Year Ended March 31, 2017 Annual Report 2017 · 2011/3 2012/3 2013/3 2014/3 2015/3 Maximizing...

Annual Report 2017

Year Ended March 31, 2017

Maximizing energy conversion efficiency for the benefit of

humanity and society.

ANNUAL REPORT 20171 SHINDENGEN ANNUAL REPORT 2017

ur MissionOO

120,000(¥ Million)

100,000

80,000

60,000

40,000

20,000

02011/3 2012/3 2013/3 2014/3 2015/3

Maximizing energy conversion efficiency for the benefit of humanity and society“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 semiconductors as well as car electronics and power system products that use these semiconductors.

Power Device

Car Electronics

Next Generation Energy

Shindengen’s Core Technologies

Circuit Technologies

MountingTechnologies

Semiconductor Technologies Technologies

Circuit Technologies

Semiconductor Technologies

ANNUAL REPORT 2017 2SHINDENGEN ANNUAL REPORT 2017

Overseas Office

Sales and Service

Manufacturing

Manufacturing and Sales

2SHINDENGEN ANNUAL REPORT 2017

2016/3 2017/3

47,402Millions of yen


11,092 Millions of yen

A Cautionary Note on Forward-Looking Statements

This annual report contains statements and information regarding the plans, pros-pects 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.

Contents1. Our Mission

3. Board of Directors

5. Financial and Non-Financial Highlights

7. Long-Term Vision for 20219. Growth Drivers

11. Interview with the President 15. Business Portfolio

17. Business Segments17. Power Device

19. Car Electronics

21. Next Generation Energy

23. CSR Initiatives

24. Corporate Governance

26. Directors, Audit & Supervisory Board Members and Officers

27. Financial Section27. 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

57. Corporate Information

58. Network

Net Sales

Net Sales

Net Sales

Our new corporate logoWe have updated the Shindengen logo. Replacing the previ-ous logo, which featured the diode circuit symbol and the company name, the new logo combines the company name with a “conversion line,” which starts horizontal then turns upward, symbolizing the growth of Shindengen to come.

Director and Senior OfficerKenji Horiguchi

1983 Joined Shindengen

2003 Associate General Manager, Advanced Associate General Manager, Advanced Power Products Division, Electronic Device 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 Officer and President, Higashine Shindengen Co., Ltd.

2013 Director (current position)

2016 Senior Officer (current position)


2004 Department Manager, Finance Department

2009 Department Manager, Personnel Department

2012 Director (current position) and Officer

2015 Senior Officer

2015 President, Shindengen Enterprise Co., Ltd.

2016 Executive Officer (current position)

Director and Executive OfficerYasumi Negishi

oard of Directors


1996 Managing Director, Shindengen Singapore Pte Ltd.

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

2008 Officer; Deputy Division Director, Electronic Device Division Group

2009 Officer, Corporate Planning Group

2009 Director

2013 Division Director, Sales Division Group

2014 Executive Officer

2015 President, Shindengen Device Commerce Co., Ltd.

2016 President (current position)

PresidentYoshinori Suzuki

BB

3 SHINDENGEN ANNUAL REPORT 2017

In line with our long-term vision, we are building a stronger management structure to support the dramatic global development of the power semiconductor business, which has now entered a new stage.

“ “

Director and Senior OfficerNobuyoshi Tanaka


2006 Department Manager, Planning Department, Corporate Planning Group

2010 Department Manager, Administration Department, Electronic Device Management Division, Electronic Device Division Group

2011 Officer; Division Director, Electronic Device Division Group

2016 Senior Officer

2017 Director; Senior Officer (current position)

Outside Director Ichiro Yamada

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 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)

Outside DirectorHideyuki Hashimoto

1991 Joined Chuo Shinkou Audit Corporation

1995 Registered as a certified public accountant

2000 Opened Hashimoto Public Accounting Office

2000 Registered as a certified tax accountant

2007 Joined BDO Toyo & Co.

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

2015 Outside Director, Shindengen (current position)



Results for Fiscal 2016

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 MarginOperating Income and Operating Margin

EPS and ROE Cash Dividends per Share

Profit(attributable to owners of parent)

15/3 16/3 17/3

90,000

60,000

30,000

6,000

0

15/3 16/3 17/3

4,500

3,000

1,500

8,000 12

0 0

15/3 16/3 17/3

6,000 9

4,000 6

2,000 3

(%)8,000 8

0 0

15/3 16/3 17/3

6,000 6

4,000 4

2,000 2

15

0

15/3 16/3 17/3

10

5

(%)60 20

0 0

15/3 16/3 17/3

45 15

30 10

15 5

108,25598,110

92.689

5,253

205

3,5097.1

0.8

5.7

7,674

5.239

799

5.0 5.1 5.4

5,377 4,991 5,04410.0

12.5 12.5

5.09.9

50.98

34.07

6.7

1.990.4




inancial and Non-Financial HighlightsFFProfit

(attributable to owners of parent)Operating IncomeNet Sales


Results for Fiscal 2016

Electric Power Consumption

(Mwh)150,000

0

Number of Employees(Only regular employees)

CO2 Emissions

Employees by Region (As of March 31, 2017)

Composition of Shareholders(As of March 31, 2017)

Water Consumption

15/3 16/3 17/3

120,000

90,000

60,000

30,000

(t-CO2)100,000

0

15/3 16/3 17/3

75,000

50,000

25,000

(Thousand m3)2,000

0

15/3 16/3 17/3

1,500

1,000

500

6,000

0

15/3 16/3 17/3

4,000

2,000

Total

6,171employees

Total

6,257shareholders

1,5621,6661,59877,350

81,633126,937 132,088133,521

70,705

5,2744,786 4,689

32.36%

47.7%

21.2%

0.4%

12.2%

18.5%

18.52%29.34%

19.78%

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

132,088Mwh

81,633t-CO2

1,666Thousand m3

inancial and Non-Financial Highlights

Electric Power Consumption

Water ConsumptionCO2 Emissions


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

2021

1 Fully utilizing our semiconductor technologies to accelerate into the advanced power component businesses

Leveraging 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 structure

We will accelerate product development to speed up the new product launch cycle and create a highly profitable business structure.

3 Key markets

In 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.

Long-Term Vision for

Numerical Targets

Fully utilizing our semiconductor technologies to accelerate into

Leveraging power semiconductors manufactured in-house, we will further evolve and strengthen the competitiveness of

Net sales

¥150 billionOperating income margin

10.0 % or above

ROE

10.0 % or above

Long-Term Vision

FY2021 (Targets)

Net sales

¥92.6 billionOperating income margin

5.7 %ROE

6.7 %

FY2016 (Results)


Healthcare Market

Target Sectors

Target Sectors

Target Sectors

Target Sectors

Strategic Products

Strategic Products

Strategic Products

Strategic Products

Mobility Market

Energy Market

Key Markets

Industrial Machinery Market

Next-generation automobiles

Next-generation automobile infrastructure

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


Inverters

Ultra-compact power supply


Inverters

1

3

2

4

Shindengen offers a wide range of power modules. These products are built around diodes, a long-standing strength of the Power Device segment. Offered as a single package, power modules also incorporate MOSFETs as switching devices. We develop and offer power modules that meet customer needs by combining packaging technologies developed for discreet devices and power supply ICs, unit mounting and circuit technologies fostered through applications within Shindengen’s Car Electronics and Next Generation Energy segments, and process technologies honed over years of product development. By using chips specially developed with our semiconductors, which boast both high market share and an excellent reputation, we are able to make our power modules even smaller. Furthermore, we advance meticulous product development to meet customer product specifications by offering customized products and power modules that use low voltage MOSFETs, which are one of Shindengen’s strengths and expected to see market growth. Through these efforts, we are winning trust in the marketplace.


Long-Term Vision for 2021

Growth DriversPower modules, in the Power Device segment, are a pillar of our growth strategies in the run up to 2021.

Shindengen’s Power Modules The Power Modules Market

Fuji Keizai Co., Ltd:Reality and Future Prospect of Next Generation Power Device

and Power Electronics Related Apparatus Market 2017

Power devices are forecast to see double-digit growth by 2020. Power modules are expected to act as a growth driver, expanding even faster than the overall category.

Power modules

17% growth

Other power devices

10% growth

Power modules　　Other power devices

¥2.7 trillion¥2.4 trillion

2016 2020


In the industrial machinery market, partly to save electricity, the adoption of inverters is advancing worldwide. At the same time, growing robotic automation is driving the increased use of servomotors as labor costs rise around the world. These changes are generating increased demand for more sophisticated control, including safety in circuit design, as well as a shift from discreet devices to power modules in order to reduce required mounting area. In 2014, Shindengen released power modules that combine a converter (incoming AC to DC) and a motor brake. These highly integrated modules are small, lightweight, and specifically designed to meet customer needs. We offer optimal solutions for each custom-er, including the customization of said power modules. By creating optimized modules that combine our power semiconductors, which have long enjoyed a solid reputation, and our unique mounting technologies, we are meeting customer needs.

Looking at the market for power modules used in automobiles, the use of eco-friendly vehicles is growing, and even gasoline-powered cars are increasingly being equipped with engine control units (ECUs). As a result, demand for the miniaturization of related components is growing stronger than ever. Shindengen is developing specialized DC/DC converter power modules for eco-friendly vehicles. These modules maintain high efficiency, but reduce the mounting area by half compared to previous Shindengen products, while reducing volume and weight by more than a third. By fully leveraging our accumulated sales track record, we are expanding our customized offerings, including power steering modules, onboard charger modules, electric forklift modules and modules for compact electric vehicles (EVs). By doing so, we are earning the trust and meeting the needs of customers in the automotive market, where demand for high quality, small, lightweight products is strong.

High voltage full-bridge MOS power module

*Both products pictured are examples of DC/DC converter modules.

Motor drive system transformer power module

Secondary side synchronous rectification low voltage MOS power module

Power Modules for Industrial Machinery

Power Modules for AutomobilesLooking at the market for power modules used in automobiles, the use of eco-friendly vehicles is growing, and even gasoline-powered cars are increasingly being equipped with engine control units (ECUs). As a result, demand for the miniaturization of related components is growing stronger than ever. Shindengen is developing specialized DC/

including power steering modules, onboard charger modules, electric forklift modules and modules for compact electric vehicles (EVs). By doing so, we are earning the trust


Secondary side synchronous rectification low voltage MOS

advancing worldwide. At the same time, growing robotic automation is driving the increased

as a shift from discreet devices to power modules in order to reduce required mounting area. In 2014, Shindengen released power modules that combine a converter (incoming AC to DC) and a motor brake. These highly integrated modules are small, lightweight, and specifically designed to meet customer needs. We offer optimal solutions for each customer, including the customization of said power modules. By creating optimized modules that combine our power semiconductors, which have long enjoyed a solid reputation, and our

Machinery

Highlight

The semiconductor industry is forecast to see considerable growth in the area of next-generation devices. Next-generation devices are already being used in certain fields, but full-fledged growth is expected to take off around 2020. The use of next-generation devices promises numerous benefits for power modules, as well, and Shindengen is advancing the development of such modules. We are currently building prototypes and investigating possibilities as we look to provide power modules that use next-generation devices to meet customer needs in the future. This field offers great promise going forward.


SHINDENGEN ANNUAL REPORT 201711

Shindengen’s power modules support the mobility market and IoT. Leveraging our core technologies and alliances, we are blazing the trail in new markets.

Yoshinori SuzukiPresident

nterview with the PresidentI


Please tell us about Shindengen’s fiscal 2016 results.

Please describe Shindengen’s progress under its long-term vision for fiscal 2021.

Q1

Q2

In fiscal 2016, the year ended March 31, 2017, the Shindengen Group recorded a decrease in sales but an increase in profit, with net sales of ¥92,689 million (down 5.5% year on year), operating income of ¥5,239 million (up 555.2% year on year), and ¥3,509 million in profit attributable to owners of the parent (compared with ¥205 million in the previous fiscal year). By segment, the Power Device segment saw increases in sales and profit, reflecting expanding semiconductor demand in growth markets, such as mobility and industrial machinery. In the Car Electronics segment, sales of engine control units (ECUs) were firm, staying roughly level year on year despite stagnation in the mainstay Indonesian motorcycle market. However, due in part to the strong yen (compared to weakening Asian currencies), segment sales decreased, while profit increased. In the Next Generation Energy segment, the adoption of high-voltage direct current (HVDC) power supply sys-tems advanced considerably in Japan, but sales in the photovoltaic generation industry were sluggish, leading to decreased sales and a segment operating loss. The overseas sales ratio was just below 60%. We plan to continue to raise this ratio going forward, but doing so will also raise the risk presented by exchange rate fluctuations. To mitigate this risk, we are working to increase dollar-denominated purchasing and local material procurement in order to reinforce overseas supply chains.

We launched the long-term vision for the period leading up to fiscal 2021 when I took office as president in April 2016. Over the 68 years since its establishment, the Shindengen Group has developed core technologies in the areas of semiconduc-tors, circuit design and mounting through business in 14 countries and regions around the world. Today, the world is being transformed by the accelerating use of electronics in automobiles and the Internet of things (IoT), as part of which all kinds of industrial machinery are connected to each other via the Internet . To take advantage of these global megatrends and leverage the Group’s core technologies, the long-term vision for fiscal 2021 positions mobility, energy, industrial machinery and healthcare as growth markets. The strategic product that holds the key to growth in these four fields is power modules. In fiscal 2016, usage of our power modules increased and sales grew steadily, though there were delays in product development with some customers. To accelerate this progress, we are moving away from our previous stance of self-suffi-ciency and focusing on forming business alliances as a Companywide policy. For example, we are working with other com-panies to develop and propose systems that incorporate Shindengen products and related peripheral products. These alliances are helping to expand the range of the Group’s businesses. Their success has led to product development and system proposals that we could not have achieved single-handedly. Simultaneously, looking at the regional strategy of the Car Electronics segment, we are aggressively advancing product development and setting up production systems to capture demand in the rapidly growing Indian motorcycle market. In the energy field, we are focusing on R&D related to quick chargers for electric vehicles (EVs). Range is the greatest hurdle confronting EVs today. To enable EVs to go further on a single charge, battery capacity is expanding. In line with this growth, recharging infrastructure has to provide greater power output in order to enhance charging speed. Major manufacturers around the world are competing fiercely in this area, and Shindengen is working to develop Japan’s first high-capacity quick charger. At the same time, we are also considering the development of wireless EV charging systems

The Shindengen Group’s scope of consolidation and Group companies, please refer to Management’s Discussion and Analysis on pages 28–30 and Network on page 58.

Operating results by segment (excluding Other), please refer to Business Portfolio on pages 15–16.

Operating results for the last five years, please refer to Five-Year Summary on page 27.

Performance

Strategy

For more information

about


Interview with the President

0

10

2015 2016 2017 2018 ・・・・・・・・・・20210

15

25

2015 2016 2017 2018

130

2015 2018 2020

Power Module Net Sales Rapid Indian Motorcycle Market Growth

Photovoltaic Generation System O&M Market Forecast

(Millions of vehicles)

(Shindengen survey) (Shindengen survey)

(Billions of Yen)(Billions of Yen)

7% year-on-year growth forecast

0

Please describe Shindengen’s efforts to reinforce governance and the efficacy of the Board of Directors.Q3To increase corporate value over the medium and long term, the Shindengen Group believes effectively functioning corpo-rate governance is of utmost importance. In particular, we believe our top priorities must include constantly reinforcing the efficacy of the internal control system, which is the foundation of management, and improving the efficacy of decision-making bodies, such as the Board of Directors and Management Committee. Based on this understanding and on opinions we received directly from outside directors and outside Audit & Supervisory Board members, in fiscal 2016 we shifted the responsibility for the quarterly reports to the Board of Directors on the status of the officers’ job execution from the directors to the officers. In addition, we improved the efficacy of the Management Committee by expanding its participants beyond directors to include officers. Through these and other incremental reforms, we are steadily working to create deliberative bodies that incorporate a more diverse range of opinions. To evaluate the progress made in fiscal 2016, the first year of these reforms, we conducted a survey on the efficacy of the Board of Directors, querying all directors and Audit & Supervisory Board members. The survey results were discussed by a group composed mainly of outside directors and outside Audit & Supervisory Board members, and their findings were shared with the entire Board of Directors. These efforts concluded that in the first year of reforms, directors and Audit & Supervisory Board members engaged in lively discussion at Board of Directors’ meetings from varying viewpoints based on their diverse insights and experience, and the Board of Directors largely functioned effectively. Securing more time for future policy and strategy discussion was an area identified for improvement. The Board of Directors will continue to debate and consider these issues.

as we prepare to provide advanced technological support for the coming prevalence of EVs throughout society. Looking at photovoltaic generation, in addition to our existing business areas of selling equipment and extended warranties, we are pushing the O&M business. This new business comprises monitoring and services related to operation (O) and upkeep after system installation as well as regular maintenance (M). By combining this business with repair services, we are working to increase our presence in the O&M market, which is forecast to grow.

Governance

The long-term vision (ending fiscal 2021), please refer to Long-Term Vision for 2021 on pages 7–8.

Shindengen’s strategic product, power modules, please refer to Growth Drivers on pages 9–10.

The corporate governance system, please refer to Corporate Governance on pages 24–25.


about


about


Please tell us about your forecast for fiscal 2017 and your thoughts on returning profits to shareholders.Q4Looking at the business environment surrounding the Shindengen Group, we expect firm demand for industrial machinery and automobile-related products. In Asian motorcycle markets, some areas will be stronger than others, but we expect solid demand overall. Given this environment and assuming an exchange rate of US$1 to ¥106, we forecast fiscal 2017 net sales of ¥89.5 billion, down 3.4% year on year, due in part to changes in foreign exchange rates. Forward-looking investments we are making to increase power module production capacity and develop next-generation devices as well as the strong yen will weigh on profit. We forecast an operating income of ¥3.2 billion (down 38.9% year on year), profit attributable to owners of the parent of ¥2.6 billion (down 25.9% year on year), and net income per share of ¥252.39.* For fiscal 2017, we are planning to pay a cash dividend of ¥125* per share, on par with the fiscal 2016 dividend of ¥12.5 per share. Our basic approach to returning profits to shareholders is to pay stable dividends while raising our share price through business growth. To do so, we will make capital investments in facilities and R&D related to growth areas as well as M&A, based on comprehensive consideration of such factors as the Group’s financial soundness and the 10% or above target for ROE under the long-term vision for 2021.

* Shindengen plans to execute a share consolidation effective October 1, 2017, at a ratio of 10 common shares to one. The fiscal 2017 forecasts for net income per share and annual cash dividend per share take this into account.

Do you have any other message for shareholders and investors?Q5

Message

On July 1, 2017, we changed our corporate logo. The new logo expresses our determination that each and every Group employee transform in order to make Shindengen a truly global company. It is also a symbol of our goal of always taking a fresh, new approach as we rapidly develop new products, some through alliances, and implement other initiatives to meet customer needs in the new markets outlined in the long-term vision for 2021. Like logic ICs and memory, power devices and power supplies for driving and controlling equipment and machinery are crucial to the increasing use of electronics in automobiles worldwide and expanding applications of IoT technologies throughout industry. We are working to firmly take hold of these mega-trends by, for example, developing new power devices using gallium nitride (GaN) and silicon carbide (SiC) and globally strengthening our business alliances in the Group’s strongest business domains. Through such measures, we are building the foundation for Shindengen to reach the century mark as a company in which we can all take pride. I hope that our shareholders will view the Shindengen Group’s corporate value from a long-term perspective. We look forward to your continued understanding and cooperation.


Segments Major Products and MarketsThe 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-pur-pose 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

Rectifier for Communication Stations

Wall-Mounted Regular-UseChargers for EVs/PHEVs

Main Products and Markets



Products MarketsRectifiers for communication stationsRectifiers for mobile device base stations Inverters for communication stations Monitoring units EV/PHEV chargers (quick and regular-use)Power conditioners for photovoltaic generation 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 unitsFour-wheel EV/HEV/PHEV/FCV* products

Mobility (motorcycles, four-wheelvehicles)Generators

Products MarketsBridge diodes High-speed rectifier diodes Thyristors SIDACsPower 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

usiness Portfolio

PowerDevice

CarElectronics

NextGenerationEnergy

BBBBBB


Net Sales Operating Income and Margin

0

(Millions of Yen) (Millions of Yen)

15/3 16/3 17/3

40,000

20,000

31,261

0

(%)

15/3 16/3 17/3

6,000

2,000

4,000

0

15

5

10

3,476

11.1

Net Sales Operating Income and Margin

0


15/3 16/3 17/3

60,000

40,000

20,000

47,402

0

(%)

15/3 16/3 17/3

8,000

2,000

4,000

6,000

0

20

5

10

15

5,217

11.0

Net Sales Operating Income

0


15/3 16/3 17/3

30,000

20,000

10,00011,093

-1,000

15/3 16/3 17/3

500

-500

0

-406

Operating Performance Percentage of Net Sales

33.7%

51.1%

12.0%


Power Device

OfficerTomoaki Nishi

usiness SegmentsBB

Going forward, this segment’s key markets will continue to be the automobile, industrial machinery and home electronics markets. In the automobile market, we seek to reinforce both our existing product lineup and areas related to motor drive systems. In fiscal 2016, we gradually built up results under this strategy, mainly in power modules. At the same time, up results under this strategy, mainly in power modules. At the same time, the use of ECUs and other such products in automobiles is increasing, as is semiconductor demand. Against this backdrop, we are working hard to realize smaller, better discreet devices. In the industrial machinery market, as well, we will increase the ratio of power modules in the product mix. In line with this policy, we are gradually expanding the product lineup and achieving results.

We will continue to allocate greater management resources to business outside Japan, aiming to create a framework for making timely technologi-cal proposals to customers in overseas markets and to raise the overseas sales ratio from approximately 40%, at present, to 50%.

“

Segment Overview

Strategy

“

One of the biggest strengths of this segment is its extensive lineup of semiconductor devices used in high-voltage One 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 engine and high-current controls. Diodes, one of our mainstay products, are used in power supply for automobile engine control units (ECUs), industrial machinery including factory automations and robots, as well as home electronics. control units (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 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 supply power modules for industrial machinery and automobiles, power ICs (integrated circuits) for lighting, and other high-performance products.other high-performance products.


R&DIn diodes, we advanced the development of high-current prod-ucts mainly for the mobility market as well as high-voltage, high-current products for industrial machinery. In switching devices, we developed low-voltage MOSFETs and expanded the triac product lineup. In IC products, we developed low input-voltage driver ICs for the mobility market and control ICs for LED lighting. In power modules, we developed numerous products for the mobility market. Furthermore, we advanced R&D in power mod-ules utilizing next-generation semiconductors, including evaluating their performance when used in power supplies. R&D expenses in this segment came to ¥2,140 million.

Capital InvestmentSegment capital investment totaled ¥1,997 million. Capital spending went mainly toward expanding production capacity and upgrades at Akita Shindengen Co., Ltd. and Higashine Shindengen Co., Ltd.

R&D and Capital Investment

(Millions of Yen)

R&D Capital investment

3,000

15/3 16/3 17/3

2,000

1,000

0

2,4372,641

1,9722,081 2,140

1,997

Environmental Initiatives

Annual power consumption exceeds 20 trillion kWh globally and is expected to continue growing. The world cannot, however, afford to recklessly increase electricity generation to keep up with current consumption growth. Power electronics companies are constantly striving to create products that offer better con-version efficiency to reduce power waste. Shindengen is no exception; in line with our corporate mission, we pursue maxi-mum conversion efficiency as we create semiconductor prod-ucts. Furthermore, by making products smaller and packaging them as modules, we are both achieving higher conversion effi-ciency and reducing product weight. By using improvements such as these to reduce power supply size and simplify circuit designs, we are serving our customers and society.


Highlight

Annual power consumption exceeds 20 trillion kWh globally and


Car Electronics

Going forward, this segment’s key markets will continue to be the motor-cycle, four-wheel vehicle and generator markets. While Asian motorcycle markets did not grow as much as expected in fiscal 2016, they are forecast to continue expanding over the medium and long term. Tightening envi-ronmental regulations in many countries are creating an even greater need for fuel injection engine control units (FI-ECUs) with idle stop functions and other forms of added value. Seeking to increase functionality, we are and other forms of added value. Seeking to increase functionality, we are developing even more advanced products that will meet market needs. At the same time, we are advancing preparations for future regulations in such markets as India, where strict regulations have not yet come into effect, working to improve our manufacturing and supply frameworks to withstand cost competition.

In the four-wheel vehicle market, we continue to reduce the size and improve the efficiency of our converters for eco-friendly vehicles. At the same time, we are beginning mass production of ECUs for gasoline-pow-same time, we are beginning mass production of ECUs for gasoline-pow-same time, we are beginning mass production of ECUs for gasoline-powered vehicles at overseas sites.

usiness SegmentsBB

“

Segment Overview

Strategy

“

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

Senior OfficerSeiji Niizeki


Environmental Initiatives Highlight

R&DIn the ASEAN region of the motorcycle market, Shindengen developed and began production of derivative models of ECUs with built-in idle-stop functions for motor scooters. We also began development of ECUs for the Indian market. In the four-wheel vehicle field, we began mass producing deriv-ative models of chassis ECUs and small, high efficiency car power supplies. We also began full-fledged ECU production at a produc-tion site in Thailand. In addition, we commenced the development of fundamental technologies needed to achieve even greater size and cost reductions for next-generation models. R&D expenses in this segment came to ¥1,027 million.

Capital InvestmentSegment capital investment totaled ¥1,067 million. Capital invest-ment was aimed mainly at expanding production capacity and rationalization at Okabe Shindengen Co., Ltd., PT. Shindengen Indonesia and Shindengen (Thailand) Co., Ltd.

Businesses in Asian motorcycle markets account for more than 80% of sales in the Car Electronics segment, and one of Shindengen’s mainstay products in these markets is its fuel injection engine control units (FI-ECUs). These products are used in motor scooters, mainly in Asia. In addition to optimizing the amount and timing of gasoline injected into the engine, they feature idle stop functions, dramatically reducing gas emissions. Motorcycles and scooters are a key mode of transportation across Asia. As environmental regulations advance, Shindengen is providing products that play a major role in meeting rising standards, thus serving both customers and society.



(Millions of Yen)


3,600

2,400

1,200

0

2,225

3,043

1,234 1,2131,0671,027

15/3 16/3 17/3

Idle Reduction ECU

Control Circuit for Starter Generator

Idle Reduction System

Control Circuit

Engine

Sensors LoadsInputCircuit MPU Output

Circuit

StarterGenerator


Next Generation Energy

Segment Overview

StrategyThe Next Generation Energy segment currently handles mainly domestic infrastructure-related products, leveraging its highly efficient and reliable power supply technologies. In the communications market, we are work-power supply technologies. In the communications market, we are work-power supply technologies. In the communications market, we are work

usiness Segments

“ing to improve the performance and expand the lineup of our high-voltage direct current (HVDC) power supplies, which we introduced before our competitors, in order to maintain and expand our leading market share. In the photovoltaic generation market, we are working to create one-stop ser-vice encompassing remote monitoring, technician dispatch, repair and inspections, aiming to meet growing demand for after-sales service, improve customer satisfaction and expand our business. Finally, in EV-related markets, the growing number of eco-friendly vehicles on the road is creating a variety of new needs. We are working to meet these needs by, for example, creating higher-capacity chargers and products that meet the specifications of each country through means that include over-seas expansion through alliances with other companies.

Senior OfficerMakoto Shiraha

BB

“The Next Generation Energy segment’s business is centered on large power supplies for communications The 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 supplies, which applications and power conditioners for photovoltaic generation. Our communications-related power supplies, which serve as valuable communications infrastructure, are ahead of the competition and compatible with high-efficiency, serve as valuable communications infrastructure, are ahead of the competition and compatible with high-efficiency, high voltage direct current power input that is growing in response to rapidly rising communications volumes. Our 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 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 electric vehicle and plug-in hybrid are developing systems to remotely monitor and control power conditioners. In electric vehicle and plug-in hybrid electric vehicle (EV/PHEV) chargers, as the only Japanese manufacturer that supplies both quick and regular-use electric vehicle (EV/PHEV) chargers, as the only Japanese manufacturer that supplies both quick and regular-use chargers, we provide highly efficient and reliable products and are eyeing overseas expansion.chargers, we provide highly efficient and reliable products and are eyeing overseas expansion.


Environmental Initiatives Highlight


R&DIn the new energy area, we enhanced our lineup of power condi-tioners for photovoltaic generation, adding products for higher generation capacity and working to enhance optional features. We also began the mass production of cloud-enabled monitoring and measurement systems for power conditioners featuring data collection and remote control capabilities. In EV/PHEV chargers, we began development of high-output quick chargers, aiming to meet the needs presented by higher capacity EV batteries. In the information and communications area, we developed and commenced mass production of high-efficiency, medium-capacity HVDC power supply systems as well as high-efficiency inverters offering improved AC power supply reliability. R&D expenses in this segment came to ¥474 million.

Capital InvestmentSegment capital investment totaled ¥156 million. Capital spending went mainly toward upgrades at Shindengen Three E Co., Ltd.

To protect the global environment and reduce resource use, both Japan and the world need to implement thoroughgoing energy-saving measures and adopt renewable energy. Growing data trans-mission traffic is increasing power consumption, but at the same time, efficiency gains in power supply equipment for data centers and transmission net-works are producing energy-saving effects. In addi-tion, more efficient power conditioners and chargers for electric and plug-in hybrid electric vehicles (EVs and PHEVs) as well as system optimization are help-ing to expand the adoption of renewable energy, thus serving both customers and society.


(Millions of Yen)


800

600

400

200

0

590

123

663

544

474

15/3 16/3 17/3

156

implement thoroughgoing energy-saving measures and adopt renewable energy. Growing data trans-mission traffic is increasing power consumption, but at the same time, efficiency gains in power supply equipment for data centers and transmission net-works are producing energy-saving effects. In addi-tion, more efficient power conditioners and chargers for electric and plug-in hybrid electric vehicles (EVs and PHEVs) as well as system optimization are help-


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 business activities as our overarching corporate social responsibility, and are working to help address the risk of climate change, reduce carbon emissions worldwide, and solve problems related to health and welfare.

Human RightsThe Shindengen Group respects international values with regard to human rights and is implementing initiatives to pro-mote human rights, including raising awareness of social issues accompanying economic globalization and employee rights.

Labor Practices

The Shindengen Group respects international values related to human rights and working conditions. In accordance with the Group Code of Conduct and internal Group standards, 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.

The Environment

The Shindengen Group established the Shindengen Global Environmental Charter in 1992, and has long made address-ing environmental issues a key management priority. Going forward, we will give consideration to international initiatives and targets aimed at creating a sustainable world, such as the Paris Agreement and Sustainable Development Goals (SDGs). The Group will strive to create eco-friendly products and reduce the environmental burden caused by its busi-ness activities in order to help address such social issues as climate change.

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 sup-ply chains, 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 seeks to create corporate value over the long term in order to help solve social problems, including global warming.

We take an active role in the communities where we do business, contributing to local development by helping solve social problems through our business activities and implementing social contribution initiatives.

The 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. These are organizational governance, human rights, labor practices, the environment, fair operating practices, consumer issues, and community involvement and development.

Our ISO 26000-Aligned CSR Initiatives

Developing Globally Oriented Human ResourcesThe Shindengen Group is globally expanding its operations, including design, production and sales, focusing mainly on Asia. The Group has more employees overseas than in Japan. In light of these factors, Shindengen is reinforcing such measures as English language training from the time employees join the Company, aiming to develop globally oriented human resources.

Setting Goals for Opportunities for WomenIn line with the Act on Promotion of Women’s Participation and Advancement in the Workplace, Shindengen has set the following goals.

1. Raise the percentage of women among new graduate hires to 30%. 2. Actively place female employees in a wide range of divisions and positions. 3. Further promote work-life balance. We regard diverse human resources, including women, as a source of strength, and are working toward these goals to improve corporate value.

Focus

SR InitiativesCC


Shindengen positions corporate governance as a central tenet to ensure management transparency, compli-ance, 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 System

To 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 specify 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 officer system to separate management deci-sion-making and business execution, thereby accelerating these functions and promoting management efficiency while strength-ening the supervisory 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 accelerate decision-making and promote efficient 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. With regard to infor-mation disclosure, we work to reinforce IR activities to improve management fairness and transparency.

Internal Audits and Audit & Supervisory Board Audits

We 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. The Corporate Internal Audit Division and Audit & Supervisory Board have regular quarterly meetings to report on such topics as internal control audits and risk management. Through these measures, we strive to maintain and strengthen an appropriate auditing system based on rel-evant laws and regulations.

Status of Accounting Audits

Our Audit & Supervisory Board members hold regular meetings with our accounting auditors to maintain mutual cooperation and discuss annual audit plans, review the results of interim and year-end audits, and conduct special ad hoc audits as required.

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

Shareholders’ Meeting

Status of Corporate Governance

orporate GovernanceCC


Outside Directors and Outside Audit & Supervisory Board Members

We 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 fields.

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 certified public accountant and tax accountant to provide man-agement with helpful advice.

Makoto Fujimaki was selected as an outside Audit & Supervisory Board member for his wealth of experience at financial institutions, with the expectation that he will contribute to precise audits based on his broad and sophisticated insight as a seasoned management professional.

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 Compensation

The 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 fixed monthly amount, but can be reduced if operating per-sation is a fixed monthly amount, but can be reduced if operating per-sation is a fixed monthly amount, but can be reduced if operating performance is severely poor or augmented by bonuses when performance is strong.

The annual compensation of directors and Audit & Supervisory Board members in fiscal 2017 was as follows.

Constructive Dialog with Shareholders

To 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 Management

We 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 financial 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 eight directors(including two outside directors. Does not include the employee salaries of directors who are concurrently employees)

¥112 million

Basic compensation for three Audit & Supervisory Board members(including two outside Audit & Supervisory Board members)

¥41¥41¥ million

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

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

3 In addition to individual meetings, means of engaging in dialog with shareholders include semiannual results briefings for institutional investors.

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

5 Shindengen has established regulations to prevent insider trading. These govern the use of non-public information. In accordance with these regulations, we enforce such mea-sures as silent periods in our dialog with investors.

orporate GovernanceC


Directors, Audit & Supervisory Board Members and Officers (As of June 29, 2017)

Directors

Audit & Supervisory Board Members

Officers

Yoshinori Suzuki President

Nobuyoshi Tanaka Director and Senior Officer

Yasumi Negishi Director and Executive Officer

Ichiro Yamada Outside Director

Kenji Horiguchi Director and Senior Officer

Hideyuki Hashimoto Outside Director

Yoshiaki Higo Audit & Supervisory Board Member

Makoto Shiraha

Seiji Niizeki

Hiroaki Tanaka

Osamu Ukegawa

Naoyuki Furukawa

Makoto Fujimaki Outside Audit & Supervisory Board Member

Yuichiro Miyake Outside Audit & Supervisory Board Member

Senior Officers Officers

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

Koji Kodama

Tomoaki Nishi

Takuya Kojima

Masahiro Sasaki

Masahito Fukunaga

Hirofumi Matsuo

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

Millions of yen

2017 2016 2015 2014 2013

Net sales ¥ 92,689 ¥ 98,110 ¥108,255 ¥104,564 ¥ 88,427

Operating income 5,239 799 7,674 11,313 3,333

Profit before income taxes 4,960 166 7,861 11,376 4,421

Profit attributable to owners of parent 3,509 205 5,253 12,130 4,010

Profit attributable to owners of parent per share —basic ¥ 34.07 ¥ 1.99 ¥ 50.98 ¥ 117.71 ¥ 38.06

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

Total assets ¥128,530 ¥133,101 ¥134,002 ¥132,824 ¥118,701

Total current assets 81,192 85,118 86,785 88,034 79,636

Property, plant and equipment 25,018 26,551 26,094 23,084 23,080

Total shareholders’ equity 54,573 52,355 53,186 49,777 39,371

Net cash provided by operating activities 7,788 10,421 9,027 13,146 7,657

Net cash used in investing activities (3,568) (5,884) (6,286) (5,156) (6,916)

Net cash used in financing activities (4,430) (2,865) (6,541) (6,319) (107)

Cash and cash equivalents at end of the year 38,272 38,905 38,047 39,804 37,149


ConsolidationDuring the fiscal year ended March 31, 2017 (fiscal 2016), the

Shindengen Group included the Company, 18 consolidated subsidiaries,

two nonconsolidated subsidiaries and two affiliated companies account-

ed for under the equity method. The change in the scope of consolida-

tion occurred because Shindengen absorbed Shindengen Device

Commerce Co., Ltd. in a merger that became effective on April 1, 2016.

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

firm, but the new energy area remained weak. In addition, exchange rate

fluctuations significantly impacted results across the Group’s business

areas.

Under these circumstances, the Group’s consolidated net sales

decreased 5.5% year on year to ¥92,689 million, but operating income

jumped 555.2% to ¥5,239 million, and ordinary income reached ¥4,739

million, compared with ¥405 million in the previous fiscal year. Profit

attributable to owners of the parent came to ¥3,509 million, a significant

increase from ¥205 million in the previous fiscal year, when the Company

recorded provision for product warranties.

Operating Results(Millions of Yen)

Fiscal 2016 Fiscal 2015 Change Change (%)

Net sales 92,689 98,110 (5,421) (5.5)

Operating income 5,239 799 4,440 555.2

Profit attributable to owners of the parent 3,509 205 3,304 —

Management’s Discussion and Analysis

(Millions of Yen)

Fiscal 2015 operating income

Fiscal 2016 operating income

Provision for product

warranties4,900

Structural reforms700

Labor and other cost reductions

500

Cost of sales reductions, etc.

1,100

Other900

Effect of exchange rates

(2,800)

Decrease in revenue

(800)

700

Overview of Change in Operating Income (Year on Year)

5,200

(Millions of Yen)

0

15/314/313/3Japan

16/3 17/3

120,000

90,000

60,000

30,000

(Millions of Yen)

0

15/314/313/3 16/3 17/3

15,000

5,000

10,000

(Millions of Yen)

0

15/314/313/3 16/3 17/3

12,000

3,000

6,000

9,000

(%)

0

12

3

6

9

0.8%

5.7%

7.1%

10.8%

3.8%

Overseas

Net Sales Selling, General and Administrative Expenses

Operating IncomeOperating Income Margin


Operating Conditions by Business SegmentPower DeviceIn the Power Device segment, net sales amounted to ¥31,261 million, up

3.7% year on year, and operating income came to ¥3,476 million, up

64.8%. In the consumer electronics market, sales of products for air con-

ditioners were strong, having recovered from the stagnation in the previ-

ous fiscal year. In addition, semiconductor demand in the automobile

market expanded, and corporate capital investment in the industrial

machinery market improved, leading to a year on year increase in revenue.

Earnings also grew, boosted by the increase in revenue as well as cost

reductions and productivity improvements.

Car ElectronicsIn the Car Electronics segment, net sales amounted to ¥47,402 million,

down 3.3% year on year, but operating income came to ¥5,217 million, up

192.1%. Overall sales in the Asian motorcycle market were on par with the

previous fiscal year. Sales grew in Vietnam, where demand was strong. The

market was sluggish in Indonesia, but demand for engine control units

(ECUs) was firm. However, the yen was stronger at the end of fiscal 2016

than a year prior, causing segment revenue to fall year on year.

Nevertheless, earnings increased considerably, due largely to the lack of

provision for product warranties recorded in the previous fiscal year.

Next Generation EnergyIn the Next Generation Energy segment, net sales amounted to ¥11,093

million, down 30.0% year on year, and operating loss came to ¥406 mil-

lion, compared with operating loss of ¥556 million in the previous fiscal

year. In the communications market, the adoption of high-voltage direct

current (HVDC) power supply systems continued, and sales were close to

the previous fiscal year’s level. In the new energy area, Shindengen

advanced new initiatives, such as expanding sales through alliances and

launching services in the O&M business, but the market for power condi-

tioners for photovoltaic generation continued to contract, and revenue

decreased year on year. The positive effects of structural reforms began to

show during the year, but could not fully compensate for the decline in

earnings; as a result, the segment once again recorded an operating loss.

OtherOther net sales amounted to ¥2,933 million, down 5.4% year on year, but

other operating income came to ¥40 million, up 5.8%.

Segment Net Sales(Millions of Yen)


Power Device 31,261 30,134 1,127 3.7

Car Electronics 47,402 49,038 (1,636) (3.3)

Next Generation Energy 11,093 15,837 (4,744) (30.0)

Other 2,933 3,101 (168) (5.4)

Total 92,689 98,110 (5,422) (5.5)

(Millions of Yen)

0

15/314/313/3 16/3 17/3

15,000(Millions of Yen)

0

15/314/313/3 16/3 17/3

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)

15/314/313/3 16/3 17/3-7,500

-5,000

-2,500

0

2,500

5,000

7,500

10,000

12,500

15,000(%) (Times)

1.16

0.830.68 0.66 0.58

4.5%

11.6%

4.9%

0.2%

3.8%

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


Earnings and ExpensesFiscal 2016 operating income jumped 555.2% year on year to ¥5,239

million, causing the operating income margin to rise from 0.8% to 5.7%.

This increase was mainly due to the increase in revenue in the Power

Device segment, cost reductions, and rebound from the recording of

provision for product warranties in the Car Electronics segment in the

previous fiscal year.

Net other income and expense included ¥297 million in dividends

income and ¥277 million in equity in earnings of affiliates, but also ¥633

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

Under extraordinary income, the Company recorded a ¥234 million gain

on sales of noncurrent assets. As a result, net other income (expense)

amounted to expense of ¥279 million, and profit before income taxes

came to ¥4,960 million.

After subtracting income taxes, profit attributable to owners of the

parent amounted to ¥3,509 million, and net income per share increased

from ¥1.99 in fiscal 2015 to ¥34.07. As a result, the net income margin

rose from 0.2% in fiscal 2015 to 3.8%, and ROE rose from 0.4% to

6.7%.

Comprehensive income came to ¥4,544 million, a reversal from the

previous fiscal year’s comprehensive loss of ¥4,877 million.

Financial PositionAssets, Liabilities and Net AssetsTotal assets as of March 31, 2017 stood at ¥128,530 million, down

¥4,570 million year on year. This was mainly due to decreases in inven-

tories and property, plant and equipment.

Total liabilities at the end of the fiscal year were down ¥7,823 million

year on year to ¥74,526 million. This was mainly attributable to decreas-

es in long-term loans payable and notes and accounts payable—trade.

Total net assets at the end of the year under review stood at ¥54,004

million, up ¥3,252 million from the end of the previous fiscal year. This

was mainly because of an increase in accumulated other comprehensive

income.

As a result, net assets per share were ¥524.25.

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

review came to ¥38,272 million, a decrease of ¥633 million from the end

of fiscal 2016. This was the result of ¥7,788 million in cash provided by

operating activities, ¥3,568 million in net cash used in investing activi-

ties, and ¥4,430 million in net cash used in financing activities.

Net cash provided by operating activities was ¥7,788 million, a

decrease from ¥10,421 million in the previous fiscal year. This was main-

ly due to profit before income taxes of ¥4,960 million and depreciation

and amortization of ¥4,841 million.

Net cash used in investing activities was ¥3,568 million, compared

with ¥5,884 million in the previous fiscal year. This was due mainly to

¥3,232 million used in the purchase of property, plant and equipment.

Net cash used in financing activities was ¥4,430 million, compared

with ¥2,865 million in the previous fiscal year. ¥5,000 million in proceeds

from long-term loans payable and ¥1,956 million in proceeds from issu-

ance of bonds were offset by scheduled repayment of long-term loans

payable of ¥7,419 million, ¥2,475 million paid for the redemption of

bonds, and ¥1,288 million of cash dividends paid.

Segment Operating Income(Millions of Yen)


Power Device 3,476 2,110 1,367 64.8

Car Electronics 5,217 1,786 3,431 192.1

Next Generation Energy (406) (556) 149 —

Other 40 37 2 5.8

Adjustments and eliminations (3,088) (2,578) (510) (19.8)

Total 5,239 799 4,439 555.2

For information on the performance of each business segment (excluding Other) over the past three years, please refer to Business Portfolio on pages

15–16. Note that, except where otherwise specified, intersegment transactions have been eliminated from segment performance throughout this report.


Consolidated Balance SheetsShindengen Electric Manufacturing Co., Ltd. and its subsidiariesAt March 31, 2017 and 2016

Millions of yen

Thousands of U.S. dollars

(Note 3)

2017 2016 2017ASSETS

Current assets:Cash and deposits (Notes 4, 6) ¥ 33,691 ¥ 34,180 $ 300,278

Notes and accounts receivable-trade (Note 6) 19,258 19,508 171,637Less: Allowance for doubtful accounts (22) (31) (194)

19,236 19,477 171,443Securities (Notes 6, 7) 5,000 5,000 44,563Inventories (Note 5) 18,812 20,438 167,667Deferred tax assets (Note 12) 719 1,110 6,409Other 3,734 4,913 33,279

Total current assets 81,192 85,118 723,639

Property, plant and equipment:Buildings and structures (Note 8) 8,878 8,427 79,130Machinery, equipment and vehicles (Note 8) 7,490 8,582 66,760Land 6,011 6,118 53,577Lease assets-tangible (Notes 8, 20) 572 363 5,096Construction in progress 680 1,663 6,063Other, net (Note 8) 1,387 1,398 12,350

Property, plant and equipment 25,018 26,551 222,976

Investments and other assets:Investment securities (Notes 6, 7) 14,334 12,795 127,756Deferred tax assets (Note 12) 6,022 6,939 53,670Software 677 681 6,032Goodwill 15 50 131Lease assets-intangible (Note 19) 17 26 149Allowance for doubtful accounts (50) (53) (446)Other 1,305 994 11,640

Total investments and other assets 22,320 21,432 198,932

Total assets ¥128,530 ¥133,101 $1,145,547The accompanying notes are an integral part of the statements.


Consolidated Balance SheetsShindengen Electric Manufacturing Co., Ltd. and its subsidiariesAt March 31, 2017 and 2016

Millions of yen


(Note 3)

2017 2016 2017LIABILITIES AND NET ASSETS

Current liabilities:Notes and accounts payable-trade (Note 6) ¥ 14,283 ¥ 15,780 $ 127,297Short-term loans payable (Notes 6, 9) 7,293 7,439 65,002Current portion of bonds (Notes 6, 9) 150 2,475 1,337Lease obligations (Notes 6, 9) 212 164 1,886Income taxes payable (Note 6) 340 115 3,031Provision for bonuses 928 946 8,275Other 4,989 6,980 44,466

Total current liabilities 28,195 33,899 251,294

Noncurrent liabilities:Bonds payable (Notes 6, 9) 2,775 925 24,733Long-term loans payable (Notes 6, 9) 20,950 23,239 186,720Lease obligations (Notes 6, 9) 434 263 3,867Deferred tax liabilities (Note 12) 90 83 798Liability for retirement benefits (Note 10) 16,448 17,589 146,592Provision for product warranties 5,470 6,184 48,752Asset retirement obligations 143 142 1,271Other 21 26 198

Total noncurrent liabilities 46,331 48,451 412,931Contingent liabilities (Note 11)

Net assets (Note 21):Shareholders’ equity:

Capital stock 17,823 17,823 158,851Capital surplus 7,739 7,739 68,973Retained earnings 29,144 26,923 259,752Treasury stock (133) (130) (1,184)

Total shareholders’ equity 54,573 52,355 486,392Accumulated other comprehensive income (loss):

Unrealized holding gain on available-for-sale securities 2,653 1,766 23,648Foreign currency translation adjustment (601) (43) (5,356)Retirement benefits liability adjustments (2,621) (3,327) (23,362)

Total accumulated other comprehensive income (loss) (569) (1,604) (5,070)Total net assets 54,004 50,751 481,322

Total liabilities and net assets ¥128,530 ¥133,101 $1,145,547Per share of common stock:

Net assets (Yen) (U.S. dollars) ¥ 524.25 ¥ 492.63 $ 4.67The accompanying notes are an integral part of the statements.


Consolidated Statements of Income and Comprehensive IncomeShindengen Electric Manufacturing Co., Ltd. and its subsidiaries For the years ended March 31, 2017 and 2016

Millions of yen


(Note 3)

2017 2016 2017Net sales ¥92,689 ¥98,110 $826,104

Cost of sales (Note 14) 75,214 85,052 670,356Gross profit 17,475 13,058 155,748

Selling, general and administrative expenses (Notes 13, 14) 12,236 12,259 109,056 Operating income 5,239 799 46,692

Other income (expense):Interest income 93 102 828Dividends income 297 276 2,643Royalty income 75 109 668Equity in earnings of affiliates 277 224 2,468Interest expenses (410) (498) (3,657)Foreign exchange losses (633) (607) (5,639)Gain on sales of fixed assets (Note 16) 234 — 2,089Impairment loss (Note 15) (14) (38) (127)Other, net (198) (201) (1,762)

(279) (633) (2,489)Profit before income taxes 4,960 166 44,203

Income taxes (Note 12):Current 800 382 7,125Deferred 651 (421) 5,800

Total income taxes 1,451 (39) 12,925Profit 3,509 205 31,278

Profit attributable to owners of parent ¥ 3,509 ¥ 205 $ 31,278


Consolidated Statements of Income and Comprehensive IncomeShindengen Electric Manufacturing Co., Ltd. and its subsidiaries For the years ended March 31, 2017 and 2016

Millions of yen


(Note 3)

2017 2016 2017Profit attributable to owners of parent ¥3,509 ¥ 205 $31,278Other comprehensive income (loss)

Unrealized holding gain (loss) on available-for-sale securities 887 (1,348) 7,905Foreign currency translation adjustment (583) (1,358) (5,195)Retirement benefits liability adjustments 706 (2,172) 6,288Share of other comprehensive income (loss) of affiliates accounted for using equity method 25 (204) 221

Total other comprehensive income (loss) (Note 17) 1,035 (5,082) 9,219Comprehensive income (loss) ¥4,544 ¥(4,877) $40,497

Comprehensive income (loss) attributable to:Owners of parent ¥4,544 ¥(4,877) $40,497Non-controlling interests — — —

YenU.S. dollars

(Note 3)

2017 2016 2017Per share of common stock [Notes 2 (13), 22]:Profit attributable to owners of parent:

Basic ¥34.07 ¥1.99 $0.30Diluted — — —Cash dividends per share for the period (Common stock) 12.50 12.50 0.11

Weighted average number of ordinary shares (thousands) 103,017 103,026The 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 21)

Total shareholders’

equity

Balance at March 31, 2015 103,389 ¥17,823 ¥7,739 ¥27,748 ¥(124) ¥53,186Cash dividends paid (1,030) (1,030)Profit attributable to owners of parent 205 205Purchase 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) ¥52,355Cash dividends paid (1,288) (1,288)Profit attributable to owners of parent 3,509 3,509Purchase of treasury stock (3) (3)Net changes in items other than those in shareholders' equity

Balance at March 31, 2017 103,389 ¥17,823 ¥7,739 ¥29,144 ¥(133) ¥54,573

Millions of yen

Accumulated other comprehensive income (loss)

Unrealized holding gain on

available-for-sale securities

Foreign currency translation

adjustment

Retirement benefits liability

adjustments (Note 10)

Total accumulated other

comprehensive income (loss)

Total net assets

Balance at March 31, 2015 ¥ 3,114 ¥1,519 ¥(1,154) ¥ 3,479 ¥56,665Cash dividends paid (1,030)Profit attributable to owners of parent 205Purchase 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) ¥50,751Cash dividends paid (1,288)Profit attributable to owners of parent 3,509Purchase of treasury stock (3)Net changes in items other than those in shareholders' equity 887 (558) 706 1,035 1,035

Balance at March 31, 2017 ¥ 2,653 ¥ (601) ¥(2,621) ¥ (569) ¥54,004The accompanying notes are an integral part of the statements.

Consolidated Statements of Changes in Net AssetsShindengen Electric Manufacturing Co., Ltd. and its subsidiaries For the years ended March 31, 2017 and 2016



Shareholders’ equity

Capital stock

Capital surplus

Retained earnings

Treasury stock

(Note 21)

Total shareholders’

equity

Balance at March 31, 2016 $158,851 $68,973 $239,952 $(1,155) $466,621Cash dividends paid (11,478) (11,478)Profit attributable to owners of parent 31,278 31,278Purchase of treasury stock (29) (29)Net changes in items other than those in shareholders' equity

Balance at March 31, 2017 $158,851 $68,973 $259,752 $(1,184) $486,392


Accumulated other comprehensive income (loss)

Unrealized holding gain on

available-for-sale securities

Foreign currency translation

adjustment

Retirement benefits liability

adjustments (Note 10)

Total accumulated other

comprehensive income (loss)

Total net assets

Balance at March 31, 2016 $15,743 $ (382) $(29,650) $(14,289) $452,332Cash dividends paid (11,478)Profit attributable to owners of parent 31,278Purchase of treasury stock (29)Net changes in items other than those in shareholders' equity 7,905 (4,974) 6,288 9,219 9,219

Balance at March 31, 2017 $23,648 $(5,356) $(23,362) $ (5,070) $481,321The accompanying notes are an integral part of the statements.

Consolidated Statements of Changes in Net AssetsShindengen Electric Manufacturing Co., Ltd. and its subsidiaries For the years ended March 31, 2017 and 2016


Consolidated Statements of Cash FlowsShindengen Electric Manufacturing Co., Ltd. and its subsidiaries For the years ended March 31, 2017 and 2016

Millions of yen


(Note 3)

2017 2016 2017Operating activities :

Profit before income taxes ¥ 4,960 ¥ 166 $ 44,203Depreciation and amortization 4,841 5,071 43,148Bond issuance cost 44 14 388Impairment loss 14 38 127Increase (decrease) in provision for bonuses (17) (94) (154)Increase (decrease) in provision for product warranties (714) 3,666 (6,366)Increase (decrease) in liability for retirement benefits (133) (466) (1,182)Interest and dividends income (389) (378) (3,471)Interest expenses 410 498 3,657Decrease (increase) in notes and accounts receivable-trade 7 2,541 64Decrease (increase) in inventories 1,023 118 9,118Decrease (increase) in consumption taxes refund receivable 410 (260) 3,657Decrease (increase) in accounts receivable-other 134 48 1,196Increase (decrease) in notes and accounts payable-trade (1,043) (1,177) (9,298)Loss on disposal of property, plant and equipment 91 38 813Other, net (1,609) 2,929 (14,337)

Sub total 8,029 12,752 71,563Interest and dividends received 383 450 3,417Interest paid (421) (499) (3,750)Income taxes paid (203) (2,282) (1,814)

Net cash provided by operating activities 7,788 10,421 69,416Investing activities:

Purchases of investment securities — (200) —Proceeds from sales of investment securities — 11 —Purchase of property, plant and equipment (3,232) (5,527) (28,804)Proceeds from sales of property, plant and equipment 485 29 4,320Purchase of intangible assets (649) (294) (5,785)Other, net (172) 97 (1,534)

Net cash used in investing activities (3,568) (5,884) (31,803)Financing activities:

Net increase (decrease) in short-term loans payable (0) 0 (6)Proceeds from long-term loans payable 5,000 6,000 44,563Repayment of long-term loans payable (7,419) (7,630) (66,123)Proceeds from issuance of bonds 1,956 486 17,437Redemption of bonds (2,475) (400) (22,059)Purchase of treasury stock (3) (6) (29)Repayment for finance lease obligations (201) (285) (1,795)Cash dividends paid (1,288) (1,030) (11,477)

Net cash used in financing activities (4,430) (2,865) (39,489)Effect of exchange rate change on cash and cash equivalents (423) (814) (3,767)Net increase (decrease) in cash and cash equivalents (633) 858 (5,643)Cash and cash equivalents at beginning of the year 38,905 38,047 346,747Cash and cash equivalents at end of the year (Note 4) ¥38,272 ¥38,905 $341,104The 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 financial statements

prepared by the Company as required by the Financial Instruments and

Exchange Law of Japan.

Certain items presented in the consolidated financial statements sub-

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

zation of the Ministry of Finance in Japan) have been reclassified in these

accounts for the convenience of readers outside Japan.

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

fied to conform to the current year’s presentation.

(2) Scope of consolidationThe Company had 20 subsidiaries (controlling companies�companies

whose decision-making is controlled) as of March 31, 2017 and had 21

subsidiaries as of March 31, 2016.

The consolidated financial statements for the years ended March 31,

2017 and 2016 include the accounts of the Company and its 18 subsid-

iaries and 19 subsidiaries, respectively.

The major consolidated subsidiaries were listed below.

Equity ownership percentage

100.0%

100.0%

100.0%

100.0%

100.0%

The following subsidiary was merged into the Company during the fis-

cal year ended March 31, 2017.

Shindengen Device Commerce Co., Ltd.

In the accompanying consolidated financial statements, the accounts of

the 11 overseas subsidiaries at December 31, 2016 and for the year then

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

2017 and for the year then ended, as their fiscal year ends on December

31.

The remaining 2 unconsolidated subsidiaries as of March 31, 2017

were insignificant in terms of total assets, net sales, profit or loss and

retained earnings and therefore have been excluded from consolidation.

The major unconsolidated subsidiary was listed below.

Shindengen Lao Co., Ltd.

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

nificant inter-company transactions, account balances and unrealized

profits 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 affiliatesThe Company had 2 unconsolidated subsidiaries and 2 affiliates (influenc-

ing companies�companies whose financial and operating or business

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

not subsidiaries) at March 31, 2017.

The investments in 2 affiliates 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

insignificant effect on the consolidated financial statements.

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

Shindengen Mechatronics Co., Ltd.

(5) Translation of foreign currency financial 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. Profit 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 financial 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 flows

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 fluctuation in

value.


2. Summary of significant accounting policies(1) Financial instruments(A) Securities

Securities held by the Company and its subsidiaries are classified 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 affiliates 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 profit or loss for the period.

(B) Derivatives

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

in net profit 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

profitability 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 fiscal 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 benefitsAccrued retirement benefits and prepaid pension cost for employees have

been recorded mainly at the amount calculated based on the retirement

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

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

uted to each period by the benefit 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 benefits 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 benefits 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 profit 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 financial 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 financial statements.

Deferred tax assets relating to tax loss carryforwards are recorded

because the Japanese accounting standard requires that the benefit 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) Profit attributable to owners of parent per shareProfit 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. United States dollar amounts

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

outside Japan. The rate of ¥ 112.20=U.S. $ 1, the approximate rate of

exchange prevailing at March 31, 2017 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.

4. Cash flow information

Cash and cash equivalents as of March 31, 2017 and 2016 consisted of:

Millions of yenThousands of

U.S. dollars

2017 2016 2017

Cash and deposits ¥33,691 ¥34,180 $300,278Securities (Certificate of deposit) 5,000 5,000 44,563Time deposits with deposit term of over 3 months (419) (275) (3,737)

Cash and cash equivalents ¥38,272 ¥38,905 $341,104

Significant finance lease transactions without cash flow for the years

ended March 31, 2017 and 2016 are as follows:


U.S. dollars

2017 2016 2017

Lease assets ¥402 ¥164 $3,586Lease obligations 436 178 3,886

5. Inventories

Inventories held by the Companies as of March 31, 2017 and 2016 con-

sisted of the following:


U.S. dollars

2017 2016 2017

Finished products ¥ 6,616 ¥ 7,617 $ 58,963Raw materials 8,386 9,292 74,745Work in process 3,810 3,529 33,959

¥18,812 ¥20,438 $167,667

The cost of sales includes the write-down of inventories by ¥ 357 mil-

lion ($ 3,184 thousand), and ¥ 773 million for the years ended March 31,

2017 and 2016, respectively, reflecting reduced profitability of inventory

held for normal sales purposes.

6. Financial instruments! Overview(1) Policy for financial instruments

The Companies raise funds mainly through bank borrowings and issuing

bonds. The Companies manage temporary cash surpluses through low-

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

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

speculative purposes.

(2) Types of financial 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 (certificate of deposit) are exposed to credit

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

financial institutions which have a sound credit profile.

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 fluctuation 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 financial assets or liabilities. The amount of the swap con-

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

ties. Forward foreign exchange contracts are exposed to currency rate

fluctuation 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 financial 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 financial 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 insignificant as it enters into derivative transactions only with financial

institutions which have a sound credit profile.

(B) Monitoring of market risks (the risks arising from fluctuations

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 derivative transactions.

Based on this rule, the Finance Dept. executes derivative contracts. The

status of each transaction is reported at the board of director’s meeting on

a quarterly basis. The same rule is adopted and followed by its subsidiar-

ies. For marketable securities and investment securities, the Company

periodically reviews the fair values of such financial instruments and the

financial 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 flow plans on a timely basis,

and maintains the liquidity on hand to manage liquidity risk.

(4) Supplementary explanation of the estimated fair value of finan-

cial instruments

The fair value of financial 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

reflected in estimating the fair value, different assumptions and factors

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

derivatives in Note 18, Derivatives and hedging activities, are not neces-

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

! Estimated fair value of financial instrumentsCarrying value, estimated fair value, and unrealized gain (loss) of financial

instruments on the consolidated financial balance sheets as of March 31,

2017, and 2016 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

2017

Carrying value

Estimated fair value

Unrealized gain (loss)

(1) Cash and deposits ¥33,691 ¥33,691 ¥ —(2) Notes and accounts

receivable-trade 19,258 19,258 —

(3) Securities (Certificate of deposit) 5,000 5,000 —

(4) Income taxes receivable 619 619 —(5) Investment securities 11,777 11,777 —

Assets total ¥70,345 ¥70,345 —(1) Notes and accounts

payable-trade 14,283 14,283 —

(2) Short-term loans payable 7,293 7,293 —(3) Current portion of bonds 150 150 —(4) Lease obligations (short-term) 212 212 —(5) Income taxes payable 340 340 —(6) Bonds payable 2,775 2,783 8(7) Long-term loans payable 20,950 21,110 160(8) Lease obligations (long-term) 434 394 (40)

Liabilities total ¥46,437 ¥46,565 ¥128Derivatives (Note) ¥ (62) ¥ (62) ¥ —


Millions of yen

2016

Carrying value



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

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


(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) ¥ —


2017

Carrying value



(1) Cash and deposits $300,278 $300,278 $ —(2) Notes and accounts

receivable-trade 171,637 171,637 —


(4) Income taxes receivable 5,521 5,521 —(5) Investment securities 104,963 104,963 —

Assets total $626,962 $626,962 —(1) Notes and accounts payable-

trade 127,297 127,297 —

(2) Short-term loans payable 65,002 65,002 —(3) Current portion of bonds 1,337 1,337 —(4) Lease obligations (short-term) 1,886 1,886 —(5) Income taxes payable 3,031 3,031 —(6) Bonds payable 24,733 24,800 67(7) Long-term loans payable 186,720 188,144 1,424(8) Lease obligations (long-term) 3,867 3,512 (355)

Liabilities total $413,873 $415,009 $1,136Derivatives (Note) $ (556) $ (556) $ —

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 financial 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 (Certificate 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 classified

by holding purpose are disclosed in “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 floating interest rates.

(Derivatives)

Disclosed in “Derivatives and hedging activities”


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

the fair value.


U.S. dollars

2017 2016 2017

Unlisted stocks ¥2,557 ¥2,259 $22,794

Because no quoted market price is available and it is extremely difficult to

determine the fair value, the above financial instruments are not included

in the above “(5) Investment securities”.

Note 3. Redemption schedule for receivables.

Millions of yen

March 31, 2017

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 ¥33,685 ¥— ¥— ¥—Notes and accounts receivable-trade 19,258 — — —

Securities (Certificate of deposit) 5,000 — — —

Total ¥57,943 ¥— ¥— ¥—

Millions of yen

March 31, 2016


Due after 1 year

through 5 years



Cash and deposits ¥34,168 ¥— ¥— ¥—

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


Total ¥58,676 ¥— ¥— ¥—


March 31, 2017


Due after 1 year

through 5 years



Cash and deposits $300,219 $— $— $—Notes and accounts receivable-trade 171,637 — — —


Total $516,419 $— $— $—

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

Millions of yen

March 31, 2017


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 ¥7,293 ¥ — ¥ — ¥ — ¥ — ¥ —Current portion of bonds 150 — — — — —Lease obligations (short-term) 212 — — — — —Bonds payable — 500 600 600 525 550Long-term loans payable — 7,425 5,400 3,525 2,650 1,950Lease obligations (long-term) — 163 124 93 42 12

Total ¥7,655 ¥8,088 ¥6,124 ¥4,218 ¥3,217 ¥2,512

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 175Long-term loans payable — 7,464 6,700 4,250 2,525 2,300Lease obligations (long-term) — 119 84 42 18 0

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



March 31, 2017


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 $65,002 $ — $ — $ — $ — $ —Current portion of bonds 1,337 — — — — —Lease obligations (short-term) 1,886 — — — — —Bonds payable — 4,456 5,348 5,348 4,679 4,902Long-term loans payable — 66,176 48,128 31,417 23,619 17,380Lease obligations (long-term) — 1,451 1,104 828 379 106

Total $68,225 $72,083 $54,580 $37,593 $28,677 $22,388

7. Securities

Information regarding securities classified as held-to-maturity securities

and other securities (stock) as of March 31, 2017 and 2016 are as follows:

Held-to-maturity securities (Certificate of deposit)

Millions of yen

2017

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

2016



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


Total ¥5,000 ¥5,000 ¥—


2017



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


Total $44,563 $44,563 $—

Other securities (stock)

Millions of yen

2017

Carrying value

Acquisition cost


Other securities with carrying values exceeding acquisition costs ¥11,774 ¥8,015 ¥3,759

Other securities with carrying values not exceeding acquisition costs 3 3 (1)

Total ¥11,777 ¥8,018 ¥3,758

Millions of yen

2016

Carrying value

Acquisition cost


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


Total ¥10,536 ¥8,019 ¥2,517


2017

Carrying value

Acquisition cost


Other securities with carrying values exceeding acquisition costs $104,938 $71,437 $33,501


Total $104,963 $71,468 $33,495

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

no quoted market prices available and it is extremely difficult to determine

the fair value.


Carrying values of securities without fair value as of March 31, 2017

and 2016 are summarized as follows:


U.S. dollars

2017 2016 2017

Unlisted stocks ¥78 ¥78 $695

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

of other securities for the years ended March 31, 2017 and 2016 are as

follows:


U.S. dollars

2017 2016 2017

Proceeds ¥— ¥11 $—Gross realized gain (loss) — 4 —

8. Accumulated depreciation

The accumulated depreciation of property, plant and equipment as of

March 31, 2017 and 2016 is as follows:


U.S. dollars

2017 2016 2017

Property, plant and equipment ¥84,316 ¥83,207 $751,481

9. Short-term borrowings and long-term debt

Short-term borrowings and long-term debt at March 31, 2017 and 2016

consisted of the following:


U.S. dollars

2017 2016 2017

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

Current portion of long-term debt 7,293 7,439 65,002

Current portion of bonds 150 2,475 1,337Current portion of lease obligations 212 164 1,886

Long-term debt 24,159 24,427 215,320¥31,814 ¥34,505 $283,545

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

ings from banks as of March 31, 2017 is 0.0%.

Long-term debt as of March 31, 2017 and 2016 consisted of the fol-

lowing:


U.S. dollars

2017 2016 2017

Long-term loans from banks and other financial institutions ¥28,243 ¥ 30,678 $251,722

2.00% bonds due August 19, 2016 — 1,000 —

2.00% bonds due August 19, 2016 — 1,000 —

1.43% bonds due March 31, 2017 — 200 —

1.42% bonds due December 30, 2016 — 200 —

0.55% bonds due June 30, 2021 425 500 3,788

0.49% bonds due September 30, 2022 500 500 4,456

0.23% bonds due June 30, 2023 500 — 4,456

0.14% bonds due March 31, 2023 750 — 6,684

0.14% bonds due June 30, 2023 750 — 6,684

Lease obligations 646 427 5,75331,814 34,505 283,543

Less: Current portion (7,655) (10,078) (68,225)¥24,159 ¥ 24,427 $215,320

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

banks as of March 31, 2017 is 1.0%.

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

March 31, 2017 during the succeeding five-year period (except within one

year) is as follows:

Years ending March 31, Millions of yenThousands of

U.S. dollars

2019 ¥8,088 $72,083

2020 6,124 54,580

2021 4,218 37,593

2022 3,217 28,677

10. Retirement plans and severance indemnities

The Company and its consolidated domestic subsidiaries have a funded

pension program to cover the employees’ retirement benefits. The amount

of such retirement benefits is determined by reference to the latest rate of

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

Certain overseas subsidiaries provide defined contribution pension

plans.

As Shindengen Device Commerce Co., Ltd. was merged into the

Company, it changed its calculation method of retirement benefit obliga-

tions to that of the Company.


The changes in the retirement benefit obligation during the years ended

March 31, 2017 and 2016 are as follows:


U.S. dollars

2017 2016 2017

Balance at the beginning of the year ¥26,436 ¥22,490 $235,613

Service cost 1,417 1,267 12,627Interest cost 78 281 694Actuarial gain or loss (398) 3,278 (3,551)Prior service cost (68) — (602)Retirement benefit paid (521) (821) (4,639)Other 62 (59) 549Balance at the end of the year ¥27,006 ¥26,436 $240,691

The changes in plan assets during the years ended March 31, 2017

and 2016 are as follows:


U.S. dollars

2017 2016 2017

Balance at the beginning of the year ¥ 8,847 ¥7,559 $78,849

Expected return on plan assets 29 95 261Actuarial gain or loss 185 (136) 1,649Contributions by the Company 1,813 1,715 16,160Retirement benefits paid (293) (370) (2,613)Other (23) (16) (207)Balance at the end of the year ¥10,558 ¥8,847 $94,099

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

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

2017 and 2016 for the Company’s and consolidated subsidiaries’ defined

benefit plans.


U.S. dollars

2017 2016 2017

Funded retirement benefit obligation ¥15,002 ¥15,109 $133,711

Plan assets as fair value (10,558) (8,847) (94,099)4,444 6,262 39,612

Unfunded retirement benefit obligation 12,004 11,327 106,980

Net liability for retirement benefits in the balance sheet 16,448 17,589 146,592

Liability for retirement benefits 16,448 17,589 146,592Net liability for retirement benefits in the balance sheet ¥16,448 ¥17,589 $146,592

The components of retirement benefit expense for the years ended



U.S. dollars

2017 2016 2017

Service cost ¥1,417 ¥1,267 $12,627Interest cost 78 281 694Expected return on plan assets (29) (95) (261)Amortization of actuarial difference 425 257 3,790

Amortization of prior service cost (63) 18 (560)Payments for defined contribution pension plan 31 11 272

Other 79 7 703Retirement benefit expense ¥1,938 ¥1,746 $17,265

The components of retirement benefits liability adjustments (before tax

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



U.S. dollars

2017 2016 2017

Actuarial difference ¥1,009 ¥(3,152) $8,991Prior service cost 5 18 42Total ¥1,014 ¥(3,134) $9,033

The components of retirement benefits liability adjustments included in

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

31, 2017 and 2016 are as follows:


U.S. dollars

2017 2016 2017

Unrecognized prior service cost ¥ 13 ¥ 17 $ 113Unrecognized actuarial difference 3,723 4,733 33,188

Total ¥3,736 ¥4,750 $33,301

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

total plan assets as of March 31, 2017 and 2016 are as follows:

2017 2016

Bonds 66% 64%

Stocks 26% 28%

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:

2017 2016

Discount rates 0.2%-0.3% 0.2%-0.3%

Expected rates of return on plan assets 0.2%-0.3% 1.0%-1.4%

Expected future salary increases rates 2.4%-3.7% 2.4%-3.6%

11. Contingent liabilities

The Companies were contingently liable for guarantees of housing loans

of employees as of March 31, 2017 and 2016 as follows:


U.S. dollars

2017 2016 2017

Housing loans of employees ¥56 ¥69 $498

12. Income taxes

At March 31, 2017 and 2016, significant components of deferred tax

assets and liabilities are as follows:


U.S. dollars

2017 2016 2017

Deferred tax assets:

Liability for retirement benefits ¥ 4,952 ¥5,314 $ 44,136Depreciation and amortization 304 348 2,713Provision for bonuses 286 292 2,554Allowance for doubtful accounts 14 16 128

Loss on valuation of inventories 228 224 2,040

Impairment loss 197 204 1,758Loss carried forward for tax purposes 12 85 114

Other 2,693 3,056 23,982Subtotal of deferred tax assets 8,686 9,539 77,425

Less valuation allowance (816) (736) (7,279)Total of deferred tax assets 7,870 8,803 70,146

Deferred tax liabilities:

Valuation difference on available-for-sale securities (1,101) (747) (9,815)

Goodwill — (5) —Asset retirement obligations — (3) —Other (118) (83) (1,051)

Total of deferred tax liabilities (1,219) (838) (10,866)

Net deferred tax assets ¥ 6,651 ¥7,965 $ 59,280


U.S. dollars

2017 2016 2017

Current assets – deferred tax assets ¥ 719 ¥1,110 $ 6,409

Investments and other assets – deferred tax assets 6,022 6,939 53,670

Current liabilities – deferred tax liabilities — — —

Long term liabilities – deferred tax liabilities (90) (83) (798)

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, 2017 and 2016 are as

follows:

2017 2016

Statutory tax rate 30.9% 33.1%

Effect of:

Non-deductible items such as entertainment, dividend received (5.3) (30.8)

Effect of changes in tax rates 0.2 278.2

Dividend received from overseas consolidated subsidiaries 5.6 58.4

Special tax credit 0.0 (165.8)

Different tax rate applied to overseas consolidated subsidiaries (4.3) (77.9)

Reduced tax rates differences (0.2) (73.4)

Tax loss carryforwards (3.1) (51.7)

Others 5.4 6.5

Effective tax rate 29.2% (23.4)%

(Disclosure for the year ended March 31, 2017)

The Company and its domestic subsidiaries adopted “Revised

Implementation Guidance on Recoverability of Deferred Tax Assets”

(Accounting Standards Board of Japan Guidance No. 26, March 28,

2016) from the beginning of the fiscal year ended March 31, 2017.


13. Major items in selling, general and administrative expenses

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



U.S. dollars

2017 2016 2017

Freight and transportation ¥1,918 ¥2,041 $17,098Employees’ salaries and wages 2,566 2,497 22,868Provision for bonuses 142 142 1,267Net pension expenses related to retirement benefits 419 321 3,732

Provision for accrued directors' retirement benefits 0 0 2

Research and development expenses 2,482 2,446 22,121

14. Research and development expenses

Research and development expenses charged to income for the years



U.S. dollars

2017 2016 2017

Research and development expenses ¥5,044 ¥4,991 $44,954

15. Impairment loss

For the years ended March 31, 2017 and 2016, the Company recognized

impairment loss on the following asset groups.

(Summary of assets group which recognized impairment loss)

For the year ended March 31, 2017

Use Type of assets Location Millions of yenThousands of

U.S. dollars

Idle assets Land etc. Yurihonjo-shi Akita-ken ¥14 $127


Use Type of assets Location Millions of yen

Inspection equipment for power supply product

Machinery, equipment

and vehicles etc.

Hanno-shi Saitama-ken

etc.¥30

Idle assets BuildingKofu-shi

Yamanashi-ken

8

(Recognition of impairment loss)

For the year ended March 31, 2017, the carrying amount of idle assets

was reduced to the recoverable amount, due to a decline in the fair value.

As a result, the Company recognized impairment loss. The details of

impairment loss are as follows;


Type of assets Millions of yenThousands of

U.S. dollars

Land ¥ 9 $80 Building 3 26Structure 2 20Equipment 0 1

Total ¥14 $127

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

equipment was reduced to the recoverable amount, due to a significant

decline of the profitability of the asset group. The carrying amount of idle

assets was reduced to the recoverable amount, due to a significant

decline in 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 yen

Equipment ¥26

Building 9

Software 2

Machinery 1

Total ¥38

(Assets grouping)

The assets grouping was based on the management accounting classifi-

cation, taking into account the cash flow interaction from the similarity of

manufacturing processes.

(Calculation of recoverable amount)

For the year ended March 31, 2017, the recoverable amount of the idle

assets was measured at the net sales value primarily calculated in accor-

dance with “Japanese Real Estate Appraisal Standards” and adjusted by

“assessed value of fixed assets under property tax”.

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.


16. Gain on sales of fixed assets

Gain on sales of fixed assets for the years ended March 31, 2017 and

2016 is as follows:


U.S. dollars

2017 2016 2017

Land and building ¥234 ¥— $2,089

17. Comprehensive income

Reclassifications adjustments and tax effects allocated to each compo-

nent of other comprehensive income for the years ended March 31, 2017

and 2016 are as follows:


U.S. dollars

2017 2016 2017

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

Amount arising during the year ¥1,241 ¥(2,014) $11,063Reclassification adjustments to profit or loss — (4) —

Amount before income tax effect 1,241 (2,018) 11,063Income tax effect (354) 670 (3,158)

Total 887 (1,348) 7,905

Foreign currency translation adjustment

Amount arising during the year (583) (1,358) (5,195)

Retirement benefits liability adjustments

Amount arising during the year 738 (3,409) 6,580Reclassification adjustments to profit or loss 276 275 2,453

Amount before income tax effect 1,014 (3,134) 9,033Income tax effect (308) 962 (2,745)

Total 706 (2,172) 6,288

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

Amount arising during the year 25 (204) 220Reclassification adjustments to profit or loss — — —

Amount before income tax effect 25 (204) 220Income tax effect 0 0 1

Total 25 (204) 221Total other comprehensive income (loss) ¥1,035 ¥(5,082) $ 9,219

18. Derivatives and hedging activities

Outstanding forward currency exchange contracts at March 31, 2017 and

2016 are shown below, except for transactions using hedge accounting.

Millions of yen

At March 31, 2017Notional amount Fair value


Forward currency exchange contracts:

Sell

Indonesia rupiah ¥1,795 ¥(57) ¥(57)Thai baht 268 (0) (0)Vietnamese dong 1,107 (62) (62)

Millions of yen




Sell

Indonesia rupiah ¥ — ¥— ¥—

Thai baht 682 3 3

Vietnamese dong 1,390 (6) (6)





Sell

Indonesia rupiah $15,998 $(511) $(511)Thai baht 2,390 (3) (3)

Vietnamese dong 9,868 (553) (553)

(Calculation of fair value)

The estimated fair value of these forward currency exchange contracts

was determined using forward foreign exchange rate at March 31, 2017

and 2016.

Interest rate swap contracts accounted for using hedge accounting at


Millions of yen

At March 31, 2017Notional amount

Maturing after one year Fair value

Interest rate swap contracts:

Receive floating and pay fixed: (Note)

Long-term loans payable ¥16,375 ¥12,275 ¥—


Millions of yen





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






Long-term loans payable $145,945 $109,403 $—

Note: Interest rate swap contracts which qualify for hedge accounting and meet spe-cific 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 pay-able.

19. 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).

20. Segment information

(1) Reportable segment overview

The Company’s reportable operating segments are components of an

entity for which separate financial 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.

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

liabilities and other items by reportable segment

The accounting method for business segments reported is based on the

same method applied to consolidated financial 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, 2017Device

business

Car Electronics

business

Next Generation

Energy business

Other (Note 1) Total

Adjustments and

Eliminations (Note 2)

Consolidated (Note 3)

Sales

Outside customers ¥31,261 ¥47,402 ¥11,093 ¥2,933 ¥92,689 ¥ — ¥ 92,689Inter-segment 5,990 22 — — 6,012 (6,012) —Total 37,251 47,424 11,093 2,933 98,701 (6,012) 92,689

Segment income (loss) 3,476 5,217 (406) 40 8,327 (3,088) 5,239Segment assets 33,283 29,687 7,711 716 71,397 57,133 128,530Depreciation and amortization 2,221 1,845 305 0 4,371 470 4,841Increase in property, plant and equipment and intangible assets 1,997 1,067 157 — 3,221 900 4,121




business

Car Electronics

business

Next Generation

Energy business


Adjustments and



Sales

Outside customers $278,620 $422,479 $98,864 $26,141 $826,104 $ — $ 826,104Inter-segment 53,387 196 — — 53,583 (53,583) —Total 332,007 422,675 98,864 26,141 879,687 (53,583) 826,104

Segment income (loss) 30,985 46,498 (3,621) 355 74,217 (27,525) 46,692Segment assets 296,642 264,591 68,724 6,385 636,342 509,205 1,145,547Depreciation and amortization 19,798 16,446 2,718 0 38,962 4,186 43,148Increase in property, plant and equipment and intangible assets 17,800 9,514 1,395 — 28,709 8,023 36,732

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 ¥ 3,088 million ($27,525 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 ¥ 57,133 million ($509,205 thousand) posted under “Adjustments and eliminations” comprise corporate assets of ¥57,100 million

($508,910 thousand) not allocated to the reportable segments and other adjustments of ¥ 33 million ($ 295 thousand). (3) Depreciation and amortization totaling ¥ 470 million ($ 4,186 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 ¥ 900 million ($8,023 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,

2017.

Millions of yen


business

Car Electronics

business

Next Generation

Energy business


Adjustments and



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

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 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 posted under “Adjustments and eliminations” comprise corporate assets of ¥59,049 million not allocated to the reportable

segments and other adjustments of ¥ 302 million. (3) Depreciation and amortization totaling ¥ 444 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 ¥ 872 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,

2016.


(Related Information)

1. Information by finished 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 Vietnam Asia (other) Other area Total

¥37,791 ¥13,874 ¥9,363 ¥26,618 ¥5,043 ¥92,689


Millions of yen


¥41,585 ¥13,914 ¥9,528 ¥27,756 ¥5,327 ¥98,110




$336,819 $123,650 $83,446 $237,247 $44,942 $826,104

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

(2) Property, plant and equipment

As of March 31, 2017

Millions of yen

Japan Thailand Indonesia Asia (other) Other area Total

¥17,054 ¥2,498 ¥2,321 ¥3,139 ¥6 ¥25,018


Millions of yen


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




$151,993 $22,263 $20,691 $27,974 $55 $222,976

(3) Information by major customer

For the years ended March 31, 2017 and 2016, 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 follows.


Millions of yen

Major Customer Net Sales Segment

PT Astra Honda Motor ¥12,309 Car Electronics business


Millions of yen


PT Astra Honda Motor ¥12,518 Car Electronics business




PT Astra Honda Motor $109,707 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 — — — — ¥14 ¥14


Millions of yen




Impairment loss — — ¥30 — ¥8 ¥38

For the year ended March 31, 2017Thousands of U.S. dollars




Impairment loss — — — — $127 $127


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

For the year ended March 31, 2017Millions of yen




Amortization of goodwill ¥35 — — — — ¥35Goodwill as of March 31, 2017 ¥15 — — — — ¥15

For the year ended March 31, 2016Millions of yen




Amortization of goodwill ¥35 — — — — ¥35

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

For the year ended March 31, 2017Thousands of U.S. dollars




Amortization of goodwill $315 — — — — $315Goodwill as of March 31, 2017 $131 — — — — $131

21. Consolidated statements of changes in net assets

(1) Categories and numbers of stock issued

For the year ended March 31, 2017Thousands 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 — — 103,389Total 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 367 8 — 375Total 367 8 — 375






(Shares of treasury stock)

Common stock 356 11 — 367

Total 356 11 — 367


(3) Dividends

(A) Dividends paid for the year ended March 31, 2017Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date

Ordinary general meeting of shareholders on June 26, 2016

Common stock ¥ 1,288 million ¥12.5 March 31, 2016 June 29, 2016

(B) Dividends paid for 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

(C) Dividends with the cut-off date in the year ended March 31, 2017 and the effective date in the year ending March 31, 2018Resolution Share class Cash dividends paid Cash dividends per share Year ended Dividend effective date


Common stock ¥ 1,288 million ¥12.5 March 31, 2017 June 30, 2017

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


Common stock ¥1,288 million ¥12.5 March 31, 2016 June 30 2016

22. Profit attributable to owners of parent per shareThe calculation of profit attributable to owners of parent per share for the

years ended March 31, 2017 and 2016 is as follows:


U.S. dollars

2017 2016 2017

Profit attributable to owners of parent ¥3,509 ¥205 $31,278

Amounts not attributable to common stock — — —

Profit attributable to owners of parent to common stock 3,509 205 31,278

Weighted average number of ordinary shares (thousands) 103,018 103,026

Diluted profit attributable to owners of parent per share was not calculated

herein since the Company had no dilutive securities, such as convertible

bonds or warrants.

23. Business combination

Transactions under common control

(1) Overview of transaction

(A) Names and business descriptions of companies involved in

combination

(Merging company)

Shindengen Electric Manufacturing Co., Ltd. :

Manufacture of electrical machinery, equipment and supplies

(Merged company)

Shindengen Device Commerce Co., Ltd. :

Sales of electric components

(B) Date of business combination

April 1, 2016

(C) Legal form of business combination

An absorption-type merger in which the Company is the surviving compa-

ny and Shindengen Device Commerce Co., Ltd. is the merged company.

(D) Name of company after combination

Shindengen Electric Manufacturing Co., Ltd.

(E) Others

This business combination was concluded to respond to changes in the

business environment.

(2) Outline of accounting treatment applied

The transaction was treated as a transaction under common control in

accordance with the “Accounting Standard for Business Combinations”

and “Guidance on Accounting Standard for Business Combinations and

Accounting Standard for Business Divestitures.”


24. Subsequent event

(1) Purpose of change in the number of shares per trading unit and

consolidation of shares

Japanese stock exchanges (including the Tokyo Stock Exchange)

announced the “Action Plan for Consolidating Trading Units” and are aim-

ing to unify share trading units of common shares of all domestic compa-

nies into 100 shares.

The Company will change the number of shares per trading unit from

1,000 shares to 100 shares on October 1, 2017, respecting the intention

as a listed company on the Tokyo Stock Exchange.

(2) Details of change in the number of shares per share unit

The Company will change the number of shares per trading unit from

1,000 shares to 100 shares on October 1, 2017.

(3) Details of consolidation of shares

(A) Class of shares to be consolidated

Common stock

(B) Consolidation method and ratio

The Company will consolidate 10 shares into 1 share on October 1, 2017

based on the number of shares held by shareholders listed in the final

shareholders’ register on September 30, 2017.

(C) Decrease in number of shares due to consolidation

Total number of outstanding shares before consolidation (March 31, 2017) 103,388,848 shares

Decrease in number of shares due to consolidation 93,049,964 shares

Total number of outstanding shares after consolidation 10,338,884 shares

Note 1: “Decrease in number of shares due to consolidation” and “Total

number of outstanding shares after consolidation” are theoretical values

based on “Total number of outstanding shares before consolidation” and

the consolidation ratio.

Note 2: On March 31, 2017, there were no outstanding classified shares.

(Class A preferred shares or Class B preferred shares)

(D) Treatment of fractional shares of less than 1 share

If any fractional shares arise as a result of the consolidation of shares, pur-

suant to the provision of Article 235 of the Companies Act, the Company

will sell all such fractional shares and distribute the proceeds to sharehold-

ers having fractional shares in proportion to their respective fractional

holdings.

(4) Effective date for consolidation of shares

October 1, 2017

(5) Effect on per share information

Per share information for the year ended March 31, 2017 on the assump-

tion that the consolidation of shares had been implemented as of April 1,

2016 is as follows:

Yen U.S. dollars

Net assets per share ¥5,242.45 $46.72

Profit attributable to owners of per share 340.66 3.04


Independent Auditor’s Report


Corporate Information As of March 31, 2017

(Thousands of shares)(Yen)

0

200

400

600

800

1,000

1,200

1,400

1,600

18,000

24,000

30,000

36,000

42,000

48,000

0

6,000

12,000

17/317/217/116/1216/1116/1016/916/816/716/616/516/416/316/216/115/1215/1115/1015/915/815/715/615/515/415/315/215/114/1214/1114/1014/914/814/714/614/514/4

Stock price Trading volumeTopix

Stock Price And Trading Volume

Company Name Shindengen Electric Manufacturing Co., Ltd.

Established August 16, 1949

Capital ¥17,823,148,008

Number of Employees4,689 (Consolidated basis)1,482 (Nonconsolidated basis)

Stock Exchange ListingJune 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 6,257

Stock Information

Corporate Data



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

SHINDENGEN ELECTRIC MANUFACTURING CO., LTD.

1. Head Office: 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 Office: 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 Office: Nagoya Daiichi Bldg., 19-24, Nishiki 1-chome, Naka-ku, Nagoya City, Aichi 460-0003, Japan Phone: +81-52-221-1361

5. Utsunomiya Office: Flora Bldg., 9-15, Higashi Syukugou 1-chome, Utsunomiya City, Tochigi 321-0953, Japan Phone: +81-28-637-3615

6. Seoul Office: B701-4. 230, Simin-daero, Dongan-gu, Anyang-si, Gyeonggi-do, Korea Phone: +82-31-385-1431

SUBSIDIARIES & AFFILIATES

Overseas

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 Office (Hong Kong) Phone: +852-2317-1884 9. Taiwan Representative Office Phone: +886-2-2321-3990

Shindengen UK Ltd. (Share ownership: 100%)10. Head Office 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%)

Network

AN

NU

AL R

EPO

RT 2017

Printed in JapanA014-9

www.shindengen.co.jp/

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