Notes to Consolidated Financial Statements · In preparing these consolidated financial statements,...

Yusen Logistics Co., Ltd. and Consolidated Subsidiaries Notes to Consolidated Financial Statements Year Ended March 31, 2016 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Companies Act and Financial Instruments and Exchange Act and their related accounting regulations and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2015 financial statements to conform to the classifications used in 2016. The consolidated financial statements are stated in Japanese yen, the currency of the country in which Yusen Logistics Co., Ltd. (the "Company") is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥112.68 to $1, the approximate rate of exchange at March 31, 2016. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Consolidation—The consolidated financial statements as of March 31, 2016, include the accounts of the Company and its 75 significant (71 in 2015) subsidiaries (together, the "Group") listed below:

Consolidated Subsidiaries

Equity Ownership

Percentage*1 Capital Stock*1

Yusen Logistics (Americas) Inc. 51.00% USD 70,976 thousand Yusen Logistics (Hong Kong) Limited 100.00 HKD 55,000 thousand Yusen Global Freight Management Limited*24 100.00*2 HKD 11,000 thousand Yusen Logistics (Singapore) Pte.Ltd. 79.30 SGD 16,950 thousand Yusen Logistics (Benelux) B.V. 100.00*3 EUR 50 thousand Yusen Logistics (Deutschland) GmbH 100.00*3 EUR 2,638 thousand Yusen Logistics (Australia) Pty.Ltd. 50.97*4 AUD 15,478 thousand Yusen Logistics (Canada) Inc. 100.00 CAD 5,000 thousand Yusen Logistics (France) S.A.S. 100.00*3 EUR 14,185 thousand Yusen Logistics (Taiwan) Ltd. 95.30*5 TWD 157,398 thousand Beijing Yusen Freight Service Co.,Ltd. 100.00*2 CNY 9,312 thousand Yusen Logistics (Italy) S.P.A. 100.00*3 EUR 3,326 thousand PT. Yusen Logistics Indonesia 67.62*6 USD 3,048 thousand Yusen Logistics (Europe) B.V. 53.69 EUR 39,493 thousand Yusen Logistics (Korea) Co.,Ltd. 100.00 KRW 2,000 million Shanghai Yusen Freight Service Co.,Ltd. 100.00*2 CNY 16,457 thousand Yusen Air & Sea Service Management (Thailand) Co.,Ltd.

95.00*7 THB 10,000 thousand

Yusen Logistics International (Vietnam) Co.,Ltd. 49.00*8 USD 600 thousand Yusen Logistics Philippines, Inc. 51.00 PHP 500,000 thousand Guangdong Yusen Freight Service Co.,Ltd. 100.00*2 CNY 8,009 thousand Yusen Logistics (India) Private Limited 51.00*9 INR 1,094 million Shanghai Yusen Logistics Service (W.G.Q.) Co.,Ltd. 100.00*2 CNY 5,380 thousand Suzhou Yusen Logistics Service Co.,Ltd. 100.00*2 CNY 6,844 thousand

Financial Information

Notes to Consolidated Financial Statements

62 Annual Report 2016

Consolidated Subsidiaries

Equity Ownership

Percentage*1 Capital Stock*1 ETA TOO, INC. 100.00*10 USD 0 Yusen Logistics (UK) Ltd. 100.00*3 GBP 44,130 thousand Yusen Logistics (Iberica) S.A. 100.00*3 EUR 585 thousand Yusen Logistics (Polska) Sp.z o.o. 100.00*3 PLN 2,400 thousand Yusen Logistics (Hungary) KFT. 100.00*3 HUF 12,420 thousand Yusen Logistics (Edam) B.V. 100.00*11 EUR 18 thousand Yusen Logistics (Czech) s.r.o. 100.00*3 CZK 431,729 thousand Yusen Logistics (Vietnam) Co.,Ltd. 99.00*12 VND 6,375 million NANHAI BUSINESS SOLUTIONS PTE LTD. 100.00*13 SGD 100 thousand Yusen Logistics & Kusuhara Lanka (Pvt.) Ltd. 51.00 LKR 6,500 thousand Yusen Logistics RUS LLC 100.00*3 RUB 1,000 thousand Yusen Logistics Center,Inc. 100.00*14 PHP 35,000 thousand Yusen Logistics (Thailand) Co.,Ltd. 87.80*15 THB 70,000 thousand PT. Puninar Yusen Logistics Indonesia 51.00 USD 13,000 thousand Yusen Logistics Do Brasil Ltda. 86.96 BRL 42,362 thousand Yusen Logistics (China) Co.,Ltd. 51.00 CNY 158,047 thousand PT. Yusen Logistics Solutions Indonesia 51.00 USD 5,100 thousand TASCO Berhad 55.38*16 MYR 100,000 thousand Baik Sepakat Sdn Bhd 100.00*17 MYR 100 thousand Tunas Cergas Logistik Sdn Bhd 100.00*17 MYR 100 thousand Emulsi Teknik Sdn Bhd 100.00*17 MYR 100 thousand TASCO Express Sdn Bhd 100.00*17 MYR 100 thousand Maya Kekal Sdn Bhd 100.00*17 MYR 2 Precious Fortunes Sdn Bhd 100.00*17 MYR 8,000 thousand Trans-Asia Shipping Pte Ltd 100.00*17 SGD 100 thousand Piala Kristal (M) Sdn Bhd 51.22*18 MYR 205 thousand Omega Saujana Sdn Bhd 51.22*18 MYR 205 thousand Titian Pelangi Sdn. Bhd. 100.00*17 MYR 3,380 thousand Shenzhen Yusen Freight Service Co.,Ltd. 100.00*2 CNY 11,430 thousand Double Wing Spirit Service Co.,Ltd. 80.00*19 THB 7,000 thousand Yusen Real Estate (Hai Phong) Co.,Ltd. 100.00*13 VND 126,216 million Yusen Logistics (Mexico), S.A. de C.V. 100.00*20 MXN 170,568 thousand Yusen Logistics Turkey Lojistik Hizmetleri Limited Sirketi

100.00*21 TRY 14,680 thousand

Yusen Logistics and Transportation (Vietnam) Co.,Ltd.

49.00*8 VND 2,104 million

Yusen Logistics (Argentina) S.A.*23 51.00 ARS 18 thousand Xiamen Yusen Logistics Service Co.,Ltd.*23 100.00*2 CNY 4,132 thousand YAS Real Estate (Vietnam) Co.,Ltd.*23 100.00*2 VND 47,916 million Yusen Logistics (Middle East) L.L.C.*23 49.00 AED 300 thousand Yusen Logistics (Bangladesh) Ltd.*23 51.00 BDT 10,000 thousand Yusen Keihin Trans Co., Ltd. 100.00 JPY 36 million Yusen Logistics (Kitakanto) Co., Ltd. 100.00 JPY 50 million Yusen Logistics (Tsukuba) Co., Ltd. 100.00 JPY 50 million Yusen Logistics (Shinshu) Co., Ltd. 90.00 JPY 50 million Yusen Logistics (Tohoku) Co., Ltd. 100.00 JPY 30 million Yusen Logistics (Kyushu) Co., Ltd. 100.00 JPY 30 million Yusen Logistics (Chugoku) Co., Ltd. 80.00 JPY 30 million Yusen Logistics (Hokuriku) Co., Ltd. 100.00 JPY 20 million Yusen Logitec Co., Ltd. 100.00 JPY 20 million Yusen Travel Co., Ltd. 100.00 JPY 270 million Ryowa Diamond Air Service Co., Ltd. 99.17*22 JPY 50 million Yusen Loginet Co., Ltd. 100.00 JPY 20 million Transcontainer Limited*23 51.13 JPY 100 million

63Annual Report 2016

*1 as of March 31, 2016 *2 owned 100.00% by Yusen Logistics (Hong Kong) Limited *3 owned 100.00% by Yusen Logistics (Europe) B.V. *4 owned 32.04% by the Company, 18.93% by Yusen Logistics (Singapore) Pte.Ltd. *5 owned 57.20% by the Company, 38.10% by Yusen Logistics (Hong Kong) Limited *6 owned 8.88% by the Company, 58.74% by Yusen Logistics (Singapore) Pte.Ltd. *7 owned 49.00% by Yusen Logistics (Singapore) Pte.Ltd., 46.00% by Yusen Logistics (Thailand) Co.,

Ltd. *8 owned 49.00% by Yusen Logistics (Singapore) Pte.Ltd. *9 owned 31.53% by the Company, 19.47% by Yusen Logistics (Singapore) Pte.Ltd. *10 owned 100.00% by Yusen Logistics (Americas) Inc. *11 owned 100.00% by Yusen Logistics (Benelux) B.V. *12 owned 99.00% by Yusen Logistics (Singapore) Pte.Ltd *13 owned 100.00% by Yusen Logistics (Singapore) Pte.Ltd. *14 owned 100.00% by Yusen Logistics Philippines, Inc. *15 owned 33.46% by the Company, 10.80% by Yusen Air & Sea Service Management (Thailand) Co.,

Ltd. *16 owned 31.39% by the Company, 23.99% by Yusen Logistics (Singapore) Pte.Ltd. *17 owned 100.00% by TASCO Berhad *18 owned 51.22% by TASCO Berhad *19 owned 80.00% by Yusen Logistics (Thailand) Co., Ltd. *20 owned 93.08% by the Company, 3.46% by Yusen Logistics (Americas) Inc., 3.46% by ETA TOO,

INC. *21 owned 0.59% by the Company, 99.41% by Yusen Logistics (Europe) B.V. *22 owned 99.17% by Yusen Travel Co., Ltd. *23 became newly consolidated companies since materiality has increased *24 changed their company name in this fiscal year

Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influences are accounted for by the equity method.

Yusen Air & Sea Service（U.K.）Ltd. and BRUNI INTERNATIONAL DE MEXICO,S.A.DE C.V. were

excluded from the scope of consolidation due to liquidation.

Investments in three (three in 2015) unconsolidated subsidiaries and three (two in 2015) affiliated companies are accounted for by the equity method. Investments in the remaining unconsolidated subsidiaries and affiliated companies are stated at cost, which is determined by the moving-average method. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acquisition is being amortized using the straight-line method principally over a period not exceeding 20 years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated.

b. Accounting period—The Company’s accounting period begins each year on April 1 and ends the

following year on March 31. During the fiscal year ended March 31, 2016, December 31 was used by 13 consolidated subsidiaries listed below as the closing date for their financial statements.

Yusen Logistics (Mexico), S.A. de C.V.*1 Yusen Logistics (Argentina) S.A.*1 Yusen Logistics Do Brasil Ltda.*1 Yusen Logistics RUS LLC*1 Beijing Yusen Freight Service Co.,Ltd.*1 Guangdong Yusen Freight Service Co.,Ltd.*1 Shenzhen Yusen Freight Service Co.,Ltd.*1 Shanghai Yusen Logistics Service (W.G.Q.) Co.,Ltd.*1 Suzhou Yusen Logistics Service Co.,Ltd.*1


Xiamen Yusen Logistics Service Co.,Ltd.*1 Yusen Logistics (China) Co.,Ltd.*2 Shanghai Yusen Freight Service Co.,Ltd.*2 PT. Yusen Logistics Indonesia*2

*1 Necessary adjustments have been made to address transactions that occurred between closing dates

different to that of the Company and March 31. *2 They provide financial statements based on provisional settlement of accounts as of March 31 to

facilitate preparation of the consolidated financial statements.

From the fiscal year ended March 31, 2016, in order to provide more appropriate disclosures in the consolidated financial statements, Yusen Logistics (China) Co.,Ltd. and Shanghai Yusen Freight Service Co.,Ltd. have changed to a method in which they prepare provisional financial statements as of the consolidated fiscal year end of March 31, for consolidation purposes. In accordance with this change, the consolidated financial statements are prepared based on the statements of income for twelve-month fiscal periods from April 1, 2015 to March 31, 2016 of those subsidiaries. Profit or loss for the period from January 1, 2015 to March 31, 2015 has been incorporated as an adjustment of retained earnings.

c. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial

Statements—In May 2006, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Practical Issues Task Force ("PITF") No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements" which was subsequently revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards in other jurisdictions. PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification—"FASB ASC") tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (3) expensing capitalized development costs of R&D; and (4) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.

d. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and

that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits which mature or become due within three months of the date of acquisition.

e. Investments in Securities—Securities are classified into three categories, depending on management's

intent: trading, available-for-sale, or held-to-maturity. The Company classifies all investments in securities as available-for-sale securities. Marketable available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported under accumulated other comprehensive income in a separate component of equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, non-marketable investment securities are reduced to net realizable value by a charge to income.

f. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of

property, plant and equipment of the Company and domestic consolidated subsidiaries is computed substantially by the declining-balance method at rates based on the estimated useful lives of the assets, except for the buildings and structures at the Toyooka distribution center and Iwata distribution center, which are depreciated by the straight-line method. The depreciation of property, plant and equipment of foreign consolidated subsidiaries is generally computed by the straight-line method over the estimated useful lives of the assets. The range of useful lives is principally as follows:

Buildings and structures 3–60 years Furniture and fixtures 2–20 years Machinery, equipment and vehicles 4–6 years

g. Other Assets—Amortization of intangible assets included in other assets is computed by the straight-line


method. Software for internal use is amortized over a five-year period. h. Long-lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes in

circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

i. Allowance for Doubtful Accounts—The Group provides an allowance for doubtful accounts based on the

aggregated 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.

j. Accrued Bonuses to Employees—Employees are paid bonuses in July and December of every year. The

bonuses include amounts for services rendered during the previous fiscal year which are recorded as accrued bonuses on the balance sheet as of the respective fiscal year-end.

k. Retirement and Pension Plans

Employee's retirement and pension plans—The liability for employees' retirement benefits is accounted for based on projected benefit obligations and plan assets at the balance sheet date. In calculating projected benefit obligations, the expected amount of retirement benefits attributed to a period up to the current fiscal year is primarily determined based on a benefit formula basis. Actuarial gains and losses are amortized in the year following the year in which the gains and losses arise by the straight-line method over a certain period (8-10 years) which is not more than the average remaining service period of employees. Past service costs are recognized in profit or loss in full in the fiscal year in which they arise. Retirement allowance for directors and audit & supervisory board members—Retirement allowance for directors and audit & supervisory board members for certain subsidiaries are recorded to state the liability at the amount that would be required if all directors and audit & supervisory board members retired at each balance sheet date.

l. Income Taxes—The provision for income taxes is computed based on the pretax income included in the

consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

m. Treasury Stock—Under the Japanese Companies Act, the Company is allowed to acquire its own shares to

the extent that the aggregate cost of treasury stock does not exceed the maximum amount available for dividends. Treasury stock is stated at cost in the equity of the accompanying consolidated balance sheet. Net gain on disposal of treasury stock is presented under "Capital surplus'' in the equity of the accompanying consolidated balance sheet.

n. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables

denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of income.

o. Foreign Currency Financial Statements—The balance sheet accounts of foreign consolidated subsidiaries

and foreign subsidiaries accounted for by the equity method are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translations are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of foreign consolidated subsidiaries are translated into Japanese yen at the average exchange rates.

p. Derivatives—The Group uses derivative financial instruments to manage its exposures to fluctuations in


foreign exchange and interest rates. Foreign exchange forward contracts are utilized by the Group. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of income and (2) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign exchange forward contracts employed to hedge foreign exchange exposures in the Group's operating activities are measured at the fair value and the unrealized gains or losses are recognized in consolidated statement of income.

q. Accounting Changes and Error Corrections―In December 2009, the ASBJ issued ASBJ Statement No.

24 “Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24 “Guidance on Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard and guidance are as follows: (1) Changes in Accounting Policies - When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively, unless the revised accounting standard includes specific transitional provisions. When the revised accounting standard includes specific transitional provisions, an entity shall comply with the specific transitional provisions. (2) Changes in Presentation - When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates - A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior Period Errors - When an error in prior-period financial statements is discovered, those statements are restated. This accounting standard and the guidance are applicable to accounting changes and corrections of prior- period errors, which are made from the beginning of the fiscal year that begins on or after April 1, 2011.

r. Per Share Information—Net assets per share are computed based on the outstanding shares of common

stock at relevant balance sheet dates. Basic net income per share is computed by dividing net income available to shareholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share for the years ended March 31, 2016 and 2015, is not presented since the Company had no securities with a dilutive effect. Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective years including dividends to be paid after the end of the year.

s. Change in Accounting Standard for Business Combination— In September 2013, the ASBJ issued

revised ASBJ Statement No. 21, "Accounting Standard for Business Combinations," revised ASBJ Statement No. 22, "Accounting Standard for Consolidated Financial Statements," and revised ASBJ Statement No. 7, "Accounting Standard for Business Divestitures," etc. Major accounting changes are as follows:

(1) Transactions with non-controlling interests—A parent's ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of non-controlling interests is adjusted to reflect the change in the parent's ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the previous accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the non-controlling interests is adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard, such difference is accounted for as capital surplus as long as the parent retains control over its subsidiary.

(2) Presentation of the consolidated balance sheet—In the consolidated balance sheet, "minority interests"


under the previous accounting standard is changed to "non-controlling interests" under the revised accounting standard. (3) Presentation of the consolidated statement of income—In the consolidated statement of income, "net income before minority interests" under the previous accounting standard is changed to "net income" under the revised accounting standard, and "net income" under the previous accounting standard is changed to "net income attributable to owners of the parent" under the revised accounting standard. (4) Provisional accounting treatments for a business combination—If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. Under the previous accounting standard, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which the measurement is completed. Under the revised accounting standard, during the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. (5) Acquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to effect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition-related costs by including them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted for as expenses in the periods in which the costs are incurred. The Company applied the revised accounting standards for (1) transactions with non-controlling interests, (2) presentation of the consolidated balance sheet, (3) presentation of the consolidated statement of income, and (5) acquisition-related costs above, effective April 1, 2015, and (4) provisional accounting treatments for a business combination above for a business combination which occurred on or after April 1, 2015. The revised accounting standards for (1) transactions with non-controlling interests and (5) acquisition-related costs were applied for all applicable transactions which occurred on or after April 1, 2015 prospectively. With respect to (2) presentation of the consolidated balance sheet and (3) presentation of the consolidated statement of income, the applicable line items in the 2015 consolidated financial statements have been accordingly reclassified and presented in line with those in 2016. As a result, the effect from these accounting changes was immaterial.

t. New Accounting Pronouncements

Tax Effect Accounting—On December 28, 2015, the ASBJ issued ASBJ Guidance No. 26, "Guidance on Recoverability of Deferred Tax Assets," which included certain revisions of the previous accounting and auditing guidance issued by the Japanese Institute of Certified Public Accountants. While the new guidance continues to follow the basic framework of the previous guidance, it provides new guidance for the application of judgment in assessing the recoverability of deferred tax assets. The previous guidance provided a basic framework which included certain specific restrictions on recognizing deferred tax assets depending on the company's classification in respect of its profitability, taxable profit and temporary differences, etc. The new guidance does not change such basic framework but, in limited cases, allows companies to recognize deferred tax assets even for a deductible temporary difference for which it was specifically prohibited to recognize a deferred tax asset under the previous guidance, if the company can justify, with reasonable grounds, that it is probable that the deductible temporary difference will be utilized against future taxable profit in some future period. The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier application is permitted for annual periods ending on or after March 31, 2016. The new guidance shall not be applied retrospectively and any adjustments from the application of the new guidance at the beginning of the reporting period shall be reflected within retained earnings or accumulated other


comprehensive income at the beginning of the reporting period. The Company expects to apply the new guidance on recoverability of deferred tax assets effective April 1, 2016, and is in the process of measuring the effects of applying the new guidance in future applicable periods.

u. Changes in presentation－Consolidated statement of Income Prior to April 1, 2015, the "Subsidy income" was included in "Other—net" within the other income (expenses) section of the consolidated statement of income. Since during this fiscal year ended March 31, 2016, the materiality of the amount increased, such amount is now presented separately in the other income (expenses) section of the consolidated statement of income. The amount previously included in "Other—net" for the year ended March 31, 2015, was ¥58 million.


3. LOSS ON IMPAIRMENT OF FIXED ASSETS

The Group reviewed its long-lived assets for impairment as of the year ended March 31, 2016, and as a result, recognized an impairment loss of ¥1,003 million ($8,902 thousand) as other expenses. The impairment loss for the year ended March 31, 2016, was recorded on a certain operating system in Hong Kong, China. The Group reduced the book value of this asset to its recoverable amount due to earlier retirement than originally planned. The recoverable amount of this asset was measured at its value in use. The value in use is calculated based on the projected future cash flows discounted at a rate of 3.86%.

4. INVESTMENTS IN SECURITIES

The cost and aggregate fair values of the investments classified as "available-for-sale securities" at March 31, 2016 and 2015, are as follows:

(1) Available-for-sale securities for which market quotations are available:

Millions of Yen Thousands of U.S. Dollars 2016 2015 2016

Cost

Fair Value (Carrying Amount) Difference Cost

Fair Value (Carrying Amount) Difference Cost

Fair Value (Carrying Amount) Difference

Securities for which market value exceeds cost— Equity securities ¥ 305 ¥ 580 ¥ 275 ¥ 304 ¥ 788 ¥ 484 $ 2,713 $ 5,149 $ 2,436 Government bonds 60 60 0 60 60 0 529 535 6 Securities for which market value does not exceed cost— Equity securities 55 36 (19 ) 49 46 (3 ) 486 315 ( 171 ) Total ¥ 420 ¥ 676 ¥ 256 ¥ 413 ¥ 894 ¥ 481 $ 3,728 $ 5,999 $ 2,271

(2) Proceeds from sale of available-for-sale securities and total amounts of gain and loss on sale of available-for-sale securities:

Millions of Yen Thousands of U.S. Dollars

2016 2015 2016

Proceeds from sale of available-for-sale securities ¥ 72 ¥ 10 $ 636 Total amount of gain on sale of available-for-sale securities 10 7 86 Total amount of loss on sale of available-for-sale securities – – –

(3) There were no impairment losses on securities for the year ended March 31, 2016. The impairment losses on securities for the year ended March 31, 2015, amounted to ¥149 million ($1,241

thousand) for the securities of non-consolidated subsidiaries.


5. SHORT-TERM LOANS PAYABLE AND LONG-TERM DEBT

Short-term loans payable at March 31, 2016, consisted of notes to financial institutions and bank overdrafts. The weighted-average interest rates applicable to the short-term loans payable were 1.44% and 3.57% at March 31, 2016 and 2015, respectively. Long-term debt at March 31, 2016 and 2015, consisted of the following:


2016 2015 2016

Loans from banks and other financial institutions, due serially to 2025 with average interest rates of 1.00% (2016) and 1.14% (2015); Collateralized – – – Unsecured ¥ 18,568 ¥ 20,222 $ 164,782 Finance lease obligation 260 379 2,306 Total 18,828 20,601 167,088 Less current portion (5,168 ) (4,668 ) (45,863 ) Long-term debt, less current portion ¥ ¥ 13,660 ¥ 15,933 $ 121,225

Annual maturities of long-term debt including financial lease obligation at March 31, 2016, were as follows:

Year Ending March 31 Millions of Yen

Thousands of U.S. Dollars

2017 ¥ 5,168 $ 45,863 2018 2,344 20,796 2019 488 4,333 2020 492 4,367 2021 and thereafter 10,336 91,729 Total ¥ 18,828 $ 167,088

As is customary in Japan, the Company maintains substantial deposit balances with banks with which it has

borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal. General agreements with respective banks provide, as is customary in Japan, that additional collateral must be provided under certain circumstances if requested by such banks and that certain banks have the right to offset cash deposited with them against any long-term or short-term debt or obligation that becomes due and, in case of default and certain other specified events, against all other debt payable to the banks. The Company has never been requested to provide any additional collateral.


6. RETIREMENT AND PENSION PLANS The Company and certain domestic consolidated subsidiaries have a non-contributory funded defined benefit pension plan and an unfunded retirement benefit plan. Certain of the Company’s domestic consolidated subsidiaries have a contributory funded defined contribution pension plan, while certain foreign consolidated subsidiaries have either a non-contributory funded defined benefit pension plan or a contributory funded defined contribution pension plan. In addition, a certain domestic consolidated subsidiary participates in a multi-employer plan for which the Company cannot reasonably calculate the amount of plan assets corresponding to the contributions made by the Company. Therefore, it is accounted for using the same method as a defined contribution plan. For the years ended March 31, 2016 and 2015 1. Defined Benefit Plan

(1) The changes in projected benefit obligation for the years ended March 31, 2016 and 2015, are as follows:

Millions of Yen Thousands of

U.S. Dollars

2016 2015 2016 Balance at beginning of year ¥ 19,404 ¥ 18,191 $ 172,200 Cumulative effect of accounting change – (1,400 ) – Balance at beginning of year, as restated 19,404 16,791 172,200 Current service cost 1,068 961 9,476 Interest cost 391 444 3,469 Actuarial gains and losses (304 ) 1,607 (2,695 ) Benefits paid (1,225 ) (954 ) (10,874 ) Past service cost (10 ) 104 (91 ) Others (593 ) 451 (5,256 ) Balance at end of year ¥ 18,731 ¥ 19,404 $ 166,229

(2) The changes in plan assets for the years ended March 31, 2016 and 2015, are as follows:


U.S. Dollars

2016 2015 2016 Balance at beginning of year ¥ 15,254 ¥ 12,922 $ 135,374 Expected return on plan assets 449 461 3,986 Actuarial gains and losses (722 ) 1,231 (6,410 ) Contributions from the employer 975 955 8,656 Benefits paid (889 ) (623 ) (7,887 ) Others (699 ) 308 (6,211 ) Balance at end of year ¥ 14,368 ¥ 15,254 $ 127,508


(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of projected benefit obligation and plan assets as of March 31, 2016 and 2015


U.S. Dollars

2016 2015 2016 Funded projected benefit obligation ¥ 14,724 ¥ 15,126 $ 130,748 Plan assets (14,368 ) (15,254 ) (127,508 ) 356 (128 ) 3,240 Unfunded projected benefit obligation 4,007 4,278 35,481 Net liability (asset) for defined benefit obligation ¥ 4,363 ¥ 4,150 $ 38,721


U.S. Dollars

2016 2015 2016 Net defined benefit liability ¥ 5,195 ¥ 5,789 $ 46,101 Net defined benefit asset (832 ) (1,639 ) (7,380 ) Net liability (asset) for defined benefit obligation ¥ 4,363 ¥ 4,150 $ 38,721

(4) The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, are as follows:


U.S. Dollars

2016 2015 2016 Current service cost ¥ 1,068 ¥ 961 $ 9,476 Interest cost 391 444 3,469 Expected return on plan assets (449 ) (461 ) (3,986 ) Amortization of actuarial gains and losses 380 329 3,376 Amortization of past service cost (10 ) 104 (91 ) Others 0 0 1 Net periodic benefit costs ¥ 1,380 ¥ 1,377 $ 12,245

(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined

retirement benefit plans for the years ended March 31, 2016 and 2015


U.S. Dollars

2016 2015 2016 Actuarial gains and losses ¥ 1 ¥ 56 $ 6 Total ¥ 1 ¥ 56 $ 6


(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2016 and 2015


U.S. Dollars

2016 2015 2016 Unrecognized actuarial gains and losses ¥ (1,464 ) ¥ (1,474 ) $ (12,993 ) Total ¥ (1,464 ) ¥ (1,474 ) $ (12,993 )

(7) Plan assets as of March 31, 2016 and 2015

(a) Components of plan assets Plan assets consisted of the following:

2016 2015 Equity investments 54 % 43 % Debt investments 12 34 General account 15 14 Others 19 9

Total 100 % 100 % (b) Method of determining the expected rate of return on plan assets

The expected rate of return on plan assets is determined considering the long-term rates of return which are currently expected and expected in the future from the variety of asset portfolio components.

(8) Assumptions used for the years ended March 31, 2016 and 2015, are set forth as follows:

2016 2015 Discount rate Principally 0.30～3.30% Principally 0.50～3.10% Expected rate of return on plan assets Principally 1.25～3.60% Principally 1.25～3.10%

2. Defined Contribution Plan

The amount of contributions which certain consolidated subsidiaries (including the multi-employer pension plan of the welfare pension insurance fund accounted for similar to the defined contribution plans) should contribute under the defined contribution plan is ¥772 million ($6,854 thousand) and ¥746 million for the years ended March 31, 2016 and 2015, respectively.


7. EQUITY

Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:

a. Dividends

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as: (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

c. Treasury Stock and Treasury Stock Acquisition Rights

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.


8. INCOME TAXES The Company and domestic consolidated subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory rate of approximately 33.1% and 35.6% for the years ended March 31, 2016 and 2015, respectively. The tax effects of significant temporary differences resulted in deferred tax assets and liabilities at March 31, 2016 and 2015, are as follows:


2016 2015 2016 Deferred tax assets: Net defined benefit liability ¥ 1,430 ¥ 1,486 $ 12,693 Accrued bonuses to employees 761 775 6,756 Accrued enterprise tax 41 86 365 Accrued pension and severance costs for directors and audit & supervisory board members 135 126 1,200 Allowance for doubtful accounts 127 121 1,128 Depreciation 400 376 3,547 Tax loss carryforwards 4,038 3,129 35,835 Loss on impairment of fixed assets 6 99 55 Loss on revaluation of investments in securities 60 25 532 Loss on write-down of golf club membership 108 102 957 Stock of affiliated company 117 124 1,040 Provision for alleged antitrust law violation – 580 – Other 762 902 6,755 Total 7,985 7,931 70,863 Less valuation allowance (2,530 ) (1,585 ) (22,453 ) Total deferred tax assets 5,455 6,346 48,410 Deferred tax liabilities: Depreciation 686 1,191 6,085 Net defined benefit asset 244 408 2,169 Other 500 574 4,434 Total deferred tax liabilities 1,430 2,173 12,688 Net deferred tax assets ¥ 4,025 ¥ 4,173 $ 35,722


The reconciliation of the difference between the normal effective statutory tax rate and the actual effective tax rate

reflected in the accompanying consolidated statements of income for the years ended March 31, 2016 and 2015 is as follows:

2016 2015

Normal effective statutory tax rate 33.1% 35.6% Adjustments: Entertainment expenses and other non-deductible permanent differences 4.3 3.1 Dividend income not taxable (1.8 ) (6.0 ) Effect of elimination of intercompany dividends received 2.5 9.6 Per share levy of local tax 0.6 0.6 Lower income tax rates applicable to income in certain foreign countries (11.2 ) (13.5 ) Valuation allowance on deferred tax 6.9 4.6 Equity in earnings of affiliated companies and unconsolidated companies (0.1 ) (0.3 ) Effect of tax reduction 1.6 2.6 Amortization of goodwill 0.7 1.0 Tax credits – (0.6 ) Loss related to competition law case – 0.9 Other—net 0.5 2.9 Actual effective tax rate 37.1% 40.5%

Adjustment of deferred tax assets and liabilities pursuant to the change in the corporate tax rate New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after April 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after April 1, 2018, to approximately 30.6%. The effect of these changes was to decrease deferred tax assets, net of deferred tax liabilities, by ¥157 million ($1,390 thousand), decrease pension liability adjustment by ¥14 million ($126 thousand) and increase accumulated other comprehensive income for unrealized gain on available-for-sale securities by ¥2 million ($21 thousand) in the consolidated balance sheet as of March 31, 2016, and to decrease income taxes—deferred in the consolidated statement of income for the year then ended by ¥145 million ($1,285 thousand). 9. LEASES

The Group has various lease agreements whereby the Group acts as lessee. The minimum rental commitments under non-cancelable operating leases at March 31, 2016 and 2015, were as follows:

Thousands of Millions of Yen U.S. Dollars 2016 2015 2016 Due within one year ¥ 10,325 ¥10,718 $ 91,630 Due after one year 21,327 20,851 189,271 Total ¥ 31,652 ¥ 31,569 $280,901


10. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

In March 2008, the ASBJ revised ASBJ Statement No. 10 “Accounting Standard for Financial Instruments” and issued ASBJ Guidance No. 19 “Guidance on Accounting Standard for Financial Instruments and Related Disclosures.” This accounting standard and the guidance were applicable to financial instruments and related disclosures at the end of the fiscal years ending on or after March 31, 2010. The Group applied the revised accounting standard and the new guidance effective March 31, 2010.

(1) Group policy for financial instruments The Group limits the use of financial instruments for fund management purposes to short-term bank deposits. It is the basic policy of the Group to use the cash management system operated within the Group and bank loans to fund its ongoing operations. Derivatives are used, not for speculative purposes, but to manage exposure to financial risks as described in (2) below.

(2) Nature and extent of risks arising from financial instruments Receivables such as trade notes and trade accounts are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, the position, net of payables in foreign currencies, is hedged by using forward foreign currency contracts. Investment securities, mainly equity securities of customers and suppliers of the Group, are exposed to the risk of market price fluctuations. Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are netted against the balance of receivables denominated in the same foreign currency as noted above. Loans, principally from financial institutions, in short-term loans payable are mainly for financing related to business transaction. Loans, principally from financial institutions, in long-term debt are mainly for financing related to business integration and investment in property. Derivatives, which are forward foreign currency contracts, are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables. Please see Note 11 for more details about derivatives.

(3) Risk management for financial instruments Credit risk management Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment term and balances of major customers by each business administration department to identify the default risk of customers in the early stage. The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2016. Market risk management (foreign exchange risk and interest rate risk) Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency contracts. In addition, when foreign currency trade receivables and payables are expected from forecasted transactions, forward foreign currency contracts may be used under the limited contract term of a quarter of a year. Investment securities are managed by monitoring market values and financial position of issuers on a regular basis. The execution and management of derivative transactions are approved by the CFO or the board of directors according to the internal guidelines which prescribe the authority and the limit for each transaction. Counterparties to these derivative transactions are limited to major financial institutions in order to mitigate credit risks.


Liquidity risk management Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on maturity dates. The Group manages its liquidity risk by holding adequate volumes of liquid assets, along with adequate financial planning by the corporate treasury department.

(4) Fair values of financial instruments Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational valuation techniques are used instead. As the valuation of financial instruments requires various assumptions, the fair values of financial instruments are subject to change when different assumptions are used. Please see Note 11 for fair value information for derivatives.

(a) Fair value of financial instruments

Millions of Yen

March 31, 2016 Carrying Amount Fair Value Unrealized Gain/Loss

Cash and cash equivalents ¥ 32,911 ¥ 32,911 – Time deposits 6,065 6,065 – Trade notes and accounts receivable 78,512 78,512 – Investments in securities:

Available-for-sale securities 676 676 –

Total ¥ 118,164 ¥ 118,164 –

Trade notes and accounts payable ¥ 41,142 ¥ 41,142 – Short-term loans payable 1,605 1,605 – Accrued income taxes 1,890 1,890 – Long-term debt 18,828 19,290 ¥ 462

Total ¥ 63,465 ¥ 63,927 ¥ 462

Millions of Yen

March 31, 2015 Carrying Amount Fair Value Unrealized Gain/Loss

Cash and cash equivalents ¥ 32,107 ¥ 32,107 – Time deposits 4,496 4,496 – Trade notes and accounts receivable 93,641 93,641 – Investments in securities:

Available-for-sale securities 894 894 –

Total ¥ 131,138 ¥ 131,138 –

Trade notes and accounts payable ¥46,939 ¥ 46,939 – Short-term loans payable 3,052 3,052 – Accrued income taxes 2,192 2,192 – Long-term debt 20,601 20,704 ¥ 103

Total ¥ 72,784 ¥ 72,887 ¥ 103



March 31, 2016

Carrying Amount Fair Value Unrealized Gain/Loss

Cash and cash equivalents $ 292,078 $ 292,078 – Time deposits 53,821 53,821 – Trade notes and accounts receivable 696,768 696,768 – Investments in securities:

Available-for-sale securities 5,999 5,999 –

Total $1,048,666 $1,048,666 –

Trade notes and accounts payable $365,121 $365,121 – Short-term loans payable 14,241 14,241 – Accrued income taxes 16,776 16,776 – Long-term debt 167,088 171,192 $ 4,104

Total $563,226 $567,330 $ 4,104

Note: Current portion of long-term debt is included in "Long-term debt."

Current assets and liabilities The fair value of all current assets and liabilities (cash and cash equivalents, time deposit, trade notes and accounts receivable, trade notes and accounts payable, short-term loans payable, current portion of long-term debt, and accrued income taxes) is considered to be equivalent to their carrying amount due to their short-term maturities.

Investments in securities (available-for-sale securities) The fair values of investments in securities are measured at the quoted market price of the stock exchange for the equity instruments, and at the quotes obtained from the financial institution for certain debt instruments. For information on securities classified by holding purpose, please refer to Note 4.

Long-term debt

-Long-term loans payable Long-term loans payable with variable interest rates are stated at book value as the interest rate on these loans reflects the market rate in the short term and their market values approximate book values. Long-term loans payable with fixed interest rates are stated at present value. The present value is calculated by discounting a periodically divided portion of the principal and interest of these loans*, using the assumed rate applied to a similar loan. *As to the long-term loans payable related to the interest rate swap agreements that meet the requirements for exceptional accounting (Refer to Note 11, “Derivatives”), the total amount of principal and interest income at the post-swap rate is applied. - Lease obligations

The fair value of lease obligations approximates carrying amount.


Derivatives The fair value information for derivatives is included in Note 11.

(b) Financial instruments whose fair value cannot be reliably determined

Carrying Amount


2016 2015 2016 Investments in unconsolidated subsidiaries

and affiliated companies ¥ 1,832 ¥ 2,107 $ 16,254 Investments in equity instruments that do not have

a quoted market price in an active market 343 324 3,045 Total ¥ 2,175 ¥ 2,431 $ 19,299

(5) Maturity analysis for financial assets and securities with contractual maturities

Millions of Yen Due after Due after one year five years Due in one through through Due after

March 31, 2016 year or less five years ten years ten years Cash and cash equivalents ¥ 32,911 – – – Time deposits 6,065 – – – Trade notes and accounts receivable 78,512 – – – Investments in securities:

Available-for-sale securities with contractual maturities 18 ¥ 42 – –

Total ¥ 117,506 ¥ 42 – –

Millions of Yen Due after Due after one year five years Due in one through through Due after

March 31, 2015 year or less five years ten years ten years Cash and cash equivalents ¥ 32,107 – – – Time deposits 4,496 – – – Trade notes and accounts receivable 93,641 – – – Investments in securities:

Available-for-sale securities with contractual maturities – ¥ 60 – –

Total ¥ 130,244 ¥ 60 – –


Thousands of U.S. Dollars Due after Due after one year five years

Due in one through through Due after March 31, 2016 year or less five years ten years ten years

Cash and cash equivalents $292,078 – – – Time deposits 53,821 – – – Trade notes and accounts receivable 696,768 – – – Investments in securities:

Available-for-sale securities with contractual maturities 160 $373 – –

Total $1,042,827 $373 – –


11. DERIVATIVES

The Group enters into foreign exchange forward contracts, interest rate swaps and currency swaps to reduce the exposure to fluctuations in interest rate risks and foreign exchange rates associated with certain assets and liabilities denominated in foreign currencies. All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within the Group's business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities. Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk. Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate their authorization. The Group had the following derivative contracts outstanding at March 31, 2016 and 2015: Derivative transactions to which hedge accounting is not applied.

Currency related

Millions of Yen Thousands of U.S. Dollars 2016 2015 2016 Contracts Contracts Contracts Outstanding Outstanding Outstanding Contracts Due Over Fair

Value Contracts Due Over Fair


Value

Outstanding One Year Outstanding One Year Outstanding One Year Foreign currency forward contracts:

Selling euro ¥ 204 – ¥ 16 ¥ 261 – ¥ 13 $ 1,813 – $ 145 Selling British pound ¥ 197 – ¥ 4 ¥ 344 – ¥ (10 ) $ 1,749 – $ 39 Buying U.S. dollar ¥ 838 – ¥ (1 ) ¥ 705 – ¥ (14 ) $ 7,433 – $ (8 ) Buying Singapore dollar ¥ 846 – ¥ (26 ) ¥ 883 – ¥ (39 ) $ 7,510 – $ (236 ) Buying Hong Kong dollar ¥ 148 – ¥ (1 ) ¥ 171 – ¥ (1 ) $ 1,317 – $ (5 ) Buying Thai baht – – – ¥ 63 – ¥ (0 ) – – – Buying euro ¥ 9 – ¥ 0 ¥ 273 – ¥ (4 ) $ 79 – $ 1 Buying Canadian dollar – – – ¥ 335 – ¥ (4 ) – – –

Currency swaps: Receipts - Singapore dollar, payments - U.S. dollar ¥ 589 ¥ 524 ¥ (46 ) ¥ 685 ¥ 617 ¥ (95 ) $ 5,224 $ 4,652 $ (412 ) Receipts - Thai baht, payments - euro ¥ 942 – ¥ (10 ) ¥ 1,110 – ¥ 138 $ 8,362 – $ (87 ) Receipts - Thai baht, payments - Japanese yen ¥ 957 – ¥ (31 ) – – – $ 8,493 – $ (277 )

The contract or notional amounts of foreign currency forward contracts which are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Group's exposure to credit or market risk. Fair values of currency swaps are calculated using the prices offered by transacting financial institutions.


Derivative transactions to which hedge accounting is applied.

(1) Currency related


2016 2015 2016

Contracts Contracts Contracts Outstanding Outstanding Outstanding Hedged

item Contracts Due Over Fair



Value

Outstanding One Year Outstanding One Year Outstanding One Year Derivative transactions

qualifying for general accounting policies, deferral hedge accounting

Currency swaps: Receipts - U.S. dollar,

payments - Malaysian Ringgit

Long-term debt ¥ 1,319 ¥ 854 ¥ 167 ¥ 1,867 ¥ 1,352 ¥ 209 $11,707

$ 7,575 $ 1,479

Total ¥ 1,319 ¥ 854 ¥ 167 ¥1,867 ¥ 1,352 ¥ 209 $11,707 $ 7,575 $ 1,479

Fair values are calculated using the prices offered by transacting financial institutions.

(2) Interest related

Millions of Yen Thousands of U.S. Dollars 2016 2015 2016 Contracts Contracts Contracts Outstanding Outstanding Outstanding Hedged

item Contracts Due Over Fair



Value

Outstanding One Year Outstanding One Year Outstanding One Year Interest-rate swap

derivative transactions qualifying for exceptional accounting

Interest-rate swaps: Receipts floating,

payments fixed Long-term

debt ¥ 2,811 ¥ 2,710 ¥ (125) ¥2,973 ¥2,865 ¥ (47) $24,949 $24,049 $(1,109) )

Total ¥ 2,811 ¥ 2,710 ¥ (125) ¥2,973 ¥2,865 ¥ (47) $24,949 $24,049 $(1,109) )

Fair values are calculated using the prices offered by transacting financial institutions.


12. COMMITMENTS AND CONTINGENT LIABILITIES The Group was contingently liable for guarantees of trade payables and bank loans owed mainly by their unconsolidated subsidiaries and affiliated companies in the amount of ¥267 million ($2,371 thousand) and ¥370 million at March 31, 2016 and 2015, respectively.

13. BREAKDOWN OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the years ended March 31, 2016 and 2015, are summarized as follows:

Millions of Yen Thousands of U.S. dollars

2016 2015 2016 Labor and payroll cost ¥ 35,266 ¥ 31,865 $312,977 Provision for accrued bonuses to employees 3,241 2,774 28,764 Provision for accrued pension and severance costs for:

Employees 1,319 1,265 11,708 Directors and audit & supervisory board members 161 118 1,433

Provision for doubtful accounts 193 92 1,711 Depreciation 2,335 2,519 20,723 Other 29,577 28,824 262,478 Total ¥ 72,092 ¥ 67,457 $639,794


14. COMPREHENSIVE INCOME

For the years ended March 31, 2016 and 2015

The components of other comprehensive income consist of the following:


2016 2015 2016 Unrealized gain (loss) on available-for-sale securities

Gains arising during the year ¥ (223 ) ¥ 200 $ (1,972 ) Reclassification adjustments to profit or loss (2 ) (8 ) (19 ) Amount before income tax effect (225 ) 192 (1,991 ) Income tax effect 36 (12 ) 316 Total (189 ) 180 (1,675 )

Deferred gains or losses on hedges Gains arising during the year (7 ) 11 (64 ) Reclassification adjustments to profit or loss (18 ) – (162 ) Amount before income tax effect (25 ) 11 (226 ) Income tax effect – – – Total (25 ) 11 (226 )

Foreign currency translation adjustments Adjustments arising during the year (9,158 ) 9,040 (81,276 ) Reclassification adjustments to profit or loss – – – Amount before income tax effect (9,158 ) 9,040 (81,276 ) Income tax effect – – – Total (9,158 ) 9,040 (81,276 )

Pension liability adjustment Adjustments arising during the year (379 ) (273 ) (3,370 ) Reclassification adjustments to profit or loss 380 329 3,376 Amount before income tax effect 1 56 6 Income tax effect 73 (51 ) 647 Total 74 5 653

Gains or losses on change in shares in consolidated subsidiaries

Gains arising during the year – 53 – Reclassification adjustments to profit or loss – – – Amount before income tax effect – 53 – Income tax effect – – – Total – 53 –

Share of other comprehensive income in associates Gains arising during the year (79 ) 97 (700 )

Total other comprehensive income ¥ (9,377 ) ¥ 9,386 $ (83,224 )


15. SEGMENT INFORMATION For the years ended March 31, 2016 and 2015 Under ASBJ Statement No. 17, "Accounting Standard for Segment Information Disclosures" and ASBJ Guidance No. 20, "Guidance on Accounting Standard for Segment Information," an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. 1. Description of reportable segments

The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s management is being performed in order to decide how resources are allocated among the Group. The Group mainly provides global logistics services. In order to provide its services over a large region, the regional headquarters which are located in Japan, U.S.A., Netherlands, Hong Kong, and Singapore control the group companies in Japan, Americas, Europe, East Asia, and South Asia and Oceania, respectively. Thus, the Group’s reportable operating segments are based on geographical service providing structures, which consist of five regions: Japan, Americas, Europe, East Asia, and South Asia and Oceania.

2. Methods of measurement for the amounts of sales, profit (loss), assets, liabilities, and other items for each

reportable segment

The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant Accounting Policies.”

Information about sales, profit (loss), assets, liabilities, and other items is as follows. Millions of Yen 2016 Reportable Segment

Japan Americas Europe East Asia South Asia

and Oceania Total Reconciliation Consolidated

Total Sales

Sales to external customers ¥ 81,288 ¥113,169 ¥103,744 ¥ 80,153 ¥ 91,462 ¥ 469,816 – ¥ 469,816 Intersegment sales/transfers 2,012 4,497 2,759 5,261 2,075 16,604 ¥ (16,604 ) –

Total 83,300 117,666 106,503 85,414 93,537 486,420 (16,604 ) 469,816 Segment profit (loss) ¥ (60 ) ¥ 62 ¥ 518 ¥ 2,395 ¥ 6,248 ¥ 9,163 ¥ (106 ) ¥ 9,057

Segment assets ¥ 58,626 ¥ 32,108 ¥ 40,442 ¥ 28,783 ¥ 66,902 ¥ 226,861 ¥ (26,452 ) ¥ 200,409

Other: Depreciation 839 782 1,388 857 2,388 6,254 – 6,254 Amortization of goodwill – 171 44 29 6 250 108 358 Investments in unconsolidated

subsidiaries and affiliate companies accounted for by the equity method *1 163 – 243 – 426 832 388 1,220

Increase in property, plant and equipment and intangible assets 532 839 920 274 2,913 5,478 – 5,478


Millions of Yen 2015 Reportable Segment



Total Sales

Sales to external customers ¥ 90,378 ¥ 103,983 ¥ 100,723 ¥ 73,047 ¥92,837 ¥ 460,968 – ¥ 460,968 Intersegment sales/transfers 1,818 4,136 2,775 4,047 1,736 14,512 ¥ (14,512 ) –

Total 92,196 108,119 103,498 77,094 94,573 475,480 (14,512 ) 460,968 Segment profit (loss) ¥ 2,111 ¥ 549 ¥ (1,155 ) ¥ 1,442 ¥ 6,464 ¥ 9,411 ¥ (108 ) ¥ 9,303

Segment assets ¥ 63,061 ¥ 39,190 ¥ 45,532 ¥ 30,891 ¥ 71,471 ¥ 250,145 ¥ (27,409 ) ¥ 222,736

Other: Depreciation 927 683 1,581 984 2,293 6,468 – 6,468 Amortization of goodwill – 155 46 25 38 264 113 377 Investments in unconsolidated subsidiaries and affiliate

companies accounted for by the equity method *1 163 – – – 462 625 379 1,004

Increase in property, plant and equipment and intangible assets 447 919 954 412 4,139 6,871 – 6,871

Thousands of U.S. Dollars 2016 Reportable Segment



Total Sales

Sales to external customers $ 721,403 $ 1,004,336 $ 920,699 $ 711,336 $ 811,698 $4,169,472 – $4,169,472 Intersegment sales/transfers 17,861 39,912 24,480 46,684 18,418 147,355 $ (147,355 ) –

Total 739,264 1,044,248 945,179 758,020 830,116 4,316,827 (147,355 ) 4,169,472 Segment profit (loss) $ (534 ) $ 550 $ 4,598 $ 21,250 $ 55,453 $ 81,317 $ (936 ) $ 80,381

Segment assets $ 520,285 $ 284,947 $ 358,910 $ 255,440 $ 593,739 $2,013,321 $ (234,756 ) $1,778,565

Other: Depreciation 7,441 6,942 12,315 7,605 21,196 55,499 – 55,499 Amortization of goodwill – 1,518 389 256 52 2,215 956 3,171 Investments in unconsolidated subsidiaries and affiliate

companies accounted for by the equity method *1 1,446 – 2,158 – 3,778 7,382 3,445 10,827

Increase in property, plant and equipment and intangible assets 4,726 7,445 8,169 2,428 25,852 48,620 – 48,620


Notes: 1. The breakdown for the reconciliation of each item for the years ended March 31, 2016 and 2015, is as follows:

Thousands of Millions of Yen U.S. Dollars

2016 2015 2016 Sales:

Elimination of intersegment transactions ¥ (16,604 ) ¥ (14,512 ) $ (147,355 )

Total ¥ (16,604 ) ¥ (14,512 ) $ (147,355 )

Thousands of Millions of Yen U.S. Dollars 2016 2015 2016 Segment profit:

Elimination of intersegment transactions – – – Amortization of goodwill ¥ (108 ) ¥ (113 ) $ (956 ) Others 2 5 20

Total ¥ (106 ) ¥ (108 ) $ (936 )

Thousands of Millions of Yen U.S. Dollars 2016 2015 2016 Segment asset:

Elimination of intersegment receivables and payables ¥ (11,528 ) ¥ (16,373 ) $ (102,307 ) Elimination of intersegment investments and equity accounts (19,826 ) (17,332 ) (175,947 ) Common assets *2 4,988 6,383 44,265 Others (86 ) (87 ) (767 )

Total ¥ (26,452 ) ¥ (27,409 ) $ (234,756 )

*1: The reconciliation column for investments in unconsolidated subsidiaries and affiliated companies accounted for by

the equity method contains investments which are not attributable to any reportable segment. *2: The common assets mainly consisted of cash and deposits and investment securities.

2. Segment profit (loss) is reconciled to operating income in the consolidated statement of income.


Related information

1. Information about services

The Group has omitted information about services as of March 31, 2016 and 2015, as sales to external customers in air and sea cargo is over 90% of consolidated sales.

2. Information about geographical areas

(1) Sales

Millions of Yen 2016


and Oceania Others Total U.S.A. China

¥ 80,200 ¥ 113,449 ¥ 104,769 ¥ 103,951 ¥ 80,426 ¥ 74,337 ¥ 91,789 ¥ 1 ¥ 469,816

Millions of Yen

2015



¥ 89,308 ¥ 104,265 ¥ 97,684 ¥ 100,904 ¥ 73,317 ¥ 67,861 ¥ 93,172 ¥ 2 ¥ 460,968

Thousands of U.S. Dollars 2016



$ 711,747 $ 1,006,821 $ 929,794 $ 922,534 $ 713,758 $ 659,722 $ 814,604 $ 8 $ 4,169,472

Notes: (1) Sales are classified by country or region based on the location of customers.

(2) Hong Kong is included in China.


(2) Property, plant and equipment


Japan Americas Europe East Asia South Asia and Oceania Total U.S.A. Thailand Malaysia

¥ 8,737 ¥ 8,443 ¥ 7,863 ¥ 11,843 ¥ 2,205 ¥ 22,665 ¥10,031 ¥ 5,687 ¥ 53,893



¥9,425 ¥9,394 ¥ 8,671 ¥ 12,862 ¥ 2,590 ¥ 25,065 ¥10,768 ¥ 6,912 ¥ 59,336

Thousands of U.S. Dollars 2016


$ 77,538 $ 74,929 $ 69,785 $ 105,109 $ 19,566 $ 201,142 $ 89,018 $ 50,472 $ 478,284

(3) Information about major customers

The Group has omitted information about major customers, as sales to any particular customer is not over 10% of consolidated sales at March 31, 2016 and 2015.

(4) Information about loss on impairment of fixed assets



and Oceania Total – – – ¥ 1,003 – ¥ 1,003

Millions of Yen

2015


and Oceania Total ¥ 369 – – – – ¥ 369


2016


and Oceania Total – – – $ 8,902 – $ 8,902


(5) Information about balance of goodwill

Millions of Yen

2016

Japan

Americas

Europe

East Asia

South Asia and Oceania

Elimination / Corporate

Total Goodwill at March 31, 2016 – ¥ 1,431 ¥ 439 ¥ 460 ¥ 478 ¥ 99 ¥ 2,907

Millions of Yen

2015

Japan

Americas

Europe

East Asia

South Asia and Oceania


Total Goodwill at March 31, 2015 – ¥ 1,696 ¥ 491 ¥ 515 – ¥ 230 ¥ 2,932


2016

Japan

Americas

Europe

East Asia

South Asia

and Oceania


Total Goodwill at March 31, 2016 – $12,695 $ 3,899 $ 4,085 $ 4,242 $ 881 $25,802


16. PER SHARE INFORMATION Per share information for the years ended March 31, 2016 and 2015, is summarized as follows:

Yen U.S. Dollars 2016 2015 2016

Net assets per share ¥ 1,731.87 ¥ 1,825.21 $ 15.370 Basic net income per share 64.01 65.81 0.568

Diluted net income per share is not presented since there were no securities with a dilutive effect for the years

ended March 31, 2016 and 2015.

Per share information is computed based on the following:


2016 2015 2016

Net income attributable to owners of the parent ¥ 2,699 ¥ 2,775 $ 23,954 Net income attributable to owners of the parent not subject to distribution to common shareholders – – – Net income attributable to owners of the parent subject to current and future distribution to common stock 2,699 2,775 23,954

Outstanding Number of

Shares of Common Stock 2016 2015

Weighted-average shares for the period 42,168,957 42,169,325


17. RELATED PARTY TRANSACTIONS Major transactions and major balances for the years ended March 31, 2016 and 2015, with related parties are as follows:

For the year ended March 31, 2016

Transaction for the year Balance at end of year

Name Address Amount of

capital Nature of Business

Ownership interest

(%) Relationship

Description of the

transactions Millions of Yen

Thousands of U.S

Dollars Account

Name Millions of Yen


Transaction with subsidiaries of a common parent:

NYK INTERNATIONAL

PLC U.K.

USD 32,285

thousand Finance － Financing

Transfer of funds 2,252 19,982 Other current

liabilities (CMS deposits)

623 5,530

Loan (net amount)

(1,104) (9,796) Current portion of

long-term debt – –

Payment of interest

43 377

Other current liabilities

(accrued interest payable)

1 8

NYK INTERNATIONAL

(USA) INC. U.S.A.

USD 2,161




79 703

Payment of interest

12 104



0 3

For the year ended March 31, 2015

Transaction for the year Balance at end of year

Name Address Amount of

capital Nature of Business

Ownership interest

(%) Relationship

Description of the

transactions Millions of Yen


Account Name

Millions of Yen

Thousands of

U.S. Dollars

Transaction with subsidiaries of a common parent:

NYK INTERNATIONAL

PLC U.K.

USD 32,285




2,077 17,281

Loan (net amount)

(1,498) (12,468) Current portion of

long-term debt 1,084 9,017

Payment of interest

69 578



2 14

NYK INTERNATIONAL

(USA) INC. U.S.A.

USD 2,161




2,191 18,234

Payment of interest

8 66



2 15

Notes: Business policy on terms and conditions Interest on loans and transfer of funds are decided in consideration of the market rate. The transaction amount in yen for transferring funds is calculated as the average of each month-end balance.

Information about the parent company

Nippon Yusen Kabushiki Kaisha (NYK LINE) (Listed on the Tokyo Stock Exchange and Nagoya Stock Exchange)


18. SUBSEQUENT EVENT The Company made an appropriation of retained earnings, proposed by the board of directors and approved by shareholders at the general meeting on June 24, 2016, as follows:


Cash dividends (¥10 ($0.09) per share) ¥ 422 $ 3,742


Notes to Consolidated Financial Statements · In preparing these consolidated financial statements,...

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