electronically recorded payables and short-term borrowings
Since these items are settled in a short period of time, their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new borrowings
were entered into. The fair value of long-term debt with variable interest rates, which is hedged by the interest rate swaps and to which hedge accounting is applied (referto the following paragraph), is based on the present value of the total of principal and interest discounted by the interest rate to be applied if similar new borrowings wereentered into.
Derivative transactions
The fair value of interest rate swaps accounted for by the hedge accounting is included in the fair value of the related long-term debt, since such interest rate swaps areaccounted for together with long-term debt as hedged items.
The fair value of interest rate swaps accounted for by the normal method is determined based on the price, etc. provided by the financial institutions.

47

May 31,
2018(Millions of yen)

Unlisted equity securities*Derivative transactions are presented in a net amount of receivables and payables and net payables are shown in parenthesis.

As of May 31, 2018

May 31,
2019

As of

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables

As of May 31, 2018

$20,464
126,935
13,198$160,597

$—
2,847
—
$2,847

$—
—
—
$—

$—
—
—
$—

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Millions of yen)

Cash on hand and in banks
Trade notes and accounts receivable
Electronically recorded receivables¥1,552
16,593
1,153¥19,298

¥—
368
—
¥368

¥—
—
—
¥—

¥—
—
—
¥—

4.The redemption schedule for long-term debt is disclosed in Note 5.

Note 16. Securities
Information regarding securities classified as available-for-sale securities
Available-for-sale securities

As of May 31, 2019

Carrying value Acquisition cost

Unrealized
gain (loss)(Millions of yen)

Securities for which carrying value exceeds acquisition cost:
Stock
Subtotal
Securities for which acquisition cost exceeds carrying value:
Stock
Subtotal
Total¥16,594¥16,594¥6,188¥6,188¥10,406¥10,406

¥196
¥196
¥16,790

¥231
¥231
¥6,419¥(35)¥(35)¥10,371

Toyo Denki Seizo Report 201948

As of May 31, 2019

Carrying value Acquisition cost

Unrealized
gain (loss)

Hedging policies(Thousands of U.S. dollars)

Securities for which carrying value exceeds acquisition cost:
Stock
Subtotal
Securities for which acquisition cost exceeds carrying value:
Stock
Subtotal
Total$151,739$151,739$56,589$56,589$95,150$95,150$1,796$1,796$153,535$2,116$2,116$58,705$(320)$(320)$94,830

Notes: 1.	Unlisted stocks were not included in the above table because there were no quoted market prices available and they were extremely difficult to determine the fairvalue.
2. Acquisition cost in the above table represents carrying value reflecting impairment losses.
If the market value of the securities declines by 50% or more from the acquisition cost as of the end of the fiscal year, the Group recognizes the difference between
the market value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss forthe necessary amount considering its recoverability.

As of May 31, 2018

Carrying value Acquisition cost

Unrealized
gain (loss)(Millions of yen)

Securities for which carrying value exceeds their acquisition cost:
Stock
Subtotal
Securities for which acquisition cost exceeds their carrying value:
Stock
Subtotal
Total¥18,618¥18,618¥6,906¥6,906¥11,712¥11,712

¥117
¥117
¥18,735

¥121
¥121
¥7,027¥(4)¥(4)¥11,708

Information regarding available-for-sale securities sold

Stock:
Sales proceeds
Gain on sales
Loss on sales

Cash on hand and in banks
Cash and cash equivalents

49

Types and purpose of derivative transactions
The Company primarily uses forward foreign exchange contracts to hedge against the fluctuations in foreign currency exchange rates
on trade receivables denominated in foreign currencies and interest rate swaps to hedge against the adverse impact of fluctuations ininterest rates on interest-bearing debt.
Derivative transactions to which hedge accounting is not applied:
As of May 31, 2019 and 2018, there were no currency-related derivatives.
Derivative transactions to which hedge accounting is applied:

As of May 31, 2019

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

Fair value(Millions of yen)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixedLong-term debt

As of May 31, 2019

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

¥104

¥32

Note

Fair value(Thousands of U.S. dollars)

May 31,
2019

May 31,
2018(Millions of yen)

¥1,556804—

May 31,
2019(Thousands of
U.S. dollars)¥1,230807—$14,2317,354—

Note 17. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash flows for the years ended May 31, 2019 and 2018 were reconciled
to cash on hand and in banks in the consolidated balance sheets as follows:

As of

The Company utilizes forward foreign exchange contracts and interest rate swaps for the purpose of hedging its exposure tofluctuations in foreign exchange rates and interest rates, respectively. However, based on internal management rules on financial
market risk approved by the Company’s Board of Directors, Group companies do not enter into transactions involving derivatives for
speculative or trading purposes.

Interest-related derivatives:

Notes: 1.	Unlisted stocks were not included in the above table because there were no quoted market prices available and they were extremely difficult to determine the fairvalue.
2. Acquisition cost in the above table represents carrying value reflecting impairment losses.
If the market value of the securities declines by 50% or more from the acquisition cost as of the end of the fiscal year, the Group recognizes the difference between
the market value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss forthe necessary amount considering its recoverability.

For the Years Ended

Note 18. Derivative Transactions

May 31,
2019

May 31,
2018(Millions of yen)

¥2,240¥2,240

May 31,
2019

Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixedLong-term debt

$951

$293

Note

Note: Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received
under the swap agreement is recognized and included in interest expenses. Accordingly, the fair value of interest rate swaps is included in the fair value of long-term
debt. The notional amount of long-term debt includes current portion of long-term debt.

As of May 31, 2018

Notional amount
Major hedged
Maturing after
item
Contract amount
one year

Fair value(Millions of yen)Interest rate swaps accounted for by the exceptional method:
Receive/floating and pay/fixedLong-term debt

¥3,216¥104

Note

Note: Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received
under the swap agreement is recognized and included in interest expenses. Accordingly, the fair value of interest rate swaps is included in the fair value of long-term
debt. The notional amount of long-term debt includes current portion of long-term debt.

(Thousands of
U.S. dollars)¥1,555¥1,555$20,486$20,486

Toyo Denki Seizo Report 201950

Note 19. Segment Information
The reportable segments of the Group are components for which discrete financial information is available and operating results are
regularly reviewed by the Board of Directors to make decisions about resource allocation and to assess performance.
The Group establishes business units by product and each business unit designs domestic and overseas comprehensive strategies
for its products and is developing business activities. Accordingly, the Group consists of the three reportable segments by productbased on the business units, which are Transportation Systems, Industrial Systems and Information Equipment Systems.
The accounting policies of the segments are substantially the same as those described in the significant accounting policies in “1.
Summary of Significant Accounting Policies.” Segment profit is evaluated based on operating income.
Inter-segment sales are recorded at the same prices used in transactions with third parties.
For the year ended May 31, 2019
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated

For the year ended May 31, 2018
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated(Millions of yen)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers¥27,950¥11,770¥2,801¥6¥42,527¥—¥42,527

Segment profit
Segment assets

13
27,963¥2,579¥22,234

2
11,772¥277¥15,076

—
2,801
¥314
¥2,238

712
718
¥41
¥597

727
43,254¥3,211¥40,145

(727)
(727)
¥(2,844)¥23,147—
42,527¥367¥63,292

Other items:
Depreciation
Capital expenditures

¥649
¥747

¥290
¥3,844

¥24
¥23

¥1
¥—

¥964
¥4,614

¥273
¥158

¥1,237¥4,772(Millions of yen)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers
Segment profit
Segment assets
Other items:
Depreciation
Capital expenditures¥27,236¥12,339¥1,584¥14¥41,173¥—¥41,173

Note: “Other” represents business units which are not included in reportable segments and consists of worker dispatching services related activities, etc.

50
27,286¥2,428¥20,2171
12,340¥650¥14,311

—
1,584
¥290
¥1,200

591
605
¥34
¥573

642
41,815¥3,402¥36,301

(642)
(642)
¥(2,844)¥21,701—
41,173¥558¥58,002

Geographical information

¥719
¥596

¥691
¥366

¥93
¥109

¥1
¥14

¥1,504¥1,085¥271¥6¥1,775¥1,091

For the year ended May 31, 2019
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)For the Years Ended

May 31,
2019

Japan
China
Other
Consolidated¥31,746
3,664
5,763¥41,173

May 31,
2018(Millions of yen)

May 31,
2019(Thousands of
U.S. dollars)¥32,125
4,085
6,317¥42,527$290,285
33,502
52,699$376,486

Note: Net sales information above is based on customers’ location.

Total

Adjustments

Consolidated(Thousands of U.S. dollars)

Sales, profits orlosses and asset byreportable segments
Net sales:
Sales to third parties
Inter-segment sales
and transfers

Net sales to third parties by countries or areas grouped according to geographical classification for the years ended May 31, 2019and 2018 were summarized as follows:

Major customer information
Major customer information for the years ended May 31, 2019 and 2018 was omitted since there was no customer to whom sales
exceeds 10% of net sales recorded in the accompanying consolidated statements of income.

$249,046$112,832$14,481$127$376,486$—$376,486

Segment profit
Segment assets

457
249,503$22,194$184,8669
112,841$5,945$130,860—
14,481$2,652$10,973

5,407
5,534
$313
$5,236

5,873
382,359$31,104$331,935(5,873)(5,873)$(26,004)$198,440—
376,486$5,100$530,375

Other items:
Depreciation
Capital expenditures$6,572$5,447$6,319$3,352

$848
$999

$13
$125

$13,752$9,923$2,477$53$16,229$9,976

Note 20. Significant Subsequent Events
There were no significant subsequent events to be noted.

Note: “Other” represents business units which are not included in reportable segments and consists of worker dispatching services related activities, etc.

51

Toyo Denki Seizo Report 201952

Report of Independent Auditors53