maximizing energy conversion efficiency for the benefit of ... · market will shift from the...

AN

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SHINDENGEN ELECTRIC MANUFACTURING CO., LTD.

ANNUAL REPORT 2016Year Ended March 31, 2016

AN

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T 2016Maximizing energ y conversion ef f ic ienc y for the benef it of humanity and society.

新電元AR2016_Cover_0801.indd 2新電元AR2016_Cover_0801.indd 2 2016/08/22 11:222016/08/22 11:22

1

Overseas Office

Sales and Service

Manufacturing

Manufacturing and Sales

SHINDENGEN ANNUAL REPORT 2016

Maximizing energy conversion efficiency for the benefit of humanity and society

Our Mission

“Maximizing energy conversion efficiency for the benefit of humanity and society” is the corporate mission of Shindengen Electric Mfg. Co., Ltd. As a specialized power electronics manufacturer, the Company develops, manufactures and sells high-efficiency, low-noise semi-conductors as well as car electronics and power system products that use these semiconductors.

120,000

(¥ Million)

100,000

80,000

60,000

40,000

20,000

0

2011/3 2012/3 2013/3 2014/3 2015/3 2016/3

Power Device

Car Electronics

Next Generation Energy

2SHINDENGEN ANNUAL REPORT 2016

Overseas Office

Sales and Service

Manufacturing

Manufacturing and Sales

A Cautionary Note on Forward-Looking Statements

This annual report contains statements and information regarding the plans, prospects and strategies of the Shindengen Group that are forward-looking in nature and are not simply reiterations of historical fact. Such forward-looking statements and information involve known and unknown risks, uncertainties and other factors that could lead to outcomes that differ materially from those presented in this report. Readers are therefore cautioned not to overly rely on this information.

Contents

1. Our Mission

3. Board of Directors

5. Financial and Non-Financial Highlights

23. CSR Initiatives

24. Corporate Governance

26. Directors, Audit & Supervisory Board Members and Officers

57. Corporate Information

58. Network

7. Long Term Vision for 2021 9. Growth Drivers in the Mobility Market

11. Interview with the President 15. Business Portfolio

17. Business Segments 17. Power Device

19. Car Electronics

21. Next Generation Energy

27. Financial Section 27. Five-Year Summary

28. Management’s Discussion and Analysis

31. Consolidated Balance Sheets

33. Consolidated Statements of Income and Comprehensive Income

35. Consolidated Statements of Changes in Net Assets

37. Consolidated Statements of Cash Flows

38. Notes to Consolidated Financial Statements

56. Independent Auditor’s Report

120,000

(¥ Million)

100,000

80,000

60,000

40,000

20,000

0

2011/3 2012/3 2013/3 2014/3 2015/3 2016/3

Net Sales

30,134Millions of yen

Net Sales


Net Sales


Board of Directors

Shindengen’s long-term vision for 2021 is to ῾Accelerating into the advanced power

component fi eld and forging a high-gain business model.’

PresidentYoshinori Suzuki

Director and Senior Offi cerNobuyuki Sasaki

Director and Senior Offi cerYasumi Negishi

1982 Joined Shindengen

1996 Managing Director, Shindengen Singapore Pte Ltd.

2007 General Manager, Electronic Device Sales Division, Electronic Device Division Group

2008 Offi cer; Deputy Division Director, Electronic Device Division Group

2009 Offi cer, Corporate Planning Group

2009 Director

2013 Division Director, Sales Division Group

2014 Executive Offi cer

2015 President, Shindengen Device Commerce Co., Ltd.

2016 President (current position)


2009 General Manager, Electronic Device Division, Electronic Device Division Group

2010 Offi cer; President, Akita Shindengen Co., Ltd.


2014 Director and Senior Offi cer (current position)


2004 Department Manager, Finance Department

2009 Department Manager, Personnel Department

2012 Director (current position) and Offi cer


2015 President, Shindengen Enterprise Co., Ltd.

2016 Senior Offi cer (current position)

3 SHINDENGEN ANNUAL REPORT 2016

“

We are working hard toward the realization of this vision under a new management

structure.

Director and Executive Offi cerKenji Horiguchi

Outside Director Ichiro Yamada

Outside DirectorHideyuki Hashimoto


2003 Associate General Manager, Advanced Power Products Division, Advanced Power Products Division Group

2005 General Manager, Advanced Power Products Division, Electronic Device Division Group

2008 General Manager, IC Development Center, Technology & Development Division Group

2009 Deputy Division Director, Technology & Development Center

2010 Offi cer and President, Higashine Shindengen Co., Ltd.

2013 Director (current position)

2016 Executive Offi cer (current position)

1974 Joined Nippon Telegraph and Telephone Public Corporation

1985 Doctor of Engineering (University of Tokyo)

2002 Professor, University of Tokyo School of Engineering

2009 Vice President, University of Tokyo

2012 Professor, University of Tokyo Graduate School of Frontier Sciences

2014 Outside Director, Shindengen (current position)

2015 Professor Emeritus, University of Tokyo (current position)

1991 Joined Chuo Shinkou Audit Corporation

1995 Registered as a certifi ed public accountant

2000 Opened Hashimoto Public Accounting Offi ce

2000 Registered as a certifi ed tax accountant

2007 Joined BDO Toyo & Co.

2014 Partner, BDO Toyo & Co. (current position)

2015 Outside Director, Shindengen (current position)


“


Net Sales

(Millions of Yen)

120,000

0

(Millions of Yen) (%) (Millions of Yen)

(Millions of Yen) (Yen) (Yen)

R&D Expenses and Ratio to Net Sales

Operating Income and Operating Margin

EPS and ROE Cash Dividends per Share

Profit(attributable to owners of parent)

14/3 15/3 16/3

90,000

60,000

30,000

16,000

0

14/3 15/3 16/3

12,000

8,000

4,000

12,000 12

0 0

14/3 15/3 16/3

9,000 9

6,000 6

3,000 3

(%)

8,000 8

0 0

14/3 15/3 16/3

6,000 6

4,000 4

2,000 2

15

0

14/3 15/3 16/3

10

5

(%)

120 40

0 0

14/3 15/3 16/3

80 30

40 20

20 10

104,564 108,25598,110

12,130

5,253

205

11,313

10.8

7.1

0.8

7,674

799

4,5355.0 5.1

4.3

5,377 4,991 10.0 10.0

12.5

117.71

5.0

27.1

9.9

50.98

1.990.4

Results for Fiscal 2015

Net Sales Profi t (attributable to owners of parent)

Operating Income

799Millions of yen

205Millions of yen

Financial and Non-Financial Highlights



Electric Power Consumption

(Mwh)

150,000

0

Number of Employees(Only regular employees)

CO2 Emissions

Employees by Region (As of March 31, 2016)

Composition of Shareholders(As of March 31, 2016)

Water Consumption

14/3 15/3 16/3

120,000

90,000

60,000

30,000

(t-CO2)

80,000

0

14/3 15/3 16/3

60,000

40,000

20,000

(Thousand m3)

2,000

0

14/3 15/3 16/3

1,500

1,000

500

6,000

0

14/3 15/3 16/3

4,000

2,000

Total

6,374employees

Total

6,613shareholders

1,5621,5981,656

77,350

126,937133,521131,112 70,705

74,238

5,255 5,2744,786

29.71%

47.6%

17.5%

0.3%

12.2%

22.4%

19.27%29.46%

21.56%

Financial institutions, Securities companies

Japan

Thailand

Philippines

Asia-Other

North America/Europe

Individuals and othersJapanese corporations

Foreign investors

JapanRest of Asia North America

Thailand Philippines China JapanRest of Asia North America

Thailand Philippines China JapanRest of Asia North America

Thailand Philippines China

Results for Fiscal 2015

Electric Power Consumption

Water ConsumptionCO2 Emissions

126,937Mwh

77,350t-CO2

1,562Thousand m3


Accelerating into the advanced power component field and forging a high-gain business model.

Long Term Vision

for 2021FY2015(Results)

FY2018(Plan)

FY2021(Targets)

Net sales ¥98.1 billion ¥120 billion ¥150 billion

Operating incomemargin

0.7% 6.0 % or above 10.0 % or above

ROE 0.4% 8.0 % or above 10.0 % or above

New Medium TermBusiness Plan

Long Term Vision

Numerical Targets

(1) Fully utilizing our semiconductor technologies to accelerate into the advanced power component businessesLeveraging power semiconductors manufactured in-house, we will further evolve and strengthen the competitiveness of our car

electronics and power system products, both of which fall under the category of components.

(2) Creating a highly profitable business structureWe will accelerate product development to speed up the new product launch cycle and create a highly profitable business structure.

(3) Key marketsIn addition to the mobility, energy and industrial machinery markets, which we have previously outlined as growth markets, we will

focus on the healthcare market, for a total of four key markets.


Key Measures of the 14th Medium Term Business Plan

1 Technological development• Promote synergies centered on semiconductors to firmly establish a competitive advantage • Shorten development times using simulations• Improve product quality

2 Strengthening overseas businesses• Expand sales to non-Japanese customers in Europe, the Americas and Asia• Promote and strengthen support systems for local development and design • Raise the overseas sales ratio

3 Promoting business transformation• Revise existing businesses and products• Introduce new products to steadily update the product mix

4 Driving down production costs• Invest capital in labor saving facilities and improve productivity• Revise procurement methods

5 Improving management quality• Develop globally oriented human resources to expand business in overseas markets• Utilize ICT• Reinforce the BCP

Key Measures of the New Medium Term Business Plan

Healthcare market

4.

Target product sectors




Strategic products

Strategic products

Strategic products

Strategic products

1. Mobility market

Energy market

Key markets

2.

Industrial machinery market

3.

• Next-generation automobiles• Next-generation automobile infra-

structure

• Photovoltaic generation systems• Fuel cells• Communications equipment• O&M business

• Factory automation• Machine tools• Robots

• Medical equipment• Nursing care robots• Support robots

• Power modules • Power semiconductors/ICs• Regulators • DC/DC converters• ECUs • EV/PHEV chargers

• Power modules • Power semiconductors • Power conditioners• Communications equipment

power supply

• Power modules • Power semiconductors/ICs• Inverters • Ultra-compact power supply

• Power modules • Power semiconductors/ICs• Inverters

Growth Driversin the Mobility Market

Long Term Vision for 2021

To achieve growth over the medium and long term, we have positioned mobility as a key market and divided it into three target product sectors: 1. Motorcycles, 2. Four-wheel vehicles and 3. Next-generation automobile infrastructure. This section showcases how Shindengen’s growth drivers apply to the mobility market.


The 1.3 billion-person market of India and markets in

Africa will be key. In line with advances in

environmental regulations expected in 2018, the Indian

market will shift from the current dominance of carburetor

systems to fuel injection (FI) systems.

Motorcycle Sales ForecastMotorcycles2016 2021

Motorcycles 65,000,000 80,000,000Estimates compiled by Shindengen using data from Fuji Chimera Research Institute and SMBC Nikko Securities

FI-ECUs with idle-stop functions:

By injecting the optimal amount of

gasoline with optimal timing, these

systems improve motor scooter fuel

economy and reduce emissions.

Shindengen’s Key Products


Car electronics will be key. Greater use of car electronics will raise demand for

power devices and power modules.

Four-Wheel Vehicle Sales Forecast

2020 2030

EVs/PHEVs* 16,000,000 65,000,000• EVs/PHEVs* are expected to see global long-term growth

• Gasoline vehicles will be equipped with more electronics

*Electric vehicles and plug-in hybrid electric vehicles

Estimates compiled by Shindengen using Ministry of Economy, Trade and Industry data

Segment Gasoline vehicles EVs/PHEVs

Power Device • Power diodes

• Power modules

Car Electronics • ECUs

• DC/DC converters

• Onboard chargers

Next Generation Energy • Quick and regular-

use chargers for EVs/PHEVs

Wall-Mounted Regular-Use Chargers for EVs/PHEVs

Regular-Use Chargers for EVs/PHEVs

Power modules

Rear-wheel controller ECU

DC/DC converters

Quick charger

Four-Wheel Vehicles and Next-Generation Automobile InfrastructureAll three of Shindengen’s segments will be able to

introduce products related to EVs/PHEVs.

Interview with the President


As president, I hope to foster vibrant

workplaces and create a company that

lasts a century by meeting society’s needs.

Yoshinori SuzukiPresident


You are now the 11th president in Shindengen’s history. Can you give us any thoughts?

Please discuss the results of the previous Medium Term Business Plan.

Q1.

Q2.

In April 2016, I accepted the position of president of Shindengen Electric Mfg. Co., Ltd. I joined this company in 1982, and since then I have always worked in sales, besides the two years I was assigned to the Corporate Planning Group as an offi cer. (See profi le on page 3.) Shindengen was founded in 1949, mainly manufacturing selenium rectifi ers and other products using selenium rectifying devices, which in today’s language are called semiconductors. The Company perse-vered through the rapid changes of the post-war years, and over time its early business in selenium rectifi ers evolved into the communications businesses, part of our current Next Generation Energy segment. Silicon semiconductors, which developed from selenium rectifying devices, now form the foundation of our Power Device segment. Shortly after Shindengen was founded, selenium rectifi ers began to be used in motorcycles. This would eventually lead to the Car Electronics segment, the core of our business today. Over time, there were areas that derived from selenium technolo-gies that we have divested or withdrawn from, such as photoreceptor drums. However, we have been adopting new materials all the while, evolving from selenium to silicon and silicon carbide, constantly pursuing greater effi ciency. This has led to our playing an important part in the electronic components industry. When I joined Shindengen in 1982, the Company was actively building and expanding production sites. In the years that followed, Shindengen set up numerous factories and sales locations overseas, and I was fortunate to have the experience of working outside Japan for over six years, mainly in Taiwan and Singapore. Now, we are work-ing even harder to strategically strengthen our overseas businesses. As president, I hope to add my own experience working abroad to the Company’s wealth of expertise in order to quickly advance expansion outside Japan. My motto is “vibrancy, endurance and action.” Work environments that allow young people to exercise their abili-ties naturally generate positive energy. As president, I am determined to lead the way in creating vibrant workplaces for everyone in the Group so that we can all work together to build a new Shindengen.

The 13th Medium Term Business Plan, implemented from fi scal 2013 to 2015, comprised four key measures: business structure reform, strengthening cost competitiveness, developing overseas markets and raising the level of management quality. Looking at our operating performance, in the plan’s fi rst year, our motorcycle business grew signifi cantly. Power conditioners for photovoltaic generation also took off rapidly, due in part to the adoption of Japan’s Feed-in Tariff for renewable energy. As a result of these factors and the cheap yen, sales and earnings rose dramatically. Nevertheless, by the third year, we ultimately fell considerably short of the plan’s targets. This was in large part because of changes in the external environment and issues related to quality, including the recording of provision for product warranties. That said, the period of the plan was not without real achievements. For example, we added new pillars, including motorcycle ECUs and power modules, to our existing mainstay products. In terms of cost-cutting, besides reduc-tions in manufacturing costs, we reorganized subsidiaries to streamline logistics operations. Albeit gradual, we are beginning to see the fruits of these efforts. We also aggressively invested in expansion to develop overseas markets. These efforts included the establishment of a new company in India that has been gaining a market hold and the construction of a new factory in Indonesia, where our manufacturing operations had been operating at full capacity. There is still a long way to go, and I would like to recognize our successes and achievements while analyzing why we fell short of our plans in certain areas. There are also situations that newly emerged over the three years, and we need to once again examine and comprehend these situations, and contribute that understanding toward future business growth.


Please describe the new Medium Term Business Plan for fi scal 2016–2018.

What is the approach of Shindengen’s new leadership to corporate governance?

Q3.

Q4.

The new three-year Medium Term Business Plan is the fi rst half of Shindengen’s fi rst ever long-term vision, which extends over six years. The plan lays out fi ve key measures, the most important of which is technological develop-ment. Specifi cally, we are laying the foundations for greater business synergies that will create a competitive edge by combining our key semiconductor technologies with circuit technologies in our Car Electronics and Next Generation Energy segments. One of Shindengen’s strengths is that we possess both key power semiconductor devices and the applications that use them. This means that we are equipped to understand and meet market needs faster than our competitors. Because our Car Electronics and Next Generation Energy segments share the same kinds of needs as our customers, I think we will be able to develop semiconductor technologies with greater end-user awareness. To improve product quality, an issue remaining from the previous medium-term plan, we will automate production processes to eliminate human error. In design processes, we are identifying implicit procedural knowledge and mak-ing this explicit so the knowledge can be organized and shared to reduce defects and other problems. Overseas, we are strengthening sales as well as design and development operations. To reinforce sales, we are focusing on cultivating non-Japanese customers, mainly in Europe, the Americas and Asia. In terms of design, we are taking measures to strengthen and accelerate product development tailored to local needs. Furthermore, we will reexamine our stance of self-suffi ciency, considering collaboration with competitors and M&A to achieve sustainable growth. The three years of the new plan will serve to lay the groundwork for solid growth over the long term through aggressive investment in facilities and R&D. Our numerical targets for the end of the plan are net sales of ¥120 bil-lion, operating income margin of 6% or above, and ROE of 8% or above.

We currently have six directors, two fewer than in the previous fi scal year, including two outside directors. At the same time, we have bolstered the ranks of our offi cers, seeking to more clearly divide oversight and executive functions. I believe our Board of Directors achieves a good balance, allowing members, who have come up through sales, back-offi ces and engineering divisions, to utilize their respective specializations. Because our directors are all highly knowledgeable in their own areas, even as I take the leading role, I intend to give great weight to their expert insight. At the same time, the average age of our new roster of offi cers has dropped by about fi ve years. This may be part of the reason that we are seeing more active communication, with new opinions and ideas being discussed in meet-ings. To be honest, it can even seem a little too much at times, but this free exchange of ideas is extremely valuable, and I am encouraging it. In addition, we are basically following the Tokyo Stock Exchange’s Corporate Governance Code. The code works on a “comply or explain” basis, and we are currently explaining some items, but will continue to review our gover-nance practices to make improvements. (Please refer to Corporate Governance on page 24 for more details.)

Interview with the President


Please tell us about Shindengen’s CSR-related activities.

What are your thoughts on returning profi ts to shareholders?

Do you have any other message for shareholders and investors?

Q5.

Q6.

Q7.

In addition to customers, shareholders, employees and business partners, we also regard local communities and the environment itself as important stakeholders. We implement CSR-related activities aimed at creating a low-carbon society through our business. Furthermore, we consciously create opportunities for our management to discuss how best to implement CSR-related measures. Our products play an important role in the realization of Shindengen’s corporate social responsibility. Around the world, we supply such eco-friendly products as EV/PHEV* chargers, power conditioners for photovoltaic generation, and the world’s fi rst motorcycle ECUs with idle stop functions. We have also established goals related to energy sav-ing, the achievement of zero emissions, chemical substance management and biodiversity for our manufacturing operations. Based on these goals, we implement annual evaluations and audits aimed at reducing our environmental load. (Please refer to the CSR section of our website for details.)* Electric vehicles and plug-in hybrid electric vehicles

Returning profi ts to shareholders is an important management priority. Our fundamental approach is to fi rst work to increase profi ts, and then to invest in growth to expand our business and raise corporate value. Although we operate in highly volatile industries, we recognize the importance of continuously generating profi ts and returning them to shareholders. For fi scal 2015, we paid a dividend of ¥12.5 per share, and we are planning to pay ¥12.5 per share again for fi scal 2016.

Shindengen is now in its 68th year. In Japan, including sole proprietorships, there are said to be over 26,000 compa-nies that are over 100 years old. In order for us to join those companies, I believe it is essential that we continue to meet the needs of society. Under the new long-term vision, we have added healthcare as one of our key markets. As populations in emerging countries grow, those in developed countries age, and medical care continues to grow more sophisticated, the development of medical and nursing care equipment is accelerating. This is an area in which we can use our technologies and strengths. Blazing the trail in a new fi eld isn’t easy, but we are an exceptional company that possesses a combination of power semi-conductor component, electric circuit, structural design and packaging technologies. We take a comprehensive approach to power supply, and will continue working dili-gently to ensure that we keep meeting society’s needs. I am determined to do my utmost to continue deliver-ing the value that society needs. I want Shindengen to reach the century mark as a company that we can all take pride in. I would appreciate it if our shareholders view us from a long-term perspective. We look forward to your continued understanding and cooperation. Thank you very much.


Business Portfolio

Segments Major Products and Markets

The Power Device segment produces diodes, thyristors, MOSFETs, high voltage power ICs and power modules, among other products.

The Car Electronics segment produces motorcycle products, automobile products and general-purpose inverters, among other products.

The Next Generation Energy segment produces power supply units for information and communications equipment, power conditioners for photovoltaic generation, energy storage systems and EV/PHEV* chargers, among other products.* Electric vehicles and plug-in hybrid electric vehicles

Diodes

Motorcycle Products

Power Conditioner

Chargers for Vehicles ECU for VehiclesDC/DC Converter for Hybrid Vehicles

Surge Absorbers Power MOSFETs & Power ICs Power Modules

Power Storage System

Regular-Use Chargers for EVs/PHEVs

Rectifi er for Communication Stations

Wall-Mounted Regular-UseChargers for EVs/PHEVs

Main Products and Markets



Products Markets• Rectifi ers for communication stations• Rectifi ers for mobile device base stations • Inverters for communication stations • Monitoring units • EV/PHEV chargers (quick and regular-use)• Power conditioners for photovoltaic gener-

ation • Smart energy management systems

• Information/communication (mobile device base stations, data centers and communication stations)

• Next generation energy (photovoltaic generation and energy storage, EV/PHEV chargers)

Products Markets• Motorcycle products• Electric motorcycle products • Universal engine control units• Four-wheel EV/HEV/PHEV/FCV* products

• Mobility (motorcycles, four-wheelvehicles)

• Generators

Products Markets• Bridge diodes • High-speed rectifi er diodes • Thyristors • SIDACs• Power MOSFETs • Power ICs • Power modules

• Mobility (four-wheel vehicles)• Industrial machinery market (factories)• Home electronics (air conditioners,

lighting, etc.)

Power Device Sales by Market

Car Electronics Sales by Market

Next Generation Energy Sales by Market

Automotive

Industrial machinery

Home electronics

Others

Motorcycles

Four-wheel vehicles

General-purpose inverters

Communi-cations

Next-generation energy

Others

* Electric vehicles, hybrid electric vehicles, plug-in hybrid electric vehicles and fuel cell vehicles


Net Sales Operating Income and Margin

0

(Millions of Yen)

14/3 15/3 16/3

40,000

20,000

30,134

0

(Millions of Yen) (%)

14/3 15/3 16/3

6,000

2,000

4,000

0

15

5

10

2,1107.0


0

(Millions of Yen)

14/3 15/3 16/3

60,000

40,000

20,000

49,038

0


14/3 15/3 16/3

8,000

2,000

4,000

0

20

5

10

6,000 15

1,7863.6


0

(Millions of Yen)

14/3 15/3 16/3

40,000

20,00015,837

-1,000


14/3 15/3 16/3

3,000

1,000

2,000

-5

15

5

0 0

10

-556

Operating Performance Percentage of Net Sales

Power Device segment net sales fell 9.4% year on year to ¥30,134 million, and segment operat-ing income dropped 48.7% to ¥2,110 million. Sales in the mobility market (four wheel vehicles), industrial machinery market and home electronics market all declined year on year. The decrease in operating income was mainly due to the fall in sales.

Car Electronics segment net sales edged down 2.2% year on year to ¥49,038 million, and segment operating income fell 72.9% to ¥1,786 million. Although sales in Asian motorcycle markets were fi rm overall, the strong yen had a considerable impact on exchange rate conversions, leading to the slight decrease in sales. The drop in operating income was due mainly to the recording of a ¥4,160 million provision for product warranties under operating expenses for certain products manufactured in the past in response to a product recall implemented by one of our customers.

Next Generation Energy net sales declined 26.6% year on year to ¥15,837 million, and segment oper-ating loss came to ¥556 million, compared with operating loss of ¥82 million in fi scal 2014. A major factor in the decrease in segment sales was a fall in sales of power conditioners for photovoltaic gener-ation. The fall in operating income was mainly attributable to the decline in sales and the recording of an additional projected expense recorded for certain products for which provision for inspection and maintenance was recorded in fi scal 2014.

30.7%

50.0%

16.1%


Business Segments

Power DeviceOne of the biggest strengths of this segment is its extensive lineup of semiconductor devices used in high-voltage and high-current controls. Diodes, one of our mainstay products, are used in power supply for automobile ECUs,* industrial machinery including factory automations and robots, as well as home electronics. MOSFETs, a type of switching device, are used in motorcycle ECUs in the Car Electronics segment. We also supply power modules for industrial machinery and automobiles, power ICs (integrated circuits) for lighting, and other high-performance products. * Engine control units

Segment Overview

Strategy

“

“

This segment’s key markets going forward will continue to be the automobile, industrial machinery and home electronics markets. Though we will remain focused on these key markets, we will keep evolving our product offerings in each area. For example, in the automobile market, we will supply not just anti-surge and power supply devices, but also strengthen areas related to motor drive systems, which will lead to providing power modules. In the industrial machinery market, as well, we will increase the ratio of power modules in the product mix. Looking at demand in the power semiconductor market from a broader perspective, we will empha-size product development with a greater focus on end applications. We are also working to increase the number of field application engi-neers to offer timely solutions from an engineering perspective to customers in overseas markets. By allocating greater management resources to business outside Japan, we aim to raise the overseas sales ratio from about 40% at present to 50%.

Executive OfficerNobuyoshi Tanaka


R&DWe expanded our lineup of diode products, mainly for the mobility market. We also advanced development of a silicon carbide (SiC)1200V Schottky barrier diode, a next-generation semiconductor device. In switching devices, we developed next-generation low voltage MOSFETs and triac products while expanding the thyristor product line-up. In IC products, we expanded the power supply IC lineup, and both developed and began mass producing control ICs for LED lighting. In power modules, we developed and started mass production of new products for industrial machinery and automobiles. Furthermore, we advanced R&D in power modules utilizing next-generation semicon-ductors.

Capital InvestmentSegment capital investment totaled ¥2,641 million. Capital spending went mainly toward expanding production capacity and upgrades at Akita Shindengen Co., Ltd., Higashine Shindengen Co., Ltd., Lumphun Shindengen Co., Ltd. and Shindengen Philippines Corp.

R&D and Capital Investment

(Millions of Yen)

R&D Capital investment

3,000

14/3 15/3 16/3

2,000

1,000

0

1,644

1,957

2,4372,641

1,9722,081

Developing Power Modules for Automobiles

H i g h l i g h t

The power module market, currently valued at US$3.1 billion, is

projected to grow nearly 50% by 2020, to over US$4.5 billion.

Power modules combine various power circuit components,

helping to reduce device size and improve manufacturing pro-

ductivity. The Power Device segment is focused on developing

power modules that combine multiple power semiconductors.

In the example shown below, six motor drive circuit compo-

nents are combined into a single package, dramatically reduc-

ing the required mounting area compared with the separate

installation of each semiconductor component. Furthermore,

because the module offers excellent heat dissipation and effec-

tive electric insulation, it is easier for customers to mount. The

use of electronics in the auto industry is growing rapidly, clearly Power modules

driving demand not only for quality, but also smaller, lightweight

products. Shindengen is advancing product development that

anticipates customer applications.



Car ElectronicsThe Car Electronics segment began with the manufacture of regulators used for charging motorcycle bat-teries. Products for motorcycles still account for around 85% of segment sales. Our mainstay ECUs are widely used in motor scooters in Asia, and our regulators are used worldwide. We also manufacture inverters for portable generators, converters used in eco-friendly vehicles and other products.

Segment Overview

Strategy

“ This segment’s key markets going forward will continue to be the motorcycle, four-wheel vehicle and generator markets. The motorcy-cle market is expected to grow from over 60 million units per year today to over 80 million in 2021. The market is polarizing between high functionality and low cost. To meet the needs of both, we will offer value-added FI-ECUs,* such as those with idle-stop functions, while also improving our manufacturing and supply frameworks to withstand cost competition. By leveraging devices produced in-house, we will develop the advanced products the market demands and thus maintain our high market share. In the four-wheel vehicle market, EV/PHEV sales are expected to grow worldwide, reflecting ongoing advances in eco-friendliness. We will continue to reduce the size and improve the efficiency of our converters for eco-friendly vehicles and at the same time develop ECUs and other new products for gasoline-powered vehicles.

* Fuel injection engine control units

“

Business Segments

Executive OfficerSeiji Niizeki


R&DIn the ASEAN region of the motorcycle market, Shindengen developed ECUs with built-in idle-stop functions for mid-range to low-end motor scooters, including derivative models, and began mass production. We also began development of new models. In the four-wheel vehicle fi eld, we continued developing and began mass producing chassis ECUs as well as small, high effi ciency car power supplies, which we have been working on over the past few years. We developed derivative models based on existing models while also begin-ning development of new models with enhanced functions.

Capital InvestmentSegment capital investment totaled ¥3,043 million. Capital investment was aimed mainly at expanding production capacity, including the con-struction of a new factory for PT. Shindengen Indonesia.


(Millions of Yen)


3,600

14/3 15/3 16/3

2,400

1,200

0

1,125 1,073

2,577

3,043

1,234 1,213

Developing Next-Generation DC/DC Converters for Eco-Friendly Vehicles

H i g h l i g h t

The Car Electronics segment supplies DC/DC converters for

eco-friendly cars, including HEVs, PHEVs, EVs and FCEVs.

DC/DC converters used in automobiles convert power from

lithium-ion or other high-voltage batteries down to 14V. The

product shown below, for example, is made with a semicon-

ductor module and high-effi ciency power circuits and has

achieved industry-leading conversion effi ciency, size and light-

ness. The semiconductors used are made in-house and pack-

aged as a module, and the insert-type transformer coil, also

manufactured in-house, allows it to fl exibly accommodate input

voltages from 95V to 420V. Customers are paying attention to

DC/DC converters like this one, which bring versatility to auto-

mobile development, a realm which typically requires time-con-

suming fully custom design. Staying alert to customer needs,

we will continue striving to develop products one step ahead of

the market.

DC/DC Converter



Next Generation EnergyThe Next Generation Energy segment’s business is centered on large power supplies for communications applications and power conditioners for photovoltaic generation. Our communications-related power sup-plies, which serve as valuable communications infrastructure, are ahead of the competition and compati-ble with high-efficiency, high voltage direct current power input that is growing in response to rapidly rising communications volumes. Our business in power conditioners for photovoltaic generation centers mainly on industrial-use 10kW products, and we are developing systems to remotely monitor and control power conditioners. In EV/PHEV* chargers, as the only Japanese manufacturer that supplies both quick and reg-ular-use chargers, we provide highly efficient and reliable products and are eyeing overseas expansion.* Electric vehicles and plug-in hybrid electric vehicles

Segment Overview

Strategy

“ The Next Generation Energy segment handles infrastructure-related products, and is thus able to build incredibly efficient and reliable power supply equipment. In addition to increasing our presence in the domestic market, where competition continues to heat up, we are also considering overseas markets, which we have not supplied in the past. We expect that power conditioners for photovoltaic generation and energy storage systems compatible with multiple inputs will be readily adopted in regions where the electricity supply is unstable, or where electricity has yet to arrive at all. EV/PHEV chargers, meanwhile, will be necessary globally to increase the number of EV/PHEVs on the road. In both these areas, we hope to develop overseas businesses by meeting the specific needs and demands of each country.

“

Business Segments

Executive OfficerMakoto Shiraha


R&DWe expanded our lineup of power conditioners for photovoltaic generation in the new energy area. We also developed and began preparations for the mass production of monitoring and measurement systems for power con-ditioners featuring data collection and remote control capabilities. In EV/PHEV chargers, we developed and began mass producing a regular-use wall-mounted charger that meets the specifi cations of prod-uct certifi cation bodies. In the information and communications area, we developed and com-menced mass production of dual-voltage output high-voltage direct current (HVDC) power supply systems designed for high effi ciency and improved workability. The new equipment can supply power to both HVDC-input communications equipment and conventional 48V-input equipment.

Capital InvestmentSegment capital investment totaled ¥123 million. Capital investment was used mainly to expand the production capacity of Shindengen Three E Co., Ltd.


Developing EV/PHEV* Chargers

H i g h l i g h t

The Next Generation Energy segment supplies chargers for

EV/PHEVs. Refl ecting the global push for more eco-friendly

technologies, EV/PHEV vehicles are predicted to account for

30% of new automobile sales by 2030. We are currently the

only Japanese manufacturer offering both quick and normal

chargers, and we have now added wall-mounted normal char-

gers to our lineup, seeking to help promote the development of

infrastructure for EV/PHEVs. Naturally, these products feature

water and corrosion resistance, and they are also equipped

with lightning damage prevention functions and noise fi lters to

reduce the impact from radios and other low-frequency waves

used in neighboring facilities. Going forward, we will utilize our

sales experience accumulated in Japan to promote sales over-

seas, including in China, where EV/PHEV infrastructure devel-

opment is being advanced as measure to address

environmental issues. By doing so, we will also contribute to

the development of a low-carbon society.* Electric vehicles and plug-in hybrid electric vehicles

Wall-mounted normal charger

Quick charger Normal charger


(Millions of Yen)


800

14/3 15/3 16/3

600

400

200

0

551

432

238

123

663

544


CSR Initiatives

Th e Shindengen Group’s management philosophy is to grow in harmony with society, customers and employees.

To that end, we are implementing CSR initiatives in line with the seven core subjects laid out in ISO 26000,

an international standard for social responsibility. Th ese are organizational governance, human rights, labor prac-

tices, the environment, fair operating practices, consumer issues, and community involvement and development.

Our ISO 26000-Aligned CSR Initiatives

F O C U S

Core Subject CSR-Related Initiatives

Organizational Governance

The Shindengen Group maintains organizational governance to ensure the sustained growth of society and the Group. We regard meeting the demands and expectations of stakeholders related to our mainstay new energy and mobility areas as our overarching corporate social responsibility, and are working to promote the creation of a more environmen-tally sustainable world.

Human RightsThe Shindengen Group is implementing initiatives to promote human rights, including raising awareness of social issues accompanying economic globalization and employees’ rights.

Labor Practices

In accordance with the Group Code of Conduct, we prioritize workplace safety, the prohibition of harassment, and employee health. We offer career planning support and training for employees while advancing measures to create safer, healthier workplaces. Furthermore, in light of ongoing globalization and changing population dynamics, we are working to create environ-ments that accommodate diverse human resources and to support a healthy work-life balance.

The Environment

We have adopted the Shindengen Global Environmental Charter. We are building and operating an environmental man-agement system in line with ISO 14001, advancing initiatives in the areas of energy saving, resource saving, chemical management and conservation of biodiversity. Through these efforts and the global development of eco-friendly technol-ogy, we are working to achieve greater sustainability.

Fair Operating Practices

To address social issues at every level of the value chain, including those related to marketing, product development, materials procurement, production and logistics, the Shindengen Group has established an internal system of ethics based on the Group Code of Conduct and is working to ensure that the Company can adapt appropriately to changing social values.

Consumer IssuesWe believe that Shindengen’s “quality with value” is built out of the quality work of each employee at every step of the value chain, reaching all the way to customers. Our exacting management system encompasses design, manufacturing and quality control to build in quality and speedily supply products to our customers.

Community Involvement and Development

The Shindengen Group aims to help solve social problems, including global warming. As such, we have included envi-ronmental consideration as a major part of our management strategy, seeking to create corporate value over the long term. We take an active role in the communities where we do business, contributing to local development through both our business activities and social contribution initiatives.

Promoting Diversity Management

More than half of the Shindengen Group’s employees are outside Japan, refl ecting the global scope of our businesses. We seek to leverage this by deepening exchange between the domestic and overseas portions of the Group to help develop employee careers and promote orga-nizational growth. For example, we are we are increasing opportunities for employees based in Japan to work and provide technical training overseas and increasing overseas work opportunities for domestic employees while implementing training in Japan for overseas employees.

Reducing Our Environmental Burden

We strive to lower the environmental burden and environmental risk of our business activities. To this end, we implement global warming countermeasures and seek to reduce our use of chemical substances, water usage, waste emissions and impact on biodiversity, among other initiatives.


Corporate Governance

Shindengen positions corporate governance as a central tenet to ensure management transparency, compliance,

and a management system able to quickly and accurately adapt to rapid changes in the operating environment.

Maintaining and improving this system is one of our fundamental policies.

Corporate Governance SystemTo ensure that the Board of Directors manages the Company and operates its businesses in a way that serves to increase corporate value over the long term, Shindengen’s Articles of Incorporation speci-fy that the Board of Directors must comprise directors with diverse professional backgrounds and insight, and that it is limited to no more than nine directors. In addition, Shindengen ensures that at least two directors, in principle, are outside directors. Furthermore, Shindengen takes steps to strengthen its management system, including limiting director terms to one year and clarifying their responsibilities. We have also introduced an offi cer system to separate management decision-making and business execution, thereby accelerating these functions and promoting management effi ciency while strengthening the super-visory functions of the Board of Directors. Furthermore, the effectiveness of our internal control system is increased through audits undertaken from an independent standpoint by the Audit & Supervisory Board. Shindengen’s management control structure is primarily composed of the Board of Directors, Management Committee, Audit & Supervisory Board, Technology & Quality Control Committee, General Manager Committee and Manager Committee. Through the functional operation of this structure, we seek to acceler-ate decision-making and promote effi cient business activities and thus

maintain consistent management across the entire Group. Furthermore, we have established the CSR Committee and BCM Committee, each chaired by the president, as part of ongoing efforts to promote social contribution and minimize the impact of disasters and other emergencies.

Internal Audits and Audit & Supervisory Board AuditsWe have adopted an audit & supervisory board system primarily con-sisting of outside Audit & Supervisory Board members (one full-time member and two outside members) to ensure independence and veri-fy the execution of operations in a fair manner. We maintain a full-time audit staff to support our auditing system. We have established the Corporate Internal Audit Division to monitor the implementation of management activities of the Company and Group companies.

Status of Accounting AuditsOur Audit & Supervisory Board members hold regular meetings (eight times per year) with our accounting auditors to maintain mutual coop-eration and discuss annual audit plans, review the results of interim and year-end audits, and conduct special ad hoc audits as required.

Status of Corporate Governance

Shareholders’ Meeting

Audit & Supervisory Board

Corporate Audit Division

Board of Directors

Officers

Divisions

Group Companies

Committees

Audit & Supervisory Board MembersDirectors

President andRepresentative Director

Corporate Internal Audit Division

AccountingAuditor

Election/Dismissal

Election/Dismissal

Election/Dismissaland Supervision

Direction/Coordination

Accounting Audit

Accounting Audit

Direction/Supervision

Coordination

Audit

Audit

Election/Dismissal

Audit

Coordination

Coordination

Coordination

Audit

Supervision

Direction


Outside Director and Outside Audit & Supervisory Board MembersWe have two outside directors and two outside Audit & Supervisory Board members. In accordance with the Tokyo Stock Exchange’s standards of independence, we select outside directors and outside Audit & Supervisory Board members for their experience, insight and expert knowledge in a variety of fi elds. Ichiro Yamada was selected as an outside director for his expert knowledge and rich experience as a university professor, with the expectation that he will be able to provide management with helpful direction and advice. Hideyuki Hashimoto was selected as an outside director with the expectation that he will use his expert knowledge and rich experience as a certifi ed public accountant and tax accountant to provide man-agement with helpful advice. Takashi Okimoto was selected as an outside Audit & Supervisory Board member for his wealth of experience at fi nancial institutions, with the expectation that he will contribute to precise audits based on his broad and sophisticated insight as a seasoned management pro-fessional. Yuichiro Miyake was selected as an outside Audit & Supervisory Board member for his wealth of knowledge and experience in corpo-rate law as an attorney, with the expectation that he will provide man-agement oversight from an objective and impartial standpoint using his experience as an outside director at another Japanese company.

Director and Audit & Supervisory Board Member CompensationThe amounts and methods of calculating the compensation of Shindengen’s directors and Audit & Supervisory Board members are decided by the Board of Directors in accordance with internal rules regarding monthly compensation amounts based on such factors as position and years of service, and are set within an upper limit decided by resolution of the general meeting of shareholders. Director compen-sation is a fi xed monthly amount, but can be reduced if operating performance is severely poor or augmented by bonuses when perfor-mance is strong. The annual compensation of directors and Audit & Supervisory Board members in fi scal 2015 was as follows.

Constructive Dialog with ShareholdersTo foster sustainable growth and improve corporate value over the long term, Shindengen engages in dialog with shareholders within the bounds of practicality. We do the following to facilitate appropriate and constructive dialog with shareholders.

Compliance and Risk ManagementWe take steps to increase the effectiveness of our compliance and risk management systems. To this end, besides management undertaken by respective management units, cross-functional initiatives are con-ducted by the Security and Trade Control Committee, the Environment Committee and other standing committees. Moreover, we form com-mittees to address evaluations and audits of our internal control sys-tem related to fi nancial reporting in accordance with the Financial Instruments and Exchange Act. We also maintain a crisis management system that promptly reports information on such important risk fac-tors as accidents and disasters to the Board of Directors.

Basic compensation for Shindengen’s nine directors (including two outside directors. Does not include the employee salaries of directors who are concurrently employees)

¥123 million

Basic compensation for Shindengen’s four Audit & Supervisory Board members (including two outside Audit & Supervisory Board members)

¥48 million

The Corporate Planning Group handles investor relations (IR) under the supervision of the Board of Directors and the offi cer of the Corporate Planning Group.

The Corporate Planning Group, Administration Department and Finance Department coordinate with one another, holding regular liaison meetings to exchange information.

In addition to individual meetings, means of engaging in dialog with shareholders include semiannual results briefi ngs for insti-tutional investors.

Shareholder and investor opinions gleamed from individual meetings each accounting period are reported to the relevant directors, and especially important matters are reported to the Board of Directors.

Shindengen has established regulations to prevent insider trad-ing. These govern the use of non-public information. In accor-dance with these regulations, we enforce such measures as silent periods in our dialog with investors.

1

2

3

4

5

Corporate Governance

Directors, Audit & Supervisory Board Members and Offi cers (As of June 29, 2016)

Directors

Audit & Supervisory Board Members

Offi cers

President Yoshinori Suzuki

Director and Executive Offi cer Kenji Horiguchi

Director and Senior Offi cer Nobuyuki Sasaki

Outside Director Ichiro Yamada

Director and Senior Offi cer Yasumi Negishi

Outside DirectorHideyuki Hashimoto

Audit & Supervisory Board MemberYoshiaki Higo

Nobuyuki Sasaki

Yasumi Negishi

Kenji Horiguchi

Makoto Shiraha

Seiji Niizeki

Nobuyoshi Tanaka

Hiroaki Tanaka

Osamu Ukegawa

Naoyuki Furukawa

Koji Kodama

Tomoaki Nishi

Takuya Kojima

Masahiro Sasaki

Masahito Fukunaga

Hirofumi Matsuo

Outside Audit & Supervisory Board MemberTakashi Okimoto

Outside Audit & Supervisory Board MemberYuichiro Miyake

Senior Offi cers Executive Offi cers Offi cers


CSR Data

For more details on the Shindengen Group’s CSR initiatives, please visit our website.http://www.shindengen.co.jp/company_e/csr/index.html

Five-Year SummaryShindengen Electric Manufacturing Co., Ltd. and its Subsidiaries(Years ended March 31)

Millions of yen

2016 2015 2014 2013 2012

Net sales ¥98,110 ¥108,255 ¥104,564 ¥ 88,427 ¥ 82,562

Operating income 799 7,674 11,313 3,333 5,023

Profi t before income taxes 166 7,861 11,376 4,421 2,606

Profi t attributable to owners of parent 205 5,253 12,130 4,010 1,503

Profi t attributable to owners of parent per share —basic ¥ 1.99 ¥ 50.98 ¥ 117.71 ¥ 38.06 ¥ 13.73

Cash dividends per share for the period (Common stock) 12.50 10.00 10.00 3.50 3.50

Total assets ¥133,101 ¥134,002 ¥132,824 ¥118,701 ¥111,921

Total current assets 85,118 86,785 88,034 79,636 76,650

Property, plant and equipment 26,551 26,094 23,084 23,080 20,993

Total shareholders’ equity 52,355 53,186 49,777 39,371 35,903

Net cash provided by operating activities 10,421 9,027 13,146 7,657 6,533

Net cash used in investing activities (5,884) (6,286) (5,156) (6,916) (3,947)

Net cash provided by (used in) fi nancing activities (2,865) (6,541) (6,319) (107) 4,642

Cash and cash equivalents at end of the year 38,905 38,047 39,804 37,149 35,255

Financial Section


新電元16AR_財務_0801_2.indd 27新電元16AR_財務_0801_2.indd 27 2016/08/22 11:452016/08/22 11:45

ConsolidationDuring the fi scal year ended March 31, 2016 (fi scal 2015), the Shindengen

Group included the Company, 19 consolidated subsidiaries, two noncon-

solidated subsidiaries and two affi liated companies accounted for under

the equity method.

Operating ResultsPerformance OverviewIn the principal markets of the Shindengen Group, the mobility area was

mostly fi rm, but the new energy area was weak.

Under these circumstances, the Group’s consolidated net sales

decreased 9.4% year on year to ¥98,110 million. In addition, the Car

Electronics and Next Generation Energy segments recorded a total of

¥4,910 million in provision for product warranties under operating expens-

es. As a result, operating income fell 89.6% to ¥799 million, and ordinary

income declined 94.8% to ¥405 million. Profi t attributable to owners of the

parent (formerly net income) fell 96.1% year on year to ¥205 million.

Operating Conditions by Business SegmentIn the Power Device segment, the mainstay automobile, home electronics

and industrial machinery markets were all sluggish. Sales in the automo-

bile market were impacted by decreased domestic sales volumes, while

sales in the industrial machinery and home electronics markets fell due to

such factors as economic slowdown in China. As a result, the overall seg-

ment saw a year-on-year decrease in revenue. Earnings also declined,

refl ecting the fall in revenue and utilization rates.

In the Car Electronics segment, the operating environment of the Asian

motorcycle market was fi rm overall. Sales grew in Vietnam, where eco-

nomic growth accelerated. The introduction of new models helped us

increase our market share and achieve year-on-year sales growth in

Indonesia. The year-round full operation of our consolidated subsidiary

opened in India in the previous fi scal year also contributed. However, the

yen was stronger at the end of fi scal 2015 than a year prior. This reduced

sales from overseas subsidiaries after yen conversions, causing segment

revenue to fall year on year. Earnings also decreased. This was due in part

to an increase in depreciation and amortization accompanying aggressive

capital investment. However, the greatest factor was the recording of a

¥4,160 million provision for product warranties under operating expenses

for certain products manufactured in the past in response to a product

recall implemented by one of our customers.

In the Next Generation Energy segment, sales of EV/PHEV* chargers

grew signifi cantly in the fi rst half of the fi scal year. In the second half, the

communications market was fi rm, refl ecting the adoption of high-voltage

direct current (HVDC) power supply systems. However, in markets related

to photovoltaic generation, domestic sales slowed, and intensifying com-

petition led to sluggish power conditioner sales. As a result, overall seg-

ment revenues decreased. Earning also fell, reflecting the decline in

revenues and an extra ¥750 million in projected expenses recorded under

operating expenses. This was an additional amount related to certain

products for which provision for inspection and maintenance was record-

ed in fi scal 2014.

For more information on the performance of each business segment,

please refer to Business Portfolio on pages 15–16. Note that, except

where otherwise specifi ed, intersegment transactions have been eliminat-

ed from segment performance throughout this report.

* Electric vehicles and plug-in hybrid electric vehicles

Management’s Discussion and Analysis

(Millions of Yen)

0

14/313/312/3

Japan

15/3 16/3

120,000

90,000

60,000

30,000

(Millions of Yen)

0

14/313/312/3 15/3 16/3

15,000

5,000

10,000

(Millions of Yen)

0

14/313/312/3 15/3 16/3

12,000

3,000

6,000

9,000

(%)

0

12

3

6

9

0.8%

7.1%

10.8%

3.8%

6.1%

Overseas

Net Sales Selling, General and Administrative Expenses

Operating IncomeOperating Income Margin



Earnings and ExpensesFiscal 2015 operating income fell 89.6% year on year to ¥799 million,

causing the operating income margin to fall from 7.1% to 0.8%. This

decrease was mainly due to the recording of a total of ¥4,910 million in

provision for product warranties under operating expenses in the Car

Electronics and Next Generation Energy segments.

Net other income and expense included ¥276 million in dividends

income and ¥224 million in equity in earnings of affi liates, but also ¥607

million in foreign exchange loss due to the strengthening of the yen. Under

extraordinary loss, the Company recorded ¥201 million in business struc-

tural improvement expenses. As a result, net other income (expense)

amounted to expense of ¥633 million, and profi t before income taxes

came to ¥166 million, down 97.9% year on year.

After subtracting income taxes, profi t attributable to owners of the par-

ent amounted to ¥205 million, down 96.1% year on year, and net income

per share decreased from ¥50.98 in fi scal 2014 to ¥1.99. As a result, the

net income margin fell from 4.9% in fi scal 2014 to 0.2%, and ROE fell

from 9.9% to 0.4%.

Comprehensive loss came to ¥4,877 million, compared with the previ-

ous fi scal year’s comprehensive income of ¥9,069 million.

Financial PositionAssets, Liabilities and Net AssetsTotal assets as of March 31, 2016 stood at ¥133,101 million, down ¥901

million year on year. This was mainly due to a decrease in notes and

accounts receivable—trade.

Total liabilities at the end of the fi scal year were up ¥5,013 million year

on year to ¥82,350 million. This was mainly attributable to the increase in

provision for product warranties.

Total net assets at the end of the year under review stood at ¥50,751

million, down ¥5,914 million from the end of the previous fi scal year. This

was mainly because of a decrease in accumulated other comprehensive

income.

As a result, net assets per share were ¥492.63.

Cash FlowsCash and cash equivalents (net cash) at the end of the fi scal year under

review came to ¥38,905 million, an increase of ¥858 million from the end

of fi scal 2014.

Net cash provided by operating activities was ¥10,421 million, com-

pared with ¥9,027 million in the previous fi scal year. This was mainly due

to depreciation and amortization of ¥5,071 million and an increase in pro-

vision for product warranties of ¥3,666 million.

Net cash used in investing activities was ¥5,884 million, compared with

¥6,286 million in the previous fi scal year. This was due mainly to ¥5,527

million used in the purchase of property, plant and equipment.

(Millions of Yen)

0

14/313/312/3 15/3 16/3

15,000(Millions of Yen)

0

14/313/312/3 15/3 16/3

50,000

20,000

10,000

40,000

30,000

0

3.0

1.2

0.6

2.4

1.8

5,000

10,000

0

15

5

10

(Millions of Yen)

-7,500

14/313/312/3 15/3 16/3

15,000

0

-2,500

5,000

2,500

10,000

7,500

12,500

(%) (Times)

1.8%

1.251.16

0.830.68 0.66

4.5%

11.6%

4.9%

0.2%

Operating cash flows Investing cash flows Financing cash flows

Profit Attributable to Owners of ParentRatio to Net Sales

Interest-Bearing DebtD/E Ratio

Cash Flows



Net cash used in fi nancing activities was ¥2,865 million, compared with

¥6,541 million in the previous fi scal year. ¥6,000 million in proceeds from

long-term loans payable and ¥486 in proceeds from issuance of bonds

were offset by scheduled repayment of long-term loans payable of ¥7,630

million, ¥400 million paid for the redemption of bonds, and ¥1,030 of cash

dividends paid.

The Three-Year Medium Term Business PlanShindengen has formulated a long-term vision for fi scal 2021. As the fi rst

phase of efforts to achieve this vision, the Company has also established

its 14th Medium Term Business Plan for the three-year period of fi scal

2016 through fi scal 2018.

Long-Term Vision Our long-term vision for the period leading to fi scal 2021 is “Accelerating

into the advanced power component fi eld and forging a high-gain busi-

ness model.” Specifi cally, leveraging power semiconductors manufactured

in-house, we aim to further evolve and strengthen the competitiveness of

our car electronics and power system products, both of which fall under

the category of components. At the same time, by accelerating product

development, we will speed up the new product launch cycle and create a

more highly profi table business structure.

Under this vision, in addition to the mobility, energy and industrial

machinery markets, which we have previously outlined as growth markets,

we aim to provide value in the healthcare market, from components to

devices. The development of medical and nursing care equipment is

accelerating in the healthcare market, driven by growing populations in

emerging countries, aging populations in developed nations and the

ongoing sophistication of medical care.

Management Targets for Fiscal 2021 (Consolidated) • Net sales: ¥150 billion

• Operating income margin: 10% or above

• ROE: 10% or above

Tasks to Address under the 14th Medium Term Business PlanWe drew up our 14th Medium Term Business Plan for the three years

through fi scal 2018 as the fi rst phase of our long-term vision for the period

until fiscal 2021. The plan’s management policy prioritizes “working

toward technological superiority,” “speed” and “reinforcing overseas

sales.” We are formulating the initiatives necessary to achieve the goals of

the Medium Term Business Plan and steadily putting them into action

while building the foundations for growth needed to reach the goals for

fi scal 2021.

In terms of specifi c measures, we will further promote business syner-

gies using semiconductors produced in-house to fi rmly establish our com-

petitive advantage in such key markets as the mobility and energy areas.

In terms of development, to facilitate the timely launch of new products,

we will make effective use of simulations and external resources to

improve speed. We will also strengthen support systems for local devel-

opment and design to expand sales in overseas markets. To reduce

costs, we will work to reform production through such assertive measures

as increasing investment to escalate automation. We will also strive to

improve management quality. This extends to developing globally oriented

human resources to boost overseas sales as well as reinforcing business

continuity planning (BCP).

By steadily implementing such measures, the Shindengen Group will

work to achieve continuous growth and high profi tability while increasing

corporate value and thus serving the common benefi t of shareholders.

Basic Policy Regarding the Distribution of Profi ts / Fiscal 2015 DividendsWe view the return of profi ts to shareholders as an important manage-

ment issue. Our basic policy is to pay cash dividends based on a compre-

hensive consideration of such factors as performance, ROE, and the

suffi ciency of capital resources to maintain and enhance competitiveness.

In accordance with the above policy and a resolution reached at the

June 2016 general meeting of shareholders, cash dividends of ¥12.5 per

share of common stock were paid for fi scal 2015.

Takeover Defense MeasuresIn June 2007, Shindengen adopted a “Policy Regarding Large-Scale

Acquisition of Company Shares (takeover defense measures).” At the

June 2010 general meeting of shareholders, the policy was partially

revised and renewed. It was renewed for another three years at the June

2016 general meeting of shareholders.



Consolidated Balance SheetsShindengen Electric Manufacturing Co., Ltd. and its subsidiariesAt March 31, 2016 and 2015

Millions of yen

Thousands of U.S. dollars

(Note 4)

2016 2015 2016ASSETS

Current assets:

Cash and deposits (Notes 5, 7) ¥ 34,180 ¥ 33,337 $ 303,311

Notes and accounts receivable-trade (Note 7) 19,508 22,288 173,111

Less: Allowance for doubtful accounts (31) (33) (271)

19,477 22,255 172,840

Securities (Notes 7, 8) 5,000 5,000 44,370

Inventories (Note 6) 20,438 21,441 181,361

Deferred tax assets (Note 13) 1,110 1,430 9,849

Other 4,913 3,322 43,597

Total current assets 85,118 86,785 755,328

Property, plant and equipment:

Buildings and structures (Note 9) 8,427 9,223 74,779

Machinery, equipment and vehicles (Note 9) 8,582 8,466 76,154

Land 6,118 5,395 54,289

Lease assets-tangible (Notes 9, 20) 363 401 3,218

Construction in progress 1,663 934 14,754

Other, net (Note 9) 1,398 1,675 12,415

Property, plant and equipment 26,551 26,094 235,609

Investments and other assets:

Investment securities (Notes 7, 8) 12,795 14,662 113,541

Deferred tax assets (Note 13) 6,939 4,530 61,573

Software 681 563 6,042

Goodwill 50 86 445

Lease assets-intangible (Note 20) 26 101 230

Allowance for doubtful accounts (53) (64) (469)

Other 994 1,245 8,830

Total investments and other assets 21,432 21,123 190,192

Total assets ¥133,101 ¥134,002 $1,181,129The accompanying notes are an integral part of the statements.



Millions of yen


(Note 4)

2016 2015 2016LIABILITIES AND NET ASSETS

Current liabilities:

Notes and accounts payable-trade (Note 7) ¥ 15,780 ¥ 17,857 $ 140,024

Short-term loans payable (Notes 7, 10) 7,439 7,629 66,011

Current portion of bonds (Notes 7, 10) 2,475 400 21,963

Lease obligations (Notes 7, 10) 164 232 1,453

Income taxes payable (Note 7) 115 937 1,023

Provision for bonuses 946 1,040 8,392

Other 6,980 3,640 61,947

Total current liabilities 33,899 31,735 300,813

Noncurrent liabilities:

Bonds payable (Notes 7, 10) 925 2,900 8,208

Long-term loans payable (Notes 7, 10) 23,239 24,658 206,221

Lease obligations (Notes 7, 10) 263 314 2,333

Deferred tax liabilities (Note 13) 83 51 741

Liability for retirement benefi ts (Note 11) 17,589 14,931 156,082

Provision for product warranties 6,184 2,518 54,879

Asset retirement obligations 142 147 1,259

Other 26 83 226

Total noncurrent liabilities 48,451 45,602 429,949

Contingent liabilities (Note 12)

Net assets (Note 22):

Shareholders’ equity:

Capital stock 17,823 17,823 158,161

Capital surplus 7,739 7,739 68,673

Retained earnings 26,923 27,748 238,909

Treasury stock (130) (124) (1,149)

Total shareholders’ equity 52,355 53,186 464,594

Accumulated other comprehensive income (loss):

Unrealized holding gain on available-for-sale securities 1,766 3,114 15,674

Foreign currency translation adjustment (43) 1,519 (380)

Retirement benefi ts liability adjustments (3,327) (1,154) (29,521)

Total accumulated other comprehensive income (loss) (1,604) 3,479 (14,227)

Total net assets 50,751 56,665 450,367

Total liabilities and net assets ¥133,101 ¥134,002 $1,181,129

Per share of common stock:

Net assets ¥ 492.63 ¥ 549.97 $ 4.37The accompanying notes are an integral part of the statements.



Consolidated Statements of Income and Comprehensive IncomeShindengen Electric Manufacturing Co., Ltd. and its subsidiariesFor the years ended March 31, 2016 and 2015

Millions of yen


(Note 4)

2016 2015 2016Net sales ¥98,110 ¥108,255 $870,621

Cost of sales (Note 15) 85,052 87,648 754,742

Gross profi t 13,058 20,607 115,879

Selling, general and administrative expenses (Notes 14, 15) 12,259 12,933 108,784

Operating income 799 7,674 7,095

Other income (expense):

Interest income 102 82 908

Dividends income 276 264 2,446

Royalty income 109 100 970

Equity in earnings of affi liates 224 271 1,985

Interest expenses (498) (605) (4,417)

Foreign exchange gains (losses) (607) 798 (5,384)

Amortization of net retirement benefi t obligation at transition (Note 11) — (619) —

Business structure improvement expenses (Note 16) (201) — (1,780)

Impairment loss (Note 17) (38) — (342)

Other, net (0) (104) (7)

(633) 187 (5,621)

Profi t before income taxes 166 7,861 1,474

Income taxes (Note 13):

Current 382 2,739 3,392

Deferred (421) (131) (3,738)

Total income taxes (39) 2,608 (346)

Profi t 205 5,253 1,820

Profi t attributable to owners of parent ¥ 205 ¥ 5,253 $ 1,820



Millions of yen


(Note 4)

2016 2015 2016Profi t attributable to owners of parent ¥ 205 ¥5,253 $ 1,820Other comprehensive income (loss)

Unrealized holding gain (loss) on available-for-sale securities (1,348) 1,037 (11,958)

Foreign currency translation adjustment (1,358) 1,731 (12,054)

Retirement benefi ts liability adjustments (2,172) 898 (19,277)

Share of other comprehensive income (loss) of affi liates accounted for using equity method

(204) 150 (1,807)

Total other comprehensive income (loss) (Note 18) (5,082) 3,816 (45,096)

Comprehensive income (loss) ¥(4,877) ¥9,069 $(43,276)

Comprehensive income (loss) attributable to:

Owners of parent ¥(4,877) ¥9,069 $(43,276)

Non-controlling interests — — —

YenU.S. dollars

(Note 4)

2016 2015 2016Per share of common stock [Notes 2 (13), 23]:

Profi t attributable to owners of parent:

Basic ¥1.99 ¥50.98 $0.02

Diluted — — —

Cash dividends per share for the period (Common stock) 12.50 10.00 0.11

Weighted average number of ordinary shares (thousands) 103,026 103,036The accompanying notes are an integral part of the statements.



Millions of yen

Shareholders’ equity

Number of shares issued

Capital stock

Capital surplus

Retained earnings

Treasury stock

(Note 22)

Total shareholders’

equity

Balance at March 31, 2014 103,389 ¥17,823 ¥7,739 ¥24,334 ¥(119) ¥49,777Cumulative effect of change in accounting principle

(699) (699)

Restated balance at April 1, 2014 103,389 17,823 7,739 23,635 (119) 49,078Cash dividends paid (1,031) (1,031)Profi t attributable to owners of parent 5,253 5,253Change in the scope of consolidation (109) (109)Purchase of treasury stock (5) (5)Net changes in items other than those in shareholders' equity

Balance at March 31, 2015 103,389 ¥17,823 ¥7,739 ¥27,748 ¥(124) ¥53,186Cash dividends paid (1,030) (1,030)Profi t attributable to owners of parent 205 205Change in the scope of consolidationPurchase of treasury stock (6) (6)Net changes in items other than those in shareholders' equity

Balance at March 31, 2016 103,389 ¥17,823 ¥7,739 ¥26,923 ¥(130) ¥52,355

Millions of yen

Accumulated other comprehensive income (loss)

Unrealized holding gain on

available-for-sale securities

Foreign currency translation

adjustment

Retirement benefi ts liability

adjustments (Note 11)

Total accumulated other

comprehensive income (loss)

Total net assets

Balance at March 31, 2014 ¥2,077 ¥ (139) ¥(2,052) ¥ (114) ¥49,663Cumulative effect of change in accounting principle

(699)

Restated balance at April 1, 2014 2,077 (139) (2,052) (114) 48,964Cash dividends paid (1,031)Profi t attributable to owners of parent 5,253Change in the scope of consolidation (109)Purchase of treasury stock (5)Net changes in items other than those in shareholders' equity 1,037 1,658 898 3,593 3,593

Balance at March 31, 2015 ¥3,114 ¥1,519 ¥(1,154) ¥ 3,479 ¥56,665Cash dividends paid (1,030)Profi t attributable to owners of parent 205Change in the scope of consolidation —Purchase of treasury stock (6)Net changes in items other than those in shareholders' equity (1,348) (1,562) (2,173) (5,083) (5,083)

Balance at March 31, 2016 ¥1,766 ¥ (43) ¥(3,327) ¥(1,604) ¥50,751The accompanying notes are an integral part of the statements.

Consolidated Statements of Changes in Net AssetsShindengen Electric Manufacturing Co., Ltd. and its subsidiariesFor the years ended March 31, 2016 and 2015




Shareholders’ equity

Capital stock

Capital surplus

Retained earnings

Treasury stock (Note

22)

Total shareholders’

equity

Balance at March 31, 2015 $158,161 $68,673 $246,231 $(1,098) $471,967Cash dividends paid (9,142) (9,142)Profi t attributable to owners of parent 1,820 1,820Change in the scope of consolidation —Purchase of treasury stock (51) (51)Net changes in items other than those in shareholders' equity

Balance at March 31, 2016 $158,161 $68,673 $238,909 $(1,149) $464,594


Accumulated other comprehensive income (loss)

Unrealized holding gain on

available- for-sale securities

Foreign currency translation

adjustment

Retirement benefi ts liability

adjustments (Note 11)

Total accumulated other

comprehensive income (loss)

Total net assets

Balance at March 31, 2015 $27,632 $13,481 $(10,244) $30,869 $502,836Cash dividends paid (9,142)Profi t attributable to owners of parent 1,820Change in the scope of consolidation — —Purchase of treasury stock (51)Net changes in items other than those in shareholders' equity (11,958) (13,861) (19,277) (45,096) (45,096)

Balance at March 31, 2016 $15,674 $ (380) $(29,521) $(14,227) $450,367The accompanying notes are an integral part of the statements.



Consolidated Statements of Cash FlowsShindengen Electric Manufacturing Co., Ltd. and its subsidiariesFor the years ended March 31, 2016 and 2015

Millions of yen


(Note 4)

2016 2015 2016Operating activities:

Profi t before income taxes ¥ 166 ¥ 7,861 $ 1,474Depreciation and amortization 5,071 5,157 44,998Bond issuance cost 14 15 124Impairment loss 38 — 342Increase (decrease) in provision for bonuses (94) (31) (832)Increase (decrease) in provision for product warranties 3,666 2,518 32,534Increase (decrease) in liability for retirement benefi ts (466) 873 (4,133)Interest and dividends income (378) (347) (3,354)Interest expenses 498 605 4,417Decrease (increase) in notes and accounts receivable-trade 2,541 2,552 22,548Decrease (increase) in inventories 118 976 1,044Decrease (increase) in consumption taxes refund receivable (260) (742) (2,306)Decrease (increase) in accounts receivable-other 48 148 429Increase (decrease) in notes and accounts payable-trade (1,177) (2,793) (10,449)Loss on disposal of property, plant and equipment 38 98 337

Other, net 2,929 (3,043) 25,988Sub total 12,752 13,847 113,161Interest and dividends received 450 399 3,996Interest paid (499) (611) (4,426)Income taxes paid (2,282) (4,608) (20,258)

Net cash provided by operating activities 10,421 9,027 92,473Investing activities:

Purchases of investment securities (200) (0) (1,779)Proceeds from sales of investment securities 11 4 98Payments for investments in capital of subsidiaries — (103) —Purchase of property, plant and equipment (5,527) (5,983) (49,044)Proceeds from sales of property, plant and equipment 29 76 259Purchase of intangible assets (294) (266) (2,612)Other, net 97 (14) 861

Net cash used in investing activities (5,884) (6,286) (52,217)Financing activities:

Net increase (decrease) in short-term loans payable 0 1 0Proceeds from long-term loans payable 6,000 6,000 53,243Repayment of long-term loans payable (7,630) (7,964) (67,708)Proceeds from issuance of bonds 486 485 4,313Redemption of bonds (400) (3,400) (3,550)Purchase of treasury stock (6) (5) (51)Repayment for fi nance lease obligations (285) (627) (2,525)Cash dividends paid (1,030) (1,031) (9,142)

Net cash used in fi nancing activities (2,865) (6,541) (25,420)Effect of exchange rate change on cash and cash equivalents (814) 1,198 (7,225)Net increase (decrease) in cash and cash equivalents 858 (2,602) 7,611Cash and cash equivalents at beginning of the year 38,047 39,804 337,628Increase in cash and cash equivalents from newly consolidated subsidiary — 845 —Cash and cash equivalents at end of the year (Note 5) ¥38,905 ¥38,047 $345,239The accompanying notes are an integral part of the statements.



Notes to Consolidated Financial StatementsShindengen Electric Manufacturing Co., Ltd. and its subsidiaries

1. Basis of presentation(1) Accounting principles and presentationThe accompanying consolidated financial statement of Shindengen

Electric Manufacturing Co., Ltd. (the “Company”) and its subsidiaries (the

“Companies”) are prepared on the basis of accounting principles generally

accepted in Japan, which are different in certain respects as to the appli-

cations and disclosure requirements of International Financial Reporting

Standards, and are compiled from the consolidated fi nancial statements

prepared by the Company as required by the Financial Instruments and

Exchange Law of Japan.

Certain items presented in the consolidated fi nancial statements sub-

mitted to the Director of Kanto Finance Bureau (a regional branch organi-

zation of the Ministry of Finance in Japan) have been reclassifi ed in these

accounts for the convenience of readers outside Japan.

Certain items in the prior years’ fi nancial statements have been reclassi-

fi ed to conform to the current year’s presentation.

(2) Scope of consolidationThe Company had 21 subsidiaries (controlling companies companies

whose decision-making is controlled) as of March 31, 2016 and had 22

subsidiaries as of March 31, 2015.

The consolidated fi nancial statements for the years ended March 31,

2016 and 2015 include the accounts of the Company and its 19 subsid-

iaries and 20 subsidiaries, respectively.

The major consolidated subsidiaries were listed below.

Equity ownership percentage

• Akita Shindengen Co., Ltd. 100.0%

• Higashine Shindengen Co., Ltd. 100.0%

• Okabe Shindengen Co., Ltd. 100.0%

• Lumphun Shindengen Co., Ltd. 100.0%

• Shindengen (Thailand) Co., Ltd. 100.0%

In the accompanying consolidated fi nancial statements, the accounts of

the 11 overseas subsidiaries at December 31, 2015 and for the year then

ended were consolidated with the accounts of the Company at March 31,

2016 and for the year then ended, as they use a fi scal year ending on

December 31 of each year.

As the following company had changed its fi scal year end, the account-

ing period for this fi scal year was 15 months from January 1, 2015 to

March 31, 2016.

• Shindengen India Pvt. Ltd.

The remaining 2 unconsolidated subsidiaries as of March 31, 2016 had

insignifi cant amounts in terms of total assets, net sales, net income / loss

and retained earnings and therefore have been excluded from consolida-

tion.

The major unconsolidated subsidiary was listed below.

• Shindengen Lao Co., Ltd.

(3) Elimination and consolidationFor the purpose of preparing the consolidated fi nancial statements, all sig-

nifi cant inter-company transactions, account balances and unrealized

profi ts among the Companies have been entirely eliminated, and the por-

tion attributable to non-controlling interests is charged (credited) to non-

controlling interests.

(4) Investments in unconsolidated subsidiaries and affi liatesThe Company had 2 unconsolidated subsidiaries and 2 affi liates (infl uenc-

ing companies—companies whose fi nancial and operating or business

decision making can be infl uenced to a material degree, and which are

not subsidiaries) at March 31, 2016.

The investments in 2 affi liates are accounted for using the equity meth-

od. Investments in unconsolidated subsidiaries not accounted for using

the equity method are stated at cost less impairment loss, due to their

insignifi cant effect on the consolidated fi nancial statements.

The major affi liate accounted for by the equity method was listed below.

• Shindengen Mechatronics Co., Ltd.

(5) Translation of foreign currency fi nancial statements (accounts of overseas subsidiaries)

All assets, liabilities and net assets of overseas subsidiaries are translated

into Japanese yen using the exchange rates prevailing at the balance

sheet date except shareholders’ equity, which is translated at the historical

rates. Profi t and loss accounts for the year are translated into Japanese

yen using the exchange rates prevailing at the balance sheet date.

Differences in Japanese yen amounts arising from the use of different

rates are presented as “Foreign currency translation adjustment” in the

accompanying consolidated fi nancial statements.

(6) Revaluation of assets and liabilities of subsidiariesThe Company adopts the “full fair value method” in which all assets and

liabilities of the subsidiaries are remeasured at fair value as of the acquisi-

tion of the control.

(7) Cash and cash equivalentsCash and cash equivalents in the consolidated statements of cash fl ows

are composed of cash in hand, bank deposits, which are able to be with-

drawn on demand and short-term investments with an original maturity of

three months or less and which represent a minor risk of fl uctuation in

value.

2. Summary of signifi cant accounting policies

(1) Financial instruments(A) Securities

Securities held by the Company and its subsidiaries are classifi ed into two

categories: “held-to maturity”, or “other securities”. Held-to maturity secu-



rities are carried at cost.

Mark-to-market accounting is adopted for other securities. In accor-

dance with this method, these securities with market quotations are car-

ried at fair value that is reasonably determinable based on current market

quotes on the balance sheet date, with net unrealized gains and losses,

net of related tax, reported separately in net assets. Realized gains or

losses on securities sold are determined based on the moving-average

method. If fair value is not available, securities are carried at cost, which is

determined by the moving-average method.

In cases where the fair value of equity securities issued by unconsoli-

dated subsidiaries and affi liates or other securities has declined signifi -

cantly and such impairment of the value is not deemed temporary, these

securities are written down to the fair value and the resulting losses are

included in net profi t or loss for the period.

(B) Derivatives

All derivatives are carried at fair value, with changes in fair value included

in net profi t or loss for the period in which they arise, except for derivatives

that are designated as “hedging instruments”.

(2) InventoriesInventories held by the Company and the domestic consolidated subsid-

iaries are carried at cost, which is determined principally by the average

method (reducing book value of inventories when their contribution to

profi tability declines).

Inventories held by overseas consolidated subsidiaries are valued at the

lower of cost or market value, which is determined by the moving average

method.

(3) Depreciation method for tangible assets (excluding lease assets)

Depreciation for property, plant and equipment held by the Company and

its domestic consolidated subsidiaries is calculated using the declining-

balance method. Depreciation of property, plant and equipment held by

overseas consolidated subsidiaries is calculated primarily by the straight-

line method.

The estimated useful lives of assets are principally as follows:

• Buildings - 3 to 50 years

• Machinery and equipment - 4 to 10 years

(4) Amortization method for intangible assets (excluding lease assets)

Amortization for software and other intangible assets is calculated based

on the straight-line method over 5 years of their estimated useful lives.

(5) Depreciation method for lease assetsDepreciation for lease assets is calculated based on the straight-line

method over the lease period assuming no residual value.

(6) Allowance for doubtful accountsThe allowance for doubtful accounts is calculated based on the aggregate

amount of estimated credit losses for doubtful receivables plus an amount

for receivables other than doubtful receivables calculated using historical

write-off experience over a certain period.

(7) Provision for bonusesProvision for bonuses is provided based on the amount of expected future

payments of bonuses, attributable to the fi scal year.

(8) Provision for product warrantiesThe Company estimates and accrues the costs of warranty repair for

products sold in reserve for future expenses.

(9) Retirement benefi tsAccrued retirement benefi ts and prepaid pension cost for employees have

been recorded mainly at the amount calculated based on the retirement

benefi t obligation and the fair value of the pension plan assets as of bal-

ance sheet date. The retirement benefi t obligation for employees is attrib-

uted to each period by the benefi t formula method.

The unrecognized prior service costs are amortized on the straight-line

basis over a term that does not exceed the average remaining service

period of employees who are expected to receive benefi ts under the plans

(mainly 13 years) from the year in which they arise, and unrecognized

actuarial differences are amortized on the straight-line basis over a term

that does not exceed the average remaining service period of employees

who are expected to receive benefi ts under the plans (mainly 13 years)

from the next year in which they arise.

(10) Foreign currency translationAll monetary assets and liabilities denominated in foreign currencies,

whether long-term or short-term, are translated into Japanese yen at the

exchange rates prevailing at the balance sheet date. Resulting gains and

losses are included in net profi t or loss for the period.

(11) Hedge accountingDeferral hedge accounting is adopted for derivatives which qualify as

hedges, under which unrealized gain or loss is deferred. Hedging instru-

ments are interest rate swap transactions and hedged items are interest

of loans payable. The Companies enter into interest rate swap transac-

tions in order to reduce future interest rate risks from fi nancial liabilities.

(12) Income taxesThe income taxes of the Company and its domestic subsidiaries consist

of corporate income taxes, local inhabitants’ taxes and enterprise taxes.

The Companies adopt deferred tax accounting. Income taxes are



determined using the asset and liability approach, whereby deferred tax

assets and liabilities are recognized in respect of temporary differences

between the tax bases of assets and liabilities and those as reported in

the fi nancial statements.

Deferred tax assets relating to tax loss carryforwards are recorded

because the Japanese accounting standard requires that the benefi t of

tax loss carryforwards be estimated and recorded as an asset, with a

deduction of the valuation allowance if it is expected that some portion or

all of the deferred tax assets will not be realized.

(13) Profi t attributable to owners of parent per shareProfi t attributable to owners of parent per share is based upon the weight-

ed average number of shares of common stock outstanding less the

number of treasury stock during each period.

(14) GoodwillAmortization for goodwill is calculated based on the straight-line method

over 5 years.

(15) Consumption taxesTransactions subject to consumption taxes are recorded at amounts

exclusive of consumption taxes.

3. Accounting changes

The Company adopted “Revised Accounting Standard for Business

Combinations” (Accounting Standards Board of Japan (“ASBJ”)

Statement No.21 of September 13, 2013), “Revised Accounting Standard

for Consolidated Financial Statements” (ASBJ Statement No.22 of

September 13, 2013), “Revised Accounting Standard for Business

Divestitures” (ASBJ Statement No.7 of September 13, 2013) and others

effective from April 1, 2015.

As a result, the presentation of net income and other items have been

revised. To refl ect these changes in the presentation of the fi nancial state-

ments, the consolidated fi nancial statements for the previous fi scal year

have been reclassifi ed.

4. United States dollar amounts

Amounts in U.S. dollars are included solely for the convenience of readers

outside Japan. The rate of ¥ 112.69=U.S. $ 1, the approximate rate of

exchange prevailing at March 31, 2016 has been used in translation. The

inclusion of such amounts is not intended to imply that Japanese yen

have been or could be readily converted, realized or settled in U.S. dollars

at this rate or any other rate.

5. Cash fl ow information

Cash and cash equivalents as of March 31, 2016 and 2015 consisted of:

Millions of yenThousands of

U.S. dollars

2016 2015 2016

Cash and deposits ¥34,180 ¥33,337 $303,311

Securities (Certifi cate of deposit) 5,000 5,000 44,370

Time deposits with deposit term of over 3 months (275) (290) (2,442)

Cash and cash equivalents ¥38,905 ¥38,047 $345,239

Signifi cant fi nance lease transactions without cash fl ow for the years

ended March 31, 2016 and 2015 are as follows:


U.S. dollars

2016 2015 2016

Lease assets ¥164 ¥178 $1,464

Lease obligations 178 193 1,585

6. Inventories

Inventories held by the Companies as of March 31, 2016 and 2015 con-

sisted of the following:


U.S. dollars

2016 2015 2016

Finished products ¥ 7,617 ¥ 7,605 $ 67,589

Raw materials 9,292 10,096 82,454

Work in process 3,529 3,740 31,318

¥20,438 ¥21,441 $181,361

The cost of sales includes the write-down of inventories by ¥ 773 mil-

lion ($ 6,861 thousand), and ¥ 547 million for the years ended March 31,

2016 and 2015, respectively, refl ecting reduced profi tability of inventory

held for normal sales purposes.

7. Financial instruments

� Overview(1) Policy for fi nancial instruments

The Companies raise funds mainly through bank borrowings and issuing

bonds. The Companies manage temporary cash surpluses through low-

risk and short-term fi nancial assets. The Companies uses derivatives for

the purpose of reducing risks, and does not enter into derivatives for

speculative purposes.

(2) Types of fi nancial instruments and related risk

Trade receivables (notes and accounts receivable-trade) are exposed to

credit risk in relation to customers. In addition, the Companies are

exposed to foreign currency exchange risk arising from receivables



denominated in foreign currencies.

Held-to-maturity securities (certifi cate of deposit) are exposed to credit

risk, but the Companies believe that it is insignifi cant as it enters only with

fi nancial institutions which have a sound credit profi le.

Investment securities (mainly composed of the shares of common

stock) are exposed to market risk.

Trade payables (notes and accounts payable-trade) have payment due

dates within 1 year. Trade payables denominated in foreign currency are

exposed to foreign currency exchange risk.

Short-term loans payable are raised mainly in connection with funding

the working capital. Long-term loans payable, bonds payable, and lease

obligations are taken out mainly for the purpose of making capital invest-

ments, settled within 7 years from the balance sheet date, and partially

exposed to interest rate fl uctuation risk.

Regarding derivatives, the Companies enter into forward foreign

exchange contracts to reduce future foreign currency exchange risk aris-

ing from the receivables and payables denominated in foreign currencies.

The forward exchange contracts volume is limited to the balance of each

asset or liability denominated in foreign currencies. The Companies enter

into interest rate swap transactions to reduce future interest rate risks

deriving from fi nancial assets or liabilities. The amount of the swap con-

tracts is limited to the balance of the underlying fi nancial assets or liabili-

ties. Forward foreign exchange contracts are exposed to currency rate

fl uctuation risks. Interest rate swap transactions are exposed to interest

rate risks.

Information regarding the method of hedge accounting, hedging instru-

ments, hedged items, and hedging policy is disclosed in “Hedge account-

ing”.

(3) Risk management for fi nancial instruments

(A) Monitoring of credit risks (default of the customers, or other)

In accordance with the Company’s internal rule “Management rule of

operating receivables”, the Sales Dept. and Finance Dept. periodically

monitor the balance of transactions involving main customers, as a part of

balance management, and grasp at an early stage any increase in cus-

tomer credit risks from deterioration in fi nancial condition or other phe-

nomenon. In the subsidiary companies, there are almost the same

management systems according to “Management rule of operating

receivables”. The Companies also believe that the credit risk of derivatives

is insignifi cant as it enters into derivative transactions only with fi nancial

institutions which have a sound credit profi le.

(B) Monitoring of market risks (the risks arising from fl uctuations in

foreign exchange rates, interest rates and others)

The Company has “Management rule of derivatives” that sets forth basic

policy, procedures, and upper position limits on. Based on this rule, the

Finance Dept. executes the derivative contract. The status of each trans-

action is reported at the board of director’s meeting on a quarterly basis.

The same rule is adopted and followed by its subsidiaries. For marketable

securities and investment securities, the Company periodically reviews the

fair values of such fi nancial instruments and the fi nancial position of the

issuers. In addition, the Company monitors the market price for stocks

with market values on a quarterly basis.

(C) Monitoring of liquidity risk (the risk that the Companies may not

be able to meet their obligations on scheduled due dates)

The Company prepares and updates its cash fl ow plans on a timely basis,

and maintains the liquidity on hand to manage liquidity risk.

(4) Supplementary explanation of the estimated fair value of fi nan-

cial instruments

The fair value of fi nancial instruments is based on their quoted market

price, if available. When there is no quoted market price available, fair

value is reasonably estimated. Since various assumptions and factors are

refl ected in estimating the fair value, different assumptions and factors

could result in different fair value. In addition, the notional amounts of

derivatives in Note 19, Derivatives and hedging activities, are not neces-

sarily indicative of the actual market risk involved in derivative transactions.



� Estimated fair value of fi nancial instrumentsCarrying value, estimated fair value, and unrealized gain (loss) of fi nancial

instruments on the consolidated fi nancial balance sheets as of March 31,

2016, and 2015 are as follows. Financial instruments which it is extremely

diffi cult to determine the fair value are not included (Please refer to Note 2

below).

Millions of yen

2016

Carrying value

Estimated fair value

Unrealized gain (loss)

(1) Cash and deposits ¥34,180 ¥34,180 ¥ —

(2) Notes and accounts receivable-trade ¥19,508 ¥19,508 —

(3) Securities (Certifi cate of deposit) 5,000 5,000 —

(4) Income taxes receivable 1,145 1,145 —

(5) Investment securities 10,536 10,536 —

Assets total 70,369 70,369 ¥ —

(1) Notes and accounts payable-trade ¥15,780 ¥15,780 —

(2) Short-term loans payable 7,439 7,439 —

(3) Current portion of bonds 2,475 2,475 —

(4) Lease obligations (short-term) 164 164 —

(5) Income taxes payable 115 115 —

(6) Bonds payable 925 905 (20)

(7) Long-term loans payable 23,239 23,613 374

(8) Lease obligations (long-term) 263 252 (11)

Liabilities total ¥50,400 ¥50,743 ¥343

Derivatives (Note) ¥ (3) ¥ (3) ¥ —

Millions of yen

2015

Carrying value



(1) Cash and deposits ¥33,337 ¥33,337 ¥ —

(2) Notes and accounts receivable – trade 22,288 22,288 —



Assets total ¥72,986 ¥72,986 ¥ —

(1) Notes and accounts payable-trade 17,857 17,857 —


(3) Current portion of bonds 400 400 —

(4) Lease obligations (short-term) 232 232 —

(5) Income taxes payable 937 937 —

(6) Bonds payable 2,900 2,904 4

(7) Long-term loans payable 24,658 24,775 117

(8) Lease obligations (long-term) 314 304 (10)

Liabilities total ¥54,927 ¥55,038 ¥111

Derivatives (Note) ¥ 1 ¥ 1 ¥ —


2016

Carrying value



(1) Cash and deposits $303,311 $303,311 $ —

(2) Notes and accounts receivable-trade 173,111 173,111 —


(4) Income taxes receivable 10,162 10,162 —


Assets total $624,446 $624,446 $ —

(1) Notes and accounts payable-trade 140,024 140,024 —


(3) Current portion of bonds 21,963 21,963 —

(4) Lease obligations (short-term) 1,453 1,453 —

(5) Income taxes payable 1,023 1,023 —

(6) Bonds payable 8,208 8,028 (180)

(7) Long-term loans payable 206,221 209,541 3,320

(8) Lease obligations (long-term) 2,333 2,235 (98)

Liabilities total $447,236 $450,278 $3,042

Derivatives (Note) $ (28) $ (28) $ —

Note: The value of assets and liabilities arising from derivatives is shown at net value, and with the amount in parentheses representing net liability position.



Note 1. Methods to determine the estimated fair value of fi nancial instru-

ments and other matters related to securities and derivative trans-

actions.

(Assets)

(1) Cash and deposits

(2) Notes and accounts receivable-trade

(3) Securities (Certifi cate of deposit)

(4) Income taxes receivable

Since these items are settled in a short period of time, their carrying value

approximates fair value.

(5) Investment securities

The fair value of stocks held as other securities is based on quoted mar-

ket prices. Information of marketable securities and investments classifi ed

by holding purpose are disclosed in “Marketable securities and investment

securities”.

(Liabilities)

(1) Notes and accounts payable-trade

(2) Short-term loans payable

(3) Current portion of bonds

(4) Lease obligations (short term)

(5) Income taxes payable

Since these items are settled in a short period of time, their carrying value

approximates fair value.

(6) Bonds payable

(8) Lease obligations (long-term)

The fair values of bonds payable and lease obligations are based on the

present values of the total of principal and interest discounted by an inter-

est rate determined, taking into account their remaining period, and credit

risks of the Company itself.

(7) Long-term loans payable

The fair values of long-term loans payable are based on the present value

of the total of principal and interest discounted by an interest rate deter-

mined, taking into account their remaining period, and credit risks of the

Company itself. Since the deferral hedge accounting has been applied,

the market value of interest swap contracts is included in fair value of the

long-term loans payable with fl oating interest rates.

(Derivatives)

Disclosed in “Derivatives and hedging activities”

Note 2. Financial instruments for which it is extremely diffi cult to determine

the fair value.


U.S. dollars

2016 2015 2016

Unlisted stocks ¥2,259 ¥2,301 $20,048

Because no quoted market price is available and it is extremely diffi cult to

determine the fair value, the above fi nancial instruments are not included

in the above “(5) Investment securities”.

Note 3. Redemption schedule for receivables.

Millions of yen

March 31, 2016

Due in 1 year or less

Due after 1 year

through 5 years

Due after 5 years through

10 yearsDue after 10 years

Cash and deposits ¥34,168 ¥— ¥— ¥—

Notes and accounts receivable—trade 19,508 — — —

Securities (Certifi cate of deposit) 5,000 — — —

Total ¥58,676 ¥— ¥— ¥—

Millions of yen

March 31, 2015


Due after 1 year

through 5 years



Cash and deposits ¥33,321 ¥— ¥— ¥—



Total ¥60,609 ¥— ¥— ¥—


March 31, 2016


Due after 1 year

through 5 years



Cash and deposits $303,201 $— $— $—



Total $520,682 $— $— $—



Note 4. The redemption schedule for bonds payable, long-term loans payable, lease obligations (long-term), and other liabilities.

Millions of yen

March 31, 2016


Due after 1 year

through 2 years

Due after 2 year

through 3 years

Due after 3 year

through 4 years

Due after 4 year

through 5 years

Due after 5 years

Short-term loans payable ¥ 7,439 ¥ — ¥ — ¥ — ¥ — ¥ —

Current portion of bonds 2,475 — — — — —

Lease obligations (short-term) 164 — — — — —

Bonds payable — 150 200 200 200 175

Long-term loans payable — 7,464 6,700 4,250 2,525 2,300

Lease obligations (long-term) — 119 84 42 18 0

Total ¥10,078 ¥7,733 ¥6,984 ¥4,492 ¥2,743 ¥2,475

Millions of yen

March 31, 2015


Due after 1 year

through 2 years

Due after 2 year

through 3 years

Due after 3 year

through 4 years

Due after 4 year

through 5 years

Due after 5 years

Short-term loans payable ¥7,629 ¥ — ¥ — ¥ — ¥ — ¥ —

Current portion of bonds 400 — — — — —

Lease obligations (short-term) 232 — — — — —

Bonds payable — 2,475 100 100 100 125


Lease obligations (long-term) — 142 96 61 14 1

Total ¥8,261 ¥10,036 ¥6,960 ¥5,711 ¥3,264 ¥1,901


March 31, 2016


Due after 1 year

through 2 years

Due after 2 year

through 3 years

Due after 3 year

through 4 years

Due after 4 year

through 5 years

Due after 5 years

Short-term loans payable $66,011 $ — $ — $ — $ — $ —

Current portion of bonds 21,963 — — — — —

Lease obligations (short-term) 1,453 — — — — —

Bonds payable — 1,331 1,775 1,775 1,775 1,552


Lease obligations (long-term) — 1,055 745 369 161 3

Total $89,427 $68,621 $61,975 $39,858 $24,343 $21,965



8. Securities

Information regarding securities classifi ed as held-to-maturity securities

and other securities (stock) as of March 31, 2016 and 2015 are as follows:

Held-to-maturity securities (Certifi cate of deposit)

Millions of yen

2016

Carrying value Fair value


Securities with carrying value exceeding fair value ¥ — ¥ — ¥—

Securities with carrying value not exceeding fair value 5,000 5,000 —

Total ¥5,000 ¥5,000 ¥—

Millions of yen

2015



Securities with carrying value exceeding fair value ¥ — ¥ — ¥—


Total ¥5,000 ¥5,000 ¥—


2016



Securities with carrying value exceeding fair value $ — $ — $—


Total $44,370 $44,370 $—

Other securities (stock)

Millions of yen

2016

Carrying value

Acquisition cost


Other securities with carrying values exceeding acquisition costs ¥10,441 ¥7,913 ¥2,528

Other securities with carrying values not exceeding acquisition costs 95 106 (11)

Total ¥10,536 ¥8,019 ¥2,517

Millions of yen

2015

Carrying value

Acquisition cost


Other securities with carrying values exceeding acquisition costs ¥12,335 ¥7,799 ¥4,536


Total ¥12,361 ¥7,826 ¥4,536


2016

Carrying value

Acquisition cost


Other securities with carrying values exceeding acquisition costs $92,648 $70,221 $22,427


Total $93,492 $71,158 $22,334

Unlisted stocks are not included in the above tables because there are

no quoted market prices available and it is extremely diffi cult to determine

the fair value.

Carrying values of securities without fair value as of March 31, 2016

and 2015 are summarized as follows:


U.S. dollars

2016 2015 2016

Unlisted stocks ¥78 ¥78 $692

Proceeds, gross realized gains and gross realized losses from the sales

of other securities for the years ended March 31, 2016 and 2015 are as

follows:


U.S. dollars

2016 2015 2016

Proceeds ¥11 ¥4 $98

Gross realized gain (loss) 4 2 33

9. Accumulated depreciation

The accumulated depreciation of property, plant and equipment as of

March 31, 2016 and 2015 is as follows:


U.S. dollars

2016 2015 2016

Property, plant and equipment ¥83,207 ¥85,212 $738,366



10. Short-term borrowings and long-term debt

Short-term borrowings and long-term debt at March 31, 2016 and 2015

consisted of the following:


U.S. dollars

2016 2015 2016

Short-term borrowings from banks ¥ 0 ¥ 0 $ 6

Current portion of long-term debt 7,439 7,629 66,005

Current portion of bonds 2,475 400 21,963

Current portion of lease obligations 164 232 1,453

Long-term debt 24,427 27,872 216,763

¥34,505 ¥36,133 $306,190

The approximate weighted average interest rate of short-term borrow-

ings from banks as of March 31, 2016 is 0.0%.

Long-term debt as of March 31, 2016 and 2015 consisted of the

following:


U.S. dollars

2016 2015 2016

Long-term loans from banks and other fi nancial institutions ¥ 30,678 ¥32,287 $272,232

2.00% bonds due August 19, 2016 1,000 1,000 8,874

2.00% bonds due August 19, 2016 1,000 1,000 8,874

1.43% bonds due March 31, 2017 200 400 1,775

1.42% bonds due December 30, 2016 200 400 1,775

0.55% bonds due June 30, 2021 500 500 4,437

0.49% bonds due September 30, 2022 500 — 4,437

Lease obligations 427 546 3,786

34,505 36,133 306,190

Less: Current portion (10,078) (8,261) (89,427)

¥ 24,427 ¥27,872 $216,763

The approximate weighted average interest rate of long-term loans from

banks as of March 31, 2016 is 1.2%.

The aggregate annual maturity of long-term debt outstanding as of

March 31, 2016 during the succeeding fi ve-year period (except within one

year) is as follows:

Years ending March 31, Millions of yenThousands of

U.S. dollars

2018 ¥7,733 $68,621

2019 6,984 61,975

2020 4,492 39,858

2021 2,743 24,343

11. Retirement plans and severance indemnities

The Company and its consolidated domestic subsidiaries have a funded

pension program to cover the employees’ retirement benefi ts. The amount

of such retirement benefi ts is determined by reference to the latest rate of

pay, length of service and conditions under which retirement occurs.

Some of the overseas subsidiaries provide defi ned contribution pension

plans.

The changes in the retirement benefi t obligation during the years ended

March 31, 2016 and 2015 are as follows:


U.S. dollars

2016 2015 2016

Balance at the beginning of the year ¥22,490 ¥20,454 $199,581

Cumulative effect of change in accounting principle — 1,087 —

Restated balance at the beginning of the year 22,490 21,541 199,581

Service cost 1,267 1,294 11,244

Interest cost 281 269 2,497

Actuarial gain or loss 3,278 64 29,087

Retirement benefi t paid (821) (739) (7,286)

Other (59) 61 (535)

Balance at the end of the year ¥26,436 ¥22,490 $234,588

The changes in plan assets during the years ended March 31, 2016

and 2015 are as follows:


U.S. dollars

2016 2015 2016

Balance at the beginning of the year ¥7,559 ¥5,991 $67,082

Expected return on plan assets 95 79 843

Actuarial gain or loss (136) 533 (1,208)

Contributions by the Company 1,715 1,306 15,220

Retirement benefi ts paid (370) (401) (3,286)

Other (16) 51 (145)

Balance at the end of the year ¥8,847 ¥7,559 $78,506



The following table sets forth the funded status of the plans and the

amounts recognized in the consolidated balance sheet as of March 31,

2016 and 2015 for the Company’s and consolidated subsidiaries’ defi ned

benefi t plans.


U.S. dollars

2016 2015 2016

Funded retirement benefi t obligation ¥15,109 ¥12,487 $134,079

Plan assets as fair value (8,847) (7,559) (78,506)

6,262 4,928 55,573

Unfunded retirement benefi t obligation 11,327 10,003 100,509

Net liability for retirement benefi ts in the balance sheet 17,589 14,931 156,082

Liability for retirement benefi ts 17,589 14,931 156,082

Net liability for retirement benefi ts in the balance sheet ¥17,589 ¥14,931 $156,082

The components of retirement benefi t expense for the years ended



U.S. dollars

2016 2015 2016

Service cost ¥1,267 ¥1,294 $11,244

Interest cost 281 269 2,497

Expected return on plan assets (95) (79) (843)

Amortization of net retirement benefi t obligation at transition — 619 —

Amortization of actuarial difference 257 466 2,285

Amortization of prior service cost 18 (21) 158

Payments for defi ned contribution pension plan 11 11 93

Other 7 (25) 62

Retirement benefi t expense ¥1,746 ¥2,534 $15,496

The components of retirement benefi ts liability adjustments (benefi t tax

effect), included in other comprehensive income (loss) for the years ended



U.S. dollars

2016 2015 2016

Actuarial difference ¥(3,152) ¥ 919 $(27,975)

Prior service cost 18 (21) 158

Net retirement benefi t obligation at transition — 618 —

Total ¥(3,134) ¥1,516 $(27,817)

The components of retirement benefi ts liability adjustments included in

accumulated other comprehensive income (before tax effect) as of March 31,

2016 and 2015 are as follows:


U.S. dollars

2016 2015 2016

Unrecognized prior service cost ¥ 17 ¥ 35 $ 154

Unrecognized actuarial difference 4,733 1,580 41,996

Total ¥4,750 ¥1,615 $42,150

The fair value of plan assets, by major categories, as a percentage of

total plan assets as of March 31, 2016 and 2015 are as follows:

2016 2015

Bonds 64% 61%

Stocks 28% 31%

Cash on hand and in banks 8% 8%

Other 0% 0%

Total 100% 100%

The expected return on assets has been estimated based on the antici-

pated allocation to each asset class and the expected long-term returns

on assets held in each category.

The assumptions used in accounting for the above plans were as fol-

lows:

2016 2015

Discount rates 0.2%-0.3% 1.0%-1.4%

Expected rates of return on plan assets 1.0%-1.4% 1.0%-1.4%

Expected future salary increases rates 2.4%-3.6% 2.6%-2.8%

12. Contingent liabilities

The Companies were contingently liable for guarantees of housing loans

of employees as of March 31, 2016 and 2015 as follows:


U.S. dollars

2016 2015 2016

Housing loans of employees ¥69 ¥85 $609



13. Income taxes

At March 31, 2016 and 2015, signifi cant components of deferred tax

assets and liabilities are as follows:


U.S. dollars

2016 2015 2016

Deferred tax assets:

Liability for retirement benefi ts ¥5,314 ¥4,713 $47,156

Depreciation and amortization 348 367 3,092

Provision for bonuses 292 344 2,590

Allowance for doubtful accounts 16 21 146

Loss on valuation of inventories 224 255 1,986

Impairment loss 204 204 1,815

Loss carried forward for tax purposes 85 38 756

Other 3,056 2,182 27,104

Subtotal of deferred tax assets 9,539 8,124 84,645

Less valuation allowance (736) (733) (6,530)

Total of deferred tax assets 8,803 7,391 78,115

Deferred tax liabilities:

Valuation difference on available-for-sale securities (747) (1,417) (6,628)

Goodwill (5) (5) (25)

Asset retirement obligations (3) (4) (40)

Other (83) (56) (741)

Total of deferred tax liabilities (838) (1,482) (7,434)

Net deferred tax assets ¥7,965 ¥5,909 $70,681


U.S. dollars

2016 2015 2016

Current assets – deferred tax assets ¥1,110 ¥1,430 $9,849

Investments and other assets – deferred tax assets 6,939 4,530 61,573

Current liabilities – deferred tax liabilities — — —

Long term liabilities – deferred tax liabilities (83) (51) (741)

The reconciliation between the effective tax rates reflected in the

Consolidated Statements of Income and Comprehensive Income and

statutory tax rates for the years ended March 31, 2016 and 2015 are as

follows:

2016 2015

Statutory tax rate 33.1% 35.6%

Effect of:

Non-deductible items such as entertainment, dividend received (30.8) (3.2)

Effect of changes in tax rates 278.2 8.7

Dividend received from overseas consolidated subsidiaries 58.4 3.5

Special tax credit (165.8) —

Different tax rate applied to overseas consolidated subsidiaries (77.9) (4.4)

Reduced tax rates differences (73.4) (0.3)

Tax loss carryforwards (51.7) (0.8)

Others 6.5 (5.9)

Effective tax rate (23.4)% 33.2%

(Disclosure for the year ended March 31, 2016)

The “Act for Partial Amendment of the Income Tax Act, etc.” (Act No.15 of

2016) and the “Act for Partial Amendment of the Local Tax Act, etc.” (Act

No.13 of 2016) were enacted March 29, 2016. As a result, the effective

statutory tax rate used to measure the Company’s deferred tax and liabili-

ties was changed from 32.30% to 30.86% and 30.62% for the temporary

differences expected to be realized or settled in the years beginning April

1, 2016 and 2017 and for the temporary differences expected to be real-

ized or settled in the year beginning April 1, 2018, respectively.

The effect of the announced reduction of the effective statutory tax rate

was to decrease deferred tax assets, after offsetting deferred tax liabilities,

by ¥ 391 million ($ 3,467 thousand) and retirement benefi ts liability adjust-

ments by ¥ 78 million ($ 690 thousand), and increase unrealized holding

loss on available-for-sale securities by ¥ 41 million ($ 364 thousand) and

deferred income tax expense by ¥ 354 million ($ 3,141 thousand) as of

and for the year ended March 31, 2016.



14. Major items in selling, general and administrative expenses

Major items in selling, general and administrative expenses for the years



U.S. dollars

2016 2015 2016

Freight and transportation ¥2,041 ¥2,348 $18,115

Employees’ salaries and wages 2,497 2,483 22,156

Provision for bonuses 142 159 1,256

Net pension expenses related to retirement benefi ts 321 389 2,845

Provision for accrued directors’ retirement benefi ts 0 16 1

Research and development expenses 2,446 2,736 21,702

15. Research and development expenses

Research and development expenses charged to income for the years



U.S. dollars

2016 2015 2016

Research and development expenses ¥4,991 ¥5,377 $44,287

16. Business structure improvement expensesBusiness structure improvement expenses for the years ended March 31,



U.S. dollars

2016 2015 2016

Loss on disposal of property, plant and equipment ¥84 ¥— $745

Special severance payment 81 — 715

Loss on disposal of inventories 23 — 205

Others 13 — 115

17. Impairment lossFor the years ended March 31, 2016 and 2015, the Company recognized

impairment loss on the following asset groups.

(Summary of assets group which recognized impairment loss)

For the year ended March 31, 2016

Use Type of assets Location Millions of yenThousands of U.S. dollars

Inspection equipment for power supply product

Machinery, equipment

and vehicles etc.

Hanno-shi Saitama-ken

etc.¥30 $269

Idle assets BuildingKofu-shi

Yamanashi-ken

8 73


None

(Recognition of the impairment loss)

For the year ended March 31, 2016, the carrying amount of the inspection

equipment was reduced to the recoverable amount, due to the signifi cant

decline of the profi tability of the assets group. The carrying amount of idle

assets was reduced to the recoverable amount, due to the signifi cant

decline of the fair value. As a result, the Company recognized the impair-

ment loss. The details of the impairment loss are as follows.


Type of assets Millions of yenThousands of

U.S. dollars

Equipment ¥26 $232

Building 9 83

Software 2 20

Machinery 1 7

Total ¥38 $342

(Assets grouping)

The assets grouping was based on the management accounting classifi -

cation, taking into account the cash fl ow interaction from the similarity of

manufacturing processes.

(Calculation of recoverable amount)

For the year ended March 31, 2016, the recoverable amount of the

inspection equipment was measured at the higher of the net sales value

or the value in use. The discount rate used for computation of the present

value was 5.79%. The recoverable amount of the idle assets was mea-

sured at the net sales value.



18. Comprehensive income

Reclassifi cations adjustments and tax effects allocated to each compo-

nent of other comprehensive income for the years ended March 31, 2016

and 2015 are as follows:


U.S. dollars

2016 2015 2016

Unrealized holding gain (loss) on available-for-sale securities

Amount arising during the year ¥(2,014) ¥1,354 $(17,870)

Reclassifi cation adjustments to profi t or loss (4) (2) (33)

Amount before income tax effect (2,018) 1,352 (17,903)

Income tax effect 670 (315) 5,945

Total (1,348) 1,037 (11,958)

Foreign currency translation adjustment

Amount arising during the year (1,358) 1,731 (12,054)

Retirement benefi ts liability adjustments

Amount arising during the year (3,409) 453 (30,260)

Reclassifi cation adjustments to profi t or loss 275 1,063 2,443

Amount before income tax effect (3,134) 1,516 (27,817)

Income tax effect 962 (618) 8,540

Total (2,172) 898 (19,277)

Share of other comprehensive income (loss) of affi liates accounted for using equity method

Amount arising during the year (204) 150 (1,807)

Reclassifi cation adjustments to profi t or loss — — —

Amount before income tax effect (204) 150 (1,807)

Income tax effect 0 0 0

Total (204) 150 (1,807)

Total other comprehensive income (loss) ¥(5,082) ¥3,816 $(45,096)

19. Derivatives and hedging activities

Outstanding forward currency exchange contracts at March 31, 2016 and

2015 are shown below, except for transactions using hedge accounting.

Millions of yen

At March 31, 2016Notional amount Fair value


Forward currency exchange contracts:

Sell

U.S. dollars ¥ — ¥— ¥—

Indonesia rupiah — — —

Thai baht 682 3 3

Vietnamese dong 1,390 (6) (6)

Millions of yen




Sell

U.S. dollars ¥600 ¥(1) ¥(1)

Indonesia rupiah 124 (1) (1)

Thai baht 808 3 3





Sell

U.S. dollars $ — $ — $ —

Indonesia rupiah — — —

Thai baht 6,050 23 23

Vietnamese dong 12,331 (51) (51)

(Calculation of fair value)

• Forward currency exchange contracts

The estimated fair value of these forward currency exchange contracts

was determined using forward foreign exchange rate at March 31, 2016

and 2015.



Interest rate swap contracts using hedge accounting at March 31,


Millions of yen

At March 31, 2016Notional amount

Maturing after one year Fair value

Interest rate swap contracts:

Receive fl oating and pay fi xed: (Note)

Long-term loans payable ¥17,125 ¥13,375 ¥—

Millions of yen





Long-term loans payable ¥16,600 ¥12,625 ¥—






Long-term loans payable $151,966 $118,688 $—

Note: Interest rate swap contracts which qualify for hedge accounting and meet spe-cifi c matching criteria were not re-measured at market value and the fair value of such interest rate swap contracts were included in that of the long-term loans payable.

20. Leases

(Finance lease transactions which do not transfer ownership of the

assets)

The leased tangible assets were principally research and development

equipments (machinery), and the leased intangible asset was software.

Depreciation of leased assets is calculated as disclosed in Note 2 (5).

21. Segment information

(1) Reportable segment overview

The Company’s reportable operating segments are components of an

entity for which separate fi nancial information is available, and they are

evaluated regularly by the board of directors in determining the allocation

of management resources and in assessing performance.

The Company formulates comprehensive domestic and overseas strat-

egies for the products that its business divisions provide.

The Company’s business is organized into three reportable segments

— Device business, Car Electronics business and Next Generation Energy

business — which form the base of its business divisions.

The Device business manufactures diodes, thyristors, MOSFET, high-

withstand voltage power ICs and power modules. The Car Electronics

business mainly manufactures electronics components for motorcycles

and automobiles, along with general purpose inverters. The Next

Generation Energy business primarily manufactures power conditioners

for photovoltaic generators, power storage systems, recharging stands for

electric vehicles, power supplies for information and communication

equipment.

The Company’s reportable segments comprise product segments

based on the business divisions. Effective April 1, 2015, the segmentation

of product administration was partially changed. As a result, some prod-

uct groups were transferred from the Next Generation Energy business to

the Car Electronics business on April 1, 2015. Consolidated segment

information provided for the fi scal year ended March 31, 2015 was restat-

ed based on this change in the segmentation of product administration.

(2) Method of calculating sales, income (loss), identifi able assets/

liabilities and other items by reportable segment

The accounting method for business segments reported is based on the

same method applied to consolidated fi nancial statements. Income by

reportable segment is the amount based on operating income. In addition,

inter-segment sales and transfers are primarily based on market prices or

manufacturing costs.

(3) Net sales and income or loss and assets by reportable segment

Millions of yen

For the year ended March 31, 2016Device

business

Car Electronics

business

Next Generation

Energy business

Other (Note 1) Total

Adjustments and

Eliminations (Note 2)

Consolidated (Note 3)

Sales

Outside customers ¥30,134 ¥49,038 ¥15,837 ¥3,101 ¥ 98,110 ¥ — ¥ 98,110

Inter-segment 6,156 25 — — 6,181 (6,181) —

Total 36,290 49,063 15,837 3,101 104,291 (6,181) 98,110

Segment income (loss) 2,110 1,786 (556) 37 3,377 (2,578) 799

Segment assets 33,210 30,408 9,259 873 73,750 59,351 133,101

Depreciation and amortization 2,401 1,824 401 1 4,627 444 5,071

Increase in property, plant and equipment and intangible assets 2,641 3,043 123 1 5,808 872 6,680





business

Car Electronics

business

Next Generation

Energy business


Adjustments and



Sales

Outside customers $267,411 $435,161 $140,535 $27,514 $870,621 $ — $ 870,621

Inter-segment 54,624 221 — — 54,845 (54,845) —

Total 322,035 435,382 140,535 27,514 925,466 (54,845) 870,621

Segment income (loss) 18,723 15,850 (4,932) 334 29,975 (22,880) 7,095

Segment assets 294,705 269,839 82,160 7,746 654,450 526,679 1,181,129

Depreciation and amortization 21,303 16,186 3,557 6 41,052 3,946 44,998

Increase in property, plant and equipment and intangible assets 23,436 27,000 1,094 6 51,536 7,739 59,275

Notes: 1. The “Other” category includes business activities not included in the reportable segments, such as solenoid business. 2. Details of “Adjustments and eliminations” are below: (1) Segment loss totaling ¥ 2,578 million ($22,880 thousand) posted under “Adjustments and eliminations” includes “Corporate expenses” that have not been allocated

to the reportable segment. “Corporate expenses” are primarily general and administrative expenses that cannot be attributed to any reportable segments. (2) Segment assets totaling ¥ 59,351 million ($526,679 thousand) posted under “Adjustments and eliminations” comprise corporate assets of ¥59,049 million

($523,997 thousand) not allocated to the reportable segments and other adjustments of loss ¥ 302 million ($ 2,682 thousand). (3) Depreciation and amortization totaling ¥ 444 million ($ 3,946 thousand) posted under “Adjustments and eliminations” mainly comprises corporate expenses not

attributable to the reportable segments. (4) The increases in property, plant and equipment and intangible assets amounting to ¥ 872 million ($7,739 thousand) posted under “Adjustments and eliminations”

mainly comprises corporate assets not attributable to the reportable segments. 3. Segment income (loss) is adjusted to the operating income stated on the Consolidated Statement of Income and Comprehensive Income for the year ended March 31,

2016.

Millions of yen


business

Car Electronics

business

Next Generation

Energy business


Adjustments and



Sales

Outside customers ¥33,261 ¥50,137 ¥21,582 ¥3,275 ¥108,255 ¥ — ¥108,255

Inter-segment 5,135 18 — — 5,153 (5,153) —

Total 38,396 50,155 21,582 3,275 113,408 (5,153) 108,255

Segment income (loss) 4,110 6,599 (82) 55 10,682 (3,008) 7,674

Segment assets 33,338 30,917 12,559 928 77,742 56,260 134,002

Depreciation and amortization 2,547 1,728 464 1 4,740 417 5,157

Increase in property, plant and equipment and intangible assets 2,437 2,577 238 2 5,254 1,289 6,543

Notes: 1. The “Other” category includes business activities not included in the reportable segments, such as solenoid business. 2. Details of “Adjustments and eliminations” are below: (1) Segment loss totaling ¥ 3,008 million posted under “Adjustments and eliminations” includes “Corporate expenses” that have not been allocated to the reportable

segment. “Corporate expenses” are primarily general and administrative expenses that cannot be attributed to any reportable segments. (2) Segment assets totaling ¥ 56,260 million posted under “Adjustments and eliminations” comprise corporate assets of ¥56,402 million not allocated to the reportable

segments and other adjustments of loss ¥ 142 million. (3) Depreciation and amortization totaling ¥ 417 million posted under “Adjustments and eliminations” mainly comprises corporate expenses not attributable to the

reportable segments. (4) The increases in property, plant and equipment and intangible assets amounting to ¥ 1,289 million posted under “Adjustments and eliminations” mainly comprises

corporate assets not attributable to the reportable segments. 3. Segment income (loss) is adjusted to the operating income stated on the Consolidated Statement of Income and Comprehensive Income for the year ended March 31,

2015.



(Related Information)

1. Information by fi nished product and service

The appropriate information is identical to data disclosed under “Segment Information.” Accordingly, this information has been omitted.

2. Information by geographic segment

(1) Net sales


Millions of yen

Japan Indonesia Asia (other) Other area Total

¥41,585 ¥13,914 ¥37,284 ¥5,327 ¥98,110


Millions of yen


¥48,003 ¥14,274 ¥39,631 ¥6,347 ¥108,255




$369,024 $123,471 $330,851 $47,275 $870,621

Note: Net sales are based on the location of customers classifi ed according to coun-try or region.

(2) Property, plant and equipment


Millions of yen

Japan Thailand Indonesia Asia (other) Other area Total

¥17,160 ¥3,068 ¥2,677 ¥3,634 ¥12 ¥26,551


Millions of yen

Japan Thailand Asia (other) Other area Total

¥16,922 ¥3,792 ¥5,376 ¥4 ¥26,094



Japan Thailand Indonesia Asia (other) Other area Total

$152,276 $27,229 $23,758 $32,244 $102 $235,609

(3) Information by major customer

For the years ended March 31, 2016 and 2015, the major customer that

accounted for 10% or more of total net sales recorded in the

Consolidated Statements of Income and Comprehensive Income is as fol-

lows.


Millions of yen

Major Customer Net Sales Segment

PT Astra Honda Motor ¥12,518 Car Electronics business


Millions of yen


PT Astra Honda Motor ¥11,285 Car Electronics business




PT Astra Honda Motor $111,082 Car Electronics business

(Information of impairment loss on property, plant and equipment by reportable segment)


(Millions of yen)

Device businessCar Electronics

businessNext Generation Energy business Other

Adjustments and Eliminations Total

Impairment loss — — ¥30 — ¥8 ¥38


None

For the year ended March 31, 2016(Thousands of U.S. dollars)




Impairment loss — — $269 — $73 $342



(Information of amortization and balance of goodwill by reportable segment)

For the year ended March 31, 2016(Millions of yen)




Amortization of goodwill ¥35 — — — — ¥35

Goodwill as of March 31, 2016 ¥50 — — — — ¥50

For the year ended March 31, 2015(Millions of yen)




Amortization of goodwill ¥35 — — — — ¥35

Goodwill as of March 31, 2015 ¥86 — — — — ¥86

For the year ended March 31, 2016(Thousands of U.S. dollars)




Amortization of goodwill $314 — — — — $314

Goodwill as of March 31, 2016 $445 — — — — $445

22. Consolidated statements of changes in net assets

(1) Categories and numbers of stock issued

For the year ended March 31, 2016(Thousands of shares)

Number of shares at beginning of the year

Increase in numbers of shares

Decrease in numbers of shares

Number of shares at end of the year

(Shares issued)

Common stock 103,389 — — 103,389

Total 103,389 — — 103,389






(Shares issued)

Common stock 103,389 — — 103,389

Total 103,389 — — 103,389

(2) Categories and numbers of treasury stock






(Shares of treasury stock)

Common stock 356 11 — 367

Total 356 11 — 367






(Shares of treasury stock)

Common stock 348 8 — 356

Total 348 8 — 356



(3) Dividends

(A) Dividends paid for the year ended March 31, 2016Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date

Ordinary general meeting of shareholders on June 26, 2015

Common stock ¥1,030 million ¥10 March 31, 2015 June 29, 2015

(B) Dividends paid for the year ended March 31, 2015Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date


Common stock ¥1,030 million ¥10 March 31, 2014 June 30, 2014

(C) Dividends with the cut-off date in the year ended March 31, 2016 and the effective date in the year ending March 31, 2017Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date


Common stock ¥1,287 million ¥12.5 March 31, 2016 June 30 2016

(D) Dividends with the cut-off date in the year ended March 31, 2015 and the effective date in the year ended March 31, 2016Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date


Common stock ¥1,030 million ¥10 March 31, 2015 June 29 2015

23. Profi t attributable to owners of parent per share

The calculation of profi t attributable to owners of parent per share for the

years ended March 31, 2016 and 2015 is as follows:


U.S. dollars

2016 2015 2016

Profi t attributable to owners of parent ¥205 ¥5,253 $1,820

Amounts not attributable to common stock — — —

Profi t attributable to owners of parent to common stock 205 5,253 1,820

Weighted average number of ordinary shares (thousands) 103,026 103,036

Diluted profi t attributable to owners of parent per share was not calculated

herein since the Company had no dilutive securities, such as convertible

bonds or warrants.



Independent Auditor’s Report



14/4 14/5 14/6 14/7 14/8 14/9 14/10 14/11 14/12 15/1 15/2 15/3 15/4 15/5 15/6 15/7 15/8 15/9 15/10 15/11 15/12 16/1 16/2 16/3

Stock price Trading volumeTopix

0

300

600

900

1,200

1,500

0

60,000

120,000

180,000

240,000

300,000

CORPORATE DATA

STOCK INFORMATION

STOCK PRICE AND TRADING VOLUME

Company Name: Shindengen Electric Manufacturing Co., Ltd.

Established: August 16, 1949

Capital: ¥17,823,148,008

Number of Employees: 4,786 (Consolidated basis)

1,103 (Nonconsolidated basis)

Stock Exchange Listing: June 2, 1958 (Tokyo Stock Exchange, First Section)

Security Code: 6844

Total Number of Issued Shares: 103,388,848

Ordinary General Meeting of Shareholders: June

Accounting Auditors: Ernst & Young ShinNihon LLC

Number of Shareholders: 6,613

Corporate Information As of March 31, 2016




7

6

14

151618

19

20

13

22

21

17

34

5

23

26

24 29

25

10 11

8 9

12

1

27

28

2

Network

SHINDENGEN ELECTRIC MANUFACTURING CO., LTD.

1. Head Offi ce: New-Ohtemachi Bldg., 2-1, Ohtemachi 2-chome, Chiyoda-ku, Tokyo 100-0004, Japan Phone: +81-3-3279-4431

2. Hanno R&D Center: 10-13, Minamicho, Hanno City, Saitama 357-8585, Japan Phone: +81-42-973-3111

3. Osaka Branch Offi ce: Minami Senba Heart Bldg., 3-2, Minami Senba, 2-chome, Chuo-ku, Osaka City, Osaka 542-0081, Japan Phone: +81-6-6264-7770

4. Nagoya Branch Offi ce: Nagoya Daiichi Bldg., 19-24, Nishiki 1-chome, Naka-ku, Nagoya City, Aichi 460-0003, Japan Phone: +81-52-221-1361

5. Utsunomiya Offi ce: Flora Bldg., 9-15, Higashi Syukugou 1-chome, Utsunomiya City, Tochigi 321-0953, Japan Phone: +81-28-637-3615

6. Seoul Offi ce: B701-4. 230, Simin-daero, Dongan-gu, Anyang-si, Gyeonggi-do, Korea Phone: +82-31-385-1431

SUBSIDIARIES & AFFILIATESOverseas

Sales and Service 7. Shindengen America, Inc. (Share ownership: 100%) Phone: +1-847-444-1363

Shindengen (H.K.) Co., Ltd. (Share ownership: 100%) 8. Head Offi ce (Hong Kong) Phone: +852-2317-1884 9. Taiwan Representative Offi ce Phone: +886-2-2321-3990

Shindengen UK Ltd. (Share ownership: 100%)10. Head Offi ce Phone: +44-20-3829-698011. German Branch Phone: +49-211-4919680

12. Shindengen Singapore Pte Ltd. (Share ownership: 100%) Phone: +65-6445-0082

13. Shindengen (Shanghai) Electric Co., Ltd. (Share ownership: 100%) Phone: +86-21-6270-8000

Manufacturing14. Lumphun Shindengen Co., Ltd. (Share ownership: 100%)

15. Shindengen Philippines Corp. (Share ownership: 100%)

16. Shindengen Lao Co., Ltd. (Share ownership: 100%)

Manufacturing and Sales17. PT. Shindengen Indonesia (Share ownership: 100%)

18. Shindengen Vietnam Co., Ltd. (Share ownership: 100%)

19. Guangzhou Shindengen Electronic Co., Ltd. (Share ownership: 100%)

20. Shindengen (Thailand) Co., Ltd. (Share ownership: 100%)

21. Shindengen India Pvt. Ltd. (Share ownership: 100%)

22. Napino Auto & Electronics Ltd. (Share ownership: 22.57%)

Japan

Sales and Service23. Shindengen Kumamoto

Techno Research Co., Ltd. (Share ownership: 100%) Phone: +81-96-337-5200

24. Shindengen Enterprise Co., Ltd. (Share ownership: 100%) Phone: +81-42-974-5721

Manufacturing25. Akita Shindengen Co., Ltd. (Share ownership: 100%)

26. Higashine Shindengen Co., Ltd. (Share ownership: 100%)

27. Okabe Shindengen Co., Ltd. (Share ownership: 100%)

28. Shindengen Three E Co., Ltd. (Share ownership: 100%)

29. Shindengen Mechatronics Co., Ltd. (Share ownership: 35%)


AN

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RT 2016

Printed in JapanA014-8

www.shindengen.co.jp/


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