_Auditor's Report 2016

【COVER PAGE】 【Submitted documents】 Financial reports 【Law of ground】 Article 24 chapter 1 of securities and exchange law 【Submitted to】 Kanto Regional Finance Bureaus 【Date of issue】 28th JUNE 2017 【Period of fiscal year】 Fiscal year the 103th (From 1st APRIL 2016 to 31st MARCH 2017) 【Name of company】 YURTEC CORPORATION 【Representative of company】 SATAKE Tsutomu :President-Director 【Address of head office】 4-1-1, Tsutsujigaoka, Miyagino-ku, Sendai, Japan 【Telephone number】 +81-22-296-2111 【Person in charge】 AIHARA Hideyuki, Manager of Consolidated Accounts Section 【Representative office】 4-1-1, Tsutsujigaoka, Miyagino-ku, Sendai, Japan 【Telephone number】 +81-22-296-2111 【Person in charge】 AIHARA Hideyuki, Manager of Consolidated Accounts Section 【Location of inspection presented】Yurtec Corporation Tokyo Headquarters Office (2-2-1, Ote-machi, Chiyoda-ku, Tokyo, Japan) Aomori Branch Office (63-1, Okabe, Shinmachino, Aomori, Japan) Iwate Branch Office (4-10-53, Mitake, Morioka, Japan) Akita Branch Office (233-9, Okawabata, Kawashirimachi, Akita, Japan) Yamagata Branch Office (3-5-7, Onome, Yamagata, Japan) Fukushima Branch Office (35-1, Oki, Fushiogami, Fukushima, Japan) Niigata Branch Office (9-16, Higashibandaicho, Chuo-ku, Niigata,Japan) Hokkaido Branch Office (16-1, Kita4jonishi, Chuo-ku, Sapporo,Japan) Yokohama Branch Office (2-10-27, Kitasaiwai, Nishi-ku, Yokohama, Japan) Osaka Branch Office (2-2-8, Hirano-machi, Chuo-ku, Osaka, Japan) Tokyo Stock Exchange, Inc. (2-1, Nihombashi Kabutocho, Chuo-ku, Tokyo, Japan) "(remarks) It is also presented conveniences for shareholders at some of above branch office which is not bound by SECURITIES and EXCHANGE LAW." 2 【HISTORY】 This company was established as the TOHOKU ELECTRICAL CONSTRUCTION CO., LTD. on 10th October, 1944 with a capital of 800,000 Yen under support of the TOHOKU ELECTRICAL POWER CO.,INC, by merger of 9 major electrical construction companies in northeast region of Japan, in accordance with"The guideline for restructuring of electrical construction company" issued by MINISTRY of MUNITIONS on April, 1944. Major event is written below. Oct., 1944 Starting operation for construction of distribution line Jul., 1945 Starting operation for installation work of electrical facilities Jan., 1947 Relocation of Head Office to 29-1, Minamimachi, Sendai, Japan. (Address transcribe was change to 2-6-22, Ichibancho, Sendai, Japan 0n Feb,1970) (Address transcribe was change to 2-6-21, Ichibancho, Aobaku, Sendai, Japan on Apr 1989) Aug., 1949 Authorized from the Minister of Construction. Aug., 1953 Starting operation for construction of transmission line Mar., 1955 Starting operation for construction of power station and sub-station. Apr., 1956 Starting operation for construction of communication facilities. May., 1963 Starting operation for installation work of Air-conditioning & Plumbing and Civil work. May., 1964 Starting operation for Architecture. Oct., 1970 Starting operation for Flow-rate survey. Apr., 1971 Starting operation for Soil quality analysis May., 1972 Establish the MIYAGI DENSETSU CORPORATION (consolidated) Oct., 1973 Obtained official permission for operations of construction by revise of the construction law. Dec., 1977 Listed in the second section of Tokyo stock exchange Sep., 1983 Listed in the first section of Tokyo stock exchange Apr., 1986 Establish the TECS YAMAGATA CORPORATION (changed as YURETC SERVICE CORPORATION on 2009) and TECS YAMAGATA CORPORATION (consolidated)" Feb., 1989 Establish the TOHCS CORPORATION and TECS MIYAGI CORPORATION (consolidated) Jun., 1989 Establish the NEW LEASE CORPORATION (consolidated) Aug., 1989 Establish the TECS NIIGATA CORPORATION (Merged with YURTEC SERVICE CORPORATION) Sep., 1989 Listed in the Niigata Stock Exchange (combined with Tokyo stock exchange on Mar 2000) Apr., 1990 Establish the TECS IWATE CORPORATION and TECS AKITA CORPORATION (Merged with YURTEC SERVICE CORPORATION on 2009)" Aug., 1990 Establish the TECS AOMORI CORPORATION (Merged with YURTEC SERVICE CORPORATION on 2009)" Feb., 1991 Establish the YUTOS CORPORATION (consolidated) Apr., 1991 Changed company name to YURTEC CORPORATION Jun., 1992 Built and move Head office to 4-1-1, Tsutsujigaoka, Miyaginoku, Sendai, Japan Apr., 2001 Establish the SHONAI TECHNO DENSETSU CORPORATION (consolidated) May., 2001 Establish the GREEN RECYCLE CORPORATION (consolidated) Oct., 2002 Establish the AQUA CLARA TOHOKU CORPORATION (consolidated) Jul., 2009 Establish the YURTEC SERVICE CORPORATIN by way to merge TECS AOMORI, TECS IWATE, TECS AKITA,TECS NIIGATA and SHONAI TECHNO DENSETSU with TECS YAMAGATA. Oct., 2010 Acquire stock of DAIYU DENKO,CO.,LTD (consolidated) Apr., 2011 Starting operation the YURTEC VIETNAM Co., LTD (consolidated) Apr., 2013 Establish the YUR SOLAR TOMIYA Company., LTD.(consolidated) Mar., 2014 Establish the YUR SOLAR HOBARA Company., LTD.(consolidated) Apr., 2016 Establish the YURTEC HAIDEN TECHNO Co., LTD.(consolidated) 1. Consolidated Financial Statements (1) Consolidated Financial Statement ① Consolidated Balance Sheets (Unit: Million ¥) Consolidated fiscal year March 31, 2016 Consolidated fiscal year March 31, 2017 Assets Current assets Cash and deposit 21,193 31,072 Notes receivable, accounts receivable from completed construction contracts and other 76,428 65,500 Electronically recorded monetary 4,747 8,334 Lease receivables and investment assets 4,363 4,593 Short-term investment securities 3,000 3,999 Costs on uncompleted construction contracts 2,667 2,488 Deferred tax assets 2,211 2,292 Other 14,400 9,879 Allowance for doubtful accounts △167 △109 Total current assets 128,844 128,051 Noncurrent assets Tangible fixed assets(PP&E) Buildings and Structures 41,448 43,254 Machinery, vehicles, tools, furniture and fixtures 18,257 20,070 Land 16,243 16,663 Other 1,212 830 Accumulated depreciation △35,127 △36,035 Total tangible fixed assets(PP&E) 42,034 44,783 Intangible assets 1,619 1,411 Investments and other assets Investment securities 9,229 10,328 Net defined benefit asset - 451 Deferred tax assets 4,928 4,630 Other 1,354 994 Allowance for doubtful accounts △412 △260 Total investment and other assets 15,099 16,143 Total noncurrent assets 58,753 62,338 Total assets 187,598 190,390 (Unit: Million ¥) Consolidated fiscal year March 31, 2016 Consolidated fiscal year March 31, 2017 Liabilities Current liability Notes payable, accounts payable for construction contracts and other 39,993 32,179 Electronically recorded obligations-operating 9,547 8,925 Short-term loan 2,375 2,640 Income taxes payable 3,551 3,947 Provision for loss on construction contracts 92 51 Provision for directors' bonuses 77 78 Provision for loss on disaster 66 66 Other 10,698 10,478 Total current liability 66,400 58,366 Noncurrent liabilities Long-term loan 4,968 6,228 Deferred tax liabilities for land revaluation 1,436 1,426 Provision for directors' retirement benefits 101 137 Net defined benefit liability 14,445 14,137 Other 446 492 Total noncurrent liabilities 21,396 22,421 Total liabilities 87,797 80,788 Net assets Shareholders' equity Capital stock 7,803 7,803 Capital surplus 7,813 7,819 Retained earnings 88,548 96,763 Treasury stock △752 △760 Total shareholders' equity 103,413 111,626 Accumulated other comprehensive income Valuation difference on available-for-sale securities 177 261 Revaluation reserve for land △2,359 △1,967 Foreign currency translation adjustment 17 13 Remeasurements of defined benefit plans △1,481 △359 Total accumulated other comprehensive income △3,646 △2,052 Non-controlling interests 34 27 Total net assets 99,801 109,601 Total liabilities and net assets 187,598 190,390 ② Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Consolidated Statements of Income) (Unit: Million ¥) Consolidated fiscal year from April 1, 2015 to March 31, 2016 Consolidated fiscal year from April 1, 2016 to March 31, 2017 Revenue 227,067 226,042 Cost of sales 195,450 194,172 Gross profit 31,617 31,870 Selling, general and administrative expenses 16,360 17,310 Operating income(△) 15,256 14,559 Non-operating income Interest income 227 220 Rent income 179 194 Other 273 243 Total non-operating income 681 658 Non-operating expenses Foreign exchange losses 196 37 Expenses for idle assets 31 37 Other 31 21 Total non-operating expenses 260 95 Ordinary income(△) 15,677 15,121 Extraordinary income Gain on sales of noncurrent assets 4 12 Gain on sales of subsidiaries and affiliates' stocks 369 - Gain on transfer of business 178 - Gain on compensation for damage 103 51 Other 14 - Total extraordinary income 671 64 Extraordinary loss Impairment loss 96 24 Loss on sales of noncurrent assets 2 19 Loss on disposals of noncurrent assets 62 71 Expenses for removal of noncurrent assets 52 63 Restructuring expenses 154 - Other 14 0 Total extraordinary loss 383 179 Income before income taxes(△) 15,965 15,006 Income taxes-current 4,350 5,181 Income taxes-deferred 1,113 △297 Total income taxes-current 5,463 4,883 Net income (△) 10,501 10,122 Profit attributable to non-controlling interests 31 4 Profit attributable to owners of parent 10,470 10,118 (Consolidated Statements of Comprehensive Income) (Unit: Million ¥) Consolidated fiscal year from April 1, 2015 to March 31, 2016 Consolidated fiscal year from April 1, 2016 to March 31, 2017 Net income 10,501 10,122 Other comprehensive income Valuation difference on available-for-sale securities △169 84 Revaluation reserve for land 75 - Foreign currency translation adjustment △14 △4 Remeasurements of defined benefit plans △1,562 1,122 Total other comprehensive income △1,670 1,202 Comprehensive income 8,831 11,325 (Details) Comprehensive income attributable to owners of the parent 8,800 11,320 Comprehensive income attributable to non-controlling interests 31 4 ③ Consolidated Statements of Changes in Shareholders’ Equity The previous consolidated fiscal year (from April 1, 2015 to March 31, 2016) （Unit: million yen） Shareholder’s equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholder’s equity Balance at the beginning of current period 7,803 7,813 79,081 △719 93,978 Change of items during the period Changes in equity of the parent company related to transactions with non-controlling shareholders 0 0 Dividends from surplus △1,034 △1,034 Profit attributable to owners of parent 10,470 10,470 Reversal of revaluation reserve for land 30 30 Purchase of treasury stock △32 △32 Disposal of treasury stock 0 0 0 Net changes of items other than shareholder’s equity Total changes of items during the period - 0 9,466 △32 9,434 Balance at the end of current period 7,803 7,813 88,548 △752 103,413 Accumulated Other Comprehensive Income Non-controlling interest Total Net assets Valuation difference on available-for-sale securities Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans Total Balance at the beginning of current period 346 △2,404 32 80 △1,945 531 92,564 Change of items during the period Changes in equity of the parent company related to transactions with non-controlling shareholders 0 Dividends from surplus △1,034 Profit attributable to owners of parent 10,470 Reversal of revaluation reserve for land 30 Purchase of treasury stock △32 Disposal of treasury stock 0 Net changes of items other than shareholder’s equity △169 44 △14 △1,562 △1,701 △497 △2,198 Total changes of items during the period △169 44 △14 △1,562 △1,701 △497 7,236 Balance at the end of current period 177 △2,359 17 △1,481 △3,646 34 99,801 The current consolidated fiscal year (from April 1, 2016 to March 31, 2017) （Unit: million yen） Shareholder’s equity Capital stock Capital surplus Retained earnings Treasury stock Total shareholder’s equity Balance at the beginning of current period 7,803 7,813 88,548 △752 103,413 Change of items during the period Changes in equity of the parent company related to transactions with non-controlling shareholders 6 6 Dividends from surplus △1,511 △1,511 Profit attributable to owners of parent 10,118 10,118 Reversal of revaluation reserve for land △392 △392 Purchase of treasury stock △8 △8 Disposal of treasury stock 0 0 0 Net changes of items other than shareholder’s equity Total changes of items during the period - 6 8,215 △8 8,213 Balance at the end of current period 7,803 7,819 96,763 △760 111,626 Accumulated Other Comprehensive Income Non-controlling interest Total Net assets Valuation difference on available-for-sale securities Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans Total Balance at the beginning of current period 177 △2,359 17 △1,481 △3,646 34 99,801 Change of items during the period Changes in equity of the parent company related to transactions with non-controlling shareholders 6 Dividends from surplus △1,511 Profit attributable to owners of parent 10,118 Reversal of revaluation reserve for land △392 Purchase of treasury stock △8 Disposal of treasury stock 0 Net changes of items other than shareholder’s equity 84 392 △4 1,122 1,594 △7 1,587 Total changes of items during the period 84 392 △4 1,122 1,594 △7 9,800 Balance at the end of current period 261 △1,967 13 △359 △2,052 27 109,601 ④Consolidated Statement of Cash Flows (Unit: Million ¥) Consolidated fiscal year from April 1, 2015 to March 31, 2016 Consolidated fiscal year from April 1, 2016 to March 31, 2017 Net cash provided by (used in) operating activities Income before income taxes 15,965 15,006 Depreciation 3,178 3,588 Impairment loss 96 24 Increase in allowance for doubtful accounts (△ means decrease) 19 △192 Increase in net defined benefit liability (△ means decrease) △479 855 Increase in provision for loss on construction contracts(△ means decrease) △3,531 △41 Increase in provision for loss on disaster(△ means decrease) △55 - Interest and dividends income △261 △255 Interest expenses 11 9 Foreign exchange losses (gains) 191 68 Loss (gain) on sales of property, plant and equipment △1 6 Loss (gain) on sales of subsidiaries and affiliates (△means gain) △355 - Loss (gain) on transfer of business (△ means gain) △178 - Decrease (increase) in notes and accounts receivable-trade (△ means increase) △12,637 7,086 Decrease (increase) in costs on uncompleted construction contracts (△means increase) 170 155 Increase (decrease) in notes and accounts payable-trade (△ means decrease) 4,473 △8,927 Increase (decrease)in advances received on uncompleted construction contracts (△means decrease) △1,741 △184 Others △1,171 1,856 Sub-total 3,694 19,056 Interest and dividends income received 269 257 Interest expenses paid △11 △9 Income taxes paid △4,170 △4,915 Net cash provided by (used in) operating activities △218 14,389 Net cash provided by (used in) investment activities Payments into time deposits △1,100 △1,925 Proceeds from withdrawal of time deposits 1,400 800 Payments into deposits △15,000 △10,100 Proceeds from withdrawal of deposits 18,500 11,200 Proceeds from sales and redemption of securities 4,000 - Purchase of property, plant and equipment △6,026 △6,436 Proceeds from sales of property, plant and equipment 15 111 Purchase of intangible assets △1,177 △255 Purchase of investment securities △3,021 △3,002 Proceeds from sales and redemption of investment securities 1,000 2,000 Payments of long-term loans receivable △3 △1 Collection of long-term loans receivable 18 4 Proceeds from withdrawal of long-term time deposits 80 - Proceeds from sales of stocks of subsidiaries and affiliates 629 - Proceeds from transfer of business 270 - Others △92 398 Net cash provided by (used in) investment activities △508 △7,206 (Unit: Million ¥) Consolidated fiscal year from April 1, 2015 to March 31, 2016 Consolidated fiscal year from April 1, 2016 to March 31, 2017 Net cash provided by (used in) financing activities Decrease in short-term loans payable △15 △5 Repayments of lease obligations △20 △15 Proceeds from long-term loans payable 3,100 4,100 Repayment of long-term loans payable △2,330 △2,570 Proceeds from sales of treasury stock 0 0 Purchase of treasury stock △32 △8 Cash dividends paid △1,034 △1,507 Dividends paid to non-controlling interests △1 △0 Purchase of investments in subsidiaries resulting in no change in scope of consolidation △527 △5 Net cash provided by (used in) financing activities △861 △12 Effect of exchange rate change on cash and cash equivalents △196 △25 Net increase (decrease) in cash and cash equivalents (△means decrease) △1,784 7,145 Cash and cash equivalents at beginning of period 35,494 33,709 Cash and cash equivalents at end of period 33,709 40,855 Report of Independent Auditors and Internal Control Audit Report June 28, 2017 To the board of Directors Yurtec Corporation Ernst & Young ShinNihon LLC WATANABE Masaaki Limited partner and Engagement partner, CPA (Seal) OGAWA Takahiro Limited partner and Engagement partner, CPA (Seal) <Audit of consolidated financial statements> We have audited the accompanying consolidated financial statements, i.e. the consolidated balance sheets, the consolidated statements of income, the consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity, the consolidated statements of cash flows, a summary of significant accounting policies, and the notes to the consolidated financial statements, of YURTEC CORPORATION for the year which starts from April 1, 2016 to March 31, 2017, regarding their “status of accounting,” in order to conduct audit certification pursuant to provisions of Paragraph 1, Article 193-2 of the Financial Instruments and Exchange Law. Management’s Responsibility for the Consolidated Financial statements The group’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the consolidated financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of risks of material misstatement of the consolidated financial statements, whether due to fraud or error. The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in marking these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We have evaluated that the audit evidence which we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of YURTEC CORPORATION and consolidated subsidiaries as of March 31, 2017 and the result of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in Japan. <Report on the Management’s report> We have audited the accompanying Management’s Report on internal control over financial reporting for the consolidated financial statements as at March 31, 2017, in order to conduct audit certification pursuant to provisions of Paragraph 2, Article 193-2 of the Financial Instruments and Exchange Law. Management’s Responsibility for the Management’s Report The group’s management is responsible for designing and operating internal control over financial reporting, and the preparation and fair presentation of the internal control audit report. Internal control over financial reporting may not prevent or detect misstatements. Auditors Responsibility Our responsibility is to express an opinion on the internal control audit report based on our audit. We conducted our internal control audit in accordance with auditing standards for internal control over financial reporting generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the internal control audit report are free from material misstatement. An internal control audit involves performing procedures to obtain audit evidence about the management’s assessment on internal control over financial reporting in the internal control audit report. The procedures selected depend on the auditor’s judgment, including materiality of effect on the reliability of financial reporting. An internal control audit includes examining the overall presentation of the internal control audit report, including disclosures on scope, procedures and conclusions of management’s assessment of internal control over financial reporting. We have evaluated that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our internal control audit opinion. Opinion In our opinion, the Management’s Report referred to above, which represents that internal control over financial reporting of the internal control audit report as at March 31, 2017 is effective, presents fairly, in all material respects, management’s assessment on internal over financial reporting for the consolidated financial statements in conformity with standards for assessment of internal control over financial reporting generally accepted in Japan. Particular Interest There are no interest relationships between the Company and us that need to be noted pursuant to the provisions of the Certified Public Accountants Law. The subject ends herewith Report of Independent Auditors June 28, 2017 To the board of Directors Yurtec Corporation Ernst & Young ShinNihon LLC WATANABE Masaaki Limited partner and Engagement partner, CPA (Seal) OGAWA Takahiro Limited partner and Engagement partner, CPA (Seal) We have audited the accompanying non-consolidated financial statements, i.e. the statements of income, the balance sheets, statements of changes in shareholders’ equity, a summary of significant accounting policies, and the notes to non-consolidated financial statements, of YURTEC CORPORATION for the 103th fiscal year which starts from April 1, 2016 to March 31, 2017, regarding their “status of accounting,” in order to conduct audit certification pursuant to provisions of Paragraph 1, Article 193-2 of the Financial Instruments and Exchange Law. Management’s Responsibility for Financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determine is necessary to enable the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. The purpose of an audit of the financial statements is not to express an opinion on the effectiveness of the entity’s internal control, but in marking these risk assessments the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We have evaluated that the audit evidence which we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of YURTEC CORPORATION as of March 31, 2017, and the result of its operations for the years then ended in conformity with accounting principles generally accepted in Japan. Particular Interest There are no interest relationships between the Company and us that need to be noted pursuant to the provisions of the Certified Public Accountants Law. The subject ends herewith