Toyo Denki Seizo Report
Tokyo Tatemono Yaesu Building, 1-4-16, Yaesu, Chuo-ku, Tokyo 103-0028 Tel: +81-3-5202-8121 (General Affairs Division)

https://www.toyodenki.co.jp/

2019

Our Heart and Technology for the Future

Our Long-Term Vision

Toyo Denki Seizo K.K. Contributes to the Development of Social Infrastructure Systems
Based on a firm management foundation, we help build social infrastructure systems that are considerate of the global environment through theglobal provision of high-quality products that integrate our exceptional motor drive technologies since establishment with our breakthroughadvanced technologies.

Information
Equipment
Systems
Segment

Business Principles
Industrial
Systems
Segment

Prioritize ethics and contribute to the prosperity of customers and society as a whole
Encourage creativity and enterprising spirit to meet the challenges of the future

Industrial Systems Segment
The Company is extensively contributing to customers at home and abroad through general industrial
machinery and equipment, testing equipment for automobile development and social infrastructure
equipment that is indispensable to the daily lives of people. In addition, we address manufacturing that
contributes to the prevention of global warming, while providing products manufactured through highsystem-building technologies that make full use of energy-saving motors, inverters, FA controllers andnetworks.

Build trust by focusing on quality first

Automobile testing systems

Code of Conduct
1. Respond to customers in a timely and speedy manner
2. Tackle all challenges with forethought and creativity
3. Continuous efforts toward self-development and skill improvement
4. Keep a broad perspective and influence each other toward growth

Transportation
Systems
Segment

5. Act with awareness and pride of a good member of society and businessman

Manufacturing

Power generation andsocial infrastructure system
Production and processing
equipment systems

Information Equipment Systems Segment

Transportation Systems Segment
Electrical equipment for rail vehicles manufactured by theCompany using its technological capability developed over 100
years covers a wide range of fields, including propulsion systems (drive systems), auxiliary power supply and door-closing
units of trains, and we contribute to the maintenance and development of railway infrastructure overseas, not to mention in
Japan, by pursuing safety and comfort of trains.

In the Information Equipment Systems segment, we operate in the two fields of railway station operating equipment and remote monitoring systems, by merging advanced telecommunication technologies
and mechatronics.
With regard to railway station operating equipment systems, we develop and manufacture commuter
pass issuing machines that quickly became IC card compliant and portable terminal devices for conductors, and provide systems for smooth toll collection and income management system to railway operators.
Our remote monitoring systems greatly contribute to labor saving and maintenance saving of customers through realization of various equipment monitoring and position monitoring, by leveraging
cloud computing.

Current collectors(pantographs)

Door operating equipment

Facilities management solutions

Driving gear units
Railway station operating
equipment systems
Main motors

Passenger information
display system

Twin disk couplings
Auxiliary power supply (SIV)
Master controllers
Total train communication
system1

Propulsion inverters (VVVF inverter)

For the development process of its auxiliary power supply, theCompany has acquired a certification of the IRIS (International
Railway Industry Standard), an international quality management system standard for the railway industry.

CONTENTS
Contents/Editorial Policy/Long-Term Vision…… 1
Toyo Denki Seizo K.K.’s 100 Year History……… 3
Consolidated Financial Highlights…………… 4
Message from the President………………… 5
Special Report 1 Full-scale Overseas
Expansion into China and ASEAN…………… 7
Special Report 2 Opening of Jakarta MRT…… 8
Special Report 3 Contributing to Local Communities
with On-board IC Ticket Checking Machines………… 8
Business Report
Transportation Systems Segment………… 9
Industrial Systems Segment……………… 10
Information Equipment Systems Segment…… 11
Business Development…………………… 12
Research and Development/Intellectual Property…… 13
ESG/CSR Report
Environment
		 Initiatives to Protect the Environment…… 14
Social		 With Our Customers…………………… 16
		 With Our Shareholders and Investors…… 17
		 With Our Local Communities…………… 18
		 With Our Suppliers……………………… 19
		 With Our Employees…………………… 19
Governance		Corporate Governance………………… 21
		Executive Profiles……………………… 23
		 Messages from Outside Directors……… 24
		 Internal Control and Compliance………… 25
		Risk Management……………………… 25
		Information Security…………………… 25
		Risk Factors…………………………… 26
Financial Report
Financial Review………………………… 27
Reference Data for Management Indices…… 28
Consolidated Balance Sheets……………… 29
	Consolidated Statements of Income andConsolidated Statements of Comprehensive Income…… 31
	Consolidated Statements of Changes in Net Assets…… 32
Consolidated Statements of Cash Flows…… 33
Stock Related Information…………………… 34
Company Profile…………………………… 35
Organization Chart…………………………… 36
Editorial Policy
We have been publishing this report since 2013
with the goal of allowing a wide range of stakeholders to have a better understanding of theCompany. This report combines our management
policy with reports on our businesses, CSR andfinances. We are committed to describing our initiatives during the year and our future direction ina manner that is easy to understand.
Period Covered by This Report
This report focuses on our activities in fiscal 2018(from June 2018 to May 2019), but also contains
some information from outside this period.
Organizations Covered by This Report
This report covers the Toyo Denki Group, including
Toyo Denki Seizo K.K. and its consolidated subsidiaries.
Reference Guidelines
The GRI Sustainability Reporting Standards(GRI Standards)
Toyo Denki Seizo Report 20192

TOYO DENKI SEIZO K.K. 100 years history
On June 20, 2018,TOYO DENKI SEIZO K.K. celebrated its 100th anniversary.
Our company was founded in 1918 with the intention of “domestic production of electrical machinery for railway vehicles”.
A spectacular feeling that we want to export products to domestic as well as to many Orient countries and contribute to thedevelopment of the country has come from the name of “TOYO DENKI SEIZO K.K.”. And this feeling has been handed
down to successive employees, and now our products are contributing to the development of social infrastructure systems
around the world.

1918~1949

From foundation to postwar
1918 Technical cooperation with Brit1919

ish Dick Kerr and establishmentof the company with the capitalof 3 million yen
Operation started at Yokohama
Factory evelopment of thyristor static Leonard equipment series, first in Japan
1965 D
1972 Development of brushless motor generator (BLMG), first in the world
Development of 150kVA 440Hz static CVCF, first in Japan

1973 Completion of commutation ticket issuing system

1977 Completion of large high-speed automatic drafting machine

1978 Developed our proprietary AFE chopper
devicePanama Canal Agency Electric1983 Completion of in-train ticket issuing Locomotive for Dredgers

system1985 The current Yokohama Planmt was completed
1985 Delivery of world-first superimposed field excitation control for 205

Group photo of the first president,
Kaichi Watanabe, and executives fromthe partner British Dick Kerr company.

1920 C ontrol equipments and traction motors delivered directly to Keihan Electric Railway Co.

commutator motor (AS motor)

 evelopment of electric equipment for1932 D

first in our country, and delivered to
Sagami Railway

1949 O ur stocks was listed on Tokyo Stock Exchange

troller for the Japan National Railways“Kodama”limited express

1959 C ompletion of automatic train stop
1960 C ompletion of traction motor anddrive for Shinkansen testing car
Order received for electric towing locomotive for the Panama CanalDevelopment of constant-speed operation controller for vehicle, first in Japan
Development of hydraulic winch forship, first in Japan

Japan National Railway 151 series
limited express train “Kodama”

3(million yen)

39,61739,746

40,66842,527

41,172Gross profit (million yen)

9,282

9,119

9,221

8,072

7,839

Operating income(million yen)

1,596

1,638

1,571

366

557

Net income attributableto owners of the parent (million yen)

1,105

889

1,174

692

690

Comprehensive income  (million yen)

5,468

(925)

1,513

2,009

(251)

(million yen)

969

902

4,606

4,772

1,090

Research and development costs (million yen)

897

868

927

840

731

Capital investment

Fiscal Year-End

63,291*1

58,0011989

 evelopment of small VVVF inverter using reverse conductive GTO
Dthyristor, first in JapanPer Share Information
Net assets(yen)

2,583.04

2,457.05

2,605.09

2,788.01

2,773.87

Net income(yen)

114.72

92.33

123.87

73.33

75.27

Dividend

(yen)

6

6

30

50*2

30

 evelopment of stroke switching type door closing machine, first in Japan
1990 D

Major Management Indices1991 Development of light-weight VVVF inverter using 1,500V mass-pro-

Shareholders’ equity ratio

(%)

46.9

47.1

44.8

41.6

42.8

1997 Completion of in-train ticket issuing machine corresponding to au-

Return on equity (ROE)

(%)

5.0

3.7

4.9

2.7

2.7

Operating income ratio

(%)

4.0

4.1

3.9

0.9

1.4

Overseas net sales ratio 

(%)

38.0

31.8

31.1

25.3

22.9

Dividend payout ratio

(%)

26.2

32.5

24.2

68.2

39.9

Number of officers  (non-consolidated)

12

12

13

12

11

Number of employees on a consolidated basis

1,216

1,245

1,262

1,267

1,226

Number of employees at Group
companies in Japan and overseas

412

421

430

391

395

4,265

3,924

3,895

4,097

4,905

684.3

648.8

647.2

680.3

839.2

1998 Delivery of electric equipment for Beijing subway east-west line train2004 Development of electrical equipment for Beijing subway east-west line train

goes into service (delivery of automatic commuter ticket vending
machine with support for smart card passes and smart card chargemachines to station facilities)
Start of commercial service of the new N700 series trains on the Tokaido and Sanyo Shinkansen lines (delivery of traction motors, gear units,
pantographs, TD couplings, static conversion equipment, etc.)
Start of sales of the VF66 Series general purpose inverter

2009 Delivered electric machinery for Tohoku
Shinkansen E5 series

2018 May, Shiga Ryuo Plant completed
Japan National Railway Series 0
Shinkansen

Net sales

54,927

for JR West

to Japanese National Railways

Fiscal Year

50,2332012 Order receipt of handsets for conductor

 elivery of pantograph for Shinkansen
1963 D

Financial Data

53,041

2007 The new public transport smart card Pasmo In-wheel motor

Cardan shaft driving device

Fiscal 2018

(million yen)

1958 Completion of traction motor and con-device, first in Japan

Fiscal 2017

Total assets1952 Development of Cardan shaft driving

Commutator motor (patented)

Fiscal 2016

trol VVVF inverter and delivery of it to Tokyu Electric Railway Co

the world’s first micro gas turbine hybrid
vehicleJoint development of the first full-flat,super-low floor light rail vehicle (LRV)
produced in Japan
Succeeded in development and runningof in-wheel motor for car evelopment of ST type three-phase AC
1950 D

Fiscal 2015

24,804tor (ED motor)

From postwar reconstruction to high economic growthFiscal 2014

26,327

2000 Completion of permanent-magnet mo-

1950~1989

158th fiscal term

24,603

tomatic ticket checker

AS motor

157th fiscal term

23,676duction type reverse conductive GTO thyristor, first in our Japan

1935 Development of diesel electric railcar,

156th fiscal term

24,895Development of intelligent door system, first in Japan

trolleybus, first in Japan ompletion of controller with regenerC
ation brake using compound motor,
first in Japan

155th fiscal term

(million yen)

Global expansion and to the next 100 years

Early domestic pantograph154th fiscal term

Net assets

1990~2018

 evelopment of pantograph, first in Japan
1921 D
1926 Start of manufacturing of three-phase

Highlights of Toyo Denki Seizo K.K. and Consolidated Subsidiaries for the Consolidated Fiscal Year ended May 31 or as of May 31

1988 Completion of world-first heat-pipe type 8-unit motor batch con-series electric train of Japanese National Railways

Yokohama factory at the start of operations(Hodogaya-ku, Yokohama)Consolidated Financial Highlights

J une, Toyo Denki Seizo K.K. 100th anniversary

Los Angeles County Metropolitan
Transportation Bureau P3010 LRV

Non-financial Data

CO2 emissions on
a non-consolidated basis(t)*3Electricity consumption on a
non-consolidated basis (10,000 kWh)*3

Note: Effective as of December 1, 2016, the Company implemented a share consolidation (five shares consolidated into one share). Net assets and net income are calculated on
the assumption that the share consolidation was implemented at the beginning of the 154th fiscal term.
Dividends are presented in the actual amounts paid.
*1 The Company has adopted “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 2 8, February 1 6, 2 0 1 8) from the beginning of the158th fiscal term. Accordingly, total assets as of the end of the 157th fiscal term have been calculated by retroactively applying the accounting standard.
*2 The dividend for the 157th fiscal term includes a commemorative dividend of 20 yen for the 100th anniversary.
*3 Aggregate amount of production bases per fiscal year beginning in April and ending in March of the following year
Figures for the Shiga Ryuo Plant since fiscal 2018 include those for TD Drive Co., Ltd.
Toyo Denki Seizo Report 20194

Message from the President

The four-year medium-term
management plan “Revitalize
2020” made a good start and is
progressing as planned.
President

Kenzo Terashima

improvement in the Industrial Systems segment in the fiscal year end-

From an ESG point of view, we revised the Operating Officer system

ed May 2019, the first year of the plan. The earnings forecast for theto strengthen governance by having a Director responsible for gover-year ending May 2020 is net sales of 42 billion yen, operating income

nance, while transferring executive authority to Operating Officers forof 900 million yen, and net income attributable to owners of the parent

higher management flexibility. Moreover, we will reconsider the sig-of 900 million yen. With this in mind, we will strive to gain a footholdnificance of our cross holdings in compliance with the Corporate

for the latter half of the medium-term management plan.

Governance Code so that we make effective use of our assets. As for

Ryuo Integration effect by the Shiga Ryuo Plant which began opera-

environmental contributions, we received the Yokohama Global

tion in June 2018 and a shift to a business promotion system by prod-

Warming Countermeasures Award from Yokohama City for our global

uct have brought about changes in the attitudes of employees. In fact,

warming prevention activity.

this was reflected in the improved profitability of the Industrial Systems

We were particularly recognized for installing 500 kW PV solar power

segment. Amid sound orders received, we will take advantage of thepanels on the roof of the Yokohama Plant in 2012 with an output of ap-

integration effect so that we can meet greater production needs in theproximately 600,000 kWh per year, achieving a plant-wide CO2 emission

future. In addition, for the Yokohama Plant, a production site of the

reduction of approximately 330 tons (about 8%).

Transportation Systems and Information Equipment Systems segments,
we have started modifying the layout for greater productivity.
Among overseas development, the Industrial Systems segment has

Ribbon for the spring of 2019 for being a model employee endeavoring

started fully fledged operation of SIAM TOYO DENKI Co., Ltd., a local

to manufacture electric motor coils for railway vehicles. Currently, he issubsidiary that has been upgraded from a local representative office inengaged in coaching the younger members of the workforce so that

Bangkok, Thailand, in response to increased demand for power gener-

they can succeed our manufacturer spirit and expert techniques.

ators and processing machinery in China and the ASEAN regions.

The efforts made in the initial year for fully fledged operationof the Shiga Ryuo Plant and for strengthening the operational
structure improved the profit structure of the Industrial
Systems segment, providing a solid footing for the second year.

crease in profit in China exceeded the increase in domestic profit.
The Industrial Systems segment saw a YoY increase in orders received, helped by an increase in orders for testing equipment for automobile development and for processing machinery. On a
non-consolidated basis, orders received exceeded 10 billion yen for

Net sales were 41.1 billion yen on a consolidated basis due to a nega-

the first time in four years. Net sales increased YoY accordingly. Seg-

tive rebound in the Information Equipment Systems segment from thement profit rose significantly despite an increase in depreciation andprevious fiscal year and a decrease in the Transportation Systems seg-

amortization expenses due to greater-than-expected improvements

ment. Orders received were 40.6 billion yen, boosted by the growth ofin efficiency and productivity resulting from the Ryuo Integration.

the Industrial Systems segment. Operating income was 550 million

In the Information Equipment Systems segment, both orders re-yen, positive growth almost as expected in the revised plan, due to

ceived and net sales decreased YoY due to a rebound from a large-

dramatically improved efficiency and productivity through “Ryuo Inte-scale project in the previous fiscal year, but segment profit was

gration,” the integration of production sites to the Shiga Ryuo Plant.

unchanged, boosted by software improvement projects and others.

The first year of fully fledged operation at the Ryuo site was a great

Moreover, in China, we have established Chalco-Toyo Permanent

idated subsidiaries and affiliates, while net income attributable to owners of the parent was 690 million yen, unchanged from the previous

We will go further as planned with the aim of increasing
our “earning power” and establish a “leaner” business
operation structure that generates a stable profit.

fiscal year, as a result of efforts to reduce certain cross holdings. Over-

Earth & Metals Co., Ltd., an affiliate of a primary state-owned enterprise Aluminum Corporation of China (CHINALCO), and Beijing Ling

Numerical Management Targets of Medium-term Management Plan
(Unit: Billions of yen)

Yang Trading Co., Ltd., a local trading company. The aim is to begin

Fiscal year ended
May 31, 2019
(Results)

manufacturing motors on a fully fledged basis in China starting from2020. As for the Transportation Systems segment, we delivered elec-

Fiscal year ending Fiscal year ending
May 31, 2020
May 31, 2022
(Plan)(Plan)Net sales

41.17

43.0

Over 47.0

Operating income(Operating margin)

0.55
1.4%

0.9
2.1%

2
4.3%

Ordinary income

0.49

1.1

2.4

way, so as to contribute to development of the railway infrastructure in

Net income

0.69

0.7

1.6

Asia for years to come.

Equity in profit ofunconsolidated
subsidiaries and affiliates

0.01

0.12

0.4

ROE
(Return on Equity)

2.7%

3.3%

5.0%

Dividend payout ratio

39.9%

30.0%

30.0%

trical equipment for railway vehicles to Jakarta Mass Rapid Transit(MRTJ), the first subway construction project in Indonesia, where agroup of Japanese companies was responsible for handling from facilities to vehicles. In China, we plan to further expand the maintenancebusiness of electrical equipment for railway vehicles on Beijing Sub-I believe we have made a good start toward creating
a robust Toyo Denki Seizo Group.
The year-end dividends for the fiscal year under review are 30 yenseas sales accounted for 22.9% of net sales amid the process of

We are implementing “Revitalize 2020,” the medium-term manage-

per share in line with the Company’s distribution policy based on a

Segment net sales

switching vehicle models for the high-speed railroads in China.

ment plan that runs for four years from June 2018, when the Company

payout of stable dividends. We will continue to pay dividends on themarked its 100th anniversary, until the end of the fiscal year ending

basis of a payout ratio of 30% that is a management index given in theTransportation Systems

27.23

29.0

31.0

May 2022.

medium-term management plan. With the medium-term management

Industrial Systems

12.33

13.0

15.0

Information
Equipment Systems

1.58

1.0

1.0

By segment, the Transportation Systems segment saw a YoY increase in orders received, boosted by those from both Japan and over-5

I would highly appreciate our shareholders’ understanding and continued support for further development of our business.

Magnet Motor Co., Ltd., a three-way joint venture with Chinalco Rare

success. Ordinary income was 490 million yen, negatively affected byforeign exchange losses and a decrease in equity in profit of unconsol-

As for the succession of technologies and skills, one of the employees at the Yokohama Plant was honored to receive a Medal with Yellow

seas excluding China. Net sales decreased due to a fall in sales inDuring the first two years, we focus on enhancing profitability, andChina and other overseas markets. Segment profit fell because the de-successfully increased operating income due mainly to a significant

plan progressing well in the first year, we will contribute to internal andexternal stakeholders for further growth.

Toyo Denki Seizo Report 2019

6

1

2

Transportation
Systems
Segment

Contributing to Local Communities with On-board IC Ticket Checking Machines

Information
Equipment
Systems
Segment

Special Report

Special Report

Full-scale Overseas Expansion into China and ASEAN

Opening of Jakarta MRT

Industrial
Systems
Segment

Establishment of a joint venture Chalco-Toyo Permanent Magnet Motor Co., Ltd. in China
We established a joint venture company to engage primarily
in the manufacture of industrial permanent-magnet synchronous motors in Changshu, Jiangsu Province in the
People’s Republic of China (hereinafter China) in a joint investment with companies including Chinalco Rare Earth &Metals Co., Ltd., a supplier of rare earth metal resources
affiliated with Aluminum Corporation of China (CHINALCO).
The Company has been primarily engaged in the manufacture of railway electrical equipment in China since the latter
half of the 1990s. With the establishment of this joint venture company which has the first manufacturing site for the
Industrial Systems segment, we will actively capture needs
for energy conservation in the Chinese and ASEAN markets.
The joint venture company will engage in the manufactureof permanent-magnet synchronous motors mainly for production and processing facilities.

ジャカルタ都市高速鉄道（Jakarta Mass Rapid Transit：MRTJ）車両

Signing ceremony of the joint venture with three investing companies

Special Report

Jingche Shuangyang

Overview of the new joint venture
Company
nameChalco-Toyo Permanent Magnet Motor Co., Ltd.

Toyo Denki (Beijing)

60 million Chinese yuanBusiness
activities

Manufacture and sale of permanent-magnet synchronous
motors for industrial use

Equityratio

Toyo Denki Seizo K.K. 35%
Chinalco Rare Earth & Metals Co., Ltd. 35%
Beijing Ling Yang Trading Co., Ltd. 30%

Beijing

North Korea
Japan
South Korea

People’s Republic of China

Chalco-Toyo (Changshu)

Established June 10, 2019
Capital3

Jakarta Mass Rapid Transit (MRTJ), Indonesia’s first subway, opened in the spring of
2019, with 16 six-car trainsets installed. The project, financed by a yen loan provided
by the Japanese government, became the first full turn-key railway construction project that was successfully launched, where Japanese companies oversaw all aspects
ranging from ground facilities to vehicles and signals.
The vehicles used for the project were delivered by NIPPON SHARYO, LTD., and we
provided propulsion systems (VVVF inverters and related equipment, main motors,
driving gear units, pantographs, and master controllers), train information system(TIS), and data recorders for operation status.
We will continue to contribute to the development of railway infrastructure in Asia
by leveraging our technology for rail vehicle electrical equipment accumulated over
100 years.

ChengduYonggui Toyo

Changzhou Ruiyang
Yangdian Zhanyun

Tokyo
Osaka

NagoyaChangzhou
Shanghai

Changsha

Subsidiaries and affiliates for Transportation Systems

Xiangyang Electric

Subsidiaries and affiliates for Industrial Systems
Subsidiaries and affiliates for all segments

Establishment of SIAM TOYO DENKI Co., Ltd.,an overseas affiliate in Thailand

We supplied on-board IC ticket checking machines developed jointly with West Japan Railway Techsia Co., Ltd. to West Japan Railway Company. They started being used on the Sakai Line (between
Yonago Station and Sakaiminato Station) in the spring of 2019. ICOCA, a rechargeable contactlesscard system, was introduced in the neighboring Yonago area at the end of 2016, and the on-board
IC ticket checking machines installed for the Sakai Line enhanced convenience.
The on-board IC ticket checking machine can reliably identify stops by performing station identification based on (1) position data obtained from GPS (two systems) and (2) data obtained from thetacho-generator that measures travel distance by the number of wheel rotations and collates it withscheduled stops. Ticket checking machines that had to be installed at each station can now beplaced on train vehicles, making it possible to introduce an IC system in any station environment. It
is also hoped that the machine will be rolled out to railway operators nationwide as it can respond to
the trend of cashless payments.

With a view to expanding and strengthening business opportunities in the
ASEAN region, we opened a representative office in Bangkok in September
2 0 1 4. A new overseas affiliate was established in June 2 0 1 9 against the
backdrop of ongoing favorable conditions in the ASEAN macro environment.
With this initiative, we will expand our business by reinforcing our operating
structure and actively bolstering our sales activities.

Touch whenboarding
GPS 1
GPS 2

IC

Overview of the new overseas affiliates
Company
name

SIAM TOYO DENKI Co., Ltd.

Stationidentification

Opening ceremony of SIAM TOYO DENKI Co., Ltd.

XX Station

Established June 4, 20197

Capital4 million Thai baht

Business
activities

Sale and service of general industrial electrical products in
the ASEAN region

Equityratio

Toyo Denki Seizo K.K. 49%, Bangkok MUFG Limited 48%,
SBCS Co., Limited 3%

Touch whenalightingIC
Blue device for boarding
Yellow device for alighting

Tacho-generator

Toyo Denki Seizo Report 20198

Transportation Systems Segment

BUSINESS

Support railway transportation that connects people andcities with safety and trust, through manufacturing thatmerges electronics technologies and mechanicaltechnologies in a highly advanced manner

Results for fiscal 2018

BUSINESS

Deliver technologies and gratitude to customers withhighly precise, highly responding and highly efficient
power electronics, for realization of an environmentfriendly society

Percentage of
total net sales

30.0%Results for fiscal 2018
Segment Income (Unit: Million yen)Orders Received (Unit: Million yen)

Net Sales (Unit: Million yen)Segment Income (Unit: Million yen)Segment Income
2017

2018

2019

2017

2018

2019

2017

2018

2019

650 million yen (Up 135.2% year on year)

650

747

12,33911,76912,339 million yen (Up 4.8% year on year)

276

Segment Income

Net Sales

11,073

2,427

2,578

27,235 million yen (Down 2.5% year on year)
2,427million yen (Down 5.9% year on year)

Orders Received

12,833 million yen (Up 13.5% year on year)

3,079

27,235Net Sales (Unit: Million yen)

27,94926,080Net Sales

25,86626,080 million yen (Up 0.8% year on year)

29,366

Orders Received (Unit: Million yen)

28,199Orders Received

12,833

66.1%

Industrial Systems Segment

11,309Percentage of
total net sales

Business Report

12,194

Business Report

2017

2018

2019

2017

2018

2019

2017

2018

2019

Orders received increased 0.8% compared with the previous fiscal year to 26,080 million yen, due to an increase in orders from domestic

Orders received increased 13.5% compared with the previous fiscal year to 12,833 million yen, due to increased orders for testing equip-

private railways and overseas customers excluding those in China, despite a decrease in orders from China caused by the impact of ament and processing equipment. Net sales increased 4.8% year on year to 12,339 million yen for a reason similar to that for the increase

production drop-off period resulting from model replacement of Chinese high-speed railways. Net sales totaled 27,235 million yen, a 2.5%

in orders received. Segment income totalled 650 million yen, a 135.2% increase compared with the previous fiscal year, due to efforts todecrease from the previous fiscal year, due to a decrease in sales in China and other overseas markets. Segment income decreased 5.9%

strengthen cost control and process control and reduce expenses.

compared with the previous fiscal year to 2,427 million yen, due to a decrease in China despite an increase in Japan.

V O I C E

We will expand the Transportation Systems segment with three pillars of “expanding overseas
business,” “establishing a stable business earnings structure,” and “restructuring production system.”

Akira Watanabe
General Manager ofTransportation Business Unit

9

In the Transportation Systems segment, we will further push ahead with the expansion of overseas business that wehave been working on since the early 2000s, while steadily carrying out the domestic business as a foundation for establishing a stable business earnings structure. At the same time, the production line at the Yokohama Plant will bebolstered as part of efforts to restructure production systems.
Specifically, we will expand the overseas business by reorganizing and strengthening overseas affiliates in accordance with local business environment and by developing a business scheme of providing maintenance for subway
trains whose number is expected to rise sharply particularly in China. Furthermore, we aim to steadily capture demand
for standard rail vehicles that will be newly built for the high-speed railway in China.
In the domestic business, while responding to demand for rail vehicles that will be newly built for the Tokyo
Olympics, we plan to provide products and services that leverage our reliability based on the track record since ourestablishment and new technologies aimed at reducing environmental impact, such as energy-saving, maintenance-saving, and low noise technologies.
Bolstering the production line at the Yokohama Plant involves making good use of the old industrial plant sites that
became empty following the consolidation of bases into the Shiga Ryuo Plant and reviewing the internal layout of theplant, with the aim of expanding production capacity and improving production efficiency.

V O I C E

We will grow the Industrial Systems segment along with the Transportation Systems segment as two pillars
by further demonstrating the “Ryuo integration effect” and exploring the domestic and overseas markets.

Yoshifumi Otsubo
General Manager of Industry
Business Unit

With the start of full operation of the Shiga Ryuo Plant in June 2018, the Industrial Systems segment has entered aperiod of dramatic growth. In the first year of operation, orders received, net sales, and profitability significantly increased, as a result of growing customer trust and inquiries, substantially higher productivity, and improved inter-departmental communication. We will further demonstrate the “Ryuo integration effect” and continue to improve ourbusiness performance.
By field, we will enhance added value and expand production capacity for testing equipment for automobile development in Japan by leveraging our strengths in the drive system. As for processing equipment, we aim to capture demand from machine manufacturers, using highly efficient permanent magnet synchronous motors andhigh-performance inverters as our strengths.
Overseas, SIAM TOYO DENKI Co., Ltd. (Thailand), which was set up in June 2019, and Chalco-Toyo Permanent
Magnet Motor Co., Ltd. (China) will lead in developing new markets.
In addition, steady progress has been seen in the development of products, such as super-high-speed rotating dynamo and flat-type dynamo that are compatible with automobile electrification and automatic driving, and large-capacity inverters with a view to expanding overseas.
We will grow the Industrial Systems segment along with the Transportation Systems segment as two pillars throughthese efforts.

Toyo Denki Seizo Report 201910

Business Report

Information Equipment Systems Segment

BUSINESS

Provision of products that make the execution of operations
on station premises and trains smooth and convenient andM2M solutions based on mobile phone networks and cloudservers using remote monitoring system

Percentage of
total net sales

3.8%

Business Report

Expansion of New Businesses

BUSINESS

Order received for consigned research and development ofsuperconducting flywheel power storage system for railways
The Company received an order from East Japan Railway Company to conduct operations related to equipment manufacturing and the
preparation of test reports for verification tests of a superconducting flywheel power storage system for railways.
Based on the “Basic Agreement on Technology Development of Superconducting Flywheel Power Storage System for Railways” concluded on March 29, 2018 between Yamanashi Prefecture, the Railway Technical Research Institute, and East Japan Railway Company,

Results for fiscal 2018

this system is being developed for the world’s first practical use in the railway field. The Company will conduct the design and manufacturOrders Received (Unit: Million yen)

Net Sales (Unit: Million yen)2,416

cooperation with MIRAPRO Co., Ltd. (Hokuto, Yamanashi Prefecture; President & CEO: Hiroyuki Tsugane).
Through this business, the Company will work on the construction of a new power storage system that contributes to the improvement

290

314

304

1,388

Superconducting Flywheel Power
Storage System for Railways
The flywheel power storage system is a systemthat, by rotating a large disk (flywheel) within the

2017

2018

2019

2017

2018

2019

2017

2018

2019

device, stores regenerative electric power as kinet-

When charging
Regenerative electric power of the train
is absorbed, and flywheel accelerates
When discharging
Power is supplied to the train,
and flywheel decelerates

ic energy (charging), and converts kinetic energy

Orders received decreased 27.3% compared with the previous fiscal year to 1,756 million yen, due to a fall-back from the large-scale

The bearing portion of the superconducting fly-the decrease in orders received. Segment income decreased 7.7% compared with the previous fiscal year to 290 million yen due towheel power storage system adopts the supercon-

Discharging

11

FlywheelSuperconducting
magnetic bearing

Power conversion
equipment

Charging

rayama, Yamanashi Prefecture. The technology al-

Strong magnetic
repulsive force realized
by the superconducting
magnetic bearing
allows the flywheel tofloatlows the flywheel to float, reducing rotational loss

In the Information Equipment Systems segment, apart from delivering on-board IC ticket checking machines to WestJapan Railway Company during the previous fiscal year, we pressed ahead with system development to achieve
multiple determination of the fare calculation system for automatic ticket gates. Furthermore, we won orders forcommuter pass issuing machines and counter processing machines from TOKYU RAILWAYS and Kanto Railway. We
will continue to expand our share in the railway station operating equipment market and provide solutions using remote monitoring systems.
Specifically, as on-board IC ticket checking machines are expected to be employed on rail lines where automatic
ticket gates could not be installed in the past, they will be rolled out to railway operators across the country. Additionally, the commuter pass issuing machine ordered in the previous fiscal year will be our first machine compatible
with IC credit cards, and the counter processing machine will be a new machine that satisfy the needs of small andmedium-sized railway operators. As such, we aim to continue to develop and deliver these products firmly and to
gain new market share based on the lineup of these products.
In product development, demand for cashless payments is accelerating following the consumption tax ratechange in October 2019. Accordingly, we will work on the development of systems using QR codes.

Time

Generator motor

Technical Research Institute, and establishedWe will work towards expanding the Information Equipment Systems segment through product development andsolution that meet customer needs, with a focus on railway station operating equipment and remote monitoring systems.

Discharging

Superconducting Flywheel Power Storage System

ductivity technology designed by the Railway
through verification tests conducted in Komeku-

V O I C E

Charging

back to electric power (discharging) as necessary.

orders received in the previous fiscal year. Net sales decreased 43.5% year on year to 1,583 million yen for a reason similar to that for
the impact of lower net sales.

Rotational speedof flywheel

Segment Income

290 million yen (Down 7.7% year on year)

ing of the power conversion equipment, and will be responsible for the overall coordination of this power storage system’s construction, inof energy efficiency, the stable usage of renewable energy and technology development in the railway field.
1,756

1,583 million yen (Down 43.5% year on year)

1,788

Net Sales

Segment Income (Unit: Million yen)

2,801

1,756 million yen (Down 27.3% year on year)

1,583

Orders Received

as there is no contact, and realizes a reduction inmaintenance efforts.

Overhead wires

When braking

When accelerating

When the train decelerates:
Regenerative electric power is generated

When the train accelerates:
Train consumes electric powerAnnouncement of new product IORemoterLTE: IoT terminal for Toyo IoT/M2M solutions/remote monitoring and control systems
The Company has announced IORemoterLTE, a new product that is an IoT terminal for remote monitoring

Toshihiko Akihiro
General Manager of IT Business
Unit

and control systems, for Toyo IoT/M2M solutions.
The IORemoterLTE is a high-speed IoT terminal integrated in the LTE module. Through the use of the
Toyo IoT/M2M solutions cloud service, the remote monitoring and control of various facilities, controllers,
devices, and mobile entities can be conducted faster and at a larger capacity.

Toyo Denki Seizo Report 201912

Business Report

Research and Development/Intellectual Property

BUSINESS

ESG/CSR Report

Environment

Initiatives to Protect the Environment

R&D to support the development of social infrastructureand supporting frameworks

With a view to realizing an environment-friendly society, the Company will further strive to promote the reduction ofenvironmental burden, while providing more efficient products that contribute to energy conservation.

Research and Development
The Group’s R&D activities are based on seeking to create products that fully satisfy our customers and challenging the creation andexpansion of these products, and we actively promote development of technologies of our existing businesses and basic technology
developments that support this development as well as development of new products that expand our businesses.

Environmental
Philosophy
Action Guidelines

Results and topics from fiscal 2018
Segment

Project

Development of a train information
system based on ECN standards

Transportation
Systems
Development of power
storage system

Industrial
Systems

Development of flat-type
dynamoDescription

Developed a train information system for Jakarta MRT rail vehicles in compliance with IEC 61375 Part 3-4 ECN
Conducted a driving test for emergency on rheostatic control trains using a power storage system equipped with lithium-ion
batteries. Also analyzed the results of emergency driving, and in case emergency running is necessary, studied a driving approach that suppresses power consumption so that emergency driving can be performed even when the SOC decreases.
Developed a frame equipped with a motor for dynamos and a steering function specific for flat-type dynamos thatcan fit inside the wheel well to be used for automobile testing. Since it can fit in the wheel well, we anticipate its application for testing equipment for automated driving.

Development of compact
and lightweight inverter

Developed a compact and lightweight inverter that minimizes installation space and simplifies maintenance such as
replacement. Realized an about 39% reduction in volume and an about 25% reduction in mass compared to conventional products in the 75 kW class by reassessing the cooling structure and the current density for bus bars.

Development of IC-exclusive
commuter pass issuing machine

Developed a compact and desktop IC-exclusive commuter pass issuing machine. Saved space by eliminating themagnetic ticket issuing section and supporting only transportation IC cards.

Function expansion of
Expansion of remote monitoring unit
New
Efforts to reduce the size ofBusinesses eco-drive motors and mass
produce themObtained a communication equipment certification in Indonesia to expand sales of the currently available IORemoter.
Also developed an IoT starter kit as a new item to increase sales and highlighted the easiness to get familiar with IoT.

Information
Equipment
Systems

Research
Laboratory

The bottleneck of the high-heat resistant impregnating resin material used for rail vehicle main motors has
been its high cost due to its special characteristics. Researching a new impregnating resin material to achieveboth high-heat resistance and low cost.

Reduction of motor
manufacturing cost withsquare wire and laser welding

Targeting the reduction of man-hours for the winding process by investigating manufacturing automation of ED motor
stator coils with square wires and laser welding. Also examining the feasibility by optimizing the number of motor
poles and conductor size.

Research on wirelesspower transmission

Researched a wireless and high-efficiency in-motion power transmission system with the goal of eliminating train
overhead wires. Realized continuous traveling of a mini model train with over 95% efficiency, 30 kW power transmission at a stationary state and only with wireless power supply from the ground.

and contributes to the development of a sustainable society.
We will continue to provide products and services that are considerate of the burden on the global
environment by drawing on our “future-oriented technologies friendly to the Earth and mankind.”1.

We will comply with all environmental requirements including those under the relevant laws and regulations.

2.

We will strive to minimize environmental burden through a reduction of energy consumption and other measuresat all stages of product lifecycle, namely planning, development, design, production, sales, use and disposal.

3.

We will establish and execute a system to continuously promote activities to protect the global environment.

4.

We will raise environmental awareness among individuals through enlightenment activities within the Group

Aiming for Realization of a Sustainable Society
A sustainable society as envisaged by the Company is the combination of a “low-carbon society,” a “recycling-based society” anda “nature-symbiotic society.”
The environment technologies of the Company have produced
numerous products that contribute to energy conservation, including
high efficiency motors and inverters that capitalize on the amalgamation of our outstanding motor drive technology and other state-of-theart technologies. In the meantime, the Company has been striving toconserve resources through not only the efficient use of energy but
also the reduction of the size and weight of its products.
In addition, the Company is working on the development of
products with lower levels of noise involved in their use to makethem friendlier to the surrounding environment.
The Company will make further contribution to make society
more sustainable, fully utilizing on its environmental technologies
on a global scale, while carrying out various environmental
actions at each of its bases.

Developed and commercialized a product that uses flat wires for stator windings in order to further reduce the size andweight of eco-drive (ED) motors. Succeeded in increasing current, which was difficult to achieve with conventional
methods, and realized large torque output despite its small size.

Development of low-cost
impregnating resin for
main motors

The Toyo Denki Group sets initiatives to protect the global environment as its priority task

Our intellectual property is placed as a key corporate resource. Our intellectual property department is responsible
for the management of intellectual property and our researchlaboratory and the development divisions in each business
unit actively apply for patents and utility models.
In the overseas markets which we expect to further expand our businesses, we have started to actively engage inactivities concerning our intellectual property in order to protect our technologies and brand.

13

Patent applications granted
Patent applications:
Granted cases:(Applications)

80
60

5

40

2
20

35
33

62

1
0

30
30

0
2014

0

57
16 0
16
2015

4
65 27
14
14

2016

0

Overseas
Overseas

66

45

45

Japan
Japan

51
33

1

47

26

24

2017

2018

5

42

36
9

9
37

27

2019

Energy conservation throughthe Company’s technologies
and products
Energy conservation in
production activities
Use of sustainable energy

Recycling-based society
Promotion of 3Rs(reduce, reuse, recycle)

Improvement of logistics
efficiency
Proper treatment of wastes
Reduction of amount of final
disposal of wastes

Nature-symbiotic society

Proper management ofchemical substances

Conservation of biodiversity

Cleanup around offices

Our Website

Environmental Management System
Intellectual Property

Low-carbon society
Implementation of measuresagainst global warming

In order to tackle environmental issues on an independent andcontinuous basis, the Company has developed and operates anenvironmental management system and thereby obtained ISO
14001 certification. This certification has been acquired for all
offices and the production bases Yokohama Plant and Shiga
Ryuo Plant.
Years of ISO 14001 certification

Yokohama Plant
2004

Shiga Ryuo Plant*
2001

Extended to all offices
2010

Information on the
Company’s environmental initiatives canbe found at our website.

https://www.toyodenki.co.jp/
esg_csr/*The Shiga Ryuo Plant was the Shiga Factory (Moriyama) when it obtained the certification.

Toyo Denki Seizo Report 201914

ESG/CSR Report

Environment

ESG/CSR ReportSocialInitiatives to Prevent Global Warming

Initiatives for Control over Chemical Substances

With Our Customers

Initiatives to reduce greenhouse gas (CO2) emissions

Volatile organic compounds (VOCs) emitted as a result of our businessactivities are adequately controlled and the amount of emission ismonitored under the Pollutant Release and Transfer Register (PRTR).
We will further engage in the reduction of waste through suchmeasures including using non-VOC materials and implementing
recovery and reuse of solvents. PCB waste is also subject to adequate control, storage and disposal in accordance with Japan’s
Act on Special Measures concerning Promotion of Proper Treatment of PCB Wastes.

The Company makes it one of our business principles to “build trust by focusing on quality first.” As such, we strive
to enhance customer satisfaction through our commitment to thorough-going quality control as we believe delivering safe and secure products and services to customers is the Company’s most important mission.

The Company is promoting energy conservation at each of its
production bases and offices to reduce its CO2 emissions. At the
production bases in particular, we are promoting power-savingand streamlining at production facilities. In addition, the Yokohama
Plant uses solar power generation for peak shaving of power demands.

Targeted reduction of CO2 emissions and progress status
Aiming to reduce CO2 emissions per unit of production output by
1% year on year, the Company’s main production base, the Yokohama Plant, increased emissions by 8% in fiscal 2018.

Yokohama Plant

Shiga Ryuo Plant (formerly Shiga Factory)

1,000
800
600

Total amount of air emissions(kg)

8,000 8,300
6,000

7,700

6,120

5,290

5,260

7,000
6,800
6,150 6,600 6,490
5,800

0
2013

684.3
680.3
176.5
664.8
32.5 648.831.0 647.231.6
36.3
36.0

200

7,900

2,000

839.2

400

Total amount of shift

10,0004,000

Total energy input (electricity)(Unit: 10,000 kWh)

Notification volume for Pollutant Release and Transfer Register (PRTR) substances

628.5

651.8

617.8

615.6

644.3

662.7

2013

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

(year*)

Initiatives for Reducing Disposed Waste
as Well as Recycling

Quality Control – Providing Safe and High-Quality Products
Basic policy on quality control

Proper export controls

The Company’s electrical equipment for rail vehicles is installed inmany rail vehicles. These extremely important products play a
direct role in ensuring the safety of human life and property during rail transportation. In the Industrial Systems and Information
Equipment Systems segments as well, the Company’s products
and services are used in customers’ production facilities,
development sites and in the field of social infrastructure, andthey form the foundation supporting the sustainable developmentof a society that is safe and comfortable to live in.
In order to ensure the high quality of our products and services, the Company has established a “Basic Policy on Quality Control” which is deployed at all production bases as we strive tomaintain and improve our human resources education, compliance with rules, and our facilities.

The Export Control Department at General Affairs Division is responsible for export management as the export management
control department. We have created a system for the proper
management of exports in order to ensure compliance with thelaws and regulations concerning export management in the
countries and regions where we engage in business activities aswell as to avoid involvement in transactions that could hinder
the maintenance of international peace and safety.
The Export Control Department handles cargo and technology
parameters used in determining whether or not export permits
are required, as well as investigation of transactions. In addition,
the Department carries out employee education and guidanceand support for Group companies.
Acquisition of International Standards

0(year*)

Total energy input (gas)(Unit: 1,000 m3)

Yokohama Plant

Shiga Ryuo Plant (formerly Shiga Factory)

500
400
300

284.0

284.7

286.0

294.1

350.0

443.0
74.0

Main actions

Promotion framework

The Company has been thoroughly implementing waste processing rules, sorting metal waste and recycling paper resources. As aresult, its landfill waste rate was 1.8% in fiscal 2018.

With regard to quality control, each fiscal year the Company develops policies and the promotion framework aimed at further maintaining and improving quality in each business unit, along withspecific policies pertaining to the reduction of flaws and other issues. The Company’s Corporate Quality Control Division works together with the quality control department or the quality assurance
department in each business unit to put together a report on thestatus of quality control and results in each unit. The report is delivered to top management at the monthly Operating Officer Liaison
Meeting where measures are debated and decided. Furthermore, inthe event that a flaw is discovered after a product has been
shipped, the necessary steps are swiftly taken, mainly by the quality
assurance department in each business unit, while at the sametime the causes that led to the flaw and its mechanism are investigated, and this information is put into a database so that the information can be shared in-house in an effort to prevent recurrence.

Output of general and valuable waste

200

General waste output
Valuable waste output

(t)

369.0

600

Yokohama Plant
Yokohama Plant

Shiga Ryuo Plant
Shiga Ryuo Plant

100
450

0
2013

2014

2015

2016

2017

2018

(year*)

Total CO2 emissions(t)

Yokohama Plant

5,000

4,000
3,000
2,000

Shiga Ryuo Plant (formerly Shiga Factory)

361.3
300
290.9

434.3

274.1

424.5

441.9

246.2

450.7
48.8
401.9

150

4,905

4,265
4,122
4,097
3,895
170 3,924
183
186
165
161

408.5

134.8
19.8
115.0

107.6

109.6

0

933

2013

2014

2015

2016

2017

2018

Yokohama Plant

Shiga Ryuo Plant(year*)

Volume of landfill waste
3,936

4,095

1,000

3,759

3,734

3,914

3,972

(t)

12

0
2013

2014

2015

2016

2017

2018

(year*)

6

Quality Management System

10.4

9.0

9

4.1
5.9

5.0

3

The Company has created and operates a quality management
system at its production bases, the Yokohama Plant and theShiga Ryuo Plant, and has obtained ISO 9001 certification.

5.0
6.3

2.3

High level of safety is essential for rail vehicles. UNIFE, the Association of European Rail Industry, established the International
Railway Industry Standard (IRIS) in
2007 to ensure the quality of rail vehicles.
In 2013, we became the first company in Japan to obtain an IRIS certifiIRIS logo
cation for auxiliary power supply (SIV).
In 2014, we were also accredited to the China Railway Certification Center’s (CRCC) certification for driving gear units.
CRCC, a state-owned enterprise set up in April 2003 after obtaining approval of the Certification and Accreditation Administration of the People’s Republic of China, is an organization thatmainly manages the quality of railway products. It is necessary
to obtain this certification to sell high-speed rail products in
China.
We will continue to acquire international standards and further
expand our business globally.
CRCC logo

Year ISO 9001 certification obtained

0
2013

15

Responding to the Global Market

2014

2015

2016

*The fiscal year is from April to March of the following year * The fiscal 2018 figures for the Shiga Ryuo Plant includes those of TD Drive Co., Ltd.
*Prior to fiscal 2017, total energy input (gas) data is available only for the Yokohama Plant due to zero input of the Shiga Plant.
*Prior to fiscal 2017, data on output of general and valuable waste and volume of landfill waste is presented only for the Yokohama Plant.

2017

2018

(year*)

Yokohama Plant
1997

Shiga Ryuo Plant*
2000

Extended to all offices
2005*The Shiga Ryuo Plant was the Shiga Factory (Moriyama) when it obtained the certification.
Toyo Denki Seizo Report 201916

ESG/CSR ReportSocialWith Our Shareholders and Investors

Contributions to Local Communities

We strive to ensure transparency of management through the timely and proper disclosure of information and various modes of communication in order to receive an appropriate evaluation of the Company from our shareholders
and investors.

We are committed to various social contribution activities, to contribute to society through our business while facilitating our own co-existence with communities and to foster young people who will represent the next generation.

Towards Enhancement of Corporate ValueT o Convey the Mission and Appeal of Electrical Industry as Well as of Toyo Denki

Basic philosophy
Through timely and appropriate disclosure of information to ourshareholders and investors, the Company accurately conveys ourmanagement policy and business conditions while making use of
IR tools such as our website to promote a full range of IR activities
that contribute to the improvement of our corporate value.
Development of IR activities
IR activities for institutional investors and securities analysts
The Toyo Denki management team holds a financial results briefing each quarterly period to provide opportunities for institutional
investors and securities analysts to understand the summary of
our financial results. The management team gives a report including the state of progress of the medium-term management plan
and an overview and forecast for each segment as well as neworders received and other topics.
In addition, we strive to deepen understanding of the Company
through individual visits to institutional investors or holding factory
tours to provide opportunities for them to actually see our manufacturing sites, as well as participating in small meetings organized by securities companies, and taking other measures.
IR activities for individual shareholders and individual investors
The Company website includes a “For Individual Investors” page
which offers a clear introduction to our business activities and our
results, as well as making available a variety of IR materials.

Dividends
In accordance with its profit return policy of maintaining stabledividends, the Company paid a year-end dividend of 30 yen per
share for the current fiscal year. We continue to aim at paying adividend with the 30% dividend payout ratio as a basis, which isa management index included in the medium-term management plan.
Dividend per share
Common dividend

(Yen)

40

(30)

(30)

30

30

30

30

20
10

We are committed to activities that raise awareness and appreciation of our manufacturing expertise by accepting interns from local technical high schools and providing them with hands-on
experience at manufacturing sites. This internship system serves
as an effective means of recruiting outstanding technical staff on
a consistent basis as some students from these schools apply for
positions at the Company.

We are conducting “factory tours” to provide opportunities formembers of local communities to actually see our manufacturing
facilities and products in order to develop deeper understanding
about the business operations of the Company. During these tours,
we inform the participants of our products as well as our actions
for environmental protection and factory facilities, in an effort tobuild up relationships built on trust with local communities.

50
20

50

30

Commemorative dividend

Receiving interns

Factory tours

6

6

FY 2014

2015

0
2016

2017

2018

2019

(Forecast)*Effective as of December 1, 2016, the Company implemented a stock consolidation of its commonshares at the ratio of five shares to one share. For the status of dividends before fiscal 2016, theactual dividend amounts before the said stock consolidation are stated. The figures in parentheses
are the amounts calculated based on the standard after the stock consolidation.

Participation in university endowment courses and hands-on
courses
We participated in endowment courses sponsored by the Yokohama Green Purchasing Network so that participants can deepen
their knowledge on history of railway and the environment throughour business activities.
We conduct lectures leveraging the know-how fostered throughoperations and our business activities in on-site training courses
held by educational institutions including universities.

A factory tour

Received the General Manager Prize for the “5th activity
commendation that is kind to Kanazawa Ward environment”

Record of 158th Ordinary General Meeting of Shareholders

Date held: Wednesday, August 28, 2019

The Company issues Business Reports for shareholders once every six months. They are also available on the website.

URL “For Individual Investors”
https://www.toyodenki.co.jp/ir/individual.php

Endowment course at a university

In Kanazawa Ward, Yokohama, with the aim of protecting the environment of Kanazawa and passing it on to the next generation, anaward is given for environmentally-friendly activities conducted in
the ward that are pioneering, exemplary, and has achieved visible
results.
The Company participates in the “Joint Cleanup Activity,” which
is held once a year jointly by companies, fire departments, the police, and universities, to collect litter on the streets and illegally disposed waste. The activity received the 2018 General Manager Prize.

Cooperation with Yokohama Kyodo no Mori FundInterim Business Report for Fiscal 2018

Plant tour for shareholders

17

Business Report for Fiscal 2018

The Company cooperates in small woodlands conservation activities led mainly by the city of Yokohama by donating part of theproceeds from vending machines installed at the Engineering
Center of the Yokohama Plant to the fund.

Participants of Joint Cleanup Activity

Toyo Denki Seizo Report 201918

ESG/CSR ReportSocialWith Our SuppliersWith Our Employees

The Company responds to the needs of our customers
through the strong network we have built with suppliersin line with our unique characteristics as a businessbased on an individual build-to-order/multi-productsmall lot manufacturing model.

The Company seeks to cultivate a dynamic corporate
culture and to create a pleasant and safe workplace
where each and every employee can unleash his or her
diverse capabilities.

Towards Just and Fair Procurement

Towards the Development of Human
Resources with Competitive Strengths

Communication with suppliers
The Company’s products possess various distinctive characteristics such as being individually built-to-order, manufactured in
multi-product small lots, and demanding high reliability. Therefore,
the Company can be affected by the performance of our suppliers
as a result of issues such as delays in supply due to fluctuationsin production quantity or delays in processing due to the quality of
products received.
In order to reduce these risks as much as possible, the Company carries out instruction and support related to quality, technology, and skills for our suppliers, as well as guidance for
improvement of manufacturing sites, in order to ensure stableprocurement of even better quality products. In addition, we
actively promote information sharing through the “Toyo Denki
Cooperation Association” to which our leading suppliers belong.

Formulation of “Procurement Action Guidelines”(formulated in February 2016)
Procurement Action Guidelines
These guidelines indicate the codes of conduct that the Toyo
Denki Group’s executives and employees should observe in the
procurement of purchased parts and outsourced parts as required for the manufacturing of products ordered by customers(“procurement transactions”).
1. Procurement transactions shall be carried out in observanceof the laws of the relevant countries.
2. Information concerning suppliers in procurement transactions
shall only be obtained within the scope necessary for conducting procurement activities in accordance with contracts. Furthermore, efforts shall be made to carefully manage andobserve the confidentiality of information gained through procurement transactions.
3. Personal interests with suppliers shall be prohibited in procurement transactions, including the lending and borrowing of money.
4. Receiving of support beyond the socially accepted practices or
receiving of money or inappropriate gifts or any other forms of
personal rewards from suppliers shall be prohibited in personaltransactions. In addition, forceful requests for any of the abovefrom suppliers shall be prohibited in procurement transactions.
* Inquiries from outside are accepted via the following phone number
and e-mail address:

Legal Compliance Department, General Affairs Division +81-3-5202-8121
email address for inquiries to Toyo Denki Seizo K.K.: contact@toyodenki.co.jp

19

Human resources development policy
The Company has set the following policy on human resources
development and carries out education and training under the education and training system diagram as shown below.
(1)	To develop human resources who understand and practice our business principles and code of conduct and who
are of value both as company employees and as members of society.
(2)	To develop human resources who are professionals, eachpossessing a high degree of specialized expertise, by enhancing the knowledge, techniques, and skills they needto carry out their duties.
(3)	To provide a variety of educational opportunities in orderto promote personal development, with emphasis on aself-directed approach to study and growth.

Education and training system
The Company’s education and training system is divided into level-specific trainings conducted at each occasion, individual trainings according to job types and roles, a support program aimed at
helping employees to obtain academic degrees and official qualifications, and division education conducted independently by eachdivision.
Training contents are reviewed based on actions expected of
employees.
New employees who join the Company as technical staff receive lectures and practical training at the Technical Training Center in the Yokohama Plant for one year. The Technical Training
Center dates back to 1937 and has an over 80-year history. Employees with exceptional manufacturing skills or expertise arerecognized as “Technical My Star” internally and assigned to instruct and train younger employees. With these initiatives, three
employees have accepted Contemporary Master Craftsman
awards from the Minister of Health, Labour and Welfare and one
has been awarded to theMedal with Yellow Ribbon by
the Japanese government.
We continue to endeavor
to pass on superior technologies and skills to maintainthe high quality of our prod- Employee recognized as “Technical My Star” gets a
ucts.
special mark on his cap

Creating a Pleasant Workplace

Initiatives for employment of the disabled

Response to the Act on Promotion of Women’s Participation
and Advancement in the Workplace
In accordance with The Act on Promotion of Women’s Participation and Advancement in the Workplace (Women’s Advancement
Promotion Act) that was enacted on April 1, 2016, the Company
is formulating an action plan to create an environment where
women can continue working with a sense of security as they advance their careers.
Acquisition of the “Kurumin” certification logo (June 2014)
In recognition of our efforts as a “company that
supports child-rearing,” which includes a substantial childcare system, educational activities concerning a work-life balance, the creation of an environment inwhich it is easy to obtain childcare leave, and the acquisition record of childcare leave by male employees, we received the “Kurumin”
certification logo from the Tokyo Labor Bureau in June 2014.
Initiatives for diverse work-styles
The Company has implemented a flexible work-style including a
flextime system for sales staff and those involved in development.
Furthermore, in order to encourage retention and utilization of
employees with knowledge and skills, we have put in place the“System for Rehiring Employees” for employees who have resigned due to life events that occur in the course of their career(childbirth, childcare, family care, spouse’s transfer, etc.), so thatthey can be rehired when they reach the stage when it is possible
to return to work.
As for employees who wish to be rehired after they reach themandatory retirement age (60), in principle, we continue to employ them until the age of 65.

The Company makes improvements to the workplace environment and carries out workplace training with the aim of creating aworkplace where the disabled and those in normal health canwork together energetically. We also hold on-site job experience
sessions in collaboration with local governing agencies and special-needs schools regarding employment of the disabled.
Implementation of employee satisfaction survey
The Company conducts an “employee satisfaction survey” once
per year, and relevant departments work to resolve various issues
extracted from the survey results. In addition, to create a “dynamic
corporate culture,” discussion meetings and such between executives and employees are regularly held.
Mental health measures
As measures to address mental health, the Company conducts“Line care training” for administrative professionals and “Self caretraining” for employees. In addition, we have partnered with an
external medical institution to set up a telephone and e-mail consultation service to provide support for prevention, treatment, andreturn to work.
Safety and hygiene initiatives
Under the “Company-Wide Safety and Hygiene Management Policy,” formulated every fiscal year, the Company holds the Safety
and Hygiene Committee monthly at each office, where annual
plans are drawn up and ongoing discussions are held in order tobuild a safe working environment, to reduce workplace injuries tozero and to find solutions to issues, including mental health. In
addition, the Company holds the “Company-Wide Safety and Hygiene Committee” every quarter to promote sharing of information
between offices as well as between Group companies.

Data concerning personnel and labor (at Toyo Denki Seizo K.K.)
Item
Number of employees

Unit
Total
Men
Women

Ratio of female employees
Number of administrative professionals

%
Total
Men
Women

Ratio of female administrative professionals
Average age

Average years of employment
Average annual salary
Turnover rate (within 3 years of joining the Company)
Number of employees taking childcare leave
Number of employees taking family care leave
Number of temporary staff (including part-timers)
Notes

Persons

Persons%

OverallMen
Women
Overall
Men
Women

Age

Years
Yen
%
Persons
Persons
Persons

Fiscal 2014
804
740
64
8.0
151
149
2
1.3
40.5
40.7
38.7
15.8
15.9
14.5
5,888,577
0.0
5
0
153

Fiscal 2015
824
761
63
7.6
155
151
4
2.6
40.4
40.4
39.5
15.4
15.5
14.1
6,024,175
3.4
7
0
160

Fiscal 2016
832
768
64
7.7
150
146
4
2.7
40.4
40.4
40.1
15.2
15.2
14.8
5,990,250
2.0
9
0
152

Fiscal 2017
843
771
72
8.5
140
136
4
2.9
40.2
40.3
39.5
14.9
15.1
12.7
6,049,512
2.7
4
0
130

Fiscal 2018
831
762
69
8.3
143
139
4
2.8
40.8
40.8
40.9
15.4
15.5
14.1
5,756,046
6.5
6
0
119

*Number of regular employees including Operating Officers, and number of special employees, temporary employees, contract employees and staff
on loan from other companies, etc.

Toyo Denki Seizo Report 201920

ESG/CSR Report

GovernanceIn an effort to continuously enhance its corporate value, the Company is striving to ensure transparency ofmanagement and compliance, along with the maintenance and operation of an adequate governance framework while reinforcing its risk management framework.

Corporate GovernanceOur philosophy of corporate governance
The Group’s business activities are based on the business principles that “prioritize ethics and contribute to the prosperity of customers and society as a whole.” We therefore strive to attainsound corporate management through strengthening and reinforcing corporate governance, fully appreciating the significanceof compliance based on corporate ethics. At the same time, we
review as appropriate our management monitoring system to ensure its conformity to the changes in the business environment
including social environment and relevant legislation.
Corporate governance

21Internal audit and Statutory Auditor’s audit
Internal audit
Internal audits of the Company are carried out by the Audit Division based on internal audit plans decided by the Board of Directors. The Audit Division has staff with qualifications such as theCertified Information Systems Auditor (CISA). It reports its actionplans and internal audit results to the Board of Directors and theBoard of Statutory Auditors.
Statutory Auditors’ audit
Statutory Auditors work with the Audit Division and Accounting
Auditors and exchange information on audit plans and contents ofaccounting audits to perform appropriate auditing tasks. Statutory
Auditors receive the results of quarterly reviews from Accounting
Auditors both verbally and in writing, and confirm their action

Outside Directors and External Statutory Auditors
The Company’s Outside Executives currently include two Outside
Directors and three External Statutory Auditors as shown below.
Each Outside Executive has excellent insight in each expertiseand satisfies the independence guidelines for Outside Executives
defined by the Company.
Mr. Hirokazu Chinone, Director (Outside Executive)
Mr. Hirokazu Chinone is qualified as a lawyer and provides usefuladvice regarding management in general, drawing on his specialized knowledge regarding corporate law and his wealth of experience developed throughout his career.
Mr. Takashi Yamagishi, Director (Outside Executive, memberof the Nomination and Compensation Advisory Committee)
Mr. Takashi Yamagishi provides useful advice regarding management in general, drawing on his wealth of corporate management
experience at Teijin Limited and his superior expertise.
Mr. Toshiaki Akechi, Statutory Auditor
Mr. Toshiaki Akechi is engaged in auditing activities, drawing on
his wealth of corporate management experience at JR East FoodBusiness Co., Ltd. and other places.
Mr. Yoshinori Kawamura, Statutory Auditor (Outside Executive)
Mr. Yoshinori Kawamura serves as Professor of Faculty of Commerce, Waseda University, and is engaged in auditing activities,
drawing on his expertise regarding corporate finance and accounting developed thus far. He also has experiences as Secretary and Special Member of the Business Accounting Council of
the Financial Services Agency, and an examiner of the Certified
Public Accountant Examination, etc.

Mr. Yasushi Miki, Statutory Auditor
Mr. Yasushi Miki is engaged in auditing activities, drawing on his
wealth of experience developed at a predecessor bank of MUFG
Bank, Ltd. and other places and his global perspective.
Executive Remuneration
Directors
Remuneration for the Company’s Directors consists of basic remuneration and bonuses, and the total remuneration amount isdetermined within the maximum remuneration, which was decided at the Ordinary General Meeting of Shareholders held in
August 2006. To ensure the independence of Outside Directors,
the Company provides no bonuses to them. Decisions on remuneration for Directors are made at the Nomination and Compensation Advisory Committee set up under the Board of Directors,
with the participation of Outside Directors, in order to enhance
objectivity and transparency of the decision process for executive remuneration.
Statutory Auditors
Remuneration for the Company’s Statutory Auditors is determinedthrough discussion among Statutory Auditors within the maximum
total remuneration, which was fixed at the Ordinary General Meeting of Shareholders held in August 2006. It takes form of fixed remuneration for each standing and part-time position. There are nobonuses for Statutory Auditors.
<As of the end of May 2019>
Category of executives

Number of
executives
applicable

Total amount of
remuneration(Unit: Million yen)

6

164

1

14

7

41

Directors(excluding Outside Directors)
Statutory Auditors(excluding External Statutory Auditors)
Outside Executives (Outside Directors
and External Statutory Auditors)(Note) The number of executives applicable mentioned above includes one Director and two Statutory
Auditors who retired from office at the end of the 157th Ordinary General Meeting of Shareholders held on August 28, 2018.

Corporate governance framework
General meeting of shareholders
Appointments/dismissals

Accounting Auditors

Reporting

ReportingAppointments/dismissals

Legal audit

ReportingDirectors

Statutory Auditors
Business audit

Reporting

Reporting/decisions
Instruction/reporting

Internal Control Committee
Internal audit(Secretariat)
General Affairs Division(Contact for whistle-blowers)(Contact for legal consulting)
Legal counsel(Contact for whistle-blowers)

Reporting on
business execution

Appointments/dismissals

Accounting audit

Audit Division

Appointments/dismissals

Board of Directors

Board of Statutory Auditors

Appointments/
reporting/recommendations
Whistle-blowings
Oversight
Whistle-blowings

President
Management Strategy Meeting
Operating Officer Report Meeting
National and Global Group Company Meetings
Instruction/reporting

Appointments/dismissals

We have corporate bodies established in accordance with laws
and regulations as well as the Articles of Incorporation, including
the General Meeting of Shareholders, Directors and the Board of
Directors, Statutory Auditors and the Board of Statutory Auditors,
and Accounting Auditors. To strengthen corporate governance, thesupervision and execution functions of the Board of Directors are
separated, through the adoption of a structure where the Board of
Directors is mainly in charge of governance, and Operating Officers are primarily in charge of business execution.
The Company strives to ensure that both the supervision function of the Board of Directors and the audit function of (the Boardof) Statutory Auditors work effectively and believes that the current system is sufficiently running.
Specifically, each of the following bodies and meeting bodies isin place to function effectively.
Directors and the Board of Directors
At its regular monthly meetings as well as extraordinary meetings held when appropriate, the Board of Directors, which iscomposed of six Directors including two Outside Directors, discusses and decides on important management matters suchas reports on Operating Officers’ business execution and matters to be decided solely at the discretion of the Board of Directors, while supervising the execution of duties by Operating
Officers.
 Management Strategy Meeting and Operating Officer Report
Meeting, etc.
The Company has meeting bodies including the Management
Strategy Meeting and Operating Officer Report Meeting. Throughthese bodies, specific matters related to their execution of duties
and critical management matters including those subject to thedeliberation of the Board of Directors are reported to the President by Operating Officers and the general managers of business execution departments, deliberated and discussed

preliminarily. As for the matters discussed at meetings, matterssubject to the deliberation of the Board of Directors are decided
by the Board of Directors and other matters are decided by employees with business execution authority through means suchas circulars based on the Management Authority Rules.
Statutory Auditors and the Board of Statutory Auditors
The Board of Statutory Auditors is made up of four members
including three External Statutory Auditors. Statutory Auditors
oversee management by attending the Board of Directors’
meetings, etc. and expressing appropriate opinions in the process of deliberating business execution reports from Operating
Officers and matters to be decided solely at the discretion of
the Board of Directors. In addition, Statutory Auditors audit thebusiness activities and assets of the Company and Group companies in accordance with audit policies and division of duties
set by the Board of Statutory Auditors.
Voluntary committees
a. Nomination and Compensation Advisory Committee
Under the Board of Directors, the Company has in place theNomination and Compensation Advisory Committee, whose
members include Outside Directors. Its purpose is to list
candidates for Directors and Statutory Auditors and nominate Operating Officers, and to ensure transparency andobjectivity regarding decisions on compensation for Directors and Operating Officers.
b. Internal Control Committee
The Internal Control Committee is in place under the Boardof Directors to develop a system stipulated in the basic policy of internal control systems, check the operation status,and conduct constant reviews. The Committee meets quarterly, and the contents of deliberation are reported to theBoard of Directors each time.

plans to be taken at a fiscal year-end audit. Statutory Auditors
also receive the results of fiscal year-end audits from Accounting
Auditors in statutory documents along with verbal reviews. Furthermore, Statutory Auditors are in principle required to be present at inventory taking or on-site inspection at subsidiaries by
Accounting Auditors.

Operating Officers
Instruction/reporting

Each business department
Instruction/reporting

Instruction/
reporting

Each Group company

Toyo Denki Seizo Report 201922

ESG/CSR Report

Governance

Executive Profiles (as of August 28, 2019)

Messages from Outside Directors

Hirokazu Chinone

President,
Representative Director

Kenzo Terashima

Director

Director

Director

Akihiko Ishii

Akira Watanabe

Yoshifumi Otsubo

Role of Outside Director

Points of discussion and advice at the Board of Directors

The Companies Act stipulates that the authority of a board of directors is to make decisions on important business execution
matters and oversee the execution of duties, and this also applies to directors who make up the board of directors.
Furthermore, the main role of outside directors is to oversee
the execution of duties in particular. The reason for this is that itis thought to be beneficial to have independent outside directors
who have no ties of obligation to internal directors and few
stakes, in order to prevent illegal and unfair decisions with compliance issues.
I am a lawyer by profession. I don’t have any experience inrunning a company, making it difficult to give useful and appropriate advice to improve the Company’s business performance,
but I believe monitoring business execution is my area of expertise to prevent the Company’s scandals and various risks.

Since my appointment as Director, fortunately no agenda itemor proposal that would become a compliance issue has beenpresented to the Board of Directors.
However, it is generally understood that even when a compliance issue emerges, that information rarely reaches the Boardof Directors, and in many cases, it is too late when the problem
is discovered. In order to avoid this, it is necessary to havemechanisms in place that allow negative information to beraised to executives. Such mechanisms include an internal audit
department that is independent of business divisions and whistleblowing systems. I believe that it is important to ensure thatsuch bodies function successfully and dot not end up just being
a formality.

Takashi Yamagishi

Director (Outside)

Director (Outside)

Hirokazu Chinone

Takashi YamagishiStanding Statutory
AuditorStanding Statutory
Auditor

Statutory Auditor

Statutory Auditor

Toshiaki Akechi

Kenji Ueda

Yoshinori Kawamura

Yasushi Miki

Senior Executive Officers
Executive Officers
Operating Officers

23

Hiroshi Shimotakahara
Shuji Horie
Yukimasa Tanabe
Takuya Hatakeyama

Akihiko Ishii
Yoshifumi Otsubo
Naoki Okuyama
Toshiharu Takagi

Akira Watanabe
Kenji Tanimoto
Toshihito Nakanishi
Chiaki Nakano

Kenji Fujiwara
Shini Furutsuki

Role of Outside Director

Points of discussion and advice at the Board of Directors

The functions of outside directors at a board of directors are
said to be “supervision” and “advice.” The former is to properly
get across the opinions of stakeholders to the board of directors, and the latter is to maximize corporate value through strategy formulation and decision-making. While the presence ofoutside directors creates a tension at the board of directors anddeepens discussions, strictly requiring independence of outside
directors makes it difficult for them to contribute to strategy formulation. The Company has several Outside Directors. I view myrole is participating in discussion for important decision-making
from an early stage with an outsider’s perspective, enhancing
the transparency of decision-making at the Board of Directors
by providing my expertise on occasion, and contributing to improving sustainable corporate value and the supervisory function.

My position at the Board of Directors is to provide support forachieving the Company’s long-term vision of “providing highquality products that combine motor drive technologies and advanced breakthrough technologies worldwide and contributing
to the realization of environmentally friendly social infrastructure.” It is not just approving what has been decided at management meetings, but also asking essential questions from an
outsider’s perspective and making correct management decisions through active discussion. Issues for which final decisions
have been postponed will be discussed again at strategic meetings in which I participate as Outside Director. The Nomination
and Compensation Advisory Committee and talks at researchpresentations provide good opportunities to learn about management and human capital. I believe that it is important for theCompany to be always monitored by outsiders for maintaining
high-level of management discipline.

Toyo Denki Seizo Report 201924

ESG/CSR Report

GovernanceInternal Control and Compliance

Risk Management

Internal Control

Basic policy

The Company views the development and operation of an internal
control system to be an important management issue, and it hasdeveloped an efficient, legal and appropriate business execution
system pursuant to Article 362 of the Companies Act and Article
100 of the Ordinance for Enforcement of the Companies Act. The
Internal Control Committee established under the Board of Directors reviews the operational status of the internal control system
and will revise it as necessary.

The Company is engaged in developing rules and a framework forrisk management according to the Basic Rules for Risk Management established in August 2006.

Principles of compliance
The Company has set “1. adherence to rules,” “2. observance ofconfidentiality,” “3. distinction between private and public matters,” “4. strictness with money,” “5. prohibition of side jobs,” and“6. prohibition of discriminatory and sexually suggestive statements or behavior” as principles of compliance.

Promotion framework
The Company has established the Internal Control Committee under the Board of Directors, chaired by the President. It analyzes
and assesses all the risks that exist in the Group and develops aneffective risk management framework capable of dealing precisely
with the risks of the types and degrees that the Group is exposed
to. The committee specifically reviews risk verifications and countermeasures, and periodically reports details of its deliberations to
the Board of Directors.
Furthermore, the committee is committed to enhancing theGroup-wide risk management framework in accordance with the
Basic Rules for Risk Management.

Compliance promotion framework
To focus on business principles and fulfill its social responsibility,
the Company has provided all officers and employees with a copyof the Compliance Manual (Toyo Denki Seizo Ethical Standards)
that stipulates its code of conduct. The move is part of an effort tohave the code and the basic rules of work fully known.
The Company has also introduced a whistle-blowing systemthat allows employees to provide information directly to the management. The system is aimed at ensuring that any illegal orinappropriate conduct within the Company is detected at theearliest possible stage and that adequate measures are taken
promptly and as needed so that such conduct is rectified.
Compliance education
The Company is organizing scheduled and systematic training
sessions based on a compliance training master plan to enhanceknowledge on compliance while promoting a conscious respect
for corporate ethics.

25

Information Security
Basic policy
The Company holds a vast amount of information assets including
information presented by customers related to its businessexecution and confidential information concerning the Group’s
proprietary technologies and its trade. Each Group company istaking various measures in this respect based on an awarenessof shared security under the Group’s Information Security Guidelines, which have been established to adequately manage anduse these information assets.
Information security training
The Company is conducting educational activities to develop
information security awareness among all employees including
various training sessions, some involving the use of educational
DVDs.

Risk Factors
From the perspective of proactive information disclosure, theGroup intends to disclose a wide range of recognizable risks. Major risks that may affect its earnings and financial position are set
out below. The Group aims for thorough understanding of theserisks in order to establish a necessary risk management framework designed to prevent the risks from materializing or minimize
the impact of risks if they do materialize.
(1) Business activities, business structure, economic trends, andother factors
The Group’s sales heavily rely on the Transportation Systems
and Industrial Systems segments. Its customers conduct business operations at home and overseas. As such, businessclimates and individual spending conditions in different
countries may affect the Group’s business performance.
(2) Production bases
The great majority of the Group’s production bases are locatedin the Kanto area. Production capacity may be severely affected by large-scale disasters in the area.
(3) Intensifying competition
The Japanese market for the Transportation Systems segment
has matured and thus faces intensifying competition. The Industrial Systems segment is under pressure from intensifying
competition for product development. The Group’s businessperformance may be affected by such intensifying competition.
(4) Product quality
Defects in products may link to materialization of a risk that
requires large-scale compensation for damages. The possibility exists that insurance may not be able to cover associatedcosts, which may affect the Group’s business performance.
(5) Product development
With a view to providing attractive products to customers, theGroup applies itself to gathering information about customer
needs and leverages it in the development of new products to
support its future growth. However, delays in the developmentof new products to respond to rapid technological or environmental changes may affect the Group’s performance.
(6) Material procurement
Owing to the fact that the Group’s business has various distinctive characteristics, some of the materials it procures are noteasily available due to factors such as a limited number of suppliers. Delays in supply or discontinuation in production of suchmaterials may affect the Group’s performance. In addition, disruptions to the entire supply chain caused by a large-scaledisaster or other incidents could impact the Group’s operations.
Moreover, its business may be affected by the fluctuation in
prices of raw materials, notably steel products and copper.

(7) Overseas expansion
The Group proactively pursues the expansion of overseas
operations including the Chinese market. Its performance may
be affected by major changes in situations overseas.
(8) Intellectual property rights
The Group attends to the protection of intellectual property
rights. However, amid drastically advancing technical innovations and accelerating globalization of business, the Group isinevitably exposed to potential disputes with third parties overintellectual property rights. If a dispute occurs, the Group’sbusiness may be affected.
(9) Business alliances
With the aim of business expansion and enhancing competitiveness, the Group proactively pursues various alliances withthird parties. However, if these alliances do not deliver expected results due to a failure in forging favorable relationships
with partners, the Group may face an impact on its performance.
(10) Exchange rate fluctuations
On the back of aggressive expansion into overseas markets,
the Group will inevitably face heavier impact of foreign currency exchange rate fluctuations on its earnings as itincreases foreign currency denominated transactions.
(11) Holding assets
Fluctuations in the fair value of assets held by the Group may
affect its performance.
(12) Financing
The Group’s financing programs may be affected by unexpected changes in financial conditions.
(13) Information security
The Group retains customer information related to its businessexecutions. Also, it possesses various types of confidential information concerning the Group’s proprietary technologies andoperations. If these information assets leak outside the Groupfor unforeseeable reasons, it may impact its performance.
(14) Compliance
The Group proactively pursues expansion in overseas operations, particularly the Chinese market; therefore its operations are subject to the laws and regulations of each country.
Although the Group has established and conducts a robust
compliance system, its operations are still at risk from the effects of unforeseeable events.
(15) Litigation
If the Group becomes the subject of any legal action or otherlegal procedures, its business may be affected.

Toyo Denki Seizo Report 201926

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 Auditors

Stock Related Information
Number of shares (As of May 31, 2019)
Number of shares authorized

36,000,000

Number of shares issued

9,735,000

Number of shareholders

5,719

Distribution of shares by type of shareholder
Financial instruments
business operators
1.22%

Major shareholders
Number of shares held
% of
Shareholders(Thousands)
total shares held
The Master Trust Bank of Japan, Ltd. (Trust account)588
6.57
East Japan Railway Company
480
5.36
Employees Stock Ownership Plan
435
4.87
NIPPON LIFE INSURANCE COMPANY
337
3.77
MUFG Bank, Ltd.
270
3.02
Sanshin Co., Ltd.
270
3.01
Toyo Denki Subcontractor Factories
251
2.81
Shareholding Association
BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/JANUS HENDERSON HORIZON FUND
216
2.42
BNP PARIBAS SECURITIES SERVICES LUXEMBOURG/JASDEC/JANUS HENDERSON HORIZON FUND
The Bank of Yokohama, Ltd.
207
2.32
Masayoshi Yamauchi
206
2.30(Note) The percentages of total shares held are calculated excluding 792,000 treasury stocks.

Treasury stock
8.15%

Foreigncorporations, etc.
6.99%
Other
corporations
19.14%

Individuals
and others
40.60%

Financial
institutions
23.90%

Share consolidation and change to the number of sharesconstituting one share unit
Effective as of December 1, 2016, the Company implemented ashare consolidation (five shares consolidated into one share) andrevised the number of shares constituting one share unit (from1,000 shares to 100 shares).

Transition of share price
Share price
Before stock consolidation
(Yen)

600

Before stock consolidation(Yen)

Stock consolidation (5:1)

After stock consolidation(Yen)

Stock consolidation (5:1)

After stock consolidation
(Yen)

3,000

600

3,000

400

2,000

400

2,000

200

1,000

200

1,000

0

0

(Thousands) 2016.6

Trading volume

2017.1

2018.1

2019.1(Thousands)(Thousands) 2016.6

2017.1

2018.1

2019.1(Thousands)

15,00003,00003,000

15,00010,0002,000

10,000

2,000

5,000

1,000

5,000

1,000
0

0
2016.1200
2016.12Disclaimer on the forward-looking statements
Information in this corporate report contains forward-looking statements. Such statements were developed based on the information available at the time
when this report was prepared. These forward-looking statements may be largely revised in the future, and the actual outcome could significantly varyfrom the stated or implied contents of such statements subject to various factors. This report is not intended to solicit investment. Investors are kindly
asked to make your investment decision at your own judgment and responsibility. Numbers presented in 100 million yen or million yen are rounded down
to the nearest respective unit.

53

Toyo Denki Seizo Report 201954

Company Profile

Organization Chart(as of May 31, 2019)

Company Profile

Niigata Branch

Head office building

Non-consolidated subsidiaries

Industrial Systems

Information Equipment Systems

Toyosangyo K.K.
TD Drive Co., Ltd.

Toyo Shoji
Co., Ltd.

Toyo Denki (Beijing) Co., Ltd. (China)
Changzhou Yangdian Zhanyun Transport Equipment Co., Ltd. (China)
TOYO DENKI USA, INC. (U.S)
Hunan Xiangyang Electric Co., Ltd. (China)	Changzhou Ruiyang Transmission Technology Co., Ltd. (China)	Beijing Jingche Shuangyang Traction System Co,. Ltd.
(China)	Chengdu Yonggui Toyo Rolling Stock Equipment Co., Ltd.
(China)OthersHuman Resources Department

Financial Affairs Division

Education and Development Department
Finance Department

Corporate Quality Management Division

Accounting Department
Planning and Research Department

	SIAM TOYO DENKI Co., Ltd.
(Thailand)	Chalco-Toyo Permanent Magnet
Motor Co., Ltd. (China)

National and Global Group
Company Meetings

Corporate Production Planning Division
Purchasing Division
Business Development Division

Transportation Business Unit

Production Planning Department
Planning and Research Department
Development Promotion Department
EV Systems Department
IoT Solutions Department
Transportation Business Planning Division
Japan Sales Division
JR Group Sales Division
Commuter Rail and Subway Sales Division
Osaka Sales Division

Audit Division

Nagoya Sales Division
Engineering Division
China Sales Division
Overseas Project Division
Development DivisionInternal Control Committee

Transportation Systems Works
Production Management Division
Design Division
Quality Assurance Division
Manufacturing Division
Procurement Division
Industrial Systems Planning Division
Industry Business Unit

Board ofAuditors

Overseas

Affiliates not accounted for by the equity method

Operating Officer Liaison
Meeting

Hiroshima Branch
Kyushu Branch

NagoyaOsaka Branch
BranchYokohama plant

TOYOKOUKI Co., Ltd.
Taihei Electric Co., Ltd.

Management Strategy
Meeting

Shiga Ryuo Plant

Transportation Systems
Japan

Human Resources Division

Quality Management Department 2
Yokohama
BranchSubsidiaries and Affiliates (as of September 1, 2019)
Affiliates accounted for by the equity method

General Affairs Department
Legal Compliance Department
Export Management Department

Quality Management Department 1

Okinawa
BranchConsolidated subsidiaries

General Affairs Division

Audit
Officer

Code Number
Number of Shares Authorized
Number of Shares Issued
Number of Shareholders

Nomination andCompensation Advisory
Committee

Sendai BranchPresident

Stock Exchange Listing

Shiga Ryuo
Plant

Auditors

Head OfficeGroup Administration Office

Board of Directors

Established
Capital
Number of Employees

Management Planning Department
PR, IR, and CSR Department
Information Systems Department

TOYO DENKI SEIZO K.K.
(TOYO ELECTRIC MFG. CO., LTD.)
June 20, 1918
4,998,390,000 yen
1,226 (Consolidated)
831 (TOYO DENKI SEIZO K.K.)
Tokyo Tatemono Yaesu Building,
1-4-16, Yaesu, Chuo-ku, Tokyo,
103-0028, Japan
TEL +81-3-5202-8121 (General
Affairs Division)
https://www.toyodenki.co.jp/
The Tokyo Stock Exchange, First
Section6505
36,000,000 shares
9,735,000 shares
5,719

General Meeting of Shareholders

Company NameManagement Planning Division

Hokkaido Branch

Sales Division 1
Sales Division 2
Sales Division 3
Sales Division 4
Engineering Division
Industrial Systems Works
Production Management Division
Development Division
Design Division
Quality Assurance Division

Jingche Shuangyang

Toyo Denki (Beijing)
IT Business Unit

Changzhou Ruiyang
Yonggui Toyo
TOYO DENKI SEIZO K.K. DELHI
LIAISON OFFICE

Yangdian Zhanyun
Chalco-Toyo
Xiangyang Electric

TOYO USA

SIAM TOYO

Research Laboratory

Yokohama Plant
Shiga Ryuo Plant

Manufacturing Division
Procurement Division
Information Systems Planning Division
Information Systems Sales Division
Information Systems Works
Design Division
Quality Assurance Division
Production Engineering Division
Engineering Strategy Division
Engineering Research Division
Engineering Management Division
Administration Division
Administration Division

Osaka Branch
Nagoya Branch* See the table above for the full names of subsidiaries and affiliates.

55(Revised on Aug 28, 2019)

Kyushu Branch
Hokkaido Branch

Toyo Denki Seizo Report 201956