Financial Report

Financial Review

Reference Data for Management Indices

Consolidated Operating Results, Consolidated Financial Position, and Consolidated Cash Flow for FYE May
2022 (from June 1, 2021 to May 31, 2022) are as follows:

Capital investment(Unit: Million yen)(For the Years Ended May 31 or As of May 31)

Depreciation and amortization

Research and development costs

2,504 million yen

Net cash provided by operating activities
amounted to 2,504 million yen (net cash of
1,776 million yen provided in the previous
fiscal year), principally due to a decrease intrade notes and accounts receivable and adecrease in inventories.

35

712

819

792

840

315

Cash flows from investing activitiesFYE May 2018 2019

289 million yen

Net cash provided by investing activities
totaled 289 million yen (net cash of 155
million yen used in the previous fiscal year),principally due to proceeds from sales ofinvestment securities.

-155

2,504

41

289

4,140

(Unit: Million yen)

2020

2021

2022

FYE May 2018 2019

2020

2021

FYE May 2018 2019

2022

2020

2021

Net sales by region

2,356 million yen

Net cash used in financing activities was
2,356 million yen (net cash of 971 million
yen used in the previous fiscal year),primarily owing to repayment of debt.

2018

2019

2020

2021

2022

Japan

32,124

31,74530,997

27,87625,779

China

4,085

3,663

4,282

3,628

3,015

Others

6,317

5,763

3,791

1,638

1,363

42,527

41,172

39,07133,14330,158

25.3%

22.9%

20.7%

15.9%

14.5%

Total
Overseas net sales ratio
2020

2022

(Unit: Million yen)

Cash flow from financing activities
Net cash used in financing activitiesFYE May 2018 2019

2022

Cash flows from financing activities(Unit: Million yen)Japan China
OthersOverseas net sales ratio

Cash flow from investing activities
Net cash provided by investing activities

2021-2,356

Net assets as of May 31, 2022 stood at
22,012 million yen, a decrease of 1,996
million yen compared with the end of
the previous fiscal year. This decrease
was largely attributable to a decreaseof 1,198 million yen in retained earnings
and a decrease of 889 million yen in
unrealized holding gain on available-forsale securities.

2020

-971

22,012 million yen

FYE May 2018 2019

-1,126

Total net assets

2022-2,012

Total liabilities as of May 31, 2022 stoodat 24,903 million yen, a decrease of 3,055
million yen compared with the end of theprevious fiscal year. This decrease waslargely attributable to a decrease of 2,085
million yen in debt and a decrease of 557
million yen in trade notes and accounts
payable.

Net assets

Cash Flows
Cash flow from operating activities
Net cash provided by operating activities

2021-1,01924,903 million yen

FYE May 2018 2019-3,087

Total assets as of May 31, 2022 stood at
46,916 million yen, a decrease of 5,051
million yen compared with the end of theprevious fiscal year. The decrease in total
assets was largely attributable to a decreaseof 3,002 million yen in property, plant andequipment, a decrease of 1,360 million yen
in investment securities, and a decrease of
891 million yen in trade notes and accounts
receivable, partially offset by an increase of
485 million yen in cash on hand and in banks.

Total liabilities

2022(Unit: Million yen)

2,148

46,916 million yen

2021-1,572

Total assets

2020

Cash flows from operating activities

Financial Position
Liabilities

632

FYE May 2018 2019

1,776

* Reorganized to the ICT Solution Business segment in June 2022

From a profit perspective, operating income decreased 59.4%
compared with the previous fiscal year to 171 million yen. Ordinary
income increased 1.2% compared with the previous fiscal year to766 million yen mainly due to investment gain on equity method andforeign exchange gain. Net loss attributable to owners of the parent was
930 million yen (compared with an income of 977 million yen in theprevious fiscal year), mainly due to the impact of a 2,256-millionyen impairment loss on business assets related to the Industry
Business segment, despite gain on sales of investment securities.

545

N e t s ale s d e cre a s e d 9.0%
compared with the previous
fiscal year to 30,158 million yen
due to a decrease in net sales
in the Transportation Businesssegment, the Industry Businesssegment, and the Information
Equipment Systems segment*.

Assets2020(Income of 977 million yen in the previous fiscal year)

1,090

Orders received increased 1.3%
compared with the previous fiscal
year to 30,447 million yen, with theTransportation Business segment,
the Industry Business segment,
and the Information Equipment
Systems segment* all nearly onlevel with the previous fiscal year.

930 million yen(YoY -0.9%)

3,720(YoY +1.3%)

731

30,158 million yen

1,257

30,447 million yen

Profit/Loss
Net loss attributable to owners of the parent

1,413

Net sales

1,237

Orders received

1,487

Results of Operation(Unit: Million yen)

1,774

4,772

(Unit: Million yen)

2021

2022

Toyo Denki Seizo Report 2022

36

Financial Report
TOYO DENKI SEIZO K.K.
Consolidated Balance Sheets

As of

May 31,
2022

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)(Note 1)

LIABILITIES AND NET ASSETS

Current assets:

Current liabilities:
Trade notes and accounts payable (Note 16)
Electronically recorded payables
Short-term borrowings and current portion of long-term debt
(Notes 6 and 16)
Income taxes payable (Note 11)
Contract liabilities (Note 20)
Accrued expenses
Accrued directors’ bonuses
Accrued employees’ bonuses
Reserve for losses on order acknowledgements (Note 3)
Other
Total current liabilities

Cash on hand and in banks (Notes 16 and 18)¥ 4,449¥ 3,964$ 34,705

Trade notes, accounts receivable and contract assets (Notes 2, 16 and 20)

12,091—

94,310Trade notes and accounts receivable (Note 16)—

13,218—

Electronically recorded receivables (Note 16)

1,136

901

8,863

Inventories (Note 3)

6,267

6,901

48,885

Other current assets

246

318

1,919

Allowance for doubtful accounts

(1)

(2)

(13)

24,18925,300188,671

Property, plant and equipment (Notes 4 and 6):
Buildings and structures

3,985

6,410

31,086

Machinery and vehicles

579

966

4,520

Land

1,270

1,301

9,907

7

24

60

479

622

3,742

6,322

9,325

49,316

12,471

13,832

97,272

Deferred tax assets (Note 11)

883

223

6,894

Intangible assets

101

303

789

Other (Note 5)

2,953

2,988

23,039Allowance for doubtful accounts

(6)

(6)

(53)

Total investments and other assets

16,403

17,341

127,943

Total assets (Note 21)¥46,916¥51,967$365,932

Construction in progress
Other
Total property, plant and equipment

Investments and other assets :Investment securities (Notes 16 and 17)

May 31,
2022

May 31,
2021(Millions of yen)

AssetsTotal current assets

37

As of

May 31,
2022(Thousands of
U.S. dollars)(Note 1)

¥ 1,610
4,205¥ 1,668
4,705$ 12,559
32,803

585

2,085

4,565

306
47
688
6
699
970
449
9,569

161
—
611
36
827
871
660
11,628

2,390
373
5,368
50
5,455
7,571
3,504
74,642

11,173—4,113
38
615,333

11,759
427
4,124
17
1
16,33087,152—32,086304
53
119,597

Net assets (Notes 8 and 15):
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity¥ 4,998
3,177
11,122(1,282)18,016¥ 4,998
3,177
12,320(1,281)
19,214$ 38,985
24,78386,751(10,001)
140,519

Accumulated other comprehensive income:Unrealized holding gain on securities
Translation adjustments
Retirement benefits liability adjustments (Note 7)
Total accumulated other comprehensive income
Total net assets

3,913
144
(61)
3,996
22,012

4,803
88
(97)
4,793
24,00830,5261,126(480)
31,172
171,692

Total liabilities and net assets¥46,916¥51,967$365,932

Long-term liabilities:
Long-term debt (Notes 6 and 16)
Deferred tax liabilities (Note 11)
Liability for retirement benefits (Note 7)Long-term payables
Other
Total long-term liabilities
Commitments and contingencies (Note 14)

See notes to consolidated financial statements.

Toyo Denki Seizo Report 2022

38

Financial Report
TOYO DENKI SEIZO K.K.
Consolidated Statements of Income

For the Years Ended

Net sales (Notes 20 and 21)
Cost of sales (Note 3)
Gross profit
Selling, general and administrative expenses (Note 9)
Operating income (Note 21)
Non-operating income (expenses):
Interest and dividend income
Interest expense
Equity in earnings (losses) of affiliates accounted for by the equity method
Foreign exchange gain
Insurance claim income related to disaster
Subsidy income
Other income (expenses), net
Ordinary income
Special (losses) gains, net (Note 10)(Loss) income before income taxes
Income taxes (Note 11):
Current
Deferred
Net (loss) income
Net (loss) income attributable to owners of the parent

TOYO DENKI SEIZO K.K.
Consolidated Statements of Changes in Net Assets
May 31,
2022

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)(Note 1)¥30,158
23,343
6,815¥33,143
25,805
7,338$235,229
182,073
53,155

6,643
171

6,914
423

51,814
1,340

154
(58)
242
227
—
20
8
594
766
(1,996)(1,230)

202
(67)
(4)
133
34
40
(5)
333
757
407
1,164

1,201
(458)
1,892
1,775
—
155
68
4,635
5,976
(15,570)(9,593)

403
(703)
(299)
(930)
¥ (930)(Millions of yen)
Shareholders’ equity

352
(165)
186
977
¥ 977

3,146
(5,485)(2,339)(7,254)$ (7,254)

See notes to consolidated financial statements.

Commonstock

Capitalsurplus

Accumulated other comprehensive income

Retainedearnings

Treasury
stock

Total
shareholders’equityUnrealized
holding
gain onsecurities

Translation
adjustments

Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeTotal net
assets¥4,998¥3,177¥11,610¥(1,280)¥18,505¥5,727¥ 79¥(129)¥5,677¥24,183

—

—

(268)

—

(268)

—

—

—

—

(268)

—
—

—
—

(0)

—
—

—
—

—
—

—
—

Balance as of May 31, 2021——
¥4,998

Balance as of June 1, 2021

Balance as of June 1, 2020
Changes during the year
Cash dividends paid
Net income attributable toowners of the parent
Purchases of treasury stock
Net changes in items
other than those inshareholders’ equity
Total changes during the year

977

977

977

—

—
(0)

—
—
¥3,177—709¥12,320—(0)¥(1,281)—708¥19,214

(924)
(924)
¥4,803

8
8
¥ 88

32
32
¥ (97)(883)(883)¥4,793(883)(174)¥24,008¥4,998¥3,177¥12,320¥(1,281)¥19,214¥4,803¥ 88¥ (97)¥4,793¥24,008

—

—

(268)

—

(268)

—

—

—

—

(268)

—
—

—
—

(930)

(930)
(0)

—
—

—
—

—
—

—
—

(930)

—

—
(0)

—
—
¥4,998——¥3,177—(1,198)¥11,122—(0)¥(1,282)—(1,198)¥18,016

(889)
(889)
¥3,913

56
56
¥144

35
35
¥ (61)(797)(797)¥3,996(797)(1,996)¥22,012(0)Changes during the year
Cash dividends paid
Net loss attributable toowners of the parent
Purchases of treasury stock
Net changes in items
other than those inshareholders’ equity
Total changes during the year
Balance as of May 31, 2022

(0)(Thousands of U.S. dollars) (Note 1)
Shareholders’ equity

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

Balance as of June 1, 2021

Accumulated other comprehensive income
Total
Retirement
accumulated
benefitsotherliability
comprehensive
adjustments
incomeCommonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equityUnrealized
holding
gain onsecurities$38,985$24,783$96,097$(9,997) $149,870$37,463$ 687$(759)$37,390$187,261——(2,092)—(2,092)

—

—

—

—

(2,092)————(7,254)——(4)(7,254)
(4)

—
—

—
—

—
—

—
—

(7,254)——$38,985——$24,783—(9,346)$86,751——(4)(9,350)$(10,001) $140,519(6,936)(6,936)$30,526

439
439$1,126278
278$(480)

Translation
adjustments

Total net
assetsChanges during the year

For the Years Ended

Net (loss) income
Other comprehensive loss (Note 12):
Unrealized holding loss on securities
Translation adjustments
Retirement benefits liability adjustments
Share of other comprehensive income of affiliates accounted for by the equity method
Total other comprehensive loss

May 31,
2022

May 31,
2021(Millions of yen)

¥ (930)

May 31,
2022(Thousands of
U.S. dollars)(Note 1)

¥ 977

$ (7,254)

(889)
2
35
53
(797)

(924)
(6)
32
14
(883)

(6,936)22
278
417(6,218)Comprehensive (loss) income¥(1,727)¥ 94$(13,472)

Comprehensive (loss) income attributable to:
Owners of the parent
Non-controlling interests¥(1,727)—¥ 94—$(13,472)—

Cash dividends paid
Net loss attributable toowners of the parent
Purchases of treasury stock
Net changes in items
other than those inshareholders’ equity
Total changes during the year
Balance as of May 31, 2022

(4)

(6,218)(6,218)(6,218)(15,568)$31,172 $171,692

See notes to consolidated financial statements.

See notes to consolidated financial statements.

39

Toyo Denki Seizo Report 2022

40

Financial Report
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,
2022

May 31,
2021(Millions of yen)

Operating activities(Loss) income before income taxes
Depreciation and amortization
Impairment loss
Reversal of allowance for doubtful accounts
Provision for accrued employees’ bonuses
Increase in liability for retirement benefits
Interest and dividend income
Interest expense
Insurance claim income related to disaster
Equity in (earnings) losses of affiliates accounted for by the equity method
Subsidy income
Gain on sales of investment securities
Loss on valuation of investment securities
Gain on reversal of foreign translation adjustment
Loss on valuation of investments in capital of subsidiaries and affiliates
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
Contract liabilities
Accrued expenses
Other, net
SubtotalInterest and dividend income received
Interest expense paid
Proceeds from insurance income related to disaster
Subsidies received
Income taxes paid
Net cash provided by operating activities
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
Proceeds from liquidation of an affiliate
Payments of loans receivableCollection of loans receivable
Payments for investments in capital of subsidiaries and affiliates
Other, net
Net cash provided by (used in) investing activities
Financing activities
Decrease in short-term loans payable
Repayment of long-term debt
Purchases of treasury stock
Cash dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 18)
See notes to consolidated financial statements.

41

May 31,
2022(Thousands of
U.S. dollars)(Note 1)¥(1,230)
1,257
2,256
(0)
(128)
5
(154)
58
—
(242)
(20)
(366)
45
(94)
155

¥ 1,164
1,413
—
2
(49)
97
(202)
67
(34)
4
(40)
(407)
—
—
—

$ (9,593)
9,804
17,596(7)(999)
40(1,201)458—(1,892)(155)(2,857)
353
(733)
1,211

891
633
(557)
99
—
13
97
(156)
2,562
162
(60)
—
20
(180)
2,504

1,567
274
(1,743)
142
(11)
—
(14)
(90)
2,138
210
(68)
34
40
(580)
1,776

6,951
4,943
(4,348)
772
—
101
763
(1,220)19,986
1,270
(470)
—
155
(1,404)
19,537

(351)
14
(18)
(73)
466
283
—
15
—
(45)
289

(548)
—
(43)
(14)
693
—
(111)
11
(88)
(53)
(155)

(2,742)
113
(146)
(575)
3,638
2,207
—
116
—
(355)
2,255

(1,500)
(585)
(0)
(269)
(1)
(2,356)
48
485
3,964
¥ 4,449

(83)
(617)
(0)
(268)
(1)
(971)
21
670
3,293
¥ 3,964(11,699)(4,565)(4)(2,099)(14)(18,382)374
3,784
30,920$ 34,705

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.
Amounts of less than one million yen and one thousand U.S. dollars have been rounded down to the nearest million yen andthousand U.S. dollars, respectively, in the presentation of the accompanying consolidated financial statements. As a result, the totals
in yen and U.S. dollars do not necessarily agree with the sum of the individual amounts.
(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 prepared byusing 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, 2022, the numbers of consolidated subsidiaries and affiliates accounted for by the equity method were 5 and 2 (6and 3 in 2021). TOYO DENKI USA, INC., which was a consolidated subsidiary in the year ended May 31, 2021, was liquidated in theyear ended May 31, 2022 and excluded from the scope of consolidation. TOYO DENKI USA, INC., for which the fiscal year end was
December 31, was consolidated by using its pro forma financial statements as of March 31 which are prepared solely for consolidation
purposes and necessary adjustments were made to its financial statements to reflect any significant transactions from April 1 to May
31. All significant intercompany balances and transactions 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.
Toyo Denki Seizo Report 2022

42

Financial Report(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.
(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
Machinery and vehicles:
3 to 12 years
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 ¥99 million ($772 thousand) and ¥142 million is included in cost of sales
for the years ended May 31, 2022 and 2021, 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.

43(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) Accounting for significant revenue and costs
The Group engages primarily in manufacturing and sale of electronic equipment and installation works.
Revenue from sales of products is recognized when the product is accepted by a customer as control of the products is transferred tothe customer and performance obligations are satisfied upon the customer’s acceptance of the products.
However, in the case of domestic sales of products, revenue is recognized upon shipment if the period between the shipment of the
product and the transfer of control of the product to the customer is a normal time period.
In addition, with respect to construction contracts for which performance obligations are satisfied over time, revenue is recognizedbased on progress toward complete satisfaction of a performance obligation.
The percentage of completion is based on the costs incurred to the estimated total cost (input method).
(q) Research and development expenses
Research and development expenses are charged to income when incurred.
(r) Derivative financial instruments
The Company and certain consolidated subsidiaries conduct 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.
(s) Significant accounting estimates(Impairment of certain assets or groups of assets in the Industrial Systems segment)(1) The amount recorded in the consolidated financial statements for the years ended May 31, 2022 and 2021
Property, plant and equipment, intangible assets and long-term prepaid expenses belonging to certain groups of assets in the
Industrial Systems segment:
As of

May 31,
2022

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)

Impairment loss

¥2,256¥ —$17,596

Property, plant and equipment, intangible assets and long-term prepaid
expenses

3,325

5,928

25,934(2) Other information that is useful for the reader of the consolidated financial statements to understand the contents of accounting
estimates
a. Calculation method for the amount recorded in the consolidated financial statements for the year ended May 31, 2022
In preparing the consolidated financial statements, the Group groups its assets so that the estimates on impairment of fixed
assets appropriately reflect the Group’s actual management condition, and assesses indication of impairment. Assessment of
indication of impairment is carried out based on the information available to the Group on the status of profit or loss generated
from operating activities using the assets, etc. and whether the business environment has deteriorated significantly inconnection with the business using the assets or groups of assets. If there is an indication of impairment, the Group will
determine whether an impairment loss should be recognized. If the aggregated amount of undiscounted future cash flows is
lower than the carrying amount, the carrying amount will be reduced to the recoverable value and an impairment loss will berecognized.
The future cash flows are estimated based on the business plan approved by the management and the growth rate for theperiod that exceeds the business plan period.
b. Main assumptions used for computing the amount recorded in the consolidated financial statements for the year ended May
31, 2022
In the computation of undiscounted future cash flows, the main assumption is net sales based on the projection of future orderacknowledgements. Net sales based on the projection of future order acknowledgements are computed based on the
management’s evaluation of future trends of the industry, historical performances and internal and external information.
Toyo Denki Seizo Report 2022

44

Financial Reportc. Effects on the consolidated financial statements for the following fiscal year
Estimates on undiscounted future cash flows involve uncertainties, since they are subject to changes in demand trends ofsome customers and unforeseeable events such as natural disasters. Accordingly, when the undiscounted future cash flows
significantly differ from the assumption by the Group, the consolidated financial statements for the following year may besignificantly affected.
(t) Changes in Accounting Policies(Adoption of Accounting Standard for Revenue Recognition, etc.)
The Company has adopted the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020; hereinafter“Revenue Recognition Standard”) and other standards from the beginning of the current fiscal year. The Company recognizes revenue
when control of a promised good or service is transferred to a customer in an amount that reflects the consideration to which theCompany expects to be entitled in exchange for those goods and services.
In applying this standard, the Company applied the alternative treatment defined in paragraph 98 of the Implementation Guidanceon Accounting Standard for Revenue Recognition, and recognizes revenue from domestic sales of products upon shipment if theperiod between the shipment of the product and the transfer of control of the product to the customer is a normal time period.
The Company previously applied the percentage-of-completion method for construction contracts whose percentage of completioncan be reliably estimated, and the completed-contract method for other construction contracts. However, from the beginning of theyear ended May 31, 2022, regarding contracts whose performance obligation is satisfied over time, the Company has changed themethod of recognizing revenue to one where revenue is recognized over time as it satisfies its performance obligation. For contracts
whose performance obligation is satisfied at a point in time, the Company has changed the method of recognizing revenue to one
where revenue is recognized when the construction work has been completed. The progress toward complete satisfaction of theperformance obligation is based on the costs incurred to the estimated total cost (input method).
The Company applies the Revenue Recognition Standard, etc. in accordance with the transitional treatment provided for in theproviso to paragraph 84 of the Revenue Recognition Standard. The cumulative impact of retrospectively applying the new accounting
policies to prior periods is adjusted to retained earnings at the beginning of the current fiscal year, with the new accounting policies
applied from the beginning balance.
As a result of the above, there was no impact on profit or loss for the year ended May 31, 2022. In addition, there was no impact
on the beginning balance of retained earnings nor on per share information.
With the application of the Revenue Recognition Standard, “Trade notes and accounts receivable,” which was previously presented
under “Current assets,” has been included in “Trade notes, accounts receivable and contract assets” from the year ended May 31,
2022, and “Advances received,” which was previously included in “Other,” has been presented as “Contract liabilities” from the year
ended May 31, 2022. Furthermore, “Advances received” under “Changes in operating assets and liabilities” in the consolidated
statements of cash flows, has been included in “Contract liabilities” under “Changes in operating assets and liabilities” from the year
ended May 31, 2022. In accordance with the transitional treatment set forth in paragraph 89-2 of the Revenue Recognition Standard,
figures for the previous period have not been reclassified based on the new presentation method.
In accordance with the transitional treatment set forth in paragraph 89-3 of the Revenue Recognition Standard, notes on revenue
recognition for the previous period have not been presented.
(Adoption of Accounting Standard for Fair Value Measurement, etc.)
The Company has adopted the “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019; hereinafter“Fair Value Measurement Standard”) and other standards from the beginning of the current fiscal year, and will prospectively apply
the new accounting policies stipulated in the Fair Value Measurement Standard, etc. in accordance with the transitional treatment
provided in paragraph 19 of the Fair Value Measurement Standard and paragraph 44-2 of the “Accounting Standard for Financial
Instruments” (ASBJ Statement No. 10, July 4, 2019). There is no impact on consolidated financial statements.
In addition, the Company will include notes on fair value information by level within the fair value hierarchy in the notes on
financial instruments. However, in accordance with the transitional treatment provided in paragraph 7-4 of the “Implementation
Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, July 4, 2019), notes pertaining to theprevious period are not presented.

45(u) Change in presentation(Consolidated Statements of Cash Flows)“Equity in (earnings) losses of affiliates accounted for by the equity method” which was included in “Other, net” under “Operating
activities” for the year ended May 31, 2021 has been separately presented from the year ended May 31, 2022 due to an increase in its
monetary materiality. In order to reflect this change in presentation, the consolidated financial statements for the year ended May 31,
2021 have been reclassified.
As a result, ¥(86) million presented as “Other, net” under “Operating activities” was reclassified to ¥4 million in “Equity in(earnings) losses of affiliates accounted for by the equity method” and ¥(90) million in “Other, net.”

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, have beentranslated into U.S. dollars at the rate of ¥128.21=U.S.$1, the approximate rate of exchange prevailing at May 31, 2022. Thistranslation should not be construed as a representation that all amounts shown could be converted into U.S. dollars at such rate.
Note 2. Receivables and Contract Assets Arising from Contracts with Customers
Trade notes, accounts receivable and contract assets from contracts with customers as of May 31, 2022 were as follows:

May 31, 2022

As of(Millions of yen)(Thousands of
U.S. dollars)

Notes receivable¥ 586$ 4,577

Accounts receivable

7,088

55,289Contract assets

4,415

34,442

May 31,
2021

May 31,
2022

Note 3. Inventories
Inventories as of May 31, 2022 and 2021 were as follows:
As of

May 31,
2022(Millions of yen)(Thousands of
U.S. dollars)

Goods and finished products

¥ 501

¥ 514

$ 3,910Work in process

3,077

3,565

24,004

Raw materials and supplies

2,688

2,821

20,971¥6,267¥6,901$48,885

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 ¥134 million ($1,048 thousand) and¥190 million for the years ended May 31, 2022 and 2021, respectively. These amounts were included in “Cost of sales.”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:
As of

May 31,
2022

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)

Goods and finished products

¥ 0

¥ 28

$

5

Work in process

153

144

1,200

¥154

¥173

$1,205

Toyo Denki Seizo Report 2022

46

Financial Report

Note 4. 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

The maturities of long-term debt are summarized as follows:

May 31,
2022

May 31,
2021(Millions of yen)

¥ 10,326
8,185
4,977
23,488(18,444)¥ 5,044

May 31,
2022(Thousands of
U.S. dollars)¥ 12,338
8,397
4,857
25,593(17,593)¥ 7,999$ 80,544
63,841
38,821
183,206(143,857)$ 39,348

May 31,
2022

May 31,
2021(Millions of yen)

¥1,257

2023
2024
2025
2026
2027 and thereafter

May 31,
2022(Thousands of
U.S. dollars)¥1,413$9,804

Buildings and structures
Machinery and vehicles
Other property, plant and equipment
Land

Accumulated depreciation of property, plant and equipment amounted to ¥18,444 million ($143,857 thousand) and ¥17,593
million as of May 31, 2022 and 2021, respectively.
Note 5. Investments and Other Assets
Investments in unconsolidated subsidiaries and affiliates included in “Other” under “Investments and other assets” as of May 31,
2022 and 2021 were as follows:

As ofInvestments in capital

May 31,
2022

May 31,
2021(Millions of yen)

¥2,184

May 31,
2022(Thousands of
U.S. dollars)¥2,249$17,038

Note 6. Short-Term Borrowings and Long-Term Debt
As of May 31, 2022 and 2021, 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,
2022

May 31,
2021(Millions of yen)

¥ —
585
¥585

May 31,
2022(Thousands of
U.S. dollars)¥1,500585¥2,085$ —
4,565$4,565The annual weighted average interest rates applicable to current-portion of long-term debt as of May 31, 2022 were 0.601%.

As of

May 31,
2022

May 31,
2021(Millions of yen)

Long-term debt, excluding current portion, serially due from 2023 through 2032

¥11,173¥11,759

The annual weighted average interest rate applicable to long-term debt as of May 31, 2022 was 0.405%.

47

May 31,
2022(Thousands of
U.S. dollars)$87,152(Thousands of
U.S. dollars)

¥

585
885
4,525
4,525
1,237
¥11,759$ 4,565
6,905
35,29535,295
9,655$91,717

May 31,
2022

May 31,
2021(Millions of yen)

¥3,170
368
146
1,201
¥4,886

May 31,
2022(Thousands of
U.S. dollars)¥5,485
596
376
1,232
¥7,691$24,729
2,870
1,140
9,371
$38,111

The following assets included in the above are set by factory foundation fixed collateral security for short-term borrowings as of
May 31, 2022 and 2021:

As of
Buildings and structures
Machinery and vehicles
Other property, plant and equipment

May 31,
2022

May 31,
2021(Millions of yen)

¥1,380368
146¥1,894

May 31,
2022(Thousands of
U.S. dollars)¥1,474596
376¥2,447$10,764
2,870
1,140$14,774

Note 7. 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, 2022 and 2021 were as follows:

For the Years Ended

As of May 31, 2022 and 2021, long-term debts were as follows:(Millions of yen)

As of May 31, 2022 and 2021, the assets pledged as collateral for short-term borrowings and long-term debt were as follows:

As ofDepreciation of property, plant and equipment for the years ended May 31, 2022 and 2021 were as follows:

For the Years Ended

Years ended May 31

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

May 31,
2022

May 31,
2021(Millions of yen)

¥4,124
297
15
(16)
(287)
(19)
¥4,113

May 31,
2022(Thousands of
U.S. dollars)¥4,010
284
15
16
(202)
—
¥4,124$32,171
2,316
119
(125)
(2,242)(154)$32,086

Toyo Denki Seizo Report 2022

48

Financial Report

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of
May 31, 2022 and 2021 for the Company’s and the consolidated subsidiaries’ defined benefit plans:

As of

May 31,
2022

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)

Unfunded retirement benefit obligation
Net liability (asset) for retirement benefits on the consolidated balance sheets¥4,113
4,113¥4,124
4,124$32,086
32,086

Liability for retirement benefits
Net liability (asset) for retirement benefits on the consolidated balance sheets¥4,113
4,113¥4,124
4,124$32,086
32,086

Note: The plan adopting the simplified method is included.

The components of retirement benefit expenses for the years ended May 31, 2022 and 2021 were as follows:

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

May 31,
2022

May 31,
2021(Millions of yen)

¥297
15
35
11
¥359

May 31,
2022(Thousands of
U.S. dollars)

¥284
15
63
—
¥363

$2,316119
276
93$2,806Retirement benefits liability adjustments included in other comprehensive income (before tax effect) as of May 31, 2022 and 2021
were as follows:

As ofActuarial gain
Total

May 31,
2022

May 31,
2021(Millions of yen)

¥51
¥51

May 31,
2022(Thousands of
U.S. dollars)

¥46
¥46

$402
$402

Retirement benefits liability adjustments included in accumulated other comprehensive income (before tax effect) as of May 31,
2022 and 2021 were as follows:

As ofUnrecognized actuarial gain
Total

May 31,
2022

May 31,
2021(Millions of yen)

¥88
¥88

May 31,
2022(Thousands of
U.S. dollars)

¥140
¥140

$692
$692

Major actuarial assumptions (weighted average) used in accounting for the above plans as of May 31, 2022 and 2021 were as
follows:

For the Years Ended
Discount rate

May 31,
2022
0.4%

May 31,2021
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.

Note 8. Net Assets
Information regarding changes in net assets for the years ended May 31, 2022 and 2021 was as follows:a. Shares issued and outstanding/ Treasury stock
For the year ended May 31, 2022

Number ofshares as ofJune 1, 2021

Type of shares

Increase

Decrease

Number ofshares as of
May 31, 2022

(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock

9,735,000——

9,735,000

794,128480—

794,608

Decrease

Number ofshares as of
May 31, 2021

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

480 shares

For the year ended May 31, 2021

Number ofshares as ofJune 1, 2020

Type of shares

Increase(Shares)

Shares issued:
Common stock
Treasury stock:
Common stock

9,735,000——

9,735,000

793,403

725—

794,128

Cut-off date

Effective date

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

725 sharesb. Dividends
1) Dividends paid
For the year ended May 31, 2022
Resolution
Annual general meetingof the shareholders on
August 27, 2021

Type of shares
Common stock

Total dividends Total dividends
Dividends per(Millions of (Thousands of Dividends per share (U.S.
yen)
U.S. dollars)
share (Yen)dollars)¥268$2,092¥30.00$0.23

Total dividends(Millions of Dividends per
yen)share (Yen)

Cut-off date

Effective date

May 31, 2021 August 30, 2021

For the year ended May 31, 2021
Resolution
Annual general meetingof the shareholders on
August 26, 2020

Type of shares
Common stock¥268¥30.00 May 31, 2020 August 27, 2020

The amounts of the required contribution to the defined contribution plans of the Company and its consolidated subsidiaries were¥116 million ($911 thousand) and ¥118 million for the years ended May 31, 2022 and 2021, respectively.

49

Toyo Denki Seizo Report 2022

50

Financial Report2) Dividends with the cut-off date in the year ended May 31, 2022 and the effective date in the year ending May 31, 2023
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 26,
August 25, 2022
stock
2022
¥268
$2,091 earnings¥30.00$0.23 2022

Note 9. Selling, General and Administrative Expenses
The main components of “Selling, general and administrative expenses” for the years ended May 31, 2022 and 2021 were as follows:

May 31,2022

For the Years Ended

May 31,
2021(Millions of yen)

¥1,868
6
315
202
(0)
712

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

May 31,
2022(Thousands of
U.S. dollars)¥1,895
36
322
205
2
819

$14,574
50
2,463
1,579
(7)
5,553

Note 10. Special (Losses) Gains, Net
The components of “Special (losses) gains, net” for the years ended May 31, 2022 and 2021 were as follows:

May 31,2022

For the Years Ended

May 31,
2021(Millions of yen)

Special gains:
Gain on sales of investment securities
Gain on reversal of foreign translation adjustment
Special losses:
Impairment loss
Loss on valuation of investment securities
Loss on valuation of investments in subsidiaries and affiliates
Total

May 31,
2022(Thousands of
U.S. dollars)

¥ 366
94

¥407
—

$ 2,857733(2,256)(45)(155)¥(1,996)

—
—
—
¥407

(17,596)(353)(1,211)$(15,570)

Impairment loss
The Group recognized an impairment loss on the following group of assets for the year ended May 31, 2022:
Loss on impairment
Use
Manufacturing equipment ofIndustrial Systems

Location

Type of assets(Millions of yen)

Toyo Denki Seizo K.K. Shiga Ryuo plant(Ryuo-cho, Shiga Pref.)Buildings, etc.

¥2,256(Thousands of
U.S. dollars)$17,596

In assessing impairment losses, the Group groups its business assets based on business classification for management
accounting purposes under which income and expenditure are managed on an ongoing basis.
Since the future cash flows were lower than the carrying value of the asset group due to a deterioration in the earnings
environment, the value of various fixed assets was reduced to their recoverable amount and the reduced amount was recorded as an
impairment loss under special losses. The recoverable amount is measured using the value in use and calculated by discounting thefuture cash flows at 4.8%.
The above assets consist of buildings and structures in the amount of ¥2,046 million ($15,962 thousand), machinery, equipment
and vehicles in the amount of ¥178 million ($1,392 thousand) and land in the amount of ¥30 million ($241 thousand).

51

Note 11. 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% for the years ended May 31,
2022 and 2021. Income taxes of a foreign consolidated subsidiary are based generally on the tax rates applicable in the country ofincorporation.
The reconciliation between the effective tax rates reflected in the consolidated statements of income and the effective statutory tax
rate for the year ended May 31, 2022 is omitted since loss before income taxes was recorded for the year ended May 31, 2022.
The reconciliation between the effective tax rates reflected in the consolidated statements of income and the effective statutory tax
rate for the year ended May 31, 2021 was as follows:

For the Year Ended
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
Liquidation of an affiliate
Difference arising from the rates used by subsidiaries
Retained profit of affiliates
Research and development tax credit
Other
Effective tax rate

May 31,
2021
30.6%
1.2
(1.9)
2.5
4.9
(0.1)
(21.0)
1.1
0.3
(1.2)
(0.4)
16.0%

The significant components of deferred tax assets and liabilities as of May 31, 2022 and 2021 were as follows:

As ofDeferred tax assets:
Write-down of inventories
Impairment loss
Liability for retirement benefits
Accrued employees’ bonuses
Reserve for losses on order acknowledgements
The carryforward of unused tax losses (Note 1)
Other
Total gross deferred tax assets
Valuation allowance for the carryforward of unused tax losses (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 assets (liabilities)

May 31,
2022

May 31,
2021(Millions of yen)¥

May 31,
2022(Thousands of
U.S. dollars)

307
691
1,266
252
131
129
498
3,278
(129)
(462)
(592)
2,686

¥ 270
—
1,269
258
157
549
361
2,867
(536)
(346)
(883)
1,983

$ 2,398
5,396
9,877
1,967
1,028
1,011
3,889
25,569(1,008)(3,609)(4,617)
20,951(1,736)(65)(1,802)¥ 883(2,136)(50)(2,187)¥ (203)(13,544)(511)(14,056)$ 6,894(Note 1) Valuation allowance decreased by ¥291 million ($2,269 thousand) due primarily to a decrease in valuation allowance on tax
loss carryforwards by ¥406 million ($3,172 thousand).

Toyo Denki Seizo Report 2022

52

Financial Report

Note 12. Other Comprehensive Loss
The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive loss forthe years ended May 31, 2022 and 2021:(Note 2) The breakdown of the carryforward of unused tax losses and valuation allowance by expiry date is as follows:Year ended May 31, 2022

(Millions of yen)
The carryforward of unused
tax losses (a)Valuation allowance
Deferred tax assets(Thousands of U.S.
dollars)
The carryforward of unused
tax losses (a)Valuation allowance
Deferred tax assets

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

¥ 5

¥—

¥—

¥—

¥ 12

¥ 111

¥ 129

(5)
—

—
—

—
—

—
—

(12)
—

(111)
0

(129)
0(b)

Due inOne Year or Less

Total

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

$ 39

$—

$—

$—

$ 98

$ 873

$ 1,011

(39)
—

—
—

—
—

—
—

(98)
—

(870)
3

(1,008)3(b)Due inOne Year or Less

Total(a) The amount is determined by multiplying the corresponding carryforward of unused tax losses by the effective statutory tax rate.
(b) Deferred tax assets of ¥0 million ($3 thousand) is recognized on the carryforward of unused tax losses of ¥129 million ($1,011
thousand) (amount multiplied by the effective statutory tax rate). The said deferred tax assets of ¥0 million ($3 thousand) is
recognized on the carryforward of unused tax losses of ¥20 million ($163 thousand) (amount multiplied by the effective statutory
tax rate) of Toyo Shoji Co., Ltd., which is a consolidated subsidiary of the Company.
Year ended May 31, 2021

(Millions of yen)
The carryforward of unused
tax losses (a)Valuation allowance
Deferred tax assets

Due after
Due after
Due after
Due after
One Year
Two Years
Three Years Four Years
Due inthrough Two through Three through Four through FiveOne Year or Less
Years
Years
Years
Years

Due after
Five Years

Total

¥ 435

¥ 5

¥—

¥—

¥—

¥ 109

¥ 549

(435)
—

(5)
—

—
—

—
—

—
—

(96)
13

(536)
13(b)

(a) The amount is determined by multiplying the corresponding carryforward of unused tax losses by the effective statutory tax rate.
(b) Deferred tax assets of ¥13 million is recognized on the carryforward of unused tax losses of ¥549 million (amount multiplied by
the effective statutory tax rate). The said deferred tax assets of ¥13 million is recognized on the carryforward of unused tax lossesof ¥13 million (amount multiplied by the effective statutory tax rate) of Toyo Shoji Co., Ltd., which is a consolidated subsidiary of
the Company.

For the Years Ended

May 31,
2022

Unrealized holding loss on securities:
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTax effectUnrealized holding loss on securities¥(1,655)366(1,289)399(889)¥(1,737)407(1,330)405(924)$(12,912)
2,857(10,055)
3,118(6,936)

Translation adjustments
Amount arising during the year
Reclassification adjustments for gains and losses included in net income
Amount before tax effectTranslation adjustments

—
2
2
2

(6)
—
(6)
(6)

—
22
22
22

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

24
26
51
(15)
35

(16)
63
46
(14)
32

194
207
402
(123)
278

53

14

417

53
¥ (797)14¥ (883)417$ (6,218)

Share of other comprehensive income of affiliates accounted for by the equity
methodAmount arising during the year
Share of other comprehensive income of affiliates accounted for by theequity method
Total other comprehensive loss

May 31,
2021(Millions of yen)

May 31,
2022(Thousands of
U.S. dollars)Note 13. Lease Transactions
Information on 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 14. Contingent Liabilities
As of May 31, 2022 and 2021, 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.

53

May 31,
2022

May 31,
2021(Millions of yen)

¥316
224

May 31,
2022(Thousands of
U.S. dollars)

¥374
222

$2,4691,754

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Note 15. Amounts Per Share

For the Years Ended

May 31,
2022

May 31,2021

Net (loss) income:Basic¥(104.02)¥109.38

As of

May 31,
2022

May 31,2021

Net assets¥2,462.17(Yen)

May 31,
2022(U.S. dollars)(Yen)$(0.81)
May 31,
2022(U.S. dollars)¥2,685.28$19.20Note: Diluted net income per share is omitted for the year ended May 31, 2022 since there is no dilution of equity and the Company recorded net loss per share for the period.
Diluted net income per share is omitted for the year ended May 31, 2021 since there is no dilution of equity.

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

For the Years Ended
Net (loss) income attributable to owners of the parent
Net (loss) income not attributable to common shareholders
Net (loss) income attributable to owners of the parent related to common stock

May 31,
2022

May 31,
2021(Millions of yen)¥(930)—(930)

May 31,
2022(Thousands of
U.S. dollars)

¥977
—
977

$(7,254)—(7,254)(Thousand shares)

Average number of shares of common stock during the year

8,940

8,941

Note 16. 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 in relation
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 (r) Derivative financial instruments.”(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.

55

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.
(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 liquidationrisk.
(4) Supplementary explanation of the estimated fair value of financial instruments
Since various assumptions and factors are reflected in estimating the fair value, different assumptions and factors could result indifferent fair value. In addition, the notional amounts of derivatives in Note 19, Derivative Transactions are not necessarily indicativeof the actual market risk involved in derivative transactions.
Fair value of financial instruments
Carrying value and fair value of financial instruments on the consolidated balance sheets as of May 31, 2022 and 2021 and difference
between the two are shown in the following table.

As of May 31, 2022

Carrying value

Fair value

Difference(Millions of yen)

AssetsInvestment securities*1
Total assets
Liabilities
Long-term debt*2
Total liabilities

As of May 31, 2022

¥11,408¥11,408¥11,408¥11,408¥—¥—¥11,759¥11,759¥11,770¥11,770¥ 10¥ 10

Fair value

Difference

Carrying value(Thousands of U.S. dollars)

AssetsInvestment securities*1
Total assets
Liabilities
Long-term debt*2
Total liabilities$88,984$88,984$88,984$88,984$—$—$91,717$91,717$91,802$91,802$ 85$ 85*1 Investment securities
The fair value of investment securities is determined based on quoted prices on the stock exchange.
Securities are held as available-for-sale securities. For notes on these securities, see Note 17 “Securities.”*2 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, isbased 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. Current portionof long-term debt is included in the above table.

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Notes:
1. Cash on hand and in banks, trade notes and accounts receivable, electronically recorded receivables, trade notes and accounts
payable, electronically recorded payables, short-term borrowings, income taxes payable, etc. are omitted since these items aresettled in a short period of time and their carrying value approximates their fair value.
2. Equity securities without market quotation, etc. are not included in the above investment securities. Carrying value of such financial
instruments is as follows:

May 31, 2022

As ofUnlisted equity securities

As of May 31, 2021

Carrying value(Millions of yen)(Thousands of
U.S. dollars)¥1,062$8,288Fair value

Difference

As of May 31, 2021

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¥ 3,962
13,189901¥18,052

¥—
29
—
¥ 29

¥—
—
—
¥—

¥—
—
—
¥—

4. The redemption schedule for long-term debt is disclosed in Note 6.
Fair value information by level within the fair value hierarchy(Millions of yen)

AssetsInvestment securities*1
Total assets
Liabilities
Long-term debt*2
Total liabilities¥12,767¥12,767¥12,767¥12,767¥—¥—¥12,344¥12,344¥12,373¥12,373¥ 29¥ 29*1 Investment securities
The fair value of investment securities is determined based on quoted prices on the stock exchange.
Securities are held as available-for-sale securities. For notes on these securities, see Note 17 “Securities.”*2 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, isbased 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. Current portionof long-term debt is included in the above table.

Notes:
1. Cash on hand and in banks, trade notes and accounts receivable, electronically recorded receivables, trade notes and accounts
payable, electronically recorded payables, short-term borrowings, income taxes payable, etc. are omitted since these items aresettled in a short period of time and their carrying value approximates their fair value.
2. Carrying value of financial instruments for which it is extremely difficult to determine the fair value is as follows:

May 31, 2021

As of(Millions of yen)

¥1,064

Unlisted equity securities
3. Redemption schedule for receivables and securities with maturities on May 31, 2022 and 2021 were as follows:

As of May 31, 2022

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

As of May 31, 2022

¥ 4,449
7,643
1,136¥13,229
Due in One Yearor Less

Due after
Ten Years

¥—
32
—
¥ 32

¥—
—
—
¥—

¥—
—
—
¥—

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years(Thousands of U.S. dollars)

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

57$ 34,705
59,615
8,863$103,184

$—
252
—
$252

$—
—
—
$—

Level 1 fair value: Fair value measured using (unadjusted) quoted prices in active markets for assets or liabilities that are thesubject of the measurement.
Level 2 fair value: Fair value measured using directly or indirectly observable inputs other than Level 1 inputs.
Level 3 fair value: Fair value measured using significant unobservable inputs.
If multiple inputs that are significant to the fair value measurement are used, the fair value measurement is categorized in its entirety
in the level of the lowest level input that is significant to the entire measurement.
(1) Financial assets and liabilities measured at fair value

As of May 31, 2022

$—
—
—
$—

Fair value
Level 1

Level 2

Level 3

Total

(Millions of yen)

Investment securities:
Available-for-sale securities:
Equity securities
Total financial assets
Not applicable for financial liabilities

As of May 31, 2022

(Millions of yen)

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

The fair value of financial instruments is classified into the following three levels according to the observability and materiality of
inputs used to measure fair value.

¥11,408¥11,408

¥—
¥—

¥—
¥—

¥11,408¥11,408

Fair value
Level 1

Level 2

Level 3

Total

(Thousands of U.S. dollars)

Investment securities:
Available-for-sale securities:
Equity securities
Total financial assets
Not applicable for financial liabilities$88,984$88,984

$—
$—

$—
$—

$88,984$88,984(2) Financial assets and liabilities other than those measured at fair value

As of May 31, 2022

Fair value
Level 1

Level 2

Level 3

Total

(Millions of yen)

Not applicable for financial assets
Long-term debt
Total financial liabilities¥—¥—¥11,770¥11,770¥—¥—¥11,770¥11,770

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As of May 31, 2022

Fair value
Level 1

Level 2

Level 3

Total

(Thousands of U.S. dollars)

Not applicable for financial assets
Long-term debt
Total financial liabilities$—$—$91,802$91,802$—$—$91,802$91,802

Note: A description of the valuation techniques and inputs used in the fair value measurements
Investment securities
The fair value of listed equity securities is based on quoted market prices. As listed equity securities are traded in active markets, theirfair value is classified as Level 1.

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, 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 is classified
as Level 2.
The fair value of long-term debt includes current portion of long-term debt.
Note 17. Securities

Available-for-sale securities

Carrying value Acquisition cost

Unrealized
gain (loss)(Millions of yen)

As of May 31, 2022

¥11,205¥11,205¥5,539¥5,539¥5,666¥5,666¥ 202¥ 202¥11,408

¥ 218
¥ 218
¥5,758¥ (15)¥ (15)¥5,650Carrying value Acquisition cost

Unrealized
gain (loss)(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

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¥12,514¥12,514¥5,511¥5,511¥7,003¥7,003¥ 253¥ 253¥12,767

¥ 317
¥ 317
¥5,828¥ (63)¥ (63)¥6,939Note: 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 themarket value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss for thenecessary amount considering its recoverability.

For the Years Ended
Stock:
Sales proceeds
Gain on sales
Loss on sales

May 31,
2022

May 31,
2021(Millions of yen)

¥466
366
—

May 31,
2022(Thousands of
U.S. dollars)

¥693
407
—

$3,6372,857—

Note 18. Supplementary Cash Flow Information
Cash and cash equivalents in the consolidated statements of cash flows for the years ended May 31, 2022 and 2021 were reconciled
to cash on hand and in banks in the consolidated balance sheets as follows:

Information regarding securities classified as available-for-sale securities

Securities for which carrying value exceeds acquisition cost:
Stock
Subtotal
Securities for which acquisition cost exceeds carrying value:
Stock
Subtotal
Total

Carrying value Acquisition cost

Information regarding available-for-sale securities soldLong-term debt

As of May 31, 2022

As of May 31, 2021

$87,402$87,402$43,207$43,207$44,195$44,195$ 1,582$ 1,582$88,984$ 1,706$ 1,706$44,913$ (123)$ (123)$44,071

As ofCash on hand and in banks
Cash and cash equivalents

May 31,
2022

May 31,
2021(Millions of yen)

¥4,449¥4,449¥3,964¥3,964

May 31,
2022(Thousands of
U.S. dollars)$34,705$34,705

Note 19. Derivative Transactions
Hedging policies
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.

Note: Acquisition cost in the above table represents carrying value reflecting impairment losses. In the year ended May 31, 2022, the Company recognized loss on valuationof investment securities in the amount of ¥45 million ($353 thousand).
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 themarket value and the acquisition cost as an impairment loss. If the decline ranges between about 30% and 50%, the Group recognizes an impairment loss for thenecessary amount considering its recoverability.

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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, 2022 and 2021, there were no currency-related derivatives.

Contract assets relate to the right of the Group to consideration for contracts with customers which have been completed but an
invoice has not yet been issued as of the end of the fiscal period. Once the Group has an unconditional right to consideration, it
reclassifies contract assets to receivables from contracts with customers.
Contract liabilities primarily relate to advances received from customers based on the contracts with customers before theperformance obligation is satisfied. Contract liabilities are reversed as revenue is recognized.
Revenue recognized in the year ended May 31, 2022 that was included in the contract liability balance at the beginning of the year
was ¥27 million ($212 thousand).
(2) Transaction price allocated to the remaining performance obligations
The total transaction price allocated to the remaining performance obligations as of May 31, 2022 was ¥27,275 million ($212,739
thousand) and the Group expects to recognize revenue mainly within a period of one to three years as performance obligations forsuch remaining performance obligations are satisfied.

Derivative transactions to which hedge accounting is applied:
As of May 31, 2022 and 2021, there were no interest-related derivatives.
Note 20. Revenue Recognition
1. Disaggregation of revenue from contracts with customers
Information about disaggregation of revenue arising from contracts with customers is as follows:Year ended May 31, 2022
Reportable segment:
Transportation Systems

Industrial Systems

Information Equipment Systems

Domestic railway
Overseas railway
Other
Subtotal
Processing machine
Testing machinePower generator/power source
Other
Subtotal
Information equipment
Subtotal

Other (Note)
Total
Revenue arising from contracts with customers
Sales to third parties(Millions of yen)(Thousands of
U.S. dollars)¥14,705
2,831
1,919¥19,456¥ 2,719
2,173
2,187
2,822
¥ 9,902
¥ 790
¥ 790
¥
9
¥30,158¥30,158¥30,158$114,698
22,088
14,971$151,757$ 21,210
16,95017,05922,016$ 77,236$ 6,163$ 6,163$71$235,229$235,229$235,229(Note) “Other” represents business units which are not included in reportable segments and consists of worker dispatching services related activities, etc.

2. Useful information in understanding revenue from contracts with customers
This information is as stated in (p) Accounting for significant revenue and costs under 1. Summary of Significant Accounting Policies.
Consideration for performance obligation is usually received within one year from the satisfaction of performance obligations anddoes not include any significant financing component.
3. Balance of contract assets and liabilities and the transaction price allocated to the remaining performance obligations(1) Balance of contract assets and liabilities

As of
Receivables from contracts with customers (beginning balance)
Receivables from contracts with customers (ending balance)
Contract assets (beginning balance)
Contract assets (ending balance)
Contract liabilities (beginning balance)
Contract liabilities (ending balance)

61

Note 21. 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, 2022
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated(Millions of yen)

Sales, profits orlosses and asset byreportable segment
Net sales:
Sales to third parties
Inter-segment sales
and transfers¥19,456¥ 9,902¥790¥ 9¥30,158¥—¥30,158

Segment profit
Segment assets

10
19,467¥ 2,190¥16,276

0
9,903
¥ 477
¥10,068

—
790
¥142
691

329
338
¥ (19)¥434

340
30,499¥ 2,791¥27,471

(340)
(340)
¥ (2,619)¥19,444—
30,158¥ 171¥46,916

Other items:
Depreciation
Capital expenditures

¥
¥

¥
¥

¥ 21
¥ 4

¥ 3
¥—

¥ 1,008¥ 284¥¥¥ 1,257
¥ 315

513
164

470
115

248
31

May 31, 2022
(Millions of yen)(Thousands of
U.S. dollars)¥10,280
8,812
3,838
4,415
34
47

$80,183
68,731
29,941
34,442271
373
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Geographical information

For the year ended May 31, 2022
Reportable segments
Transportation
Systems

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated(Thousands of U.S. dollars)

Sales, profits orlosses and asset byreportable segment
Net sales:
Sales to third parties
Inter-segment sales
and transfers$151,755$77,238$6,163$71$235,229$—$235,229

Segment profit
Segment assets

82
151,838$ 17,081$126,955

6
77,244$ 3,727$78,532—
6,163$1,114$5,3932,568
2,639$ (149)$3,391

2,656
237,886$ 21,774$214,272(2,656)(2,656)$ (20,433)$151,659—
235,229$ 1,340$365,932

Other items:
Depreciation
Capital expenditures$ 4,003$ 1,282$ 3,667
$ 900

$ 170
$ 37

$ 26
$ —

$ 7,869$ 2,220$ 1,935$243$ 9,804$ 2,463

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

Net sales to third parties by countries or areas grouped according to geographical classification for the years ended May 31, 2022
and 2021 were summarized as follows:

For the Years Ended

May 31,
2022

Japan
China
Other
Consolidated¥25,779
3,015
1,363¥30,158

Industrial
Systems

Other(Note)

Segment profit
Segment assets
Other items:
Depreciation
Capital expenditures$201,072
23,521
10,635$235,229

Major customer information for the years ended May 31, 2022 and 2021 was omitted since there was no customer to which sales
exceeds 10% of net sales recorded in the accompanying consolidated statements of income.
Information about impairment loss on property, plant and equipment

For the year ended May 31, 2022
Reportable segments

Adjustments

Industrial
Systems

Information
Equipment
Systems

Consolidated

Other(Note)

Total

Adjustments

Consolidated(Millions of yen)

Impairment loss

(Millions of yen)

Sales, profits orlosses and asset byreportable segment
Net sales:
Sales to third parties
Inter-segment sales
and transfers¥27,876
3,628
1,638¥33,143

Major customer information

Transportation
Systems
Total(Thousands of
U.S. dollars)Note: Net sales information above is based on customers’ location.

Reportable segments
Transportation
Systems

May 31,
2022(Millions of yen)

For the year ended May 31, 2021
Information
Equipment
Systems

May 31,2021¥—¥2,256¥—¥—¥2,256¥—¥2,256

For the year ended May 31, 2022
Reportable segments¥21,52850
21,579¥ 2,211¥17,151¥10,541
0
10,542¥ 718¥13,838¥1,067
—
1,067
¥ 267
¥ 674

¥ 5
346
352
¥ (39)¥479¥33,143
397
33,541¥ 3,157¥32,144

¥

—

(397)
(397)
¥ (2,734)¥19,822

Transportation
Systems¥33,143—
33,143¥ 423¥51,967

Industrial
Systems

Information
Equipment
Systems

Other(Note)

Total

Adjustments

Consolidated(Thousands of U.S. dollars)

Impairment loss$—

$17,596$—$—$17,596$—$17,596

There was no applicable information for the year ended May 31, 2021.
Note 22. Significant Subsequent Events

¥
¥

607
454

¥
¥

527
113

¥
¥

25
10

¥ 4
¥ 2

¥ 1,165
¥ 580

¥
¥

247
51

¥ 1,413¥ 632

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.

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