2017 Yokogawa Report

2017 Yokogawa ReportFor the year ended March 31, 2017

Published in September 2017Printed in Japan

IR Department, Corporate Administration Headquarters2-9-32 Nakacho, Musashino-shi, Tokyo 180-8750, JapanPhone: +81-422-52-6845 Facsimile: +81-422-55-1202

http://www.yokogawa.com/

2017 Yokogawa Report

Yokogawa Electric Corporation

▲▲▲▲▲ ▲20001980

▲19901960

▲197019401915

▲1920

▲1930

▲1950 2016 (Year)

¥391.4

¥78.4

¥7.3

¥352.6

¥247.8

¥7.0

¥15.9¥16.2

28.0%

20.5%

¥31.6

67.3%

¥31.0

Net sales (Billions of yen)

Operating income (Billions of yen)

Net sales outside Japan ratio (%)

¥1.9 ¥5.0

▲▲▲▲▲ ▲20001980

▲19901960

▲197019401915

▲1920

▲1930

▲1950 2016 (Year)

¥391.4

¥78.4

¥7.3

¥352.6

¥247.8

¥7.0

¥15.9¥16.2

28.0%

20.5%

¥31.6

67.3%

¥31.0




¥1.9 ¥5.0

1933 Started research and manufacture of aviation equipment and flow, temperature, and pressure controllers

1948Made public offering of the Company’s stock

1915Tamisuke Yokogawa, Doctor of Architectural Engineering, established an electric meter research institute in Shibuya, Tokyo with Ichiro Yokogawa and Shin Aoki

1917First to produce and sell electric meters in Japan

1920Incorporated as Yokogawa Electric Works Ltd.

1983Formed Yokogawa Hokushin Elec-tric Corp. through merger with Hokushin Electric Works, Ltd.

1986● Jointly established Xiyi Yokoga-

wa Co., Ltd. in Xian, China, with Xian Instruments Factory

● Changed the Company name to Yokogawa Electric Corporation

1988Entered the high-frequency measuring instruments business

2005Established Yokogawa Electric International Pte. Ltd. in Singa-pore to oversee the global industrial automation business

2008Entered the drug discovery support market with new bio test system

2010Transferred the measuring instruments business to Yokogawa Meters & Instruments Corporation

2013Formed Yokogawa Solution Service Corporation to handle sales, engineering, and services for the Japan industrial automa-tion business

2016Acquired KBC Advasnced Technologies

1990Established Yokogawa Middle East E.C. in Bahrain

1996Released a confocal scanner and entered the biotechnology business

2002Acquired all the shares of Ando Electric Co., Ltd.

1950Developed Japan’s first electronic recorder

1955Signed a technical assistance agreement for industrial instru-ments with Foxboro, USA

1957Established Yokogawa Electric Works, Inc. as North American sales office

1964Made a full-scale entry to the industrial analyzer market

1969Developed world’s first vortex flowmeter

1974● Established Yokogawa Electric

Singapore Pte. Ltd. as Singapore plant

● Established Yokogawa Electric (Europe) B. V. as European sales office

The Yokogawa Group traces its history back to the establishment on September 1, 1915 of an electric meter research institute in the Shibuya district of Tokyo. Ever since, Yokogawa has continued to ex-pand its business, focusing mainly on the measurement, control, and information technology fields. Taking the initiative to constantly transform itself in response to dramatic social and economic change, the Company has established an impressive track record of continuous expansion while contributing to the growth and development of industry through solutions.

Today, Yokogawa has become a global leader in the industrial automation and control field with a Group-wide workforce of around 20,000 dedicated employees.

Yokogawa is working to resolve social issues through business activities with the aim of contrib-uting to society and to a sustainable global environment.

Founder Tamisuke Yokogawa and Shibuya factory

Reforming the industrial automation and con-trol businessShifted focus from the product business to the solution business

■ Announced long-term business framework and Transformation 2017 mid-term business plan

■100th anniversary of the Yokogawa Group

Released CENTUM, the world’s first distributed process control system

1915

1997- 2015

1975

Founding PrinciplesQuality first Pioneering spirit Contribution to society

The Founder’s AspirationsIn his instructions to Ichiro Yokogawa and Shin Aoki, Dr. Tamisuke Yokogawa said, “You don’t need to worry about profits. Just learn and improve our technology. You must make products that earn us the respect of our customers.” This is the origin of the founding principles that have been handed down for a century as the pioneering spirit.

Although first set into words in 1988, the Yokoga-wa Philosophy is based on these founding principles, and is embodied in the code of conduct that guides employees in the performance of their daily tasks and in all pronouncements on our corporate objectives.

*Consolidated accounting from FY1990

The History of Yokogawa

As a company, our goal is to contribute to society through broad-ranging activities in the areas of measurement, control, and infor-mation.

Individually, we aim to combine good citizen-ship with the courage to innovate.

The Yokogawa Philosophy

FY2016 Operating ResultsOperating income ¥31.6 billion

ROS 8.1%

EPS ¥96.4

ROE 10.4%

ROA 6.0%

Net sales ¥391.4 billion

012017 Yokogawa Report 2017 Yokogawa Report

Value Creation Story01 The History of Yokogawa

02 Contents

04 Long-term Business Framework

Report on Management06 Message from the President and CEO

12 Message from the Head of the Accounting & Treasury Headquarters

Framework for Creating Value30 Innovation

32 Human Resources Management

34 Quality Management / Occupational Safety and Health

35 Environmental Management

Corporate Governance36 Message from the Chairman of the Board

37 Message from an Outside Director

38 Corporate Governance System

44 Management Team

Yokogawa’s Creation of Value 14 Process of Creating Value

16 Yokogawa Resources for Value Creation

18 At a Glance

20 Industrial Automation and Control Business

22 Test and Measurement Business / Aviation and Other Businesses

For a Sustainable Society24 Long-term Vision for a Sustainable Society

26 Providing Value to Society together with Customers

26 Inclusion in SRI Indexes

28 Sustainability Case Studies

Financial and Non-financial Highlights48 Financial and Non-financial Highlights

50 Consolidated 11-year Summary

52 Risks Relating to the Group’s Business

54 Financial Section

Corporate Data / Stock Information88 Corporate Data / Stock Information

89 Subsidiaries and Affiliates

For another century of steady growth, Yokogawa has instituted reforms and is now working to transform itself in a number of other ways.Under the corporate brand slogan of “Co-innovating tomorrow,” Yokogawa seeks to establish ever greater levels of trust with its customers and to work with them to create new value for a brighter future, both for its customers and society.

Editorial PolicyThe purpose of editing and publishing this report is to give shareholders, investors, and other stakeholders a better understanding of the Group’s mid- to long-term value creation process. The annual reports issued for fiscal year 2015 onward, named Yokogawa Report, provide non-financial information, such as Yokogawa’s mid- to long-term business strategies and information about corporate governance and CSR activities, in addition to financial information, such as business results and plans, which were featured in previous editions of our annual report. As well as presenting the relationship between financial and non-financial information in an integrated approach from the perspective of management, this report presents Yokogawa’s initiatives to resolve social and environmental issues and issues affecting industry in partnership with customers through creation of value for customers so that readers will be able to grasp the big picture of the Yokogawa Group’s corporate value creation process.

The 2017 Yokogawa Report, featuring messages from the top management with respective responsibilities in each segment, is designed to communicate their aspirations, with the aim of proactively using the report in the course of dialogue with stakeholders.

● Investor Relations website: http://www.yokogawa.com/pr/ir/index.htm● Sustainability website: http://www.yokogawa.com/csr/index.htm

Cautionary statement regarding forward-looking statementsStatements made in this report regarding Yokogawa’s plans, estimates, strategies, and beliefs are forward-looking statements about the future performance of Yokogawa.

These statements are based on management’s assumptions and beliefs in the light of currently available information. Yokogawa cautions that a number of important factors, such as general economic conditions and exchange rates, could cause actual results to differ materially from those discussed in the forward-looking statements.

Period covered by the Report: Fiscal year 2016, the period from April 1, 2016 to March 31, 2017 (includes some information about fiscal year 2017)Scope of the Report: Yokogawa Electric Corporation and its subsidiaries and affiliates* Co-innovating tomorrow, CENTUM, ProSafe-RS, YFGW, DTSX, TDLS, CSU-W1, PRM and LCA are registered trademarks or trademarks of Yokogawa Electric Corporation and its subsidiaries and

affiliates.

01 06 18 44 5212

Contents

02 032017 Yokogawa Report 2017 Yokogawa Report

Through

“Process Co-Innovation,”

Yokogawa creates new value with our clients for a brighter future

Vision Statement

Contribution to local communities and society

Promotion of diversity

Strategic investment for growth, mainly for M&A

Becoming a highly efficient global company

Co-innovation with customers

Resolution of social issues through business activities

Promotion of environmental management

Business Operation

Business Foundation

Business Focus Areas

■ Resource, energy, and ma-terials industries

■ Industries that support people’s health and enrich lives

To be strengthened■ Co-creating value by uncovering and resolving

clients’ potential issues■ Creating new standards to optimize and

streamline processes■ Connecting field data to management actions

Basic strengths■ Creating extremely reliable products and solu-

tions to support industries and society■ Operating highly complex, mission-critical

systems in extreme conditions■ Performing precise, on-site mea-

surements, both online and in real-time

Core Competencies

Development of global human resources

Continuous improvement of the quality of occupational safety and health

Open innovation

Establishment of the optimum

capital structure

Creating new value through strengths and opportunities

Focusing on customers

Strengthening of risk management

Compliance first

Enhancing corporate governance

Quality first

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The Yokogawa

Philosophy

In 2015, the Yokogawa Group established a long-term business framework that defines its goals for the next 10 years and describes what will be needed to accomplish them. This in-cludes a vision statement that expresses our desire to work with our customers to create value on their behalf. Through the creation of value, the Yokogawa Group has the broader aim of benefiting society by addressing environmental and other issues in the industries that it serves.

Long-term Business Framework

Mid-term Business Plan

Annual Business Plan

Long-term Business Framework


Report on Management

Message from the President and CEO

Co-creating new value together with customers to realize a sustainable society

President and CEO

Capitalizing on its strengths in measurement, control, and information technologies, Yokogawa is contributing to the creation of a prosperous society. The Yokogawa Group’s customers in the oil & gas, chemical, power, water, materials, food, pharmaceutical, and other industries provide essential infrastructure that we all depend on in our daily lives. The Group’s mission is to optimize and ensure safe operations at its customers’ plants and to partner with its customers in resolving issues that impact their overall business.

Innovations in fields such as information and communications technology (ICT) and changes in society and the economy are leading our custom-ers to look for us to contribute value in new ways. For instance, cybersecurity has become a key concern with production control systems, and the rising global demand for energy as the result of population growth mainly in emerging countries is driving the need for solutions that will enhance efficiency throughout the entire value chain and

reduce greenhouse gas emissions.The Yokogawa Group’s long-term business

framework sets out where the Yokogawa Group should be 10 years from now. It foresees a trans-formation in our business model from a manufac-turing-oriented approach of producing and selling a highly versatile lineup of measuring instruments and control systems in response to broadly de-fined common customer needs to a co-cre-ation-oriented approach of discovering and solv-ing issues and creating value in partnership with our customers. And in our Transformation 2017 mid-term business plan (TF2017), we indicated three areas for transformation that will lay the groundwork for reaching the goals set out in the long-term business framework: focusing on cus-tomers, creating new value, and becoming a highly efficient global company. Here I will report on the progress that has been achieved thus far in achiev-ing these three transformations.

Yokogawa’s Mission and Goals

Report on Managem

entFor a Sustainable Society

Corporate Data / Stock InformationYokogawa’s Creation of Value

Framework for Creating Value

Financial and Non-financial HighlightsCorporate Governance

072017 Yokogawa Report06 2017 Yokogawa Report


Focusing on customers

One crucially important asset for Yokogawa is the strong trust-based relationships that we have built up with our customers in many different industries by supporting their business activities around the world. Yokogawa has many years of experience in working together with its customers at every level of the organi-zation, from the factory floor on up to the boardroom, to resolve the issues that they face at each stage of the plant lifecycle, and has gained diverse knowledge and expertise through this experience. We aim to leverage this asset to build partnerships that go beyond the role of supplying equipment, systems, and other products, and will do so not only with our existing customers, but also with numerous potential customers who face many of the same business issues.

We will first enhance our problem-solving capabili-ties in those industry sectors where we excel, and then

Creating new value

Based on Yokogawa’s new business model, we aim to provide increasingly sophisticated solutions that will involve the utilization of field data at the management level and the optimization of processes to enhance efficiency across entire companies, business fields, and industries. For that purpose, it will be necessary to integrate knowledge and insights about production processes, sites, and information technology while further expanding the scope of our solution proposals. To accomplish this, we made a number of strategic

Becoming a highly efficient global company

To prevail in competition with global mega-players in Europe and the U.S., the Yokogawa Group must trans-form itself by globally optimizing its cost structure and managing its operations with a focus on profitability and efficiency. This transformation must cover the entire range of our activities, from development and production, solution services, and sales to the corpo-rate functions. One measure that delivered striking

combine the knowledge and experience gained in these sectors to resolve issues that we face in other industry sectors and markets outside Japan.

In fiscal year 2016, we decided on key measures that would be undertaken in the high-priority oil & gas, power and chemical industries, and focused invest-ment on their implementation through the expansion of lifecycle services, expansion of the advanced solution business, strengthening of product functionality in focus industries, and expansion of the solutions busi-ness by targeting a wide range of industries in Japan.

While working to expand the solutions business in Japan, we had a number of successes, including one case where we expanded the solution scope from a single customer to that company’s entire corporate group. Here, we drew on lessons previously learned while working with this particular customer to propose a solution that optimized their energy consumption.

acquisitions, notably that of the U.K.-based company KBC Advanced Technologies (KBC). KBC has engineers who are highly knowledgeable about the oil and gas industries, and has been able to build strong relation-ships with customers worldwide by providing consult-ing services that help them operate more efficiently and profitably. Although KBC and Yokogawa target many of the same companies and industries, KBC has devel-oped a wealth of relationships with people who are closer to the management level. Since KBC has also cultivated strong links with other companies that are not Yokogawa customers, we have already begun to see

results in fiscal year 2016 was the utilization of central engineering centers. Centralized management by these centers of the more than 3,000 engineers employed by the Yokogawa Group has enabled us to control the impact of project-busy and project-slack periods in each geographical area, increase capacity utilization, and make progress with cost-reduction efforts. Going forward, we will press ahead even more vigorously to cut costs by achieving comprehensive optimization in areas such as logistics and purchasing.

synergetic effects from the addition of their customer base.

In addition to such short-term benefits, we will look for ways to enhance synergy over the medium to long term. Value creation at KBC begins with the dispatch of professional consultants to a customer who is grappling with issues that can have an impact on productivity, reliability, and safety. Based on a comprehensive exam-ination and analysis of the customer facility, they are able to make proposals on the implementation of programs and projects that will transform operations there, and on the provision of training in technology,

operations, maintenance, and other areas that will transform the organization and improve operating efficiency. This is a joint effort with the customer to create solutions, and it has the capability to transform an entire plant. As a result, the value created by KBC can far exceed the customer’s investment. As a medi-um- to long-term return on our investment, we believe that the application of these solution capabilities not only in the oil and gas industries where KBC excels, but also in a wide range of other industries, will enhance the value creation capabilities of the Yokogawa Group as a whole.

Expanding Our Customer Base by Concentrating Resources on Focus Industries

Key measures FY2017 targets Status at end of FY2016

Expand lifecycle services business

By increasing the number of new staff added to 340, grow sales by over 40%.

■ In a worsening market environment, aim to achieve growth with security services and other promising businesses by adding nearly 200 staff.

Expand advanced solution business

By adding over 40 staff, achieve 30% growth in annual revenues.

■ Plan to create synergy and increase revenues by at least 25% in FY2017.

Strengthen product functional-ity for focus industries

■ Increase sales of strategic products by 20%.

■ Create a new market worth over ¥5 billion.

■ Record-high sales of safety instrumented systems are forecast. Plan to quickly boost revenues by pursuing new businesses such as pipeline man-agement and wireless noise monitoring.

Targeting a wide range of industries, expand our solution business in Japan

Increase sales by over 20%.■ By strengthening consulting services, plan

to increase orders for information-related businesses by at least 17%.


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Setting of long-term sustainability objectives

Great strides are being made around the world toward the goal of achieving sustainability. Underlining this trend is the Paris Agreement, which was adopted in 2015 at the 21st Conference of Parties to the United Nations Framework Convention on Climate Change (COP21). This agreement to reduce greenhouse gases and work toward the goal of achieving sustainability in developed countries and developing countries alike is extremely significant to the international community. Also, the Sustainable Development Goals (SDGs) that

Transformation of our personnel systems

To ensure that the Yokogawa Group continues to grow and develop, we must enhance our human resources. Looking back on our merger with Hokush-in Electric Works 34 years ago, we acquired a more global perspective with the addition of personnel who had achieved international business success. More recently, we have benefited from the contribu-tions of mid-career hires who have brought a wealth of experience in ICT and other leading-edge digital technology fields. Innovation that creates new value for our customers is born from the coming together and integration of people who come from different fields and see things differently. In recognition of this, we are promoting diversity within the Yokogawa Group in a variety of ways, including through the operation of a global personnel system. Because we are carrying out projects for customers all over the world, our customer services must be provided by a global team. Our global personnel system uses the same mechanisms worldwide to evaluate the capa-bilities of this global workforce.

In September 2016, we adopted a health declara-tion in the belief that substantial business benefits can be expected when employees in a highly diverse workforce are in good health and thus able to make full use of their skills and capabilities. Yokogawa will continue to emphasize the global importance of its efforts to promote a healthy and productive work-force.

were adopted by the United Nations the same year clearly identify a number of challenges that are faced worldwide and the direction that corporations and other organizations should take to address them. Accordingly, in August 2017 we announced a vision statement for the year 2050 that specifies three goals for achieving the transformations needed to create a brighter future for all. In accordance with this vision for the future, we will incorporate concrete sustainability objectives in our management plans and accelerate our efforts to achieve sustainability.

Since social conditions, labor practices, and other factors will vary in developed and developing coun-tries, we are adapting personnel measures to suit local circumstances, rather than taking a one-size-fits-all approach. For example, in certain locations we are giving employees greater flexibility in work times and locations, and are making changes in office designs to provide a friendlier work environment. We plan to systematically organize such initiatives, establish a system for promoting them, and qualita-tively and quantitatively evaluate the results that are achieved with a view to improving employee produc-tivity and motivation throughout the Yokogawa Group.

The business environment is expected to remain challenging. The Yokogawa Group will continue to strengthen the relationships that it has built up with its customers over the years, and will steadily and surely implement the measures needed to accom-plish the three transformations needed to prepare the way for further growth. By solving problems together with our customers, I am confident that we are establishing the strong foundation needed to make an unprecedented leap forward in our busi-ness, once market conditions become favorable again. We will dedicate ourselves to the creation of new value that addresses our customers’ concerns and will work with a sense of urgency to complete and produce concrete results with measures that will enhance our corporate value.

Building a Stronger Foundation for Our Business to Prepare for Sustained GrowthOwing to factors such as weakness in the prices of crude oil and other resources, as well as a slowing global economy, the current business environment is quite different from when TF2017 was first formulated. Investment has declined worldwide, and competition for a limited number of projects has intensified. As these circumstances have made it difficult to achieve the objectives that were set out in TF2017, there is an urgent need for us to adopt a management approach that is not reliant on increasing sales.

In fiscal year 2017, the final year of TF2017, our focus will be on the following three priority objectives to accelerate our transformation and set the stage for further growth.

To increase orders and sales in an adverse business environment, we will allocate more resources to certain businesses and geographic areas, less to others. This will be based on strategic investment trends among our customers that first became apparent in the second half of 2016. Even in our focus industries, we will con-centrate our efforts on those fields that have the great-est growth potential, such as the chemical industry. We will also leverage the solution capabilities of KBC and seek to apply the insights gained by successfully enter-ing new fields in Japan to tap new markets around the globe. And as previously mentioned, we will improve profits by vigorously pursuing a top to bottom optimi-zation of functions such as logistics and purchasing. We will also consider further M&A deals. When deciding where to invest our resources, we will take calculated risks with the aim of enhancing our ability to create new value. While always carefully considering the price of an acquisition, we will meticulously examine the value and potential that a candidate would bring to the Yokogawa Group.

The Significance of Fiscal Year 2017 and Future Measures

Three commitments

1 Increase sales

2 Become more profitable

3 Make strategic investments

Customer focus (solution capabilities)

Cost reduction

New value creation



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The industrial automation and control business ac-counts for almost 90% of Yokogawa’s net sales, and nearly 70% of that business’s sales are generated out-side Japan. Outside Japan, the Company is more dependent on the energy sector, notably oil and gas. Although our business outside Japan centering on the energy sector has been a driving force in our growth, investment by our customers is down in recent years due to the decline in crude oil prices. Moreover, chang-es in the foreign exchange rate have had a significant adverse impact on net sales and profits. Net sales for fiscal year 2016 were ¥391.4 billion, a 5.4% year-on-year decrease, and operating income was ¥31.6 billion, down 20.3%.

In this challenging business environment, intensify-ing competition is creating pressure to reduce prices. However, steady implementation of the measures set

The acquisition of KBC required financing of ¥27.9 billion, and this had an impact on our financial posi-tion. Following the financing of the entire amount with interest-bearing debt, Yokogawa retired ¥13.5 billion of the debt using cash in hand.

Under TF2017, we plan to make ¥50 billion in strate-gic investments, and the plan calls for operating cash

With the aim of improving capital efficiency, Yokogawa set an 11% return on equity (ROE) as one of its TF2017 performance targets. Although we surpassed this target in fiscal year 2015 with an ROE of 13.2%, this declined to 10.4% in fiscal year 2016 and the forecast for fiscal year 2017 is 10.1%. In an effort to enhance efficiency

out in the Transformation 2017 mid-term business plan (TF2017) has started to yield results in areas such as gross profit margin, which rose from 41.7% in fiscal year 2014 to 43.2% in fiscal year 2016.

Regarding the acquisition of KBC based on the TF2017 plan, Yokogawa’s profits were impacted to a certain extent by acquisition-related expenses. Howev-er, it is expected that KBC will contribute to Yokogawa’s growth in the future, and our customers have high expectations for this company.

In fiscal year 2017, the business environment is likely to remain challenging overall, despite signs of recovery in the energy market. As a result, we have had to revise downward the net sales and operating income forecasts for fiscal year 2017, the final year of TF2017. As for return on assets (ROA) and earnings per share (EPS), we plan to hit the targets set out in the TF2017 plan.

flow to be used for that purpose. We expect that the cost of the KBC acquisition will be covered by steadily increasing operating cash flow.

We are on schedule for improving Yokogawa’s financial position and expect to be able to channel sufficient funds to the strategic investments that are a priority under TF2017.

and profitability, Yokogawa will continue to use return on invested capital (ROIC) as a key performance indica-tor, breaking down this figure for each organization. In addition, we will review our business assets and deter-mine an optimum capital structure to improve our capi-tal efficiency.

FY2015 FY2016 FY2017(Initial targets)

FY2017(Revised forecasts)

Return on equity (ROE) (%) 13.2 10.4 11% or more 10.1Return on assets (ROA) (%) 7.1 6.0 6% or more 6.1

Net sales (Billions of yen) 413.7 391.4 440.0 400.0Operating income (Billions of yen) 39.6 31.6 45.0 36.0Return on sales (ROS) (%) 9.6 8.1 10.2 9.0Earnings per share (EPS) (Yen) 114.0 96.4 ¥100 or more 101.0Exchange rate to 1 U.S. dollar (Yen) 119.99 108.95 110.00 110.00

¥90 billion, including strategic investment *Operating cash flow for FY2015: ¥31.9 billion*Operating cash flow for FY2016: ¥39.2 billion

Investment Finances Return to shareholders

*Capital investment in FY2015: ¥22.7 billion *Capital investment in FY2016: ¥46.3 billion*Acquisition cost of KBC: ¥26.6 billion (excluding cash and cash equivalents held by KBC)

*FY2015: 17.9%*FY2016: 25.9%

● Strategic investment (¥50 billion from 2015 to 2017)● Regular capital investment (to cover capital depreciation)

● Ensure the sound finances needed to expand business(Enhance ability to raise funds and manage risk)

● Stable and sustainable dividend payment● While allocating funds for investment and

maintaining a sound financial footing, aim for a 30% dividend payout ratio

＋ Cash in handOperating cash flow

Priority(2015-2017) Total: ¥100 billion

Cash generation / business expansion cycle

Policy for optimum capital structure■ Maintain ability to generate the funds needed to invest for growth　■ Keep single “A” credit rating with Japanese rating agencies

2015 ▶ 13.2%2016 ▶ 10.4%2017 ▶ 10.1%

Expansion of business and improvement of efficiency

Business KPIs

Financial leverageOptimum capital structure

Re-examination of non-business assets The Company is selling idle assets and securities.

6.1%

2015 ▶ 7.1%2016 ▶ 6.0%2017 ▶ 6.1%

2015 ▶ ¥413.7 billion2016 ▶ ¥391.4 billion2017 ▶ ¥400.0 billion

ROA ROIC

Expansion of scale (net sales)

2015 ▶9.6%2016 ▶ 8.1%2017 ▶9.0%

ROS

Revenue / invested capital

ROE 10.1%

ROE (return on equity) = Net income ÷ Shareholders’ equity

ROIC (return on invested capital) = Operating income ÷ Invested capital

ROE ＝ ×Shareholders’ equity

Net incomeNet sales

(Profitability indicator)

Net incomeTotal assets

(Efficiency indicator)

Net sales × Shareholders’ equity(Financial leverage)

Total assets＝

Operating Conditions

Financial Conditions

The distribution of earnings to shareholders is a top priori-ty for the Company. By improving profitability, we aim to secure the funds needed to continue increasing our divi-dend payments. The Company’s basic policy calls for the achievement of a 30% consolidated dividend payout ratio.

Although the total annual cash dividend for fiscal

year 2016 came to ¥25 per share and the consolidated dividend payout ratio was 25.9%, in fiscal year 2017 the Company intends to pay a total dividend of ¥30 per share. This is an increase of ¥5 over the previous year, and is expected to bring the consolidated dividend payout ratio to near the 30% target.

Returns to Shareholders

Improvement of Capital Efficiency


Message from the Head of the Accounting & Treasury Headquarters

While Enhancing Corporate Value, Strengthening Finances to Se-cure Funds for Investment in Growth

Financial Strategy and Capital Policy

Director and Senior Vice President

Junichi Anabuki

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B to BB to C

Users (consumers)

Yokogawa Customers Co-innovating tomorrowⓇSocial Issues

B to B

Yokogawa’s BusinessesContribution to society

“Process Co-Innovation”

Sustainable societySustainable grow

th

Yokogawa’s Resources

Human capital

Manufacturing capital

Intellectual capital

Social capital

Financial capital

Natural capital

DevelopmentGrowth

Solving social issues with customers

Yokogawa’s Resources

Human capital

Manufacturing capital

Intellectual capital

Social capital

Financial capital

Natural capital

P16, 17

Contribution toward a sustainable global environment

Realization of a safe and secure society

Growing together with local communities

Support for health and enrichment of people’s lives

Outcomes

Increasing energydemand

Shift from fossil fuelsto renewable energy

Plant accidents

Soil and waterpollution

Aging socialinfrastructure

Cyber-attacks onvital infrastructure

Natural disasters

Labor shortages inemerging countries

Rising cost of newdrug development

etc.

P26, 27

Oil

Chemicals

Pulp and paper

Power

Water and wastewater

Motor and inverters

Machinery and mecha-tronics

Life sciences

Aviation and aerospace

Environmental measurement

Iron and steel

Pharmaceu-ticals

Foods

Marine equipment

etc.

Automo-biles

Medical equipment

Gas and LNG

Petrochemi-cals

● Solutions / services● Production control and

safety instrumented systems

● Field instruments / analyzers / recorders

● Aviation equipment / marine equipment / hydrological and meteorological equipment

Industrial Automation andControl Business

Aviation andOther Businesses

Test and Measurement Business

Input

● Measuring instruments / life-science instruments

090_0876687912908.indd 14-15 2017/08/25 11:16:58

Yokogawa’s Creation of Value

Process of Creating Value

By offering value to customers that includes “high-quality, highly reliable products,” “effi-cient, safe, and stable operation” and “resolution of management issues,” the Yokogawa Group is addressing and resolving issues affecting society, the environment, and industry in partnership with customers so as to contribute to society.

The Yokogawa Group provides the following value for society together with customers and con-tributes to realization of a sustainable society.

● Contributions toward a sustainable global environment● Realization of a safe and secure society● Growing together with local communities● Support for health and enrichment of people’s lives

15

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NetherlandsAnalyzers

GermanyField instruments

South KoreaRecorders/data loggers

USAField instrumentsAnalyzers

RussiaField instruments

Saudi ArabiaField instruments

Komine FactoryAnalyzersKofu Factory

Field instruments, electronic measuring instruments, communication measuring instruments, analyzers

Kanazawa FactoryLife science-related equipment

Major production sites in Japan

Komagane OfficeSemiconductor sensors

BrazilField instruments

China (Suzhou)Field instruments, recorders, meters

China (Chongqing)Field instruments

IndiaField instruments

BahrainField instruments

China (Shanghai)Field instruments

Production activities in 13 countries

Singapore / IndonesiaProduction control systems, analyzers, electronic measuring instruments, communication measuring instruments, field instruments, aviation equipment

Safe, highly reliable,and high quality systems that feature full backward compatibility

1980

20002010

1970

1990

2016～

Track record of over 40,000 control system projects

99.99999% availability (CENTUM)

■Global service network

China South Korea Taiwan USARussia India Singapore BrazilBahrain

Service center

Response center

Service network

230 service centers in 80 countries2,000 service engineers

Netherlands

Yokogawa Resources for Value Creation

Human and Intellectual Capital

Social Capital

Manufacturing Capital

Customer base established

through over 40,000

control system projects

Long-term relationships with customers whose plants have

40- to 50-year lifecycles

Global human resources:

18,329persons (Singapore, India, China, USA, UK, Netherlands, Germany)

Development centers in

Approx. 3,000 registered patents

(Singapore, India, China, Philippines, Romania, Colombia)

Central engineeringcenters in 6 countries

4 production sites in Japan 14 production sites outside Japan


Includes approx. 8,000 engineers - Approx. 2,000 service engineers- Approx. 2,000 development engineers

Includes approx. 200 consultants

Human and Intellectual Capital

As the Yokogawa Group works to provide customers services and other solutions that capitalize on the superi-or skills and rich expertise of its workforce, it accumulates knowledge and expertise and comes up with new ideas, and in so doing expands its intellectual capital. This is a virtuous cycle and it is working effectively.

For the efficient utilization of its engineering resources, the Group has central engineering centers in six countries around the world that play a vital role in

gathering and sharing engineering know-how. In 2016, as a result of the acquisition of the UK-

based KBC Advanced Technologies, Yokogawa brought into its fold a group of personnel with expertise in providing premium consulting services to manage-ment, thus establishing the foundation for our offering of one-stop solutions to customers at all levels of the organization, from senior management on down to engineers in the field.

The Yokogawa Group puts the highest priority on safety with its provision of high-quality and highly reliable backward-compatible systems, maintenance services, consulting, and other solutions, and aims to benefit society through the co-creation of value with its cus-tomers.

Working with its customers throughout the long lifecycle of their plant facilities, Yokogawa develops

Mindful that high precision and long-term stability are essential attributes of Yokogawa products, we are global-izing our production operations based on the quality-first principle. We aim to achieve a total optimization of opera-

Human capital drives the co-creation of value with our customers and is the source of the high quality and reliability, advanced engineering, and project execution capabilities that are the Yokogawa Group’s strengths and ensure its competitiveness.

Our business has grown in markets outside Japan,

close relationships that are based on trust. This cus-tomer base is Yokogawa’s most important asset, and it underpins the ongoing development of the Company’s business.

On the firm foundation of this customer base, Yok-ogawa is expanding the scope of its solutions to cover entire value and supply chains, thereby leading to the co-creation of even more value for its customers.

tions that will enable the global delivery of uniform-quali-ty products at an appropriate cost and with a short turn-around time.

and presently more than 60% of our workforce is based outside Japan. While promoting the localization of its operations through such initiatives as the establish-ment of customer service centers near its customers, Yokogawa is striving to foster and enhance the capabili-ties of its workforce.

7 countries outside Japan

17

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At a Glance


Operating income ratio (%)





Orders (Billions of yen) Two Main Characteristics of Industrial Automation and Control Business

Orders (Billions of yen)Orders (Billions of yen)

Net sales outside Japan (Billions of yen)







Net sales (Billions of yen)Net sales (Billions of yen)

Note: FY2017 forecasts as of May 10, 2017

Note: FY2017 forecasts as of May 10, 2017Note: FY2017 forecasts as of May 10, 2017

(FY) 2017forecasts

2016results

2015results

2014results

367.0 373.1 348.3 360.0

(FY) 2017forecasts

2016results

2015results

2014results

36.730.6 33.0

27.110.0 8.8 9.27.6

(FY) 2016results

2015results

2014results

264.9242.5259.9

72.269.7

72.669.7

(FY) 2017forecasts

2016results

2015results

2014results

358.0 348.1366.7 358.0

Industrial Automation and Control Business

Aviation and Other BusinessesTest and Measurement Business

Main solutions / products

Main productsMain products

Solutions for every phase of the plant lifecycle, maximiz-ing value for our customers by linking plant operations and corporate management, software packages that enhance productivity, production control systems, flowmeters, differential pressure/pressure transmitters, process analyzers, programmable controllers, industrial recorders, etc.

Aviation equipment, marine equipment, hydrological and meteorological equipment, etc.

1. Close relationships with customers and a strong focus on co-creating valueLong-term business● Emphasis on high reliability (24/365 operations)● Continual proposal of solutions and provision of support

over a 40-50 year plant lifecycle

Importance of onsite operations and localization of services● Requires expertise in site operations and ability to respond to changes● Service facilities must be located close to customers

2. Growing primarily in markets outside Japan

Sales outside Japan have more than doubled over the past 12 years and currently account for approx. 70% of all sales for this segment

Waveform measuring instruments, optical communica-

tion measuring instruments, waveform generators,

measuring instruments for electric power, temperature,

and pressure, confocal scanner units, etc.

Net sales ratio

88.9%

Net sales ratio

5.7%

(FY) 2017forecasts

2016results

2015results

2014results

25.122.2 22.023.1

(FY) 2017forecasts

2016results

2015results

2014results

23.4 22.2 23.523.8

(FY) 2017forecasts

2016results

2015results

2014results

2.4

0.9

2.5

1.6

10.2

4.1

10.66.8

(FY) 2016results

2015results

2014results

15.3 14.615.1

65.4 65.963.6 65.9

Net sales ratio

5.4%

(FY) 2017forecasts

2016results

2015results

2014results

22.920.2 18.0

26.9

(FY) 2017forecasts

2016results

2015results

2014results

0.5 0.1 0.5

1.1

2.4 0.5 2.74.6

(FY) 2016results

2015results

2014results

6.4 6.46.1

27.330.2

25.2

30.2

(FY) 2017forecasts

2016results

2015results

2014results

23.6 21.1 18.524.0

CENTUM VP integrated production control system

CENTUM VP controller / YFGW410 / YFGW510 field wireless solution

TDLS8000 tunable diode laser spectrometer

DTSX3000 distributed temperature optical fiber sensorApplication of belt conveyor installations

ProSafe-RS safety instrumented system

(FY) 20162004

231.1

107.3242.5

105.6123.8

348.1■ Japan■ Outside Japan (Billions of yen)

Yokogawa’s Value Creation

19

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Industrial Automation and Control Business

Markets are changing rapidly, driven by global competi-tion, fluctuations in the prices of raw materials, the introduction of new environmental safety regulations, and changes in industry composition. In view of the uncertain market prospects that are an outcome of the decline in crude oil prices, our customers are looking to improve their earnings by optimizing both operating

expenses (OPEX) and capital expenditures (CAPEX). Our customers expect us to have a deep understanding of their overall businesses and to be able to offer compre-hensive solutions that address specific concerns at every level of their organizations, from business management on down to field-level operations.

Utilizing its industry-leading technologies and process knowhow, Yokogawa aspires to much more than the supply of industrial automation systems. Sharing our customers’ concerns about whatever issues they face in their businesses, we aim to offer comprehensive, safe, and secure solutions that create and deliver value. Our

To help achieve sustained operational excellence and reap benefits in the form of greater profitability and enhanced adaptability to changes in the business environment, Yokogawa continually strives to take its customers’ perspective as it works with them to pro-pose and present comprehensive solutions that link things, people, systems, data, and services and make full use of the Company’s deep knowledge of industrial processes and its measurement, control, and informa-tion technologies.

Together with its subsidiary KBC Advanced Technolo-gies, Yokogawa enjoys the unique position in the indus-try of being able to offer its customers comprehensive solutions for their businesses that span the three fields of operational technology, information technology, and strategy & operations. For every phase of the business lifecycle and all levels of the organization from manage-ment on down to field operations, we strive to create and enhance value through the provision of solutions that mitigate system integration risks, enable the rapid implementation of strategy, and allow continual im-provement.

● Operational technology (OT) for the monitoring, control, and maintenance of production facilities has long been a Yokogawa forte. OT provides a basis for high availability, safe operations, smart sensing, etc.

vision for industries ranging from oil and gas, chemi-cals, electric power, iron and steel to pulp and paper, pharmaceuticals, foods, automobiles, and electrical and electronic equipment is to be the trusted partner that our customers turn to first.

● Information technology (IT) can make operations safer (e.g. through predictive maintenance) and more efficient by utilizing the latest IoT and AI technologies to link field data with data collected from throughout the supply chain.

● With its strategy & operations management consulting capabili-ties, Yokogawa is able to support customers by offering market analysis, formulating strategy, and proposing means for improv-ing profitability.

With its wealth of business and operational knowl-edge in industries such as oil and gas, chemicals, elec-tric power, iron and steel, pulp and paper, pharmaceuticals, foods, automobiles, and electrical and electronic equipment along with its expertise in cloud-based technology, Yokogawa is able to go be-yond the conventional industrial automation and control business model to offer solutions in such areas as advanced control, energy optimization, advanced operational support, production management, and facility performance monitoring. The new solutions that Yokogawa provides to its customers will enable contin-uous improvements in a wide range of business activi-ties, including supply chain operations.

Principal products that create value

Business consulting Strategic consulting services that help our customers enhance both resilience and profitability

Advanced solutions Advanced/integrated solutions such as manufacturing execution systems and information systems that allow plants to operate more efficiently

Lifecycle services Maintenance and other services offered throughout the lifetime of a plant facility that ensure long-term stability, sustained improvement, and high efficiency

Non-system products Sensors and fieldbuses (including field wireless technology) for the accurate, real-time measure-ment of production data

System products Systems that greatly improve safety and production efficiency through the control and monitoring of plant operations based on data received from field sensors

The value that our business provides

Offering comprehensive solutions, from business management to operations

Yokogawa is highly regarded around the globe as a leader in the control field. For use in a wide range of production facilities, the Company provides highly reliable sensors for the real-time measure-ment of processes, analyzers, high-availability distributed control systems for the monitoring and control of processes, safety instrumented systems that can shut down a process and prevent a plant accident in the event of an emergency, and highly reliable software products and services that sup-port production management. The Company partners with its customers to create new value by providing optimum solutions that enhance production efficiency, ensure high availability, make maximum use of assets, maintain safety, and optimize costs over the entire lifecycle of a plant facili-ty. Yokogawa works hand in hand with its customers in a wide range of industries, including oil and gas, chemicals, electric power, iron and steel, pulp and paper, pharmaceuticals, and foods.

Yokogawa integrates its own technologies, expertise, and solutions with those gained through mergers and acquisitions, and alliances with IT vendors. We create value for our customers by help-ing to visualize and optimize business activities that occur throughout their value and supply chains.

Changes in Our Customers’ Business Environment

Becoming a Trusted Partner to Our Customers

Creating Value through the Provision of Comprehensive Solutions to Our Customers

Satoru KurosuDirector and Executive Vice President, Head of Premium Solutions and Service Business Headquarters

Masatoshi NakaharaDirector and Executive Vice President, Head of IA Systems and Service Business Headquarters

Shigeyoshi Uehara Vice President, Head of IA Products and Service Business Headquarters


■ Rapid implementation of strategy■ Mitigation of integration risks■ Sustained improvement

● Mission-critical systems● Control and automation● Safe operation● Smart sensing

● Production optimization● Simulation & data analysis● Industrial Internet of Things (IIoT)● Cloud-based and remote operations

● Strategy formulation & market analysis● Profit improvement● Maximization of an organization’s capabilities● Asset optimization

21

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Test and Measurement Business / Aviation and Other Businesses

Masaharu YamazakiSenior Vice PresidentHead of Measurement Business HeadquartersHead of Aerospace Products Business HeadquartersPresident, Yokogawa Meters & Instruments Corporation*

Dating back to its earliest days as a company, Yokogawa has long been involved in the measurement field, and its test and measure-ment equipment have made a key contribution to industry. The Company’s highly reliable measuring instruments are used in the development of electrical and electronic equipment, and automobiles, and in applications ranging from environmental measurement to communications. Through the development of products such as confocal scanner units used in live cell imaging and drug discovery support systems that automate the testing of candidate compounds, Yokogawa is expanding its presence in new markets.

Yokogawa is also engaged in the provision of aviation equipment, marine navigation equipment, and hydrological and meteorological equipment. The Company’s multifunctional flat-panel cockpit displays feature high visibility and outstanding environmental resistance and are widely used in aircraft, including the latest Airbus airliners. Gyrocompasses, autopilots, and other types of Yokogawa marine navigation equipment are utilized in ships of all types, ranging from cruise liners to freighters. Yokogawa also supplies rain gauges, hydrostatic level gauges, and other types of hydro-logical and meteorological equipment needed to monitor weather conditions and stay prepared for natural disasters.

Test and Measurement Business Aviation and Other Businesses

In fiscal year 2016, the second year of the TF2017 mid-term business plan, we implemented a number of mea-sures to ensure that we accomplish all the objectives set out in the plan.

In the measuring instruments field, we withdrew from the unprofitable analog meter business to improve the overall structure of our businesses and carried out mea-sures such as a review of inventory management at all company sites to strengthen our financial position. Through these moves, we paved the way for putting the Company’s finances on a sounder footing so that we can generate the financial resources needed for future growth. And as we have already done in North America and Eu-rope, we sought to strengthen the systems and structures needed to expand the scope of our direct operations in global markets, focusing principally on Asia. In those fields that are closely related to our industrial automation and control business, we will continue in fiscal year 2017 to implement measures that will further differentiate us from our competitors. With manometers and other types of

In fiscal year 2016, orders received, net sales, and operating income were lower than the previous year mainly owing to the impact of a deteriorating ship-ping market. We forecast that a challenging business environment for the marine navigation equipment business will persist in fiscal year 2017. Under these circumstances, we will focus on the development of energy-saving products for which there is a high demand, with a view to expanding sales. In the aviation business, which has been robust, we will capitalize on Yokogawa’s engineering and produc-tion capabilities to further expand this business, while continuing with ongoing cost reduction initia-tives.

measuring instruments where Yokogawa enjoys a com-petitive edge, our focus will be on establishing new busi-ness models that capitalize on our distinctive strengths.

In the life sciences field, we will review sales channels and consolidate our global sales organization by strength-ening collaboration with our operations all around the world. We see tremendous potential in life science fields such as medicine, physiology, and drug discovery, and find them attractive because of their ability to improve quality of life (QOL). Rather than just introducing attractive products, we aim to offer solutions that make use of collected data (images).

The test and measurement business is closely linked to fields such as energy saving, environmental protection, and new drug development that are at the heart of efforts to create a sustainable society. By offering its customers tools that can accurately collect data and solutions that can utilize that data, Yokogawa will deliver value that will indirectly benefit society.

In the aviation business, safety comes first. High reliability is essential in the flat-panel cockpit dis-plays used in aircraft and the gyrocompasses, auto-pilots, and other types of navigation systems used on ships. For its customers in the airline, aircraft manufacturing, shipping, and shipbuilding indus-tries, Yokogawa will supply the state-of-the-art tech-nology needed to ensure the safe transportation of passengers and cargo.


Basic measuring instru-ments

Used in the development of products such as electric vehicles and industrial inverters that will lead to the widespread adoption of eco-friendly means of transport, improved production efficiency, etc.

Optical measuring instruments

Used for such purposes as the maintenance of cable TV networks and the development of broadband data communications technologies, thereby allowing the faster transmission of data and improving user convenience

Field measuring instru-ments Used to calibrate devices, thereby enhancing productivity and maintaining product quality

Life science equipment Used in fields that support the efficient development of safe new drugs



Aviation equipment

Supporting safe, secure, and stable operationMarine navigation equipment


CA700 low pressure calibrator PM100 external pressure sensor

DL350 ScopeCorder

CQ1 confocal quantitative image cytometer

CSU-W1 confocal scanner unit

Flat-panel displays for aviation use

*The company name will be changed to Yokogawa Test & Measurement Corporation on October 1, 2017.

Yokogawa's Creation of Value

Gyrocompasses Autopilot

23

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For a Sustainable Society

Long-term Vision for a Sustainable Society

Paris Agreement Came into ForceThe Paris Agreement was adopted by the 21st Frame-work Convention on Climate Change (COP21) held in December 2015 as the basis of worldwide efforts to tackle the issues of climate change. Whereas it took over seven years from the adoption of the Kyoto Protocol, under which developed countries have specific emissions-reduction goals, the Paris Agree-ment, which involves all countries, came into force in November 2016, a year after its adoption.

New Moves toward Circular EconomyResource depletion and efficient utilization had previ-ously been viewed exclusively as environmental issues that need to be resolved. However, in EUROPE 2020, the EU’s growth strategy, the EU included resource efficien-cy as a key indicator and announced a Circular Econo-my Package in May 2015 whose aim is Europe’s transition to a circular economy as an economic policy option for 2030. At almost the same time, the G7 dis-cussed resource efficiency as an economic policy issue and the G7 Alliance on Resource Efficiency was estab-lished in June 2015.

On August 2017, the Company announced that it has newly developed sustainability goals (Three goals). Yokogawa currently contributes to society in four areas: 1) contributions toward a sustainable global environment, 2) realization of a safe and secure society, 3) growing together with local communities, and 4) support for health and enrichment of people’s lives. Based on the SDGs targeting 2030 in addition to the Paris Agreement eyeing 2100, Yokoga-wa has set its orientation for transformation of the Company itself and toward sustainable development for future generations, in order to realize a low-carbon society and a circular society, and has articulated its aspiration as follows.

Statement on Yokogawa’s aspiration for sustainabilityYokogawa will work to achieve net-zero emissions, make a transition to a circular economy, and ensure the well-being of all by 2050, thus making the world a better place for future generations.We will undergo the necessary transformation to achieve these goals by 1. becoming more adapt-able and resilient, 2. evolving our businesses to engage in regenerative value creation, and 3. promoting co-innovation with our stakeholders.

Since Yokogawa’s launch of TF2017 in 2015, there have been epochs in the world in terms of the three aspects of sustainability which are the environmental, economic, and social dimensions.

TF2017 positions the three years to fiscal year 2017 as the period for laying the foundation of the future growth required in order to attain the goals of the long-term business framework. Recognizing the need to incorporate sustainability in business for Yokogawa to continue to grow, we have brushed up the long-term vision. Based on the identification of business fields where Yokogawa is contributing to society and

Epochs in the World Sustainability Goals: “Three goals”

Incorporation of Sustainability in Business Planning

17 GOALS TO TRANSFORM OUR WORLD

NOPOVERTY

ZEROHUNGER

GOOD HEALTH AND WELL-BEING

QUALITY EDUCATION

GENDER EQUALITY

CLEAN WATER AND SANITATION

AFFORDABLE AND CLEAN ENERGY

DECENT WORK AND ECONOMIC GROWTH

INDUSTRY, INNOVATION AND INFRASTRUCTURE

REDUCED INEQUALITIES

SUSTAINABLE CITIES AND COMMUNITIES

RESPONSIBLE CONSUMPTION AND PRODUCTION

CLIMATE ACTION

LIFE BELOW WATER

LIFE ON LAND

PEACE, JUSTICE AND STRONG INSTITUTIONS

PARTNERSHIPS FOR THE GOALS

Support for the United Nations Global CompactIn 2009, Yokogawa approved and signed the United Nations Global Compact, an international initiative proposed by the United Nations, and has been endorsing and putting into practice its ten universal principles in the areas of human rights, labor, the environment, and anti-corruption. The Company is sharing these principles with the other members of the Yokogawa Group and with its business partners worldwide.

We will continue to strive to fulfill our responsibilities as a global company that develops business worldwide.

Takashi Nishijima, President and CEO, Yokogawa Electric Corporation

Planning for sustainability

Sustainability goals: “Three goals” Transformation needed to achieve our sustainability goals

Clarify relationship between Yokogawa’s business and the SDGs

Identify areas in which we can contribute Formulation of long-term vision・ Establishment of

three sustainability goals

・ Transformation to achieve sustainability goals

Establish sustainability KPIs that are linked to the

next mid-term business plan

Consider all possible ways to contribute Consider which social issues Yokogawa currently addresses Consider how Yokogawa addresses these issues Consider what value Yokogawa can create

Contributions toward a

sustainable global environment

Growing together with local

communities

Realization of a safe and secure

society

Support for health and enrichment of

people’s lives

2015 2016 Current phase

reflecting the occurrence of epochs, the sustainability goals (Three goals) was developed to realize a sustain-able society.

To advance toward accomplishment of the goals, Yokogawa will set key performance indicators (KPIs) for medium-term sustainability and reflect on our manage-ment plan.

Yokogawa joins World Business Council for Sustainable Development (WBCSD)Yokogawa recognizes its responsibility to address environmental issues and other challenges confronting society, and is eager to contribute to the realization of a better world by using its knowledge and capabilities in collabora-tion with other WBCSD members.

Yokogawa will work to achieve net-zero emissions, make a transition to a circular economy, and ensure the well-being of all by 2050, thus making the world a better place for future generations.

Environmental

Achievenet-zeroemissions

Ensurewell-being

Make transitionto

circulareconomy

Social Economic

Net-zeroemissions Well-being

Circulareconomy

Our strengths

Areas for improvement

Becoming more adaptable and resilient

Promoting co-innovation with our stakeholders

Evolving our businesses to engage in regenerative value creation

Sustainable Development Goals for EveryoneIn September 2015, the 2030 Agenda for Sustainable Devel-opment centering on the Sustainable Development Goals (SDGs) was adopted at the United Nations Sustainable Development Summit. This action plan to be accom-plished by 2030, based on the pledge that no one will be left behind, promotes sustainable development by inte-grating and balancing the three dimensions of sustainable development: the social, economic, and environmental.

SDGs are universal development goals for the people, planet and prosperity comprising 17 goals and 169 targets.

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Providing Value to Society together with CustomersFor a Sustainable Society

Aspiring to realize a sustainable society, Yokogawa is helping to address a number of social and environmental issues through its business activities.

Area of Contribution Social Issues Yokogawa’s Strengths Value Provided to Society● Burgeoning energy demand in emerging countries● Shift from non-renewable fossil fuels to renew-

able energy sources● Soil and water pollution from domestic and in-

dustrial wastewater and industrial waste

● Provision of highly reliable products and services and develop-ment of long-term relationships with a global customer base, mainly in downstream sectors of the energy supply chain

● Engineering services that make operations more efficient and a wealth of expertise in diverse applications

Boosting efficiency throughout the energy supply chain● Support services that ensure stable and efficient plant operations and the effi-

cient use of energy and other resources● Conservation of energy of production facilities and waste heat recovery facilitiesResponding to the shift to renewable energy sources● Support of clean power generation at renewable energy plants● Realization of efficient wide-area energy management systems that combine the

use of Industrial Internet of Things (IIoT) and plant control technologiesEnsuring a resource recycling society● Robust systems with a low environmental impact that can be kept in use for decades● Ensuring the supply of safe water through seawater desalination, wastewater

management, and water purification plant monitoring and control● Helping to prevent air, soil, and water pollution through real-time component analysis● Contributing to environmental protection, including CO2 emission reduction at

our offices and factories

● Plant accidents caused by aging facilities and the retirement of skilled operators

● Aging of public infrastructure such as roads, bridges, tunnels, and harbors

● The threat of cyber-attacks on vital infrastructure● Social impact of earthquakes, tsunamis, ty-

phoons, floods, and other natural disasters

● Utilization of long experience and extensive track record in in-dustry sectors such as chemicals, iron and steel, and liquefied natural gas to provide support that ensures safe and secure op-erations

● Development of integrated process control and safety instru-mented systems

● Development and supply of operation training simulators that incorporate the expertise of skilled operators

● Provision of distributed control system (DCS) lifecycle security solutions

Development of safe and secure work environments● Prevention of plant accidents through the use of highly reliable and secure

safety instrumented systems● Alleviation of operator stress through the integration of process control and

safety instrumented systems● Contributing to transfer of technical skills, prevention of similar problems, and

fostering of engineers by using operation training simulators, etc.● Helping to ensure the safe and secure operation of plant systems through the

provision of cyber-security solutions, etc.Support for natural disaster preparation and mitigation measures● Early detection of tilting, cracking, and other failures by constantly monitoring

buildings and bridges● Provision of natural disaster preparation and mitigation solutions such as tide

gate centralized monitoring systems

● Labor shortages in emerging countries● Discriminatory treatment of individuals based

on gender, race, etc.

● Hiring and nurturing of local workers● Development of technical training programs in cooperation

with customers and local educational institutions● Promotion of globalization and utilization of diversity

Local support for training of engineers● Establishment of educational institutions and provision of scholarship support

for students● Support for development of engineering students in cooperation with local uni-

versities; subsequent contribution to local job creationPromoting diversity● Career training for female employees and diversity education● Active utilization of diverse human resources, including women, foreign nation-

als, and disabled persons

● The enormous time and cost required for new drug development

● The burden of animal experimentation and clinical trials

● Establishment of confocal microscopes capable of observing the movements of live cells in real time as a de facto standard in leading-edge research

● Provision of advanced drug discovery support systems incorpo-rating technologies such as confocal microscopes, precise posi-tioning control, and cell image analysis

Life sciences and drug discovery● Promotion of leading-edge life science research such as the movement of neu-

rons in the brain and the flow of red blood cells● Alleviation of the burdens of conducting clinical trials on living subjects and an-

imal experiments, contributing to the efficient development of safe pharma-ceuticals

Relevant SDGs

Relevant SDGs

Relevant SDGs

Relevant SDGs

Cont

ribut

ions

tow

ard

a su

stai

nabl

e gl

obal

en

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nmen

t

Real

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ion

of a

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and

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soci

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Grow

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toge

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w

ith lo

cal

com

mun

ities

Inclusion in SRI IndexesYokogawa is highly regarded by socially responsible investment (SRI) rating agencies around the world for its ESG (environment, society, and gover-nance) initiatives. The Company was selected as a constituent of the MSCI ESG Leaders Index in fiscal year 2016 and of the FTSE4Good Index in June 2017, both for the first time.

Supp

ort f

or h

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Global Japan(as of July 31, 2017)

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Brazil Saudi Arabia

Yokogawa started on cultivating the control system market from the conclusion of a distributor agreement with a local company in Saudi Arabia in 1970s. Having established Yokogawa Saudi Arabia in 2006 and Yokoga-wa Services Saudi Arabia in 2007, Yokogawa has accu-mulated a track record in the key oil and gas sector and has expanded business led by local employees. Yokoga-wa’ s customers in Saudi Arabia are mainly state-owned enterprises. As well as contributing to Saudi Arabia’s industrial development by helping customers resolve their issues, Yokogawa has been addressing the resolu-tion of the nation’s social issue since the inception of these companies.

In recent years, a high youth unemployment rate in line with the increase of foreign workers has become a pressing issue in Saudi Arabia. The Saudi government is implementing a policy to increase employment oppor-tunities by promoting employment of Saudi nationals (Saudization). While expanding business in Saudi Arabia, Yokogawa has been supporting human resourc-es development in the country in cooperation with local universities and other educational institutions and providing employment opportunities.Contributing to human resources developmentBased on a memorandum of understanding on human resources training programs signed with the King Fahd University of Petroleum and Minerals (KFUPM) and three other universities in Saudi Arabia, Yokogawa provides engineering training and short-term

internships for students and new graduates. In the 10 years from 2007, of 275 people who completed the training program, 63 joined the Yokogawa Group.Contributing to creation of jobsAs of June 2017, Yokogawa’s subsidiaries in Saudi Arabia had 300 employees of whom 135 were Saudi nationals (75 men and 60 women), with a Saudization percentage of 45%. According to the criteria for the ratio of Saudi nation-als to the workforce of companies specified by the Ministry of Labor of Saudi Arabia, Yokogawa subsidiaries are in the top level in the six-level ranking.Supporting advancement of women in societyYokogawa is vigorously supporting advancement of Saudi Arabian women and has hired some 150 local women since 2010. Of the current 60 female employees, 50 are engaged in engineering work.

Initiatives to resolve social issues of Saudi Arabia have a great significance in the context of Yokogawa’s sustainable development of business in the country. Yokogawa continues to address issues of customers in Saudi Arabia and national issues with devotion in order to contribute to the country’s industrial development while enhancing Yokogawa’s corporate value.

Sustainability Case Studies

Contributions toward a Sustainable Global Environment /Realization of a Safe and Secure Society

First 2nd generation bioethanol plant in southern hemisphere: One of world’s largest (Brazil)

Growing together with Local Communities

Contributing to society through human resources development and job creation (Saudi Arabia)

Central control roomPlant view 1) President Nishijima (left) had an audience with Custodian of the Two Holy Mosques King Salman Bin Abdulaziz Al-Saud, King of the Kingdom of Saudi Arabia, at Saudi-Japan Vision 2030 Business Forum in March 2017 during the King’s visit to Japan.

2) At the Business Forum, Yokogawa concluded an MOU with Saudi Arabian Oil Company (Saudi Aramco) concerning cooperation in R&D and human resources develop-ment in the measuring and control fields of the oil, petrochemical, and gas sector.

1) 2)

For a Sustainable Society

GranBio, a Brazilian industrial biotech company, started operation of the São Miguel dos Campos second-gener-ation bioethanol* plant, the first plant of its type in the southern hemisphere, in early 2014. This plant has a production capacity of 82 million liters of biofuel per year, which makes it one of the largest such facilities in the world. Materials such as sugarcane bagasse and straw are readily available in Brazil, and it is hoped that these materials can be a stable energy source.Yokogawa’ s contributionAs the main automation contractor (MAC) for this plant, Yokogawa performed basic design and delivery of the control system and field instrumentation. Biofuel manufacturing involves step-by-step processes under appropriate temperature control, consisting of pretreat-ment of raw materials, enzymatic hydrolysis, fermenta-tion, and distillation/separation. Yokogawa’s CENTUM VP integrated production control system automatically controls a series of complex processes according to the preprogrammed conditions for each production pro-cess, such as temperature and pressure, thereby con-tributing to high-quality, stable production. Various Yokogawa field instruments are installed throughout the extensive plant site, including magnetic flowmeters and pressure/differential pressure transmitters. Al-though some of these instruments are exposed to high temperature processes and other harsh conditions and/

or are mounted in high, narrow, and other difficult to access locations, Yokogawa’s Plant Resource Manager (PRM) asset management package enables integrated monitoring of the soundness of all field instruments from the central control room. In this way, Yokogawa is supporting safe and efficient operation of the entire plant.To a sustainable societyBased on its highly reliable products as well as its extensive experience and track record, Yokogawa will continue to contribute to the improvement of production efficiency and safe and reliable opera-tion throughout the lifecycles of customers’ plants. In the renewable energy field, the Company is committed to contributing to a stable supply of clean energy in order to realize a sustainable global environment in collaboration with custom-ers.

* Amid concerns about the correlation between greenhouse gases generated from burning fossil fuels, etc. and global warming, as well as food shortages worldwide, second-generation bioethanol made from non-food sources such as woodchips and straw, as opposed to the first-generation bioethanol made from edible resources such as corn, has been attracting attention in recent years as a renewable energy source.

Report on Managem







Tsuyoshi AbeVice President, Head of Marketing Headquarters

Welcome to a world of dramatic change! In financial and academic circles, talk often turns to topics such as the world full of volatility, uncertainty, complexity and ambiguity (VUCA) that we all live in and technology trends such as big data, AI, and blockchains. Technological progress is happening at an accelerating rate due to computer-driven digitalization, and our world is one where growth is an exponential function governed by Moore’s Law.

Change has never been so rapid or unpredictable.

Yokogawa makes a broad contribution to society based on the elements of measurement, control, and information. First, by leveraging the Company’s expertise in measure-ment, we help to visualize many things that are not visible to the human eye. By facilitating the identification of the phenomena that are occurring around us, visualization can have a major impact on human behavior. Second, Yokogawa’s expertise in control makes possible an analy-sis of measurement data that allows us to identify and address problems. The application of best practices throughout this value chain enables the transformation of data into actionable information. But Yokogawa’s products are about a whole lot more than just data-driven control: through the querying of data we are able to apply AI and predictive analysis techniques to create greater economic value for our customers. It is our mission to be a continual source of such value.

The increasing use of open source solutions for operation-al technology (OT) is leading to greater IT/OT convergence. At Yokogawa, we have been expanding our business from product-oriented sales to include solution-based services. Going forward, we will continue enhancing our technolo-gies, products, and core competencies and seek an ever-wider field of applications that encompasses promis-ing new markets as well as traditional sectors. The “de-mocratization of IoT” will be an important strategy. In the B2B market, the democratization of IoT for ease of use will help us offer simpler and faster IoT technologies for plat-forms that can be used by our customers, business part-ners, suppliers, distributors, and other stakeholders worldwide. Following a “port of choice” strategy, we have

set up an IoT open architecture platform that provides greater choice to each of these constituencies. In keeping with our corporate brand slogan of “Co-innovating tomor-row®,” we are providing a space where intelligence and creativity can come together to spark innovation, co-cre-ation, and co-prosperity.

Unlike linear growth, exponential growth is barely noticeable in the early phases. At Yokogawa, we aim to be a catalyst that enables small changes to be leveraged for exponential growth, and to have a non-incremental beneficial impact on society that can be measured in orders of magnitude.

In the current environment, markets that can leverage new conditions are able to grow at extraordinary speed. Yet our world is beset with social problems such as those that the United Nations’ Sustainable Development Goals (SDGs) seek to address. Applying Yokogawa’s principal expertise in measurement, control, and information, we seek to address these issues and thereby contribute to global sustainability and the realization of a safe and secure society. Growing together with local communities, we support activities that contribute to human health and enrichment.

Yokogawa’s business is currently weighted toward the fossil fuel-based energy industry, centering on the indus-trial plant market. In the future, we aim to partner with a wider range of customers and industries that would benefit from measurement and control. Moreover, in doing so, we aspire to fulfill our mission as a company that always seeks to maximize its contribution to society, thereby playing an indispensable role in the protection of the Earth, humanity’s common inheritance.

Based on the concept of “from plant to planet,” our challenge at Yokogawa is to upgrade and expand the value that we add.

1. Yokogawa’s role and mission in an age of rapid technological progress

2. Yokogawa’s business strategy for the changing control industry

3. Yokogawa’s future and our ideals

By engaging in innovation activities, Yokogawa not only provides systems but also creates technologies and solutions together with customers that prompt them to change their perspectives and ap-proaches. The innovation process consists of three concentric layers as shown in the figure on the right. The outermost layer, consisting of information from the field and signs of change obtained by scanning the “external environment,” such as markets and customers, is reflect-ed in “standardization, intellectual property and open innovation,” which constitute the second layer that supports “innovation activities,” the innermost layer. In innovation activities, we generate ideas, refine them through R&D and incubate them. Repeated execution of these three stages leads to commercialization.

At the ideation stage, we acquire insights into the future through the use of methodologies such as scenario planning and scanning. With scenario planning, we envision multiple future scenarios and continuously update them so that we can respond flexibly to an unknowable future. With scanning, we try to antici-pate social changes that will transpire over the next 10 to 20 years. Findings based on discussions by a diverse group of people from both inside and outside the Company around the world are reflected in our research initiatives.

At the R&D stage, we identify promising research themes from the various possibilities that emerged at the ide-ation stage and refine them. At times, researchers also consider feasibility and analyze markets and may also be involved in cultivation of markets.

At the incubation stage after an R&D project runs its course, researchers develop a strategy with support from sales and marketing operations for commercialization. Then, demonstration is conducted in collaboration with the customer. When the value is recognized, the project progresses to the commercialization stage.

Innovation Activities

Research and Development (R&D) at YokogawaR&D activities at Yokogawa are classified into two types. Firstly, product development and applied research activi-ties are geared to meeting customer needs and target a relatively foreseeable future. Secondly, innovation activi-ties are conducted from a longer-term perspective, involve greater uncertainty, and are directed toward the genera-tion of new business opportunities. Whereas business headquarters are mainly responsible for the former, the latter is primarily the task of the Innovation Center.

The mission of the Innovation Center is twofold:1. Research and develop new technologies that complement those of each business headquarters and address

customer issues, leading to expansion of the business scope.2. Prepare for an uncertain and unpredictable future and open a path to the creation of new businesses by working

with customers to uncover latent issues and find ways of addressing them.In accordance with TF2017, our target is to keep the ratio of R&D investment to net sales of 6% or higher while

maintaining the total amount of the Company’s R&D investment.

Activities Supporting the Innovation Process■ Standardization Standardization has an important bearing on our global competitiveness. Yokogawa partici-

pates as a member of international standards organizations such as the International Electrotechnical Commis-sion (IEC) and the International Organization for Standardization (ISO).

■ Open Innovation Yokogawa scours the globe for the best partners to network with, including universities, research institutes and start-ups. Envisaging ideal products and solutions, we promote joint R&D and technology procurement to deliver superior value to our customers.

■ Intellectual Property Strategy: Addressing Global Competition To raise global competitiveness, Yokogawa strives to transform R&D outcomes into high-quality intellec-tual property and is vigorously filing patent applications outside Japan, too. In addition, strategic use of external intellectual property enables us to swiftly offer value to our customers.

R&D structure at Yokogawa

Present Future

Business HeadquartersCurrent

operations

Product development Applied research

Foreseeable future

Possible future (scenarios)

Innovation activities

Unknowable future

Innovation Center

Yokogawa’s intellectual property rights (as of March 31, 2017)

In Japan Outside JapanTotal

Registered Pending Subtotal Registered Pending SubtotalPatent 1,961 395 2,356 803 708 1,511 3,867 Design 106 16 122 127 16 143 265 Trademark 380 5 385 683 91 774 1,159

Total 2,447 416 2,863 1,613 815 2,428 5,291

Commercialization

Exte

rnal

envir

onment (customers, markets, research institutions, partners)

New market opportunities

Market needs

Technology seeds

Stan

dard

izatio

n, intellectual property and open innovationIdeation

stage

R&D stage

Incubation stage

Inno

vatio

n activitie

s

Innovation

31

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30 2017 Yokogawa Report2017 Yokogawa Report

Human Resources ManagementFramework for Creating Value

Yokogawa is seeking through training, assignments, and other means to transform its people by giving them a solutions- and services-oriented mindset and business skills. At the same time, we are deepening our pool of solutions-oriented personnel by recruiting experienced professionals. One specific transforma-tion initiative is the provision of in-house training in customer value creation. In fiscal year 2016 we launched the Future Leader Development Program (FLDP), which is an upgraded version of the Yokogawa Management of Technology (Y-MOT) training course, and in fiscal year 2017 we launched FLDP-Junior, a program with broad eligibility criteria that is intended to give opportunities for growth to large numbers of young Group employees.

To foster the creation of new value and accelerate the global development of its business, Yokogawa will promote diversity in its workforce by actively hiring, developing, and promoting people from a variety of backgrounds who differ in terms of experience, knowl-edge, perspective, cultural background, and values.

We have also set specific targets that call for the doubling of the number of female managers and the number of foreign national employees (in comparison to fiscal year 2014 levels), and are working to achieve these targets.

With the aim of increasing the number of female managers, in April 2015 we established an organiza-tion that promotes diversity. Through the continued offering of training programs, development of person-nel systems, and engagement in internal aware-ness-raising activities, we aim by the end of fiscal year

2017 for at least 5% of our managers to be women.To double the number of foreign national employ-

ees, we are developing channels for the recruitment of graduates of foreign universities. Since 2015 we have been actively recruiting graduates of universities in the ASEAN region, and we are also accepting in-terns from outside Japan. As a result of our active efforts, around 10% of all new hires in Japan are foreign nationals.

Since launching a normalization project in 1992, Yokogawa has consistently made an active effort to hire persons with disabilities. In cooperation with other Group companies in Japan, and in anticipation of a fiscal year 2018 increase in the disability employ-ment quota to 2.2%, we are emphasizing these re-cruiting activities.

Going forward, Yokogawa will actively engage in activities to promote the inclusion of minority groups in its workforce. By such means as the provision of in-house seminars and the offering of counseling services, the Company aims to strengthen teamwork among the diverse members of its workforce, based on the principle of mutual respect.

Yokogawa considers the development of leaders capable of driving the success of a global business to be a critical challenge in sustaining growth and enhancing corporate value over the medium- to long-term. As part of an initiative that was launched in fiscal year 2017, we are working to identify and develop the next generation of global leaders. We have also instituted a decision-making mechanism for the promotion of suitable employees to appropri-ate global leadership roles. During the current fiscal year, we will establish a process to continuously foster the development of suitable personnel for such roles.

Transformation to solutions- and services-oriented human resources

Promotion of diversity and inclusion

Toward further globalization

Human resources development plays a very important role in driving Yok-ogawa’s growth and enabling the creation of new value. While working hand in hand with its customers to co-innovate and create new value, Yok-ogawa is moving forward with its transformation to a solutions- and ser-vices-oriented workforce, promoting diversity and inclusion, and advocating a human resources strategy that focuses on globalization.

Furthermore, mindful of the “benefits for four parties” principle, Yokoga-wa will strive for a win-win relationship with customers, the local communi-ty, management, and employees. At the same time, the Company will place a priority on being a good partner, a good citizen, a going concern, a good brand, and a good employer, and will work to establish a productive, healthy, and rewarding work environment throughout the Yokogawa Group.

Mikio MatsuiVice President, Head of Human Resources and General Affairs Headquarters

Global business expansion and diversification of human resources

Development of global human resources

Group-wide Initiatives

Key Initiatives in Japan

In the context of Yokogawa’s global business expan-sion, the key to Yokogawa’s future growth is for employees from diverse backgrounds to continue bringing their capabilities into full play.

To rapidly and flexibly respond to a changing business environment, meet a wide range of cus-tomer needs, and increase our ability to create new value and compete in the marketplace, Yokogawa will promote diversity and inclusion and actively hire, develop, and promote people with diverse experience, knowledge, perspectives, cultural back-grounds, and values.

As it actively pursues the global expansion of its busi-ness, Yokogawa is focused on developing and strength-ening its workforce. Through its Global Talent Development Program, which was initiated in 2011, Yokogawa continues to provide practical global skills training to young employees to develop their ability to communicate logically, make presentations, and carry

Promoting the success of women

With the aim of securing a diverse workforce, Yokogawa set long-range targets in TF2017 that call for 5% or more of all managers and 30% of all new hires to be women.

As part of our efforts to promote diversity and inclu-sion, we are actively helping female employees achieve success on the job. To create a women-friendly work-ing environment where female employees can em-brace challenges and grow, we are making changes to programs and our corporate culture. This is being done in coordination with an ongoing effort to introduce new work practices such as working at home and hour-ly leave.

Recruitment of foreign nationals

With the aim of doubling the number of foreign nation-als in its workforce, Yokogawa began recruiting gradu-ates of foreign universities in fiscal year 2015. From ASEAN nations, we recruited three employees in April 2016 and two employees in April 2017. We were thus able to achieve our target for 10% of all new hires to be foreign nationals.

In fiscal year 2017, we will actively develop new channels for the recruitment of employees and interns from other countries.

Employment of persons with disabilities

As of March 31, 2017, persons with disabilities made up 2.08% of the workforce of Yokogawa Group companies in Japan. We will continue our longstanding initiatives to actively hire persons with disabilities throughout the Group, and in fiscal year 2018 plan to increase the ratio of all such employees on the Yokogawa workforce to 2.2%.

out negotiations in English. In addition, we are broadening the scope of our global

human resources activities by providing training in the values expected of Yokogawa employees and training that seeks to impart an ability to understand historical or cultural differences from a global perspective.

Net sales in Japan and outside Japan (Billions of yen) / Net sales outside Japan ratio (%) / Employees working outside Japan ratio (%)

(FY) 201520142012 20132011

■ Net sales in Japan ■ Net sales outside Japan Net sales outside Japan ratio Employees working outside Japan ratio

334.7334.7

59.459.4 61.561.566.866.8 69.369.3 69.369.3 67.367.3

54.654.6 56.356.3 57.557.5 59.159.1 62.162.1 62.862.8

347.9347.9388.5388.5 405.8405.8 413.7413.7 391.4391.4

2016

198.9

135.8

213.9

134.0

259.4

129.1

281.1

124.7

286.6

127.1

263.5

127.9

Female manager ratio (%)

* For Yokogawa Electric only, i.e. on a non-consolidated basis

(FY) 201520142012 20132011 2016

1.41.4 1.71.7 2.02.0 2.42.43.23.2 3.53.5

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Quality Management / Occupational Safety and Health

Environmental ManagementFramework for Creating Value

Same Quality throughout the WorldYokogawa’s quality management consists of three basic elements: Quality Assurance (QA), Quality Improvement (QI), and Quality mind (Qm). We be-lieve that we can satisfy our customers’ expectations and build long-lasting bonds of trust only when all of these elements are engaged. The Quality First mind-set is critically important for maintaining the high quality of Yokogawa products and services. All em-ployees of the Group recognize the importance of having the Quality First mindset and quality is built into every business process in accordance with the rules and approaches shared throughout the Group.

Quality supporting service networkYokogawa’s Global Response Center offers around-the-clock support in concert with global service network to keep customers’ facilities performing safely and smoothly. At Global Response Center, experienced service engineers are ready 24/7 to trou-bleshoot and respond to customer inquiries. The engineers remotely identify trouble at customer sites and promptly provide solutions.

Environmental management promotion structureIn accordance with the Basic Rules on Environmental Manage-ment covering the entire Group, Group companies are con-ducting environmental activities closely linked with their business activities. The companies conduct autonomous activities by setting environmental targets corresponding to the environmental action plan. In order to promote global environmental management, the Company has established the Global QHSE Committee that implements measures and reviews activities. The Group’s major offices and manufactur-ing sites around the world are ISO 14001 certified.

Efforts to reduce our environmental impactThe Yokogawa Group is working to reduce green-house gas emissions by setting a reduction target for each Group company and making an effort to reduce greenhouse gas emissions, such as by reduction mea-sures conversion to renewable energy sources. Yokogawa is going to continue efforts to effectively utilize limited water resources, particulary in Asia and the

Design for environmentYokogawa has set design and assessment standards for the development and manufacture of environmentally friendly products. At each phase of product design, name-ly, initial design, intermediate design, and final design, assessment is performed based on standards covering eight fields, including energy saving, resource saving, and safety. In addition, we use lifecycle assessment (LCA) standards to evaluate energy consumption and CO2, NOx,

and SOx emissions at each stage throughout the product lifecycle, from materials and parts production to assem-bly, distribution, use, and disposal, and make the results publicly available. Products that have cleared these standards are considered to be highly environmentally friendly, and help our customers reduce their environmental impact.

Middle East, where water shortages are pronounced. In Singapore, where water resources are limited, we are continuously promoting reduction of water use and water reuse. We participate in the NEWater (recycled water) project, a national initiative, and NEWater already satisfies more than half our water needs.

Yokogawa has 230 service cen-ters in 80 coun-tries around the world staffed by some 2,000 engi-neers.

Reduction and elimination of occupational accidentsRecognizing that “Occupational safety and health is the foundations of the management,” the Yokogawa Group implements OSHMS.

In fiscal year 2016, the Group HSE Committee in Japan, the Safety and Health Supervisors’ Meeting and the Global HSE Conference were held with the participation of major Group companies from around the world. These meetings were valuable opportuni-ties to promote communication among Group com-panies and share best practices to ensure safety,

reduce risks, and maintain and promote the health of everyone in the Yokogawa Group.

Ever since the foundation of the Company, putting quality first has been the fundamental principle of Yokogawa. Thorough customer-focused quality management has fueled Yokogawa’s develop-ment. Guided by the quality-first principle, the Yokogawa Group autonomously implements quality management to ensure uniform quality worldwide responding to changing social demands. Offer-ing products and solutions that achieve customer satisfaction, the Yokogawa Group is making a concerted effort to reinforce the image of Yokogawa brand.

At Yokogawa, we take seriously our responsibility to protect the environment and, mindful of our responsi-bility to future generations, practice environmental management from a medium- to long-term perspec-tive. We promote efficient use of resources and signifi-cant reductions in greenhouse gas emissions together with our customers and actively work to develop environmentally friendly products and further reduce environmental impacts of the Yokogawa Group’s business operations.

Quality First Contributions toward a Sustainable Global Environment

In 2006, the Yokogawa Group established the Yokogawa Group Occupational Safety and Health Policy and began implementing the Occupational Safety and Health Management System (OSHMS). Since 2007, the Yokogawa Group has implemented the OSHMS in each of its companies to promote continual im-provements of occupational safety and health activities and reduce risks.

Occupational Safety and Health

Customer satisfaction

Quality in every aspect begins with the mind

Quality Assurance

QA

Qm

QI

Quality mind

Quality Improvement

Factory patrol*The LCA logo is displayed on the website for applicable products.

The Yokogawa Group’s Greenhouse Gas Emissions (t-CO2) The Yokogawa Group’s Water Consumption (thousand m3)

(FY) 201620152013 20142012

■ Japan　 ■ Outside Japan

34,699

48,251

53,567

48,745

51,978

51,433

46,112

51,981

37,224

50,784

(FY)

■ Japan　 ■ Outside Japan

201620152013 20142012

314

285

541

305

444

293

439

284

342

275

Environmentally sustainable society

Building a recycling-based society


by the Yokogawa GroupResource and energy

conservation, pollution prevention, waste reduction,

promotion of reuse and recycling, etc.


by customersResource and energy

conservation, pollution prevention, waste reduction,

promotion of reuse and recycling, etc.

Provision of environ-mental solutions and

environmentally friendly products

Environmental Management Promotion Structure

President & CEO of Yokogawa ElectricEnvironmental officer of Yokogawa Electric

Environmental management departmentGlobal QHSE Committee

Heads of business headquarters and divisions of Yokogawa Electric

Promotion leadersBusiness headquarters and divisions of Yokogawa Electric Yokogawa Group companies

Environmental officerPresident

Environmental manager

Global Response Center(Yokogawa Electric headquarters)

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Corporate GovernanceCorporate Governance

My basic stance on corporate governance is that we are accountable to our shareholders. To that end, it is not enough just to formulate rules and establish standards. It is crucially important for the Company to have policies and values that will continue to emphasize this accountability even when times change or when there is a change in the composition of the management team. It is also necessary to have people who under-stand and endorse the Company’s policies and values, and moreover, who are willing to express their opin-ions based on their own perspective. Towards this end, outside directors play an important role, and I recog-nize the desirability of diversity in the composition of the Board of Directors.

The Company’s directors are responsible for both the supervision and the execution of our business activi-ties. If a proposal concerns a business matter that is the responsibility of a particular director, that director may not be able to make an impartial decision. Out-side directors who have experience with completely different businesses, measures, and projects may be able to offer opinions based on a broader and more impartial perspective, may be more open to consider-ing the advantages of combining different measures, and may be more willing to consider the likely benefits of a proposed initiative based on instances elsewhere in society. In some cases outside directors have strong-ly supported particular decisions of the Board of Directors, and in other cases they have pushed for decisions that were at variance with the original pro-posals. These have been the result of thorough discus-sion based on the desire to safeguard the interests of all stakeholders, and this confirms that our Board of Directors is functioning as intended.

Society’s expectations of companies and their purpose change with the passage of time. Based on the state-ment in the Yokogawa Corporate Governance Guide-lines that “a company is a public entity of society,” Yokogawa is endeavoring to adapt its corporate gover-nance in light of society’s evolving expectations.

I have noticed certain changes in how our Compa-ny’s executives approach their duties. As our business headquarters have traditionally focused on maximizing profits, executives have tended to pay less attention to the need for improving capital efficiency. However, as a result of our withdrawal from a number of unprofit-able businesses and pursuit of M&A as a driver for future development and growth, the Company’s exec-utives are now focusing more on capital efficiency and cash flow. And in their briefings with outside directors, the Company’s executives often hear of the importance of placing a high priority on benefiting all stakeholders. I am convinced that such input from our outside directors is having a valuable impact on the attitudes and values of the Company’s executives.

For the Company’s corporate governance, certain changes must be made to make the Nomination Advisory Committee more effective. The Company has started a career development system for executive and officer candidates, and has established policies and procedures for their selection. We are currently deter-mining election, re-election, and removal criteria, although it should be noted that such decisions will also involve other considerations. Selecting the right person to carry out the business strategy requires a 360-degree evaluation and must include an evaluation of each candidate’s personal qualities. Recognizing that outside directors lack sufficient information to evaluate candidates from inside the Company, we will establish a mechanism to resolve this issue.

Message from the Chairman of the Board Message from an Outside Director

Helping to Enhance Yokogawa’s Corporate Value by Gaining a Deeper Understanding of Business Execution

Accountability Is the Basis of Corporate Governance—Outside directors’ contribution and ongoing governance issues—

Nobuo SekiOutside Director

Shuzo KaihoriChairman of the Board

Basic stance on corporate governance Changes afoot in executives’ attitudes

Contribution of outside directors

Ongoing issues

During my two years as an outside director, Yokoga-wa has pushed forward with its Transformation 2017 mid-term business plan (TF2017), reinforced its corporate governance, and improved the effective-ness of the Board of Directors while pursuing initia-tives that target its management system as a whole.

Through my involvement in these initiatives, my views about the role of an outside director have gradually changed. While non-executive tasks such as the offering of advice to managers and external monitoring have tended to be emphasized in this role, it is increasingly necessary for outside directors to have an understanding of the risks and responsi-bilities associated with business execution so that they can contribute to sustainable growth and enhancement of corporate value over the medium- to long-term. Given the sophistication of its solu-tions for the management of highly complex processes and facilities, this is particularly true for Yokogawa. While maintaining my independence, I recognize the need to step up my effort to learn more about the Company and better understand the execution of its business activities. I have also come to recognize that outside directors can more quickly proceed to in-depth discussion of matters if they share information and try to complement each other’s strengths.

Without a company’s support, outside directors cannot gain a deep understanding of the execution of its business activities. Yokogawa has been proactive in providing its outside directors documents and brief-ings on its business. Yokogawa swiftly responds to all such requests from its outside directors. This is indica-tive of the high priority that Yokogawa assigns to corporate governance.

I was an executive of a general engineering company, and my experience in the energy indus-try tends to be highlighted. But I also have broad general industry experience in such areas as busi-ness development and turnaround management. I am resolved to utilize all the expertise and insights acquired over the course of my career to identify key issues and find optimum solutions that will help Yokogawa.

With TF2017 in its final year, I have high expectations that the systematic efforts to implement structural reforms will continue to generate benefits by decreas-ing costs and increasing efficiency. In combination with other key measures that Yokogawa has been imple-menting, I am confident that the growth strategy that is an extension of the Company’s existing businesses will yield gratifying results by improving operations outside Japan. I expect that the Company’s develop-ment strategy for the targeting of new fields and devel-opment of a new business model for the future, as well as the long-term business framework and the next mid-term business plan, will take a more concrete form. As for the transformation of Yokogawa’s businesses, I am keenly observing the activities of the new Marketing Headquarters and noting how Yokogawa makes use of KBC Advanced Technologies, which was acquired last year. With keen anticipation, I support these efforts to create new value.

Based on the SDGs espoused by the United Na-tions, Yokogawa is pushing forward in the effort to manage its business in a sustainable fashion. I am impressed with the Company’s commitment to pre-senting practical solutions to global issues through its business activities, I am determined to do whatever I can to contribute to the success of the Company’s efforts.

Role of an outside director

Concluding TF2017 on a high note while enhancing corporate value over the medium- to long-term

Utilization of insights gained through experience

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Corporate Governance SystemCorporate Governance

The Board of Directors has included multiple outside directors since 2007. At present, four outside directors are serving, thus ensuring management objectivity. 1.Outside directors are the majority of the members of the Nomination Advisory Committee and the Compensation Advisory Committee. 2.Decision-making on business execution is delegated to the Management Board consisting of the president, officers (including two foreign nationals), and other members to expedite the process.3.

The Group has established a corporate philosophy, the Yokogawa Philosophy, and Standards of Business Conduct for the Yokogawa Group that apply to the entire Group, and strives to have appropriate relation-ships with all stakeholders as well as aims for sustain-able corporate growth and increased corporate value over the medium to long term. In addition, based on the philosophy that “a company is a public entity of society,” the Group positions answering the trust of all stakeholders, including shareholders, customers, business partners, society, and employees, via sound

and sustainable growth, as the basic mission of corpo-rate management.

In order to maximize its corporate value, the Group believes that efforts such as thorough compliance, appropriate risk management, and information disclo-sure in order to ensure constructive dialogue with shareholders and other stakeholders are important.

The Group formulates and discloses these Yokoga-wa Corporate Governance Guidelines which serve as the basic policy for continually working on corporate governance in line with the above views.

Corporate Governance Highlights

Summary of Corporate Governance Structure

http://www.yokogawa.com/pr/pdf/cg_guidelines-en.pdf

Enhancing Corporate Governance

FY ActionBoard of Directors Audit & Supervisory Board Officers

Inside Outside Outside % Inside Outside (Doubling as board member)

2003 Introduced outside directors 7 1 13% 2 2 24 （6）

2004 Abolished retirement bonuses for directors 7 1 13% 2 3 24 （6）

2005 7 1 13% 2 3 26 （6）

2006Introduced one year tenure system for directorsRevised articles of incorporation to reduce number of directors (25→15)

9 1 10% 2 3 27 （7）

2007 Increased the number of outside directorsIntroduced takeover defense measures 8 2 20% 2 3 29 （5）

2008 7 2 22% 2 3 28 （5）

2009 Increased the number of outside directorsRenewed takeover defense measures 7 3 30% 2 3 15 （5）

2010 5 3 38% 2 3 14 （3）

2011 Renewed takeover defense measuresSold shares of a listed affiliate 4 3 43% 2 3 15 （2）

2012 4 3 43% 2 3 14 （3）

2013 4 3 43% 2 3 12 （1）

2014Established Nomination and Compensation Committee (voluntary advisory body)Discontinuation (non-renewal) of takeover defense measuresIntroduced standards to ensure independence of outside directors

6 3 33% 2 3 12 （3）

2015Established Nomination Advisory Committee and Compensation Advisory Committee (voluntary advisory bodies)Conducted outside evaluation of Board of DirectorsEstablished the Yokogawa Corporate Governance Guidelines

6 3 33% 2 3 11 （3）

2016 Increased the number of outside directorsIntroduced a restricted stock compensation plan 6 4 40% 2 2 12 （3）

2017Appointed a woman as an outside member of the Audit & Supervisory Board Appointed 2 foreign nationals as officers

6 4 40% 2 3 18 （4）

At the Board of Directors, transparency and the speed of decision-mak-ing are improved through deliberations between directors who are well versed in the Company’s business and outside directors who maintain a high degree of independence. Through audits by Audit & Supervisory Board members, including outside Audit & Supervisory Board mem-bers, performance of duties by directors is rigorously examined. Further, in order to increase transparency in the appointment of outside directors and outside Audit & Supervisory Board members, in fiscal year 2014, the Company established independence standards for outside directors and outside Audit & Supervisory Board members by the resolution of the Board of Directors.

Board of DirectorsWith the aim of achieving sustainable growth and increasing corpo-rate value of the Group over the medium to long term as a deci-sion-making body, the Board of Directors improves profit-earning capability and capital efficiency, and determines the general direction of the Group, including corporate strategies. Also, in addition to moni-toring and supervising execution of business by management, the Board of Directors develops provisions related to the execution of

duties by directors, and establishes a framework to take supervision responsibility related to the execution of business. In order to help ensure that corporate management maintains the trust of sharehold-ers, the term of office for directors is set at one year.

<Evaluation of the Board of Directors>In fiscal year 2015, the Company's Board of Directors conducted an evaluation of the Board of Directors with the support of J-Eurus IR Co., Ltd., an external organization. In fiscal year 2016, the evaluation of the Board of Directors was conducted by means of a questionnaire survey for directors and Audit & Supervisory Board members. The Board of Directors held discussions in view of the outcome of the evaluation and responses to issues identified by the previous year’s evaluation, and analyzed and assessed the effectiveness of the Board

Introduction of a new executive compensation plan Report on the progress of TF2017 Review of responses to the Corporate Governance Code

Examples of agenda items at the Board of Directors in FY2016

Basic view on corporate governance – governance that supports transformation

Internal Audit Department

Corporate Functions /Business Headquarters and Group Companies

Directors

President

Management Board

Compensation AdvisoryCommittee

Crisis Management Committee

Risk Management Committee

Election/Removal Appointment/Resignation

Instructions/Orders/Supervision Audit/Supervision

Cooperation/Report/Advice

Nomination AdvisoryCommittee

Board of Directors(10 directors)

(including 4 outside directors)

Audit & Supervisory Board Members

Audit & Supervisory Board(5 members)

(including 3 outside members)

Accounting Auditor

G e n e r a l S h a r e h o l d e r s M e e t i n g

Decision making, business execution, and audits

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Corporate Governance System

Corporate Governance

of Directors. The Board of Directors confirmed that the structure to fulfill the supervisory function for management has been established in terms of the size, composition, operation, attributes of each member, status of committees, and other factors. The Board of Directors also confirmed that open, vibrant discussions take place at the Board of Directors meetings. Regarding the need for greater focus in discussions on essential subjects to be deliberated at the Board of Directors, which is an issue pointed out by the previous year’s evaluation, the Board of Directors revised how time was allocated at meetings, and it is taking steps to improve the situation by strength-ening discussions relating to management strategy. In addressing calls to strengthen succession plans, the Board of Directors com-menced a corporate manager candidate evaluation development program, and interlocking such activities with the activities of the Nomination Advisory Committee, the Board of Directors confirmed that such initiatives were strengthened on a Group-wide basis. Conse-quently, the Company has considered that the Board of Directors functions effectively.

The issues raised from the evaluation conducted for this fiscal year were strengthening discussions related to medium- to long-term management strategy and diversity on the Board of Directors. As part of the initiatives to address issues, in addition to the Board of Direc-tors’ continuous measures to respond to issues raised in the previous fiscal year, directors, including the outside directors, are participating, from the examination stage, in discussions to formulate the next long-term management vision and mid-term business plan. Moreover, on the subject of diversity in the Board of Directors, the Board of Direc-tors is discussing the issue from a broad range of perspectives, includ-ing experience, knowledge, and attitudes, taking into consideration

the Company’s organizational design. In addition, this year, the Company invited a woman with knowledge of the consumer busi-ness, with abundant practical experience that includes handling corporate social responsibility, etc., and with experience working as a standing audit & supervisory board member at another company, to serve as an outside Audit & Supervisory Board member.

Management BoardTo expedite the decision-making process of the Board of Directors, decisions regarding business execution are delegated to the Manage-ment Board. The Management Board consists of the president, officers (including two foreign nationals), and standing members of the Audit & Supervisory Board. It meets once a month in principle. Its decisions are reported to the Board of Directors.

Audit & Supervisory BoardThe Audit & Supervisory Board meets once a month in principle. Its members carry out auditing in accordance with an annual plan that specifies priority audit items. Audit & Supervisory Board members also attend meetings of the Board of Directors and the Management Board as well as other important meetings and hold regular meetings with departments involved with internal auditing, legal affairs, and business ethics, the last of which promotes the compliance system. At these meetings, they exchange opinions, share information about the status of their activities, and actively present recommendations. In addition, the Audit & Supervisory Board members deepen mutual cooperation with the accounting auditor and exchange information with the accounting auditor frequently to improve the quality of audits by both sides and make the audits more efficient.

Nomination Advisory Committee and Compensa-tion Advisory CommitteeThe Company has established the Nomination Advisory Committee and the Compensation Advisory Committee as voluntary advisory bodies to give opinions in response to consultations from the Board of Directors regarding nominating directors and determining com-pensation.

The Nomination Advisory Committee and the Compensation Advisory Committee are each composed of six directors appointed by the Board of Directors, and four of the six members of each commit-tee are outside directors.

<Nomination Advisory Committee>With respect to the appointment of director and Audit & Supervi-sory Board member candidates, the selection of officers and the next representative director and president as well as the qualities (attributes, track record, etc.) sought after in directors, the Nomination Advisory Committee shall give advice so as to ensure that, from the perspective of all stakeholders, suitable personnel is in place to contribute to the Group’s sustainable growth as well as its corporate governance.

In 2017, the Nomination Advisory Committee considered increasing the number of outside members of the Audit & Super-visory Board while taking diversity into account, and nominated Ms. Yasuko Takayama.● Members (as of July 31, 2017)

Mr. Kaihori, Director Mr. Nishijima, President & CEOMr. Urano, Outside Director Mr. Uji, Outside DirectorMr. Seki, Outside Director Mr. Sugata, Outside Director

<Compensation Advisory Committee>The Company positions its executive compensation plan as an important item in corporate governance, and to increase the objectivity and transparency of director compensation, has formed a Compensation Advisory Committee, which comprises three or more directors, based on the resolution of the Board of Directors, with the majority being outside directors, and the executive compensation plan is resolved by the Board of Direc-tors based on the Committee’s report produced through its deliberation.● Members (as of July 31, 2017)

Mr. Kaihori, Director Mr. Nishijima, President & CEOMr. Urano, Outside Director Mr. Uji, Outside DirectorMr. Seki, Outside Director Mr. Sugata, Outside Director

Compensation to Directors and Audit & Supervi-sory Board MembersBasic Approach to the Executive Compensation Plan

(1) Plan that promotes sustainable, medium- to long-term improvement in corporate value

(2) Plan that reflects the medium- to long-term management strategy and strongly motivates the achievement of medium- to long-term management objectives

(3) Plan that prevents bias toward short-term thinking(4) Plan and monetary amounts that secure and maintain

excellent human resources(5) Plan that includes transparency, fairness, and rationality for

stakeholders, decided through an appropriate process to ensure these factors

The Company’s executive compensation plan is composed of fixed and performance-linked components (annual incentives and medium- to long-term incentives), and levels of compensation are set through a comparison with companies from the same industry and of the same scale both in Japan and overseas, as well as in consideration of the Company’s financial conditions. Part of the performance-linked compen-sation, the annual incentive, is calculated and paid based on an evaluation of the entire company’s results and the individual’s results for the individual year. Furthermore, the medium- to long-term incentive takes the form of restricted stock compensation utilizing the Company’s common shares, linked to the Company’s mid-term business plan, with the Company’s common shares distributed in lump sums corresponding to the achievement period (in principle, three years) in the first year of the mid-term business plan.

Under the restricted stock compensation plan, the restriction of transfer of granted shares shall be lifted in July 2018 upon completion of the transfer restriction period depending on the degree of achievement of performance targets for fiscal year 2017, the final year of the TF2017. The shares for which the transfer restriction was not lifted shall be transferred to the Company without consideration.

Furthermore, the performance-linked compensation under the executive compensation plan covers directors and officers and excludes outside directors. This is because variable compensation such as perfor-mance-linked compensation is not appropriate for outside directors and Audit & Supervisory Board members, who maintain a position indepen-dent from the performance of duties, and as such only fixed compensa-tion is paid, identically to non-executive directors.

Major Activities of Outside Directors and Outside Members of the Audit & Supervisory BoardThe Tokyo Stock Exchange requests listed companies to secure at least one independent officer (an outside director or an outside member of the Audit & Supervisory Board who has no conflicts of interest with general shareholders). The Company has four such outside directors and three such outside members of the Audit & Supervisory Board, for a total of seven independent officers who are registered with the Tokyo Stock Exchange (as of July 5, 2017).

Major Activities in Fiscal Year 2016

Name Principal activities Attendance at Board of Directors meetings

Attendance at Audit &Supervisory Board meetings

Out

side

dire

ctor

s Mitsudo Urano Provided advice with deep insight based on his wide knowledge and abundant manage-rial experience. 100% (15/15) －

Noritaka Uji Provided advice with deep insight based on his wide knowledge as a corporate manager and thorough expertise in technology development and IT/ICT fields. 100% (15/15) －

Nobuo Seki Provided advice with deep insight based on his wide knowledge as a corporate manager and thorough expertise in the control of energy-related facilities. 100% (15/15) －

Shiro SugataProvided advice with deep insight based on his wide knowledge as a corporate manager and thorough expertise with respect to industrial light sources and other products with optical applications, and also with respect to industrial machinery.

100% (11/11) －

Note: In the case of Director Shiro Sugata attendance at the Board of Directors meetings convened since he assumed the position on June 23, 2016 is indicated.

1) Policy for the appointment of director and Audit & Supervisory Board member candidates as well as officersThe Board of Directors shall be composed so as to be well balanced in knowledge, experience, and capabilities to effectively fulfill its roles and responsibilities, and it shall be constituted in such a manner as to achieve both diversity and appropriate size.

Under this premise, the Company appoints as candidates for director and Audit & Supervisory Board member those hu-man resources who, in addition to contributing to improvement of corporate governance, also meet the respective criteria that follow.■ Director candidates• Human resources that are familiar with the Group’s business and contribute to the appropriate execution of business and

supervision of highly effective management.• Human resources that have experience and knowledge required for the formulation of management strategies aiming at an

increase in the Company’s corporate value over the medium to long term and that contribute to right management deci-sions and supervision of highly effective management.

■ Audit & Supervisory Board member candidates• Human resources that are familiar with the Group’s business and contribute to appropriate auditing of management of the

Company and Group companies.• Human resources that have abundant experience as corporate managers, have expertise in areas such as accounting, fi-

nance, legal affairs, and corporate management, and contribute to appropriate auditing of management. With respect to officers, they are appointed after it is confirmed that each candidate has sufficient experience, knowledge, etc. for the respective positions and that he or she has the intentions and attitude suitable for management.

2) Procedures for the appointment of director and Audit & Supervisory Board member candidates as well as officersIn order to enhance the objectivity and transparency of the appointment of candidates for directors, Audit & Supervisory Board members, and officers, the Company has established the Nomination Advisory Committee, which is a voluntary advi-sory body comprised of at least three directors, of whom a majority are outside directors, based on the resolution of the Board of Directors.

Matters with respect to appointment of director candidates and officers are resolved by the Board of Directors on the basis of reports prepared upon deliberations engaged in on the basis of appointment criteria and procedures as stipulated by the Nomination Advisory Committee.

Matters with respect to appointment of Audit & Supervisory Board member candidates are resolved by the Board of Direc-tors upon having gained consent of the Audit & Supervisory Board with respect to reports prepared upon deliberations en-gaged in on the basis of appointment criteria and procedures as stipulated by the Nomination Advisory Committee.

The policy and procedures for the appointment of director and Audit & Supervisory Board member candidates as well as officers

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Internal Control SystemsThe Company has established the Yokogawa Group Internal Control System to ensure the reliability of financial statements and the validity of the deci-sion-making process. As systems that ensure that directors comply with laws, ordinances, and the Articles of Incorporation of the Company, as well as a system required by a Ministry of Justice ordinance that ensures the appropriateness of corporate operations and the operations of the corporate group comprising the Company and its subsidiaries, the Company has the internal control system to ensure proper and efficient execution of the Group’s operations in place.

for its risks and report them to the Board of Directors. The president shall be responsible for supervising all matters in relation to risk management as the chairper-son of Risk Management Committee. Respective orga-nizational units of the Yokogawa Group shall perform the identification and assessment of risks followed by the preparation and implementation of the counter-measures against risks. The department in charge of internal audit shall evaluate the effectiveness of Yok-ogawa Group risk management process and reports important findings to the Board of Directors and the Audit & Supervisory Board members.

Crisis situations are to be responded to as set forth in the Group Policy for Crisis Management. As the head of the Crisis Management Committee, the president controls the communication of information and issu-ance of instructions during times of crisis at all Group companies, and works to ensure safety and minimize economic losses.

The Group’s policies on the handling and protection of confidential information are set forth in the Confi-dentiality Code.

Moreover, as a part of the system to ensure the effectiveness of audits by Audit & Supervisory Board members, the Audit & Supervisory Board has now entered into an advisory agreement with attorneys.

Risk ManagementRisk Management Policy has been set forth for the purpose of establishing a basis for the effective and efficient conduct of enterprise risk management by the Yokogawa Group. Based on this policy, the Risk Man-agement Committee shall decide the specific signifi-cant risks which shall be managed preferentially as Yokogawa Group and decide the monitoring method

ComplianceYokogawa has set forth its basic compliance policies in the Standards of Business Conduct for the Yokogawa Group, and directors take the lead in working to see that business ethics are upheld and embraced throughout the Group.

We have established the Standards of Business Con-duct as a set of guidelines for business conduct. Detailed rules of conduct are listed in the Basic Principles of the Yokogawa Group, Basic Attitude of the Yokogawa Group and Guidelines of Conduct for Yokogawa Group Members. In addition, the Yokogawa Group Compliance Guidelines, which include supplementary Anti-bribery Guidelines, set out how employees should respond to a variety of issues encountered on the job.

Moreover, we have established a department in charge of business ethics that is charged with the identification and resolution of issues pertaining to the compliance system. The Company is strongly promoting compliance management. It aims to be healthy and open, with both a culture that encourages and enforces proper ethical conduct and a system for preventing misconduct and scandals before they occur. In so doing, we will meet the expectations of investors and other stakeholders.

Awareness Raising Activities Every year all employees receive compliance training. We are also working to deepen understanding and increase awareness of compliance by annually holding a Compliance Week cam-paign, offering e-learning-based study programs, and soliciting compliance slogan entries from employees.Compliance Awareness Surveys We annually conduct compliance awareness surveys in order to determine how prevalent compliance awareness is among employees and to improve promotion activities. Survey results are shared throughout the Group. In addition, we analyze the survey data by workplace and function, and use the results when formulating compliance measures in the subsequent fiscal year.Established Compliance Hotlines To rapidly identify and address compliance issues, we have established compliance hotlines, which we actively encourage our employees to use. Specifically, we have established both an internal hotline and an external hotline that is operated by attorneys. Both hotlines maintain strict confidentiality and respond promptly to caller concerns.

Examples of Compliance Promotion Initiatives

Major Activities in Fiscal Year 2016

Name Principal activities Attendance at Board of Directors meetings

Attendance at Audit &Supervisory Board meetings

Outside

memb

ers, Aud

it &

Superv

isory Bo

ard Zenichi Shishido Provided advice with deep insight based on experience in a wide range of research activities as an expert in business law and corporate governance. 100% (15/15) 100% (23/23)

Izumi Yamashita Provided advice with deep insight based on abundant managerial experi-ence in a wide range of business activities. 100% (15/15) 100% (23/23)

Awareness transformation Messages from top leaders Education and training Encouraging interaction Cultivating a workplace atmosphere that encourages openness

Establishing effective rules Helpline services

Penalties for violations Measures to prevent recurrence

Update of regulations and manuals

Corporate culture that pre-

vents misconduct

Systems that prevent unethical

conduct

Promoting/establishing legal and regulatory

compliance in business operations

Companies play any number of roles. For example, they can function as an entrepreneur, as a corporate citizen with social responsibility, as an economic agent in a nation’s economy, and as an investment target in an invest-ment chain. Whatever roles it plays, every company has to create value and contribute to society.

To create value, companies strive to offer product and service solutions that meet customer expectations on quality, price, and so on. To ensure that they are able to deliver value to their stakeholders, they will need to take steps over the medium- to long-term to enhance their corporate value. Although growth and profits are the most important considerations for any company, it is also very important for any such organization to build and main-tain good trust-based relationships with their stakeholders.

So that all stakeholders can have a correct understanding of the Company, Yokogawa is committed to being transparent in its management by providing fair, timely, and appropriate disclosure of all important information, in a form that is accurate, clear, and concise. For this purpose, we hold briefings on our financial results and business activities for institutional and individual investors, offer plant tours, and carry out other initiatives. In addition to financial information, Yokogawa discloses information on its various efforts to address social issues as well as environmental, social and governance (ESG)-related information.

Yokogawa also periodically meets with shareholders and investors to engage them in direct dialogue on topics from a medium- to long-term perspective, and is stepping up its efforts to make these discussions more construc-tive. We meet with shareholders and investors in and outside Japan, report on these discussions to the Board of Directors, and share this information with other departments so that they can take it into consideration when planning their management and IR activities.

With the aim of sustaining our growth and enhancing our corporate value over the medium- to long-term, we will continue to disclose information in a fair, timely, and appropriate manner and engage in constructive dialogue.

Hajime WatanabeVice President, Head of Corporate Administration Headquarters

Continuing to Engage in Constructive Dialogue to Enhance Our Corporate Value

Message from the Officer Responsible for IR

Corporate Governance System


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Management Team As of July 1, 2017

Shuzo KaihoriDirector and Chairman of the Board

Date of birth: Jan. 31, 1948Number of years since appointment as a director: 11 years

Directors

Outside Directors

Apr. 1973 Joined the CompanyApr. 2005 Vice President, Head of IA Business

HeadquartersApr. 2006 Senior Vice President, Head of IA

Business HeadquartersJun. 2006 Director and Senior Vice President,

Head of IA Business HeadquartersApr. 2007 President and Chief Operating OfficerApr. 2008 President and Chief Executive OfficerApr. 2013 Chairman and Chief Executive OfficerApr. 2015 ChairmanJun. 2016 Director and Chairman of the Board

(present)

Takashi NishijimaPresident and Chief Executive Officer

Date of birth: Aug. 12, 1957Number of years since appointment as a director: 6 years

Apr. 1981 Joined Hokushin Electric Works Ltd. (the present Yokogawa Electric Corporation)

Oct. 2008 Vice President, Head of Control Products Business Center, IA Business Headquarters

Apr. 2010 President of Yokogawa Meters & Instru-ments Corporation

Jun. 2011 Director of the Company, President of Yokogawa Meters & Instruments Corporation

Apr. 2012 Director and Senior Vice President, Head of IA Platform Business Headquarters

Apr. 2013 President and Chief Operating OfficerApr. 2015 President and Chief Executive Officer

(present)

Satoru KurosuDirector and Executive Vice President

Date of birth: Dec. 25, 1960Number of years since appointment as a director: 6 years

Apr. 1983 Joined the CompanyApr. 2006 Vice President, Head of Marketing

Center, IA Business HeadquartersApr. 2007 Senior Vice President, Head of IA

Business HeadquartersApr. 2009 Senior Vice President, Head of Global

Business HeadquartersApr. 2010 President of Yokogawa Engineering

Asia Pte. Ltd.Apr. 2011 Senior Vice President of the Company,

Head of IA Marketing HeadquartersJun. 2011 Director and Senior Vice President,

Head of IA Marketing HeadquartersApr. 2013 Director and Executive Vice President of

the Company, President of Yokogawa Electric International Pte. Ltd.

Apr. 2014 Director and Executive Vice President of the Company, Head of Solutions Service Business Headquarters, President of Yokogawa Electric International Pte. Ltd.

Apr. 2015 Director and Executive Vice President of the Company, Head of Solutions Service Business Headquarters

Apr. 2017 Director and Executive Vice President, Head of Premium Solutions and Service Business Headquarters (present)

Hitoshi NaraDirector and Executive Vice President

Date of birth: Jan. 23, 1963Number of years since appointment as a director: 6 years

Apr. 1985 Joined the CompanyOct. 2001 Deputy Managing Director of Yokoga-

wa Engineering Asia Pte. Ltd.Oct. 2003 Managing Director of Yokogawa

(Thailand) Ltd.Jan. 2007 Head of Sales Div. I, Industrial

Solutions Business Headquarters of the Company

Apr. 2010 Senior Vice President, Head of Industrial Solutions Business Headquarters

Jun. 2011 Director and Senior Vice President, Head of Industrial Solutions Business Headquarters

Apr. 2012 Director and Senior Vice President, Head of Industrial Solutions Service Business Headquarters

Apr. 2013 Director of the Company, President of Yokogawa Solution Service Corpora-tion

Apr. 2017 Director and Executive Vice President of the Company, Chief Executive for Japan and Korea, President of Yokogawa Solution Service Corpora-tion (present)

Masatoshi NakaharaDirector and Executive Vice President

Date of birth: Dec. 14, 1958Number of years since appointment as a director: 3 years

Apr. 1981 Joined the CompanyApr. 2007 Vice President, Head of IA Systems

Business Center, Industrial Automa-tion Business Headquarters

Apr. 2011 President of Yokogawa Engineering Asia Pte. Ltd.

Apr. 2013 Senior Vice President of the Company, Head of Industrial Automation Platform Business Headquarters

Jun. 2014 Director and Senior Vice President of the Company, Head of IA Platform Business Headquarters

Apr. 2016 Director and Executive Vice President, Head of IA Platform Business Headquarters

Apr. 2017 Director and Executive Vice President, Head of IA Systems and Service Business Headquarters (present)

Junichi AnabukiDirector and Senior Vice President

Date of birth: Mar. 18, 1963Number of years since appointment as a director: 3 years

Apr. 1986 Joined Fukutoku Sogo Bank, Ltd.Mar. 1992 Joined the CompanyJan. 2005 General Manager, Treasury Depart-

mentApr. 2011 Vice President, Head of Accounting &

Treasury HeadquartersJun. 2014 Director and Vice President, Head of

Accounting & Treasury HeadquartersApr. 2016 Director and Senior Vice President,

Head of Accounting & Treasury Headquarters (present)

Mr. Shuzo Kaihori properly supervises manage-ment acting as a Director. He also adequately manages meetings of the Board of Directors acting as its Chairman, while endeavoring to strengthen corporate governance practices. Accordingly, he has been elected as a Director because we consider him qualified to further upgrade the Company’s corporate governance practices.

Mr. Takashi Nishijima properly supervises management acting as President and Chief Executive Officer. He also adequately provides guidance serving as Chairman of the Compa-ny’s Management Board. Accordingly, he has been elected as a Director because we consider him qualified to take the lead in achieving the goals set out in the long-term business framework.

Mr. Satoru Kurosu properly supervises management acting as a Director. He also adequately performs his duties acting as Head of Premium Solutions and Service Business Headquarters that handles solutions business, which constitutes the core of the mid-term business plan. Accordingly, he has been elected as a Director because we consider him qualified to act as leader in building the solutions business.

Mr. Hitoshi Nara properly supervises manage-ment acting as a Director. He also adequately performs his duties acting as President of Yokogawa Solution Service Corporation. Accordingly, he has been elected as a Director because we consider him qualified to act as leader in developing the solutions business across a wide range of industrial sectors.

Mr. Masatoshi Nakahara properly supervises management acting as a Director. He also adequately performs his duties acting as Head of IA Systems and Service Business Headquar-ters. Accordingly, he has been elected as a Director because we consider him qualified to help bring about sustainable improvement in our corporate value.

Mr. Junichi Anabuki properly supervises management acting as a Director. He also adequately performs his duties acting as Head of Accounting & Treasury Headquarters. Accordingly, he has been elected as a Director because we consider him qualified to help bring about sustainable improvement in our corporate value.

Significant concurrent positions●Outside Director of HOYA CORPORATION

Significant concurrent positions●Senior Adviser of Nichirei Corporation●Outside Director of Resona Holdings, Inc.●Outside Director of HOYA CORPORATION●Outside Director of Hitachi Transport System, Ltd.●President of Agri Future Japan●Chairman of Nippon Omni-Management Association●Chairman of Central Society for Promoting the Industrial Education

Significant concurrent positions●Outside Director of DAIICHI SANKYO COMPANY, LIMITED●Chairman of Japan Institute of Information Technology●Chairman of Japan Telework Association

Mitsudo UranoOutside Director

Date of birth: Mar. 20, 1948Number of years since appointment as an outside director: 6 years

Noritaka UjiOutside Director

Date of birth: Mar. 27, 1949Number of years since appointment as an outside director: 3 years

Mr. Mitsudo Urano properly supervises management acting as an Outside Director. He was appointed as an Outside Director so that he can contribute to greater operational fairness, objectivity, and transparency with respect to management of the Company based on his wide knowledge and abundant experience as a corporate manager, and leveraging his expertise in corporate governance.

Mr. Noritaka Uji properly supervises management acting as an Outside Director. He was appointed as an Outside Director so that he can contribute to greater operation-al fairness, objectivity, and transparency with respect to management of the Compa-ny based on his wide knowledge as a corporate manager, as well as his abundant experience and extensive expertise in technology development and IT/ICT fields.

Apr. 1971 Joined Nippon-Reizo Co., Ltd. (the present Nichirei Corporation)Jun. 1999 Director of Nichirei CorporationJun. 2001 Representative Director and President of Nichirei CorporationJun. 2007 Representative Director and Chairman of Nichirei CorporationJun. 2011 Director of the CompanyJun. 2013 Senior Adviser of Nichirei Corporation (present)

Director of the Company (present)

Apr. 1973 Joined Nippon Telegraph and Telephone Public Corporation (the present Nippon Telegraph and Telephone Corporation)

Jun. 1999 Director and Head of New Generation Information Services Sector of NTT DATA Corporation

Sep. 2000 Director and Head of Corporate Strategy Planning Department of NTT DATA Corporation

Jun. 2003 Executive Vice President, Head of Enterprise Systems Sector and Head of Enterprise Business Sector of NTT DATA Corporation

Jun. 2005 Representative Director and Executive Vice President of NTT DATA CorporationJun. 2007 Senior Executive Vice President of Nippon Telegraph and Telephone CorporationJun. 2012 Advisor of Nippon Telegraph and Telephone CorporationJun. 2014 Director of the Company (present)

Apr. 1970 Joined Chiyoda Chemical Engineering Company (the present Chiyoda Corporation)Apr. 1992 Vice President & Project General Manager of Chiyoda International Corporation in USAJun. 1997 Director of Chiyoda CorporationJun. 1998 Managing Director of Chiyoda CorporationAug. 2000 Senior Managing Director of Chiyoda CorporationApr. 2001 President and CEO of Chiyoda CorporationApr. 2007 Chairman of Chiyoda CorporationApr. 2009 General Corporate Advisor of Chiyoda CorporationJul. 2012 Advisor of Chiyoda CorporationJun. 2015 Director of the Company (present)

Significant concurrent positions●Independent Outside Director of TEIJIN LIMITED●Outside Director of KAMEDA SEIKA CO., LTD.●Outside Director of Weathernews Inc.

Significant concurrent positions●Special Advisor of USHIO INC.●Outside Director of JSR Corporation

Nobuo SekiOutside Director

Date of birth: Sep. 21, 1944Number of years since appointment as an outside director: 2 years

Shiro SugataOutside Director

Date of birth: Nov. 17, 1949Number of years since appointment as an outside director: 1 year

Mr. Nobuo Seki properly supervises management acting as an Outside Director. He was appointed as an Outside Director so that he can contribute to greater operational fairness, objectivity, and transparency with respect to management of the Company based on his wide knowledge as a corporate manager, as well as his abundant experience and extensive global business expertise in the engineering business centered on the energy industry.

Mr. Shiro Sugata properly supervises management acting as an Outside Director. He was appointed as an Outside Director so that he can contribute to greater operational fairness, objectivity, and transparency with respect to management of the Company based on his wide knowledge as a corporate manager, as well as his abundant experience and extensive global business expertise in the development and marketing of industrial instruments.

Apr. 1972 Joined USHIO INC.Jan. 1993 President of BLV LICHT-UND VAKUUMTECHNIK GmbHJun. 2000 Director and Corporate Senior Vice President of USHIO INC.Apr. 2001 Director and General Manager of Lamp Division II of USHIO INC.Apr. 2003 Director and Lamp Company President, COO of USHIO INC.Apr. 2004 Director and Corporate Executive Vice President of USHIO INC.Jun. 2004 Representative Director and Corporate Executive Vice President of USHIO INC.Mar. 2005 President and CEO of USHIO INC.Oct. 2014 Director and Corporate Advisor of USHIO INC. Jun. 2016 Corporate Advisor of USHIO INC.

Director of the Company (present)Jul. 2017 Special Advisor of USHIO INC. (present)

45

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Koichi ChujoAudit & Supervisory Board Member

Date of birth: Sep. 16, 1954Number of years since appointment as a member of the Audit & Supervisory Board: 1 year

Mr. Koichi Chujo is well-versed in the Group’s business through his experiences of engaging in the test and measurement business, serving as the Head of Quality Assurance Headquarters and conducting internal audits at the Audit & Compliance Headquarters. He has been elected as an Audit & Supervisory Board Member because we consider it appropriate to reflect his knowledge and experience in audits of the Company.

Apr. 1979 Joined the CompanyApr. 2000 Head of Measuring Instruments Development Department, Test &

Measurement Business DivisionOct. 2005 Head of Core Technology Development Center, Communication &

Measurement Business HeadquartersApr. 2009 Head of OE Test & Measurement Center, Communication & Measure-

ment Business HeadquartersApr. 2010 Vice President, Head of Quality Assurance HeadquartersApr. 2014 Audit & Compliance HeadquartersApr. 2015 Audit, Compliance & Quality Assurance HeadquartersJun. 2016 Audit & Supervisory Board Member (present)

Position Responsibility Name

Senior Vice President

Head of Management Information System Headquarters Hiroshi SuzukiHead of Measurement Business HeadquartersHead of Aerospace Products Business HeadquartersPresident, Yokogawa Meters & Instruments Corporation

Masaharu Yamazaki

Vice President

Head of Corporate Administration Headquarters Hajime WatanabeHead of Global Business Transformation Headquarters Akinobu NonakaChief Executive for North and South AmericasPresident, Yokogawa Corporation of America Shuji MoriHead of Audit, Compliance and Quality Assurance Headquarters Makoto OotakeHead of Marketing Headquarters Tsuyoshi AbeChief Executive for Middle East, Africa and IndiaPresident, Yokogawa Middle East & Africa B.S.C. (c) Hideki MatsubayashiHead of Global Sales and Industrial Marketing Headquarters Koji NakaokaHead of IA Products and Service Business Headquarters Shigeyoshi UeharaHead of Human Resources and General Affairs Headquarters Mikio MatsuiChief Executive for Europe, Russia and CIS President, Yokogawa Europe B.V. Herman van den BergChief Executive for ASEAN and Pacific President, Yokogawa China Investment Co., Ltd.President, Yokogawa China Co., Ltd.

Dai Yu

Audit & Supervisory Board Members Officers

Many Japanese companies are currently seeking to emphasize substance over form as they endeavor to transform and improve their corporate governance, and the question is whether such efforts will be able to foster sustainable growth and enhance corporate value over the medium- to long-term. As a new out-side member of the Audit & Supervisory Board, I feel the weight of my responsibility to help Yokogawa take on the challenge of achieving a strong corporate governance that is appropriate to its status as a global enterprise.

In today’s rapidly changing business environment, companies must deal with a range of business-relat-ed risks that arise because stakeholders do not all see things the same way and share the same values. In addition to the experience that I have gained as a standing audit & supervisory board member at another company, I will bring to this position and make full use of the ability to spot those risks. As an outside member of the Audit & Supervisory Board, I will seek to maintain an independent point of view as I carry out my duties of identifying issues and providing advice.

In this context, I will add that we must respond to stakeholders’ rising expectations by not only reinforc-ing corporate governance, but also doing so in sound and sustainable ways that are in harmony with society and the environment.

Through its business operations, Yokogawa is also expected to respond to social issues of global impor-tance such as those addressed in the Sustainable Development Goals (SDGs). With my experience in managing CSR-related issues, I humbly hope to make a positive contribution from the environmental, social and governance (ESG) perspective.

Yasuko TakayamaOutside Member, Audit & Supervisory Board

Outside Members, Audit & Supervisory Board

Kouji MaemuraAudit & Supervisory Board Member

Date of birth: May 21, 1956

Mr. Kouji Maemura is well-versed in the Group’s organization and business, and also has experience in leading the Group’s managerial reforms. He has been elected as an Audit & Supervisory Board Member because we consider it appropriate to reflect his knowledge and experience in audits of the Company.

Newly elected

Apr. 1980 Joined the CompanyOct. 1999 Head of Business Process Innovation DepartmentApr. 2003 Head of Human Resources & General Affairs Division, Management Administration HeadquartersApr. 2006 Director and Executive Vice President of Kokusai Chart Corporation, Head of FC DivisionOct. 2007 Director of Yokogawa Digital Computer Corporation, Head of Management Administration DivisionJan. 2009 Business Process Innovation Headquarters of the CompanyApr. 2010 Head of HR Administration Department, Human Resources HeadquartersApr. 2011 Vice President, Head of Corporate Marketing HeadquartersApr. 2015 Vice President, Head of Human Resources HeadquartersApr. 2017 Corporate Administration HeadquartersJun. 2017 Audit & Supervisory Board Member (present)

Helping Yokogawa Develop Sound and Sustainable Practices That Are in Harmony with Society and the Environment

Management Team As of July 1, 2017

■Introducing a New Audit & Supervisory Board Member

Zenichi ShishidoOutside Member, Audit & Supervisory Board

Date of birth: Apr. 20, 1956Number of years since appointment as a member of the Audit & Supervisory Board: 5 years

Mr. Zenichi Shishido was appointed as an outside member of the Audit & Supervisory Board so that he can contribute to the Company’s audits as an expert in business law and corporate governance with his deep insight based on experience in a wide range of research activities.

Apr. 1980 Research Fellow of Faculty of Law, Tokyo UniversityApr. 1983 Assistant Professor of Faculty of Law, Seikei UniversityApr. 1985 Associate Professor of Faculty of Law, Seikei UniversityApr. 1994 Professor of Faculty of Law, Seikei UniversityJul. 2001 Registered as lawyer (Member of Dai-ichi Tokyo Bar Association)Apr. 2004 Professor of School of Law, Seikei UniversityApr. 2009 Professor of Graduate School of International Corporate Strategy, Hitotsubashi University (present)Jun. 2012 Audit & Supervisory Board Member of the Company (present)

Significant concurrent positions●Professor of Graduate School of International Corporate Strategy, Hitotsubashi University●Lawyer (Zenichi Shishido Law Firm)

Izumi YamashitaOutside Member, Audit & Supervisory Board

Date of birth: Feb. 1, 1948Number of years since appointment as a member of the Audit & Supervisory Board: 3 years

Mr. Izumi Yamashita was appointed as an outside member of the Audit & Supervisory Board so that he can contribute to the Company’s audits with his deep insight based on abundant managerial experience in a wide range of business activities.

Jul. 1971 Joined the Bank of JapanApr. 1998 Director-General of Financial Markets Department of the Bank of JapanMar. 2002 Joined Accenture Japan Ltd., General Manager of Financial Sales DepartmentApr. 2003 Joined Japan Post, Executive Vice President (the present Japan Post Holdings Co., Ltd.)Apr. 2004 Executive Vice President of Japan PostApr. 2005 Managing Executive Officer of Japan PostOct. 2007 President of Japan Post Insurance Co., Ltd.Jun. 2012 Chairman of Japan Post Insurance Co., Ltd.Jun. 2014 Audit & Supervisory Board Member of the Company (present)

Significant concurrent positions●Outside Director of AEON Bank, Ltd.●Outside Director of Sumitomo Forestry Co., Ltd.

Newly elected

Yasuko TakayamaOutside Member, Audit & Supervisory Board

Date of birth: Mar. 8, 1958

Ms. Yasuko Takayama has been working for a major company in the consumer market where she has gained extensive practical experience that includes handling corporate social responsibility, as well as experience acting as a full-time audit and supervisory board member, and also has a wealth of experience acting as an outside executive at various companies. Accordingly, she was appointed as an outside member of the Audit & Supervisory Board because we consider it appropriate to reflect her experience in audits of the Company.

Apr. 1980 Joined Shiseido Co., Ltd.Apr. 2005 General Manager, Website Planning Group, Consumer Information CenterApr. 2006 General Manager, Consumer Information CenterOct. 2008 General Manager, Consumer Relations DepartmentApr. 2009 General Manager, Social Affairs and Consumer Relations DepartmentApr. 2010 General Manager, Corporate Social Responsibility DepartmentJun. 2011 Full-time Audit & Supervisory Board MemberJun. 2015 Advisor Jun. 2017 Audit & Supervisory Board Member of the Company (present)

Significant concurrent positions●Outside Director, The Chiba Bank, Ltd.●Outside Director, Nippon Soda Co., Ltd.●Outside Audit & Supervisory Board Member, Mitsubishi Corporation

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Financial and Non-financial Highlights

(FY) 20162014 201520132012

■ Operating cash flow　■ Investment cash flow　 Free cash flow

(7.5)(13.9)

(1.8)(10.9)

9.916.2

36.4

21.017.417.4

30.130.138.238.2

31.931.9

(36.5)

2.7

39.239.2

(FY) 20162014 201520132012

■ Interest-bearing debt 　　 Debt equity ratio

98.698.681.481.4

65.365.30.59

0.44

0.3044.644.6

0.17

30.530.5

0.13

(FY) 20162014 201520132012

■ Shareholders’ equity Shareholders’ equity ratio

168.4187.3

215.5240.444.3 46.9 49.058.2

256.4

58.2

(FY) 20162014 201520132012

■ Net sales　■ Operating income　　 Operating income ratio (ROS)

18.4 25.9 29.8 39.6

5.36.7

7.3

9.6

347.9388.5 405.8 413.7

31.6

8.1391.4

Return on equity (ROE)　　 Return on assets (ROA)

(FY) 20162014 201520132012

9.4

6.98.6

13.2

4.0

3.14.1

7.1

10.4

6.0

(FY) 20162014 201520132012

■ Earnings per share (EPS)　　 Price earnings ratio

16.616.6

34.834.8

19.419.4

10.210.2

57.0357.0347.9247.92

66.8866.88

114.01114.01

18.218.2

96.4496.44

(Year) 20162014 201520132012

0.42 0.39

0.570.50

0.32 0.31

0.49

0.36

0.23

0.45

0.530.41

0.58

0.28

0.46

In Japan　　 Outside Japan　　 Worldwide

　　　　

(FY) 20162014 201520132012

■ Industrial Automation and Control Business　■ Test and Measurement Business■ Aviation and Other Businesses　　 R&D investment to net sales

7.3 6.6 6.4 6.1

25.5 25.8 25.8 25.3

6.9

27.1

21.0 21.8 21.9 21.623.13.4

3.6 3.1 2.8 3.00.9 0.9 0.7

0.71.1

(FY) 20152013 201420122006 2007 2008 2009 2010 2011 2016

■ Board of Directors　■ Outside directors 　　 Outside director ratio

777

9 910 10 10

98

333 3 3

12

32

3

434343

33 33

10

4

40

10

20

30

22

38

(FY) 20162014 201520132012

■ In Japan　■ Outside Japan　■ Worldwide

102,312 103,411 98,09388,008

53,567 51,978

46,11237,224

48,745 51,433

51,981 50,78482,950

34,699

48,251

(FY) 20162014 201520132012

2.01.7

2.4

3.23.5

Number of directors / Outside director ratio (%)

Outside director ratio 40.0%

Greenhouse gas emissions（t-CO2）

Greenhouse gas emissions 82,950t-CO2

Net sales (Billions of yen) / Operating income (Billions of yen) / Operating income ratio (ROS) (%)

Net sales ¥391.4 billion ROS 8.1%

Frequency rate of accidents resulting in lost workdays

Frequency rate of accidents resulting in lost workdays 0.46R&D investment (Billions of yen) / R&D investment to net sales (%)

R&D investment to net sales 6.9%

Shareholders’ equity (Billions of yen) / Shareholders’ equity ratio (%)

Shareholders’ equity ratio 58.2%

Cash flows (Billions of yen)

Free cash flow ¥2.7 billion

Interest-bearing debt (Billions of yen) / Debt equity ratio (Times)

Debt equity ratio 0.17 times

Female manager ratio (%)

Female manager ratio 3.5%

Employees working outside Japan ratio (%)

Employees working outside Japan ratio 62.8%

Return on equity (ROE) (%) / Return on assets (ROA) (%)

ROE 10.4%

Earnings per share (EPS) (Yen) / Price earnings ratio (%)

EPS ¥96.44

* Frequency rate of accidents resulting in lost workdays = Number of accidents resulting in lost workdays ÷ Aggregate number of work-hours × 1,000,000

* Yokogawa Electric on a non-consolidated basis

Earnings

Soundness

Efficiency Outside directors

Occupational Safety & Health

Encouraging female employees Employees working outside Japan

Soundness Environment

R&D

(FY) 20162014 201520132012

■ Employees working outside Japan　■ Employees working in Japan Employees working outside Japan ratio

8,4337,060

8,011

57.5 59.1 62.1

11,089 11,404 11,590 11,586

8,596

56.3

6,811

11,518

62.8

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12.6 11.7

(38.4) (14.8) (6.7)6.0

14.7 12.317.2

30.2

(19.8)(9.2)

(4.5)

9.4 6.9 8.613.2

25.8

10.45.15.5 4.1

Profit (loss) attributable to owners of parent (Billions of yen)ROE (%) 12.6 11.7

(38.4) (14.8) (6.7)6.0

14.7 12.317.2

30.2

(19.8)(9.2)

(4.5)

9.4 6.9 8.613.2

25.8

10.45.15.5 4.1

Profit (loss) attributable to owners of parent (Billions of yen)ROE (%)

Billions of yen Millions of US dollars

Fiscal year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016Financial dataOrders 456.5 455.1 374.3 315.2 334.1 344.1 354.5 406.0 417.1 421.1 390.7 3,482Net sales 433.4 437.4 376.5 316.6 325.6 334.7 347.9 388.5 405.8 413.7 391.4 3,489Operating income 29.3 27.4 4.7 2.6 11.1 16.6 18.4 25.9 29.8 39.6 31.6 282Profit (loss) attributable to owners of parent 12.6 11.7 (38.4) (14.8) (6.7) 6.0 14.7 12.3 17.2 30.2 25.8 230Capital expenditures 40.3 38.0 26.8 11.1 11.3 11.1 13.5 14.0 14.1 15.4 14.2 127Depreciation and amortization 16.5 23.1 21.6 16.0 13.8 12.8 13.5 13.6 14.5 15.1 18.0 160Research and development costs 36.2 40.9 37.2 28.8 29.2 27.5 25.5 25.8 25.8 25.3 27.1 242 Cash flow from operating activities 40.5 20.8 24.5 21.4 16.2 12.9 17.4 30.1 38.3 31.9 39.2 349Cash flow from investing activities (39.0) (51.0) (24.1) (13.2) (8.0) (7.8) (7.5) (13.9) (1.8) (10.9) (36.5) (325)Free cash flow 1.5 (30.2) 0.4 8.2 8.2 5.1 9.9 16.2 36.5 21.0 2.7 24 Cash flow from financing activities (6.1) 23.9 28.4 11.1 (25.7) (8.0) (8.0) (21.6) (20.2) (26.9) 6.5 58 At year-end (Billions of yen) (Millions of US dollars)

Total assets 438.7 444.6 401.0 398.8 361.2 359.5 379.9 398.9 440.0 412.8 440.5 3,926 Interest-bearing debt 59.6 93.0 124.3 137.1 111.0 103.3 98.6 81.4 65.3 30.5 44.6 272Shareholders’ equity 234.3 220.7 167.2 153.4 141.7 145.7 168.4 187.3 215.5 240.4 256.4 2,285Financial indicators (％)

Operating income ratio (ROS) 6.8 6.3 1.3 0.8 3.4 5.0 5.3 6.7 7.3 9.6 8.1Debt equity ratio (Times) 0.25 0.42 0.74 0.89 0.78 0.71 0.59 0.44 0.30 0.13 0.17Return on equity (ROE) 5.5 5.1 (19.8) (9.2) (4.5) 4.1 9.4 6.9 8.6 13.2 10.4Return on assets (ROA) 2.9 2.6 (9.1) (3.7) (1.8) 1.7 4.0 3.1 4.1 7.1 6.0Shareholders’ equity ratio 53.4 49.6 41.7 38.5 39.2 40.5 44.3 46.9 49.0 58.3 58.2Per share data (Yen) (US dollars)

Earnings per share (EPS) 47.79 44.76 (149.26) (57.45) (25.98) 23.11 57.03 47.92 66.88 114.03 96.44 0.86 Cash dividends 15.00 16.00 16.00 2.00 0 5.00 10.00 12.00 12.00 25.00 25.00 0.22 Shareholders’ equity 891.08 856.72 649.20 595.42 550.19 565.69 653.83 727.09 836.94 900.75 959.58 8.55 Stock informationStock price at the end of the term (Yen / US dollars) 1,806 998 394 814 634 837 946 1,667 1,295 1,163 1,752 15.62 Market capitalization (Billions of yen / Millions of US dollars) 4,851 2,681 1,058 2,187 1,703 2,248 2,541 4,478 3,479 3,124 4,706 4,195Number of issued shares 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 ―Exchange rate information (Yen)

Average yen / US dollar exchange rate during the year 117.00 113.80 100.66 92.61 85.13 78.82 83.33 100.67 110.58 119.99 108.95

Non-financial data *1

Number of employees (by segment) 19,286 20,266 20,247 19,574 19,334 19,437 19,685 19,837 19,601 18,646 18,329Industrial Automation and Control Business 15,505 15,960 15,995 16,159 16,672 17,188 17,669 17,593 16,724 16,751Test and Measurement Business 2,885 2,350 2,469 2,288 1,968 1,667 1,328 1,171 1,122 802Aviation and Other Businesses 1,876 1,937 1,110 887 797 830 840 837 800 776

Environmental dataGreenhouse gas emissions (t-CO2) 94,244 102,312 103,411 98,093 88,008 82,950Water consumption (km3) 813 846 737 723 617 600Waste emissions (Tons) 6,706 6,343 5,143 6,023 4,204 4,507Renewables usage (kWh) *2 89,066 96,856 86,442 85,480 68,817 55,726Occupational safety & healthFrequency rate of accidents resulting in lost workdays (calendar year) *3 0.29 0.32 0.39 0.53 0.41 0.46

Notes: 1. For environmental data for fiscal year 2016, certification by Lloyd’ s Register Quality Assurance Limited has been obtained based on third-party assessment. 2. Amount of power generated by in-house photovoltaic power generation equipment. 3. Frequency rate of accidents resulting in lost workdays = Number of accidents resulting in lost workdays ÷ Aggregate number of work-hours × 1,000,000

Notes: 1. Figures are rounded down to the nearest 100 million yen. 2. Unification of the accounting periods of non-Japan consolidated subsidiaries Beginning with the fiscal year ended March 31, 2007, financial statements based on the provisional settlement of accounts implemented as of the consolidated closing

date are being used for Yokogawa Electric China Co., Ltd. and 10 other non-Japan subsidiaries, and the closing date for Yokogawa USA, Inc., and 47 other non-Japan subsidiaries has been changed to the consolidated closing date. Through these changes, 13 consolidated subsidiaries had a 15-month accounting period, and 46

consolidated subsidiaries had a 13-month accounting period. Due to these changes to the accounting period, compared to the usual standard, the fiscal year 2006 consolidated statement of income showed a 16.8 billion yen increase in orders, a 22.1 billion yen increase in net sales, a 1.4 billion yen increase in operating income, and a 1.0 billion yen increase in net income.

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Consolidated 11-year Summary

12.6 11.7

(38.4) (14.8) (6.7)6.0

14.7 12.317.2

30.2

(19.8)(9.2)

(4.5)

9.4 6.9 8.613.2

25.8

10.45.15.5 4.1

Profit (loss) attributable to owners of parent (Billions of yen)ROE (%) 12.6 11.7

(38.4) (14.8) (6.7)6.0

14.7 12.317.2

30.2

(19.8)(9.2)

(4.5)

9.4 6.9 8.613.2

25.8

10.45.15.5 4.1

Profit (loss) attributable to owners of parent (Billions of yen)ROE (%)

Billions of yen Millions of US dollars

Fiscal year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016Financial dataOrders 456.5 455.1 374.3 315.2 334.1 344.1 354.5 406.0 417.1 421.1 390.7 3,482Net sales 433.4 437.4 376.5 316.6 325.6 334.7 347.9 388.5 405.8 413.7 391.4 3,489Operating income 29.3 27.4 4.7 2.6 11.1 16.6 18.4 25.9 29.8 39.6 31.6 282Profit (loss) attributable to owners of parent 12.6 11.7 (38.4) (14.8) (6.7) 6.0 14.7 12.3 17.2 30.2 25.8 230Capital expenditures 40.3 38.0 26.8 11.1 11.3 11.1 13.5 14.0 14.1 15.4 14.2 127Depreciation and amortization 16.5 23.1 21.6 16.0 13.8 12.8 13.5 13.6 14.5 15.1 18.0 160Research and development costs 36.2 40.9 37.2 28.8 29.2 27.5 25.5 25.8 25.8 25.3 27.1 242 Cash flow from operating activities 40.5 20.8 24.5 21.4 16.2 12.9 17.4 30.1 38.3 31.9 39.2 349Cash flow from investing activities (39.0) (51.0) (24.1) (13.2) (8.0) (7.8) (7.5) (13.9) (1.8) (10.9) (36.5) (325)Free cash flow 1.5 (30.2) 0.4 8.2 8.2 5.1 9.9 16.2 36.5 21.0 2.7 24 Cash flow from financing activities (6.1) 23.9 28.4 11.1 (25.7) (8.0) (8.0) (21.6) (20.2) (26.9) 6.5 58 At year-end (Billions of yen) (Millions of US dollars)

Total assets 438.7 444.6 401.0 398.8 361.2 359.5 379.9 398.9 440.0 412.8 440.5 3,926 Interest-bearing debt 59.6 93.0 124.3 137.1 111.0 103.3 98.6 81.4 65.3 30.5 44.6 272Shareholders’ equity 234.3 220.7 167.2 153.4 141.7 145.7 168.4 187.3 215.5 240.4 256.4 2,285Financial indicators (％)

Operating income ratio (ROS) 6.8 6.3 1.3 0.8 3.4 5.0 5.3 6.7 7.3 9.6 8.1Debt equity ratio (Times) 0.25 0.42 0.74 0.89 0.78 0.71 0.59 0.44 0.30 0.13 0.17Return on equity (ROE) 5.5 5.1 (19.8) (9.2) (4.5) 4.1 9.4 6.9 8.6 13.2 10.4Return on assets (ROA) 2.9 2.6 (9.1) (3.7) (1.8) 1.7 4.0 3.1 4.1 7.1 6.0Shareholders’ equity ratio 53.4 49.6 41.7 38.5 39.2 40.5 44.3 46.9 49.0 58.3 58.2Per share data (Yen) (US dollars)

Earnings per share (EPS) 47.79 44.76 (149.26) (57.45) (25.98) 23.11 57.03 47.92 66.88 114.03 96.44 0.86 Cash dividends 15.00 16.00 16.00 2.00 0 5.00 10.00 12.00 12.00 25.00 25.00 0.22 Shareholders’ equity 891.08 856.72 649.20 595.42 550.19 565.69 653.83 727.09 836.94 900.75 959.58 8.55 Stock informationStock price at the end of the term (Yen / US dollars) 1,806 998 394 814 634 837 946 1,667 1,295 1,163 1,752 15.62 Market capitalization (Billions of yen / Millions of US dollars) 4,851 2,681 1,058 2,187 1,703 2,248 2,541 4,478 3,479 3,124 4,706 4,195Number of issued shares 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 268,624,510 ―Exchange rate information (Yen)

Average yen / US dollar exchange rate during the year 117.00 113.80 100.66 92.61 85.13 78.82 83.33 100.67 110.58 119.99 108.95

Non-financial data *1

Number of employees (by segment) 19,286 20,266 20,247 19,574 19,334 19,437 19,685 19,837 19,601 18,646 18,329Industrial Automation and Control Business 15,505 15,960 15,995 16,159 16,672 17,188 17,669 17,593 16,724 16,751Test and Measurement Business 2,885 2,350 2,469 2,288 1,968 1,667 1,328 1,171 1,122 802Aviation and Other Businesses 1,876 1,937 1,110 887 797 830 840 837 800 776

Environmental dataGreenhouse gas emissions (t-CO2) 94,244 102,312 103,411 98,093 88,008 82,950Water consumption (km3) 813 846 737 723 617 600Waste emissions (Tons) 6,706 6,343 5,143 6,023 4,204 4,507Renewables usage (kWh) *2 89,066 96,856 86,442 85,480 68,817 55,726Occupational safety & healthFrequency rate of accidents resulting in lost workdays (calendar year) *3 0.29 0.32 0.39 0.53 0.41 0.46

Notes: 1. For environmental data for fiscal year 2016, certification by Lloyd’ s Register Quality Assurance Limited has been obtained based on third-party assessment. 2. Amount of power generated by in-house photovoltaic power generation equipment. 3. Frequency rate of accidents resulting in lost workdays = Number of accidents resulting in lost workdays ÷ Aggregate number of work-hours × 1,000,000

Notes: 1. Figures are rounded down to the nearest 100 million yen. 2. Unification of the accounting periods of non-Japan consolidated subsidiaries Beginning with the fiscal year ended March 31, 2007, financial statements based on the provisional settlement of accounts implemented as of the consolidated closing

date are being used for Yokogawa Electric China Co., Ltd. and 10 other non-Japan subsidiaries, and the closing date for Yokogawa USA, Inc., and 47 other non-Japan subsidiaries has been changed to the consolidated closing date. Through these changes, 13 consolidated subsidiaries had a 15-month accounting period, and 46

consolidated subsidiaries had a 13-month accounting period. Due to these changes to the accounting period, compared to the usual standard, the fiscal year 2006 consolidated statement of income showed a 16.8 billion yen increase in orders, a 22.1 billion yen increase in net sales, a 1.4 billion yen increase in operating income, and a 1.0 billion yen increase in net income.

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Risks Relating to the Group’s Business

As described in the Group’s statutory annual financial report filed as stipulated by the Financial Instruments and Exchange Act, the risks described below may impact its business and accounting conditions, and therefore could have a significant effect on investor decision-making. These risks include forward-looking statements that are based on judgments made by the Group at the end of fiscal year 2016. Further, the risks include items that will not necessarily affect invest-ment decisions. However, based on an awareness of these risks, the Group maintains the necessary risk management structure and works to avoid risk occur-rence as well as to minimize the impact of a risk should it occur.

1. Risks Relating to the Business Environmenta. Economic conditionsThe Group mainly conducts its business activities in Japan, Asia, Europe, North America, and the Middle East. Economic trends in these markets could adverse-ly affect its business results and financial condition.

b. International factorsThe Group’s sales and production operations are truly international in scope, as indicated by the fact that sales generated in all markets other than Japan cur-rently account for approximately 70% of consolidated sales. Therefore, factors in these markets, such as economic trends; exchange rate fluctuations; changes to laws and regulations relating to investment, trade, competition, taxation, or foreign exchange; differences in commercial practices or labor standards that may have cultural or religious origins; terrorist attacks, wars, attacks attributable to a computer virus, natural disas-ters, or other unanticipated incidents; or political, social, or other elements could adversely affect its business results and financial condition.

c. Laws and regulationsThe Group observes the laws and regulations of each country in which it operates. Changes in laws and regu-lations or the enactment of new laws that cannot be anticipated could adversely affect its business results and financial condition. In addition, any increase in costs required to achieve compliance with environ-mental protection-related legislation could adversely

affect its business results and financial condition. Moreover, such legislation could impact its overall business activities, including R&D and production.

d. Fluctuations in currency exchange rates and interest rates

The Group carries out measures to ameliorate the risk of exchange rate fluctuations. However, due to their impact on the prices and costs of products and ser-vices with transactions denominated in foreign curren-cies, fluctuations in currency exchange rates may adversely affect its business results and financial condition. The Group also carries out measures to ameliorate the risk of interest rate fluctuations. Howev-er, fluctuations in interest rates could still adversely affect its business results and financial condition.

e. Changes in the value of assets ownedChanges in the value of shares, etc., owned by the Group could adversely affect its business results and financial condition. In addition, regarding the fixed assets owned by the Group, a decrease in asset value accompanying a decline in their market value or a fall in profitability could adversely affect its business results and financial condition.

2. Risks Relating to Business Activitiesa. Industrial automation and control businessThe industrial automation and control business is mainly expected to grow outside Japan in the medium to long term due to increased demand for energy in emerging and resource-rich countries. To increase its share of the global market and bolster sales and in-come, the Group has focused its resources on this busi-ness and strengthened systems related to R&D, production, sales, engineering, and service as well as deployment of M&As and alliances. As a result, the percentage of net sales on a consolidated basis ac-counted for by the industrial automation and control business has grown in recent years. Consequently, trends related to demand for plant construction and upgrades, which affects orders and sales in this busi-ness, as well as such factors as rapid fluctuations in oil prices and the success or failure of M&A transactions and alliances, could adversely affect the Group’s busi-ness results and financial condition.

b. Securing and training human resourcesThe Group’s growth is supported by its talented and capable personnel. The technical personnel that support its leading-edge technology in the fields of measurement, control, and information, and who assure high levels of product quality, are particularly important. Further, in the industrial automation and control business, the need to secure and train person-nel with the project management and engineering capabilities required to work in the international market is an ongoing issue. If the Group is unable to address this issue satisfactorily, its business results and financial condition could be adversely affected.

c. Product qualityThe Group provides its customers highly reliable products and services based on technologies and expertise that have been built up over many years and a rigorous quality control system. If by any chance a defect should occur in one of its products or services, and if this defect causes any damage, then this could adversely affect the Group’s business results and financial condition, and could also impact its overall business activities.

d. R&D activitiesThe Group has positioned the development of new technologies as one of its most important manage-ment issues and is continuously carrying out R&D (including IIoT and AI) in its core technology areas of measurement, control, and information. However, if R&D investments do not match planned future market needs, this could adversely affect its business results and financial condition.

3. Other Risksa. Intellectual propertyIn order to maintain its competitive advantages, the Group accumulates differentiated technologies and expertise relating to the products and services that it develops, and strives to protect these intellectual prop-erty assets. However, if such intellectual property is infringed upon by a third party and the Group is there-fore unable to make an expected profit, it could ad-versely affect its business results and financial condition.

Moreover, the Group has established systems and conducts training to ensure that it does not infringe upon the intellectual property rights of other compa-nies. However, if due to a difference in viewpoint or some other reason the Group infringes on the intellec-tual property rights of another company, there is a risk that it will be subsequently disadvantaged by its inabil-ity to use important technology and/or may be held liable for compensation, which could adversely affect its business results and financial condition.

b. Information securityThrough its business activities, the Group acquires personal or otherwise confidential information on its customers and trading partners. It therefore establish-es systems to manage this information and provides employees training on information security. However, in the event that information is leaked or abused due to some unforeseen circumstance, there is a risk the Group will be held liable for compensation or the corporate image will be drastically tarnished, which could adversely affect the Group’s business results and financial condition.

c. Natural disasters, etc.A natural disaster, such as an earthquake, fire, or flood; the outbreak of war; a terrorist attack; an attack via a computer virus; or a disruption in the supply chain caused by any of the aforementioned factors that makes it difficult to procure electronic parts or other materials could impact the Group’s overall business activities, including its production activities. In addi-tion, while the Group has appropriate measures in place for responding to the outbreak of diseases such as new influenza strains, such diseases could have an impact on its overall business results and financial condition.

52 53

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2017 Yokogawa Report 2017 Yokogawa Report

Millions of yenThousands of US dollars

(Note 1)

2017 2016 2017ASSETS

Current Assets:

Cash and cash equivalents (Notes 10 and 16) ¥73,563 ¥64,922 $655,704

Receivables (Notes 5 and 16)

Trade notes and accounts 141,288 136,934 1,259,366

Other 3,975 5,143 35,431

Less: Allowance for doubtful accounts (2,622) (2,317) (23,375)

Net receivables 142,641 139,760 1,271,422

Inventories (Notes 6 and 7) 30,730 33,719 273,913

Deferred tax assets (Note 13) 3,378 3,722 30,108

Other 13,495 10,891 120,284

Total current assets 263,807 253,014 2,351,431

Property, Plant and Equipment (Notes 8 and 9):

Land 16,235 16,295 144,711

Buildings and structures—net 47,248 48,604 421,144

Machinery, equipment and vehicles—net 6,936 6,935 61,822

Tools, furniture and fixtures—net 5,880 6,090 52,412

Construction in progress 2,119 2,013 18,888

Lease assets—net (Note 15) 412 431 3,672

Total property, plant and equipment 78,830 80,368 702,649

Investments and Other Assets:

Investment securities (Notes 4, 10 and 16) 34,467 35,582 307,219

Investments in and advances to unconsolidated subsidiaries andaffiliated companies (Note 16)

7,381 7,136 65,794

Goodwill (Note 9) 16,842 3,448 150,121

Software (Note 9) 18,428 18,888 164,258

Other intangible assets (Note 9) 13,144 6,566 117,162

Deferred tax assets (Note 13) 2,134 2,428 19,019

Other 5,661 5,829 50,446

Less: Allowance for doubtful accounts (195) (198) (1,737)

Total investments and other assets 97,862 79,679 872,282

Total Assets ¥440,499 ¥413,061 $3,926,362 See notes to consolidated financial statements.


(Note 1)

2017 2016 2017LIABILITIES AND EQUITY

Current Liabilities:

Short-term loans payable (Notes 10, 16 and 18) ¥5,352 ¥4,631 $47,709 Current portion of long-term debt (Notes 10 and 16) 10,481 4,963 93,419Payables (Notes 10 and 16)

Trade notes and accounts 31,363 34,566 279,554Other 11,340 10,940 101,082

Income taxes payable (Note 16) 4,872 4,204 43,429Accrued expenses 29,367 30,739 261,758Advance received 31,637 31,898 281,998Provision for contract loss (Notes 7 and 20) 4,418 4,372 39,378Other (Note 13) 8,080 7,286 72,013

Total current liabilities 136,910 133,599 1,220,340

Long-term Liabilities:

Long-term debt (Notes 10 and 16) 29,610 21,841 263,931Liability for retirement benefits (Note 11) 3,925 4,090 34,984Deferred tax liabilities (Note 13) 5,764 4,234 51,376Other 1,775 2,401 15,817

Total long-term liabilities 41,074 32,566 366,108

Equity (Notes 12 and 24):

Common stock,authorized, 600,000,000 shares; issued, 268,624,510 shares in 2017 and 2016

43,401 43,401 386,853

Capital surplus 54,494 54,474 485,733 Retained earnings 158,912 139,922 1,416,454 Treasury stock,

1,416,623 shares in 2017 and 1,683,346 shares in 2016(1,410) (1,674) (12,567)

Accumulated other comprehensive income

Net unrealized gain on available-for-sale securities 10,451 9,803 93,154 Deferred gain (loss) on derivatives under hedge accounting 3 (122) 23 Foreign currency translation adjustments (8,286) (3,943) (73,860)Defined retirement benefit plans (1,157) (1,414) (10,313)

Total 1,011 4,324 9,004 Non-controlling interests 6,107 6,449 54,437

Total equity 262,515 246,896 2,339,914

Total Liabilities and Equity ¥440,499 ¥413,061 $3,926,362

Financial and Non-financial Highlights Financial SectionConsolidated Balance SheetYokogawa Electric Corporation and its Consolidated SubsidiariesMarch 31, 2017

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2017 Yokogawa Report 2017 Yokogawa Report54 55

Consolidated Statement of Comprehensive IncomeYokogawa Electric Corporation and its Consolidated SubsidiariesYear Ended March 31, 2017


(Note 1)

2017 2016 2017Net Sales ¥391,434 ¥413,733 $3,489,026

Cost of Sales (Notes 14 and 20) 222,323 236,944 1,981,663

Gross profit 169,111 176,789 1,507,363

Selling, General and Administrative Expenses (Notes 14 and 20) 137,503 137,149 1,225,624

Operating income 31,608 39,640 281,739

Other Income (Expenses):

Interest and dividend income 2,251 2,346 20,061Interest expense (883) (927) (7,868)Net gain on sales of investment securities and investment in affiliated companies (Note 4) 1,795 832 15,999

Foreign exchange loss-net (286) (307) (2,550)Net (loss) gain on disposal of property, plant and equipment (Note 20) (230) 387 (2,049)Equity in earnings of affiliates 580 687 5,171 Gain on sales of investment in a subsidiary 930 8,289 Gain on a step acquisition 649 5,781 Restructuring costs (Note 19) (635) (5,657)Other-net (255) (724) (2,278)

Other income-net 3,916 2,294 34,899

Income before Income Taxes 35,524 41,934 316,638

Income Taxes (Note 13):

Current 8,924 9,429 79,543Deferred 46 1,029 410

Total income taxes 8,970 10,458 79,953Net income 26,554 31,476 236,685Net income attributable to non-controlling interests 794 1,312 7,078

Net income attributable to owners of the parent ¥25,760 ¥30,164 $229,607

YenUS dollars

(Note 1)

Per Share of Common Stock (Note 22):

Basic net income ¥96.44 ¥114.03 $0.86

Cash dividends applicable to the year 25.00 25.00 0.22 See notes to consolidated financial statements.


(Note 1)

2017 2016 2017Net Income ¥26,554 ¥31,476 $236,685

Other Comprehensive Income (Loss) (Note 21):

Net unrealized gain (loss) on available-for-sale securities 644 (5,545) 5,736

Deferred gain (loss) on derivatives under hedge accounting 125 (782) 1,113

Foreign currency translation adjustments (4,609) (7,912) (41,078)

Defined retirement benefit plans 257 (90) 2,294

Share of other comprehensive loss in affiliates (44) (66) (391)

Total other comprehensive loss (3,627) (14,395) (32,326)

Comprehensive Income ¥22,927 ¥17,081 $204,359

Total Comprehensive Income Attributable to:

Owners of the parent ¥22,446 ¥16,310 $200,069

Non-controlling interests 481 771 4,290See notes to consolidated financial statements.

Financial and Non-financial Highlights Financial Section

Consolidated Statement of IncomeYokogawa Electric Corporation and its Consolidated SubsidiariesYear Ended March 31, 2017

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Millions of yenAccumulated other comprehensive income

Outstanding number of shares of common

stockCommon

stockCapital surplus

Retained earnings

Treasurystock

Net unrealized

gain on available-

for-sale securities

Deferred gain (loss) on

derivatives under hedge accounting

Foreigncurrency

translation adjustments

Defined retirement

benefit plans Total

Non-controlling

interestsTotal

equityBalance, April 1, 2015 257,535,877 ¥43,401 ¥50,345 ¥114,637 ¥(11,019) ¥15,325 ¥660 ¥3,518 ¥(1,324) ¥18,179 ¥6,433 ¥221,976

Net income attributable to owners of the parent 30,164 30,164 Cash dividends, ¥18.5 per share (4,879) (4,879)Purchase of treasury stock (3,428) (5) (5)Disposal of treasury stock 9,200,187 4,266 9,350 13,616 Change in the parent’s ownership interest due to transactions with non-controlling interests (137) (137)

Other 208,528 (0) (0)Net change in the year (5,522) (782) (7,461) (90) (13,855) 16 (13,839)

Balance, March 31, 2016 (April 1, 2016, as previously reported) 266,941,164 43,401 54,474 139,922 (1,674) 9,803 (122) (3,943) (1,414) 4,324 6,449 246,896

Cumulative effect of accounting change 28 28 Balance, April 1, 2016 (as restated) 266,941,164 43,401 54,474 139,950 (1,674) 9,803 (122) (3,943) (1,414) 4,324 6,449 246,924

Net income attributable to owners of the parent 25,760 25,760 Cash dividends, ¥25 per share (6,677) (6,677)Purchase of treasury stock (2,377) (4) (4)Disposal of treasury stock 269,100 79 268 347 Change in scope of consolidation (121) (121)Change in the parent’s ownership interest due to transactions with non-controlling interests (59) (59)

Net change in the year 648 125 (4,343) 257 (3,313) (342) (3,655)Balance, March 31, 2017 267,207,887 ¥43,401 ¥54,494 ¥158,912 ¥(1,410) ¥10,451 ¥3 ¥(8,286) ¥(1,157) ¥1,011 ¥6,107 ¥262,515

Thousands of US dollars (Note 1)Accumulated other comprehensive income

Commonstock

Capital surplus

Retained earnings

Treasurystock

Net unrealized gain on

available-for-sale

securities

Deferred gain (loss) on

derivatives under hedge

accounting

Foreigncurrency

translation adjustments

Defined retirement

benefit plans Total

Non-controlling

interestsTotal

equityBalance, March 31, 2016 (April 1, 2016, as previously reported) $386,853 $485,549 $1,247,190 $(14,918) $87,380 $(1,090) $(35,148) $(12,603) $38,539 $57,479 $2,200,692

Cumulative effect of accounting change 246 246Balance, April 1, 2016 (as restated) 386,853 485,549 1,247,436 (14,918) 87,380 (1,090) (35,148) (12,603) 38,539 57,479 2,200,938

Net income attributable to owners of the parent 229,607 229,607Cash dividends, ¥25 per share (59,514) (59,514)Purchase of treasury stock (33) (33)Disposal of treasury stock 704 2,384 3,088Change in scope of consolidation (1,075) (1,075)Change in the parent’s ownership interest due to transactions with non-controlling interests (520) (520)

Net change in the year 5,774 1,113 (38,712) 2,290 (29,535) (3,042) (32,577)Balance, March 31, 2017 $386,853 $485,733 $1,416,454 $(12,567) $93,154 $23 $(73,860) $(10,313) $9,004 $54,437 $2,339,914 See notes to consolidated financial statements.

Consolidated Statement of Cash FlowsYokogawa Electric Corporation and its Consolidated SubsidiariesYear Ended March 31, 2017


(Note 1)

2017 2016 2017Operating Activities:

Income before income taxes ¥35,524 ¥41,934 $316,638 Adjustments for:

Income taxes paid (9,069) (10,772) (80,833)Depreciation and amortization 16,293 15,124 145,223 Goodwill amortization (Note 3) 1,718 314 15,312 Equity in earnings of affiliates (580) (687) (5,171)Net loss (gain) on disposal of property, plant and equipment 230 (387) 2,049 Gain on sale of investment securities and investment in affiliated companies (1,795) (832) (15,999)

Gain on sale of investment in a subsidiary (930) (8,289)Gain on a step acquisition (649) (5,781)Restructuring costs 635 5,657 Payment of severance cost (15,853)

Changes in assets and liabilities:Decrease (increase) in trade notes and accounts receivable 757 (843) 6,752 Decrease (increase) in inventories 2,543 (2,532) 22,663 (Decrease) increase in trade notes and accounts payable (3,860) 3,658 (34,410)Increase in allowance for doubtful accounts 175 420 1,559 (Decrease) increase in liability for retirement benefits (187) 252 (1,669)Other assets and liabilities (2,073) 2,163 (18,480)

Other-net (Note 3) 514 (27) 4,592 Total adjustments 3,722 (10,002) 33,175

Net cash provided by operating activities 39,246 31,932 349,813

Investing Activities:Purchases of property, plant and equipment (6,485) (7,158) (57,800)Proceeds from sale of property, plant and equipment 349 2,249 3,113 Acquisitions of intangible assets (7,217) (6,735) (64,330)Proceeds from sale of investment securities 4,113 1,622 36,658 Purchases of investments in subsidiaries withchanges in consolidation scope (Note 23) (27,564) (2,485) (245,686)

Proceed from sale of investments in subsidiaries with changes in consolidation scope 1,174 10,463

Other-net (869) 1,612 (7,746)Net cash used in investing activities (36,499) (10,895) (325,328)

Forward ¥2,747 ¥21,037 $24,485 (Continued)


Consolidated Statement of Changes in EquityYokogawa Electric Corporation and its Consolidated SubsidiariesYear Ended March 31, 2017

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Notes to Consolidated Financial StatementsYokogawa Electric Corporation and its Consolidated SubsidiariesYear Ended March 31, 2017

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with account-ing principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of the International Financial Report-ing Standards.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued in Japan in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications

a. Consolidation— The consolidated financial statements as of March 31, 2017 include the accounts of the Company and its 109 (87 in 2016) significant subsidiaries (together, the “Group”). Changes include i) purchase of KBC Advanced Technologies plc, which changed its name to KBC Advanced Technologies Limited and its 19 subsidiaries; ii) purchase of Soteica Visual Mesa, LLC and its 4 subsidiaries; iii) liquidation of Yokogawa Marex Limited, and Yokogawa Engineering Services de Mexico, S.A. de C.V.; and iv) sale of shares of YDC Corporation.

Under the control and 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 influence are accounted for by the equity method.

Investments in 1 (1 in 2016) unconsolidated subsidiary and 2 (3 in 2016) affiliated companies are accounted for by the equity method.

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 on a straight-line basis over a period of up to 20 years. When the amount is not material, the excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary is charged to income at the date of acquisition.

All significant intercompany balances and transactions have been eliminated on consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated.

1. Basis of Presentation of the Consolidated Financial Statements

2. Summary of Significant Accounting Policies

have been made in the 2016 consolidated financial statements to conform to the classifications used in 2017.

The consolidated financial statements are stated in Japa-nese yen, the currency of the country in which Yokogawa Electric Corporation (the “Company”) is incorporated and oper-ates. The translations of Japanese yen amounts into US dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥112.19 to US$1, the approximate rate of exchange at March 31, 2017. Such translations should not be construed as representations that the Japanese yen amounts could be converted into US dollars at that or any other rate.

b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements— Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements― Under Accounting Standards Board of Japan (the “ASBJ”) Practical Issues Task Force (“PITF”) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” 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 consoli-dated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the 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 which 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 directly recorded in the equity through other compre-hensive income; (3) expensing capitalized development costs of R&D; and (4) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting.


(Note 1)

2017 2016 2017Forward ¥2,747 ¥21,037 $24,485

Financing Activities:Net increase in short-term loans payable 868 2,231 7,735 Proceeds from long-term debt 18,417 10,000 164,157 Repayments of long-term debt (5,113) (46,622) (45,576)Proceeds from sale of treasury stock 13,363 Cash dividends paid (6,672) (4,876) (59,472)Cash dividends paid to non-controlling shareholders (715) (964) (6,376)Proceeds from share issuance to non-controlling shareholders 274 Other-net (Note 3) (296) (292) (2,624)

Net cash provided by (used in) financing activities 6,489 (26,886) 57,844

Foreign Currency Translation Adjustments on Cash and Cash Equivalents (595) (3,951) (5,306)

Net Increase (Decrease) in Cash and Cash Equivalents 8,641 (9,800) 77,023

Cash and Cash Equivalents, Beginning of Year 64,922 74,722 578,681

Cash and Cash Equivalents, End of Year ¥73,563 ¥64,922 $655,704 See notes to consolidated financial statements.


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c. Business Combinations—Business combinations are accounted for using the purchase method. Acquisition-related costs, such as advisory fees or professional fees are accounted for as expenses in the periods in which the costs are incurred. 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. 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 measure-ment of the amounts recognized as of that date. Such adjust-ments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. The acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase price allocation. 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 interest 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. Any difference between the fair value of the consideration received or paid and the amount by which the non-controlling interest is adjusted is accounted for as capital surplus as long as the parent retains control over its subsidiary.

d. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and are exposed to insignificant risk of changes in value. Specifically, cash equivalents represent time deposits that mature within three months of the date of placement.

e. Inventories—Inventories are stated at the lower of cost or the net selling value. Cost is mainly determined by the specific identification method for finished goods and work in process, and by the average method for merchandise, raw materials and supplies.

f. Investment Securities—Investment securities are classi-fied and accounted for, depending on management’s intent, as follows:i) held-to-maturity debt securities, which are expected to be

held to maturity with the positive intent and ability to hold to maturity, are reported at amortized cost; and

ii) available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with

Actuarial gains or losses are amortized on a straight-line basis over the average remaining years of service of the employ-ees (mainly 10 years) from the following year in which they arise.

Prior service cost is amortized on a straight line basis over the average remaining years of service (mainly 10 years).

l. Research and Development Costs—Research and development costs are charged to income as incurred.

m. Bonuses to Directors and Audit & Supervisory Board Members—Bonuses to directors and Audit & Supervisory Board members are accrued at the end of the year to which such bonuses are attributable.

n. Construction Contracts—Construction revenue and construction costs are recognized by the percentage-of-com-pletion method, if the outcome of a construction contract can be estimated reliably. The outcome of a construction contract can be estimated reliably when total construction revenue, total construction costs and the stage of completion of the contract at the balance sheet date can be reliably measured. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on such construction contracts.

o. Income Taxes—The provision for income taxes is comput-ed based on the pretax income included in the consolidated statements 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 income tax rates to the temporary differences.

On March 28, 2016, the ASBJ issued ASBJ Guidance No. 26, “Guidance on Recoverability of Deferred Tax Assets,” which included certain revisions of the previous accounting and audit-ing 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 tem-porary difference will be utilized against future taxable profit in some future period.

The Company applied the new guidance on recoverability of deferred tax assets, effective April 1, 2016. The effect of this change on the consolidated financial statements is not materi-al.

The Company and some domestic subsidiaries file their tax return under the consolidated corporate tax system, which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned subsidiaries in Japan.

p. Foreign Currency Transactions—Monetary assets and lia-bilities denominated in foreign currencies at the balance sheet date are translated into Japanese yen at the exchange rate as of that date. The foreign exchange gains and losses from transla-tion are recognized in the consolidated statement of income.

q. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated subsidiaries outside Japan are translated into Japanese yen at the prevailing exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as “Foreign currency translation adjust-ments” under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of consolidated subsidiaries outside Japan are translated into yen at the average exchange rate.

r. Derivatives and Hedging Activities—The Company and certain consolidated subsidiaries use a variety of derivative financial instruments, including foreign currency forward contracts, currency options, and interest rate swaps, as a means of hedging foreign currency and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.

Derivative financial instruments and foreign currency trans-actions are classified and accounted for as follows: a) All deriva-tives other than those which qualify for hedge accounting are measured at fair value, and gains or losses are recognized in the consolidated statement of income. b) Derivatives used for hedging purposes, if the derivatives qualify for hedge account-ing because of high correlation between the hedging instru-ments and the hedged items, gains or losses are deferred until maturity of the hedged transactions. These amounts are shown as “Deferred gain on derivative under hedge accounting” under accumulated other comprehensive income in a separate component of equity.

Foreign currency forward contracts are utilized to hedge the foreign currency risk of trade receivables denominated in foreign currencies. If the forward contracts qualify for hedge accounting, these trade receivables are translated at the contracted rates. Interest rate swaps are utilized to hedge the

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, investment securities are reduced to net realizable value by a charge to income.

g. Property, Plant and Equipment—Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Depreciation of property, plant and equipment is mainly calculated by the straight-line method over their estimated useful lives.

The estimated useful lives range principally from 3 to 50 years for buildings, and from 4 to 10 years for machinery and equipment. The estimated useful lives for leased assets are the terms of the respective leases.

h. Intangible Assets—Intangible assets consist mainly of software, technology assets, customer-related intangible assets and goodwill. Depreciation of intangible assets is mainly calculated by the straight-line method over their estimated useful lives.

The estimated useful lives range principally from 5 to 10 years for software for internal use, from 10 to 15 years for customer-related intangible assets and mainly 7 years for technology assets.

i. 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.

j. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies’ past credit loss experi-ence and an evaluation of potential losses in the receivables outstanding.

k. Retirement and Pension Plans—The Company and most of its consolidated subsidiaries have defined contribution plans, and some other consolidated subsidiaries have defined benefit plans for employees.

The main method used to attribute expected benefit to each period is the benefit formula basis.

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interest rate risk of long-term debt. Those interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not re-measured at market value, but the differen-tial paid or received under the swap agreements is recognized and included in interest expense or income.

s. Per Share Information—Basic net income per share is

computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.

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.

3. Change in Presentation

Prior to April 1, 2016, “Goodwill amortization” was included in “Other-net” under Operating Activities of the Consolidated Statement of Cash Flows. As this amount increased significantly in the fiscal year ended March 31, 2017 it is disclosed separately in the Consolidated Statement of Cash Flows. The amount included in “Other-net” as of March 31, 2016, was ¥314 million.Prior to April 1, 2016, “Purchase of treasury stock” was disclosed

separately under Financing Activities of the Consolidated State-ment of Cash Flows. As this amount decreased significantly in the fiscal year ended March 31, 2017 it is included in “Other-net” in the Consolidated Statement of Cash Flows. Prior year Con-solidated Statement of Cash Flows has been reclassified accordingly.

4. Investment Securities

Investment securities as of March 31, 2017 and 2016 consisted of the following:

Millions of yen Thousands of US dollars

2017 2016 2017Non-current:

Equity securities ¥34,467 ¥35,582 $307,219

The cost and aggregate fair values of investment securities at March 31, 2017 and 2016 were as follows:

Millions of yen

March 31, 2017

CostUnrealized

gainUnrealized

lossFair

value

Securities classified as: Available-for-sale:

Equity securities ¥9,069 ¥13,831 ¥99 ¥22,801

March 31, 2016


Equity securities ¥11,282 ¥13,137 ¥191 ¥24,228

Thousands of US dollars

March 31, 2017 CostUnrealized

gainUnrealized

lossFair

value


Equity securities $80,838 $123,275 $881 $203,234

The information for available-for-sale securities sold during the years ended March 31, 2017 and 2016 was as follows:

Millions of yen

2017 Proceeds Realized gain Realized loss

Available-for-sale:Equity securities ¥4,111 ¥1,803 ¥(8)

Millions of yen


Available-for-sale:Equity securities ¥1,621 ¥832



Available-for-sale:Equity securities $36,644 $16,072 $(73)

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5. Transfer of Receivables

The Company and certain consolidated subsidiaries transferred their trade notes and accounts receivable-trade before maturity based on an asset transfer agreement. The balance of those receivables whose settlement date had not been reached as of March 31, 2017 and 2016 was as follows:


2017 2016 2017Notes and accounts receivable-trade ¥13,043 ¥15,503 $116,258(with recourse, included in above) (12) (194) (108)

6. Inventories

Inventories at March 31, 2017 and 2016 consisted of the following:


2017 2016 2017

Merchandise and finished goods ¥11,739 ¥15,216 $104,632Work in process 8,218 8,113 73,252Raw materials and supplies 10,773 10,390 96,029

Total ¥30,730 ¥33,719 $273,913

7. Expected Loss on Construction Contracts

The Group recognizes an expected loss on construction contracts when it is probable that total contract costs will exceed total con-tract revenue. The inventory and the expected loss on construction contracts are not offset but are separately presented in the consol-idated balance sheet.

The balance of inventories relating to the expected loss on construction contracts for the years ended March 31, 2017 and 2016 was as follows:


2017 2016 2017Merchandise and finished goods ¥30 ¥104 $267Work in process 370 326 3,303

Total ¥400 ¥430 $3,570

8. Property, Plant and Equipment

Accumulated depreciation on property, plant and equipment as of March 31, 2017 and 2016 was ¥136,033 million (US$1,212,523 thou-sand) and ¥136,750 million, respectively.

9. Long-lived Assets

The Group reviewed its long-lived assets for impairment as of the years ended March 31, 2017 and 2016. No impairment losses were recognized for 2017 and 2016.

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10. Short-term Loans and Long-term Debt

Short-term bank loans at March 31, 2017 and 2016 included bank overdrafts. The annual average interest rates on the short-term bank loans were 1.921% and 0.926% for the years ended March 31, 2017 and 2016, respectively.

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


2017 2016 2017Loans from banks and other financial institutions ¥39,209 ¥25,897 $349,486Obligations under finance leases 882 907 7,864

Total 40,091 26,804 357,350Less: Current portion 10,481 4,963 93,419Long-term debt, less current portion ¥29,610 ¥21,841 $263,931

Annual maturities of long-term loans (excluding finance leases) from banks and other financial institutions, at March 31, 2017 were as follows:

Year ending March 31 Millions of yen Thousands of US dollars

2018 ¥10,184 $90,7752019 88 7842020 10,264 91,4882021 14,593 130,0722022 4,080 36,3672023 and thereafter Nil Nil

Total ¥39,209 $349,486

The annual average interest rate on long-term loans (excluding current portion) from banks was 0.133% for the year ended March 31, 2017.

Collateral and secured debt at March 31, 2017 and 2016 were as follows:


2017 2016 2017Collateral:

Deposits ¥13 ¥13 $112Investment securities 5 4 43Assets in consolidated subsidiaries outside Japan* 6,599 6,596 58,825

Total ¥6,617 ¥6,613 $58,980* “Assets in consolidated subsidiaries outside Japan” represent the aggregate amount of accounts receivable and other assets of such

subsidiaries.


2017 2016 2017Secured debt:

Trade notes and accounts payable ¥23 ¥36 $209

The Group’s interest-bearing debt includes financial covenants which require the Company to maintain certain levels of equity and operating income on a consolidated basis. The balance of such debt as of March 31, 2017 and 2016 was ¥34,417 million (US$306,772 thousand) and ¥20,000 million respectively.

11. Retirement and Pension Plans

The Company and most of its consolidated subsidiaries have defined contribution plans, while some other subsidiaries have defined benefit plans. In certain circumstances, additional payments are made upon the retirement of employees.

a) The changes in defined benefit obligation for the years ended March 31, 2017 and 2016, were as follows:


2017 2016 2017Balance at beginning of year ¥10,289 ¥11,014 $91,711

Current service cost 653 541 5,825Interest cost 277 291 2,471Actuarial loss (gain) 25 (374) 226Benefits paid (475) (411) (4,230)Others (35) (772) (327)

Balance at end of year ¥10,734 ¥10,289 $95,676

b) The changes in plan assets for the years ended March 31, 2017 and 2016, were as follows:


2017 2016 2017Balance at beginning of year ¥6,199 ¥6,913 $55,254

Expected return on plan assets 305 331 2,714Actuarial (loss) gain 257 (560) 2,287Contributions from the employer 365 395 3,255Benefits paid (338) (337) (3,017)Others 21 (543) 199

Balance at end of year ¥6,809 ¥6,199 $60,692

c) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets as of March 31, 2017 and 2016, was as follows:


2017 2016 2017Funded defined benefit obligation ¥10,734 ¥10,289 $95,676Plan assets (6,809) (6,199) (60,692)

Total 3,925 4,090 34,984Unfunded defined benefit obligationNet liability for defined benefit obligation ¥3,925 ¥4,090 $34,984


2017 2016 2017Liability for retirement benefits ¥3,925 ¥4,090 $34,984

Net liability for defined benefit obligation ¥3,925 ¥4,090 $34,984

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d) The components of net periodic benefit costs for the years ended March 31, 2017 and 2016, were as follows:


2017 2016 2017Service cost ¥653 ¥541 $5,825Interest cost 277 291 2,471Expected return on plan assets (305) (331) (2,714)Amortization of actuarial loss 209 152 1,863Additional payment 219 633 1,950Contribution to defined contribution plan 5,348 5,649 47,670Others 155 71 1,368

Net periodic benefit costs ¥6,556 ¥7,006 $58,433

e) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2017 and 2016:


2017 2016 2017Actuarial gain (loss) ¥415 ¥(139) $3,700

f) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2017 and 2016:


2017 2016 2017Unrecognized actuarial loss ¥(1,956) ¥(2,371) $(17,438)

g) Plan assets as of March 31, 2017 and 2016:(1) Components of plan assets

Plan assets consisted of the following:

2017 2016Equity investments 43% 40%Debt investments 21 24Cash and cash equivalents 29 28Others 7 8

Total 100% 100%

(2) Method of determining the expected rate of return on plan assetsThe expected rate of return on plan assets is determined based on the expected long-term rates of return for the various plan asset components.

h) Assumptions used for the years ended March 31, 2017 and 2016, were as follows:

2017 2016Discount rate 3.80% 3.60%Expected rate of return on plan assets 4.90% 4.90%

i) Payments to defined contribution plans amounted to ¥5,348 million (US$47,670 thousand) and ¥5,649 million for the years ended March 31, 2017 and 2016 respectively.

j) Multi-employer benefit planA consolidated subsidiary participated in a multi-employer pension fund as a pension plan for its employees. The subsidiary deemed it necessary to contribute ¥64 million (US$569 thousand) and ¥60 million for the years ended March 31, 2017 and 2016 respectively to this fund.

On October 1, 2015, the Ministry of Health, Labor and Welfare approved the consolidated subsidiary’s application to transfer a portion of the pension obligations from the multi-employer pension fund to a government managed defined benefit pension plan and the transfer was made on June 24, 2016. There was no effect of the transfer on the consolidated financial statements.

Significant information regarding the consolidated subsidiary’s participation in the multi-employer pension fund is as follows:

(1) Funded status of the entire programThe status of the multi-employer pension plan at March 31, 2016 and 2015, the most recent date on which such data was available were as follows:


2016 2015 2016Plan assets ¥122,898 ¥317,424 $1,095,444

Sum of actuarial liabilities of pension plan and minimum actuarial reserve 152,504 302,958 1,359,332

Net balance ¥(29,606) ¥14,466 $(263,888)

(2) The subsidiary’s share as a percentage of total projected benefit obligations held by the pension fund

2017 20160.72% 0.81%

(3) Supplemental informationThe net balance of funding status of entire program were made up of the net in projected pension financing and balance of unamortized prior service costs as follows:


2016 2015 2016(Deficit) Surplus in projected pension financing ¥(7,647) ¥33,310 $(68,157)Balance of unamortized prior service costs 21,959 18,844 195,731Net balance ¥(29,606) ¥14,466 $(263,888)

The balance of unamortized prior service costs attributable to the Company under the plan will be amortized on a straight-line basis over a period of 20 years.

12. 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) DividendsUnder the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon the passing of a 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) prescribing a one-year term of service for directors (rather than the conventional two year term) in its articles of incorporation, the board of directors may declare divi-dends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorpora-tion.

Semiannual interim dividends may also be paid once a year upon resolution by the board of directors if the articles of incorpo-ration of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the

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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 surplusThe 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 rightsThe 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 sharehold-ers 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.

13. Income Taxes

The tax effects of significant temporary differences and tax loss carry-forwards that resulted in deferred tax assets and liabilities at March 31, 2017 and 2016 were as follows:


2017 2016 2017Deferred tax assets:

Provision for bonuses ¥2,623 ¥3,452 $23,379Write-down of inventories 2,023 1,778 18,034Liability for retirement benefits 540 557 4,812Impairment loss on investment securities 1,289 1,939 11,487Impairment loss on investments in consolidated subsidiaries 1,941 1,862 17,305Tax loss carry-forwards 30,840 32,019 274,887Other 9,196 10,009 81,958Less: Valuation allowance (41,492) (44,495) (369,827)

Total ¥6,960 ¥7,121 $62,035

Deferred tax liabilities:Net realized gain on available-for-sale securities ¥(3,212) ¥(3,043) $(28,629)Undistributed earnings of consolidated subsidiaries outside Japan (933) (971) (8,312)Property, plant and equipment (592) (607) (5,276)Intangible assets recognized on business combination (1,402) (286) (12,496)Other (1,365) (658) (12,174)

Total ¥(7,504) ¥(5,565) $(66,887)Net deferred tax assets ¥(544) ¥1,556 $(4,852)

Net deferred tax assets were included in the following accounts in the accompanying consolidated balance sheet:


2017 2016 2017Current assets-Deferred tax assets ¥3,378 ¥3,722 $30,108Investments and other assets-Deferred tax assets 2,134 2,428 19,019Current liabilities-Other (292) (360) (2,603)Long-term liabilities-Deferred tax liabilities (5,764) (4,234) (51,376)Net deferred tax assets ¥ (544) ¥1,556 $(4,852)

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statement of income for the years ended March 31, 2017 and 2016 was as follows:

2017 2016Normal effective statutory tax rate 30.9% 33.1%Permanent differences

Expenses not deductible for income tax purposes 2.4 3.2Dividend income and other non-taxable income (0.3) (0.7)Equity in earnings of affiliates (0.5) (0.5)

Changes in valuation allowance (1.9) (3.6)Lower income tax rates applicable to certain consolidated subsidiaries outside Japan (7.7) (9.4)Effect of consolidated tax return in Japan (0.1) (0.0)Goodwill amortization 1.7 0.3Gain on a step acquisition (0.6)Other-net 1.4 2.6Actual effective tax rate 25.3% 25.0%

On November 18, 2016, the National Assembly of Japan approved the postponement of raising consumption tax to 10% from April 1, 2017 to October 1, 2019. As a result, change in the effective statutory tax rate in Japan will be also be postponed to October 1, 2019. For the fiscal year ended 31, March 2017, there was no change in the effective statutory tax rate in Japan but there was a change in the tax rate between national tax and local tax.

The effect of this change on the consolidated financial statements was not material.

14. Research and Development Costs

Research and development costs were ¥27,126 million (US$241,787 thousand) and ¥25,286 million for the years ended March 31, 2017 and 2016, respectively and were included in the cost of sales and selling, general and administrative expenses in the consolidated statement of income.

15. Leases

The Group leases certain machinery, equipment and vehicles, tools, furniture and fixtures, and other assets.

The minimum rental commitments under non-cancelable operating leases at March 31, 2017 and 2016 were as follows:


2017 2016 2017Due within one year ¥2,466 ¥2,147 $21,986Due after one year 5,578 4,471 49,717

Total ¥8,044 ¥6,618 $71,703

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16. Financial Instruments and Related Disclosures

1. Information regarding financial instrumentsa) Group policy on financial instruments

Based on the Group’s capital expenditure program for the industrial automation and control business and the test and measure-ment business, the Group uses financial instruments such as bank loans to obtain necessary funding. Cash surpluses are invested in low risk financial assets. Short-term bank loans are used to fund ongoing operations. Derivatives are used to manage exposure to financial risks as described in Note 17 and are not used for speculative purposes.

b) Nature of the financial instruments and risk management Receivables such as trade notes and trade accounts are exposed to customer credit risk. Those securities are mainly issued by the Group’s customers and suppliers, and are managed by regularly monitoring market value and the financial position of the issuers.

Investment securities are exposed to the risk of market price fluctuations. The Group reviews its holdings of these securities, whose issuers are mainly its customers and suppliers, by regularly checking their market value and the financial position of the issuers.

Payment terms of payables such as trade notes and trade accounts are less than one year. Long-term debt is used for capital expenditures and investments. In order to manage exposure to market risks from fluctua-

tions in interest rates, the Group principally uses fixed-rate contracts; otherwise, interest rate swap contracts are used for variable rate loans.

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 foreign currency forward contracts and range forward options.

Basic policies on derivative transactions are set out in the Group’s internal guidelines. The guidelines prescribe a control policy, designate authorized departments, specify the purpose of the transactions, define the basis for selecting financial institutions, and specify the reporting route.

The fair value of financial instruments is based on the quoted price in an active market. If a quoted price is not available, other valid valuation techniques are used instead.

2. Fair value of financial instrumentsThe carrying amounts in the consolidated balance sheet, fair value, and unrealized gain (loss) as of March 31, 2017 and 2016 were as detailed below. Financial instruments, whose fair value is extremely difficult to measure, are not included. Please refer to note (b) (below the following tables) on financial instruments whose fair value cannot be reliably determined.

Millions of yen

2017Carrying amount Fair value Unrealized gain (loss)

（1）Cash and cash equivalents ¥73,563 ¥73,563（2）Receivables-trade notes and accounts 141,288

Less: Allowance for doubtful accounts (2,622)138,666 138,666

（3）Investment securities 22,801 22,801Total ¥235,030 ¥235,030

（1）Short-term loans payable ¥5,352 ¥5,352（2）Payables-trade notes and accounts 31,363 31,363（3）Payables-other 11,340 11,340（4）Income taxes payable 4,872 4,872（5）Long-term debt 40,091 39,762 ¥(329)

Total ¥93,018 ¥92,689 ¥(329)Derivatives ¥(38) ¥(38)

Millions of yen


（1）Cash and cash equivalents ¥64,922 ¥64,922（2）Receivables-trade notes and accounts 　　　　　　　

136,934 Less: Allowance for doubtful accounts （2,317）

　　　　　　　　 134,617 　　　　134,617

（3）Investment securities 24,228 24,228Total ¥223,767 ¥223,767

（1）Short-term loans payable 　¥4,631 　¥4,631（2）Payables-trade notes and accounts 　34,566 　34,566（3）Payables-other 10,940 10,940（4）Income taxes payable 4,204 4,204（5）Long-term debt 26,804 26,934 ¥(130)

Total ¥81,145 ¥81,275 ¥(130)Derivatives ¥66 ¥66



（1）Cash and cash equivalents $655,704 $655,704（2）Receivables-trade notes and accounts 1,259,366

Less: Allowance for doubtful accounts (23,375)1,235,991 1,235,991

（3）Investment securities 203,234 203,234Total $2,094,929 $2,094,929

（1）Short-term loans payable $47,709 $47,709（2）Payables-trade notes and accounts 279,554 279,554（3）Payables-other 101,082 101,082（4）Income taxes payable 43,429 43,429（5）Long-term debt 357,350 354,419 $(2,931)

Total $829,124 $826,193 $(2,931)Derivatives $(340) $(340)

Notes:(a) Fair value measurement of financial instruments

Cash and cash equivalents, trade notes and accounts receivable:The carrying values of cash and cash equivalents, trade notes and accounts receivable less an allowance for doubtful accounts,

approximate fair value because of their short maturities. Investment securities:

The fair value of equity instruments is measured at the quoted equity market price, and the fair value of debt instruments is measured at the quoted price obtained from the respective financial institution. Information on the fair value of each class of investment securities is included in Note 4.Short-term loans payable, trade notes and accounts payable, other payables and income taxes payable:

The carrying values of short-term loans payable, trade notes and accounts payable, other payables, and income taxes payable approximate fair value because of their short maturities.

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Long-term debt:The fair value of long-term debt is determined by discounting cash flows related to the debt at the Group’s assumed corporate

borrowing rate. Long-term debt is included in the following accounts in the accompanying consolidated balance sheet: current portion of long-term debt and long-term debt.Derivatives:

Information on the fair value of derivatives is included in Note 17.

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

Carrying amount


March 31, 2017 March 31, 2016 March 31, 2017Unlisted equity securities ¥19,047 ¥18,490 $169,779

Unlisted equity securities whose fair value cannot be reliably determined include investments in and advances to unconsolidated subsidiaries and affiliated companies.

Maturity analysis for financial assets and securities with contractual maturities


March 31, 2017 Due in one year or lessDue after one to five

years Due in one year or lessDue after one to five

years

Cash and cash equivalents ¥73,563 $655,704Receivables-trade notes and accounts 141,282 ¥6 1,259,314 $52

Total ¥214,845 ¥6 $1,915,018 $52

17. Derivatives

Derivative transactions are used to manage foreign exchange risk and the risk of market rate fluctuations that occur in the normal course of business. The Group does not use derivatives for speculative purposes or for highly leveraged transactions.

1. Derivative transactions to which hedge accounting was not applied at March 31, 2017 and 2016

Millions of yen

2017Contract amount

TotalDue after one

year Fair valueUnrealizedgain (loss)

Forward exchange contractsSelling contracts

US dollar ¥7,109 ¥204 ¥204Other 3,724 72 (5) (5)

Buying contractsUS dollar 3,816 10 (45) (45)

Currency swaps 8,303 (196) (196)

Total ¥22,952 ¥82 ¥(42) ¥(42)

Millions of yen

2016Contract amount

Fair valueUnrealizedgain (loss)Total

Due after one year


US dollar ¥7,558 ¥215 ¥215Other 6,271 63 63

Buying contractsUS dollar 1,540 (1) (1)Other 3 (0) (0)

Currency swaps

3,038 (48) (48)Total ¥18,410 ¥229 ¥ 229


2017Contract amount

Fair valueUnrealized gain (loss)Total

Due after one year

Forward exchange contracts

Selling contracts

US dollar $63,363 $1,820 $1,820Other 33,198 644 (40) (40)

Buying contracts

US dollar 34,014 91 (407) (407)Currency swaps

74,006 (1,748) (1,748)Total $204,581 $735 $(375) $(375)

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2. Derivative transactions to which hedge accounting was applied at March 31, 2017 and 2016

Millions of yen

2017

Hedged item

Contract amount

Fair valueTotal Due after one year

Forward exchange contractsBuying contracts

US dollar Payables ¥4,209 ¥4Interest rate swaps

Pay fixed/Receive floating Long-term debt 28,397 18,397 Note b

Millions of yen

2016

Hedged item

Contract amount



US dollar ¥6 ¥(0)Buying contracts

US dollar Payables 4,617 (163)Interest rate swaps

Pay fixed/Receive floating Long-term debt 20,000 20,000 Note b


2017

Hedged item

Contract amount


Forward exchange contractsBuying contracts

US dollar Payables $37,519 $35Interest rate swaps

Pay fixed/Receive floating Long-term debt 253,113 163,979 Note bNotes: (a) The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not re-measured at

market value, but the differential paid or received under the swap agreements is recognized and included in interest expense or income.

(b) The fair value of such interest rate swaps is included in that of hedged items disclosed in Note 16.

The fair value of derivative transactions is measured at the quoted price obtained from the respective financial institution. The con-tract or notional amounts of the derivatives shown in the above table do not represent the amounts exchanged by the parties and are not a measure of the Group’s exposure to credit or market risk.

Currency options are zero cost options.

18. Commitment Line Agreements

The Company has commitment line agreements with financial institutions in order to obtain funds for stable and efficient operation.

The commitment line of credit as of March 31, 2017 and 2016 was as follows:


2017 2016 2017Total commitment line of credit ¥45,000 ¥74,194 $401,105Outstanding borrowings Nil Nil Nil

Unused credit line ¥45,000 ¥74,194 $401,105

19. Restructuring Costs

For the year ended March 31, 2017, restructuring costs amounting to ¥635 million (US$5,657 thousand) were incurred for expenses relat-ed to liquidation of a consolidated subsidiary following the withdrawal from its business.

There were no restructuring costs for the year ended March 31, 2016.

20. Other Notes to Consolidated Statement of Income

1. Provision for contract loss The following provision for contract loss was included in the cost of sales in the consolidated statement of income:


2017 2016 2017Provision for contract loss ¥132 ¥1,356 $1,177

2. Selling, general and administrative expensesThe major components of selling, general and administrative expenses were as follows:


2017 2016 2017Salaries ¥50,523 ¥55,742 $450,334Net periodic retirement benefit costs 3,951 4,149 35,220Provision for bonuses 3,987 6,038 35,542Research and development costs 27,026 24,945 240,894

3. Net (loss) gain on disposal of property, plant and equipmentThe net (loss) gain on disposal of property, plant and equipment was as follows:


2017 2016 2017Buildings and structures ¥ (124) ¥(260) $(1,109)Machinery, equipment and vehicles (13) 20 (114)Tools, furniture and fixtures (54) (116) (483)Land (4) 750 (33)Other intangible assets (29) (7) (262)Other (6) (48)

Total ¥ (230) ¥387 $(2,049)

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21. Comprehensive Income

The components of other comprehensive income for the years ended March 31, 2017 and 2016 were as follows:


2017 2016 2017Net unrealized gain (loss) on available-for-sale securities:

Gains (losses) arising during the year ¥3,531 ¥(6,473) $31,473Reclassification adjustments to profit or loss (2,724) (831) (24,288)Amount before income tax effect 807 (7,304) 7,185Income tax effect (163) 1,759 (1,449)

Total ¥644 ¥(5,545) $5,736

Deferred gain (loss) on derivatives under hedge accounting:(Losses) gains arising during the year ¥(98) ¥53 $(877)Reclassification adjustments to profit or loss 265 (1,041) 2,360Amount before income tax effect 167 (988) 1,483Income tax effect (42) 206 (370)

Total ¥125 ¥(782) $1,113

Defined retirement benefit plans:Adjustments arising during the year ¥206 ¥(291) $1,837Reclassification adjustments to profit or loss 209 152 1,863Amount before income tax effect 415 (139) 3,700Income tax effect (158) 49 (1,406)

Total ¥257 ¥(90) $2,294

Foreign currency translation adjustments:Adjustments arising during the year ¥(4,606) ¥(7,910) $(41,053)Amount before income tax effect (4,606) (7,910) (41,053)Income tax effect (3) (2) (25)

Total ¥(4,609) ¥(7,912) $(41,078)

Share of other comprehensive loss in affiliates:Losses arising during the year ¥(44) ¥(29) $(391)Reclassification adjustments to profit or loss (37)

Total ¥(44) ¥(66) $(391)

Total other comprehensive loss ¥(3,627) ¥(14,395) $(32,326)

22. Per Share Information

Basic net income per share (EPS) for the years ended March 31, 2017 and 2016 was as follows:

Millions of yen Thousands of shares Yen US dollars

Net income attributable to owners of the parent

Weighted average shares EPS

2017Basic EPSNet income attributable to common shareholders ¥25,760 267,097 ¥96.44 $0.862016Basic EPSNet income attributable to common shareholders ¥30,164 264,538 ¥114.03 $1.01

Diluted net income per share was not disclosed because there were no dilutive securities in the years ended March 31, 2017 and 2016.

23.Supplemental Cash Flow Information

The component of assets and liabilities of KBC Advanced Technologies Limited, newly consolidated subsidiary acquired by share acqui-sition, and the reconciliation between the acquisition cost of the shares of KBC Advanced Technologies Limited and the expenditure for the acquisition of KBC Advanced Technologies Limited, were as follows:


Current assets ¥10,421 $92,888Fixed assets 9,639 85,912Goodwill 14,306 127,515Current liabilities (4,998) (44,547)Long-term liabilities (1,447) (12,895)Acquisition cost of the shares 27,921 248,873Foreign exchange gain on the acquisition (227) (2,026)Cash and cash equivalents of the acquired company (1,059) (9,440)Difference: Purchases of investments in subsidiaries with changes in consolidation scope ¥26,635 $237,407Other than above, the expenditure for the acquisition of Soteica Visual Mesa, LLC was ¥929 million (US$8,289 thousand).

24. Subsequent Events

Appropriation of retained earningsThe Board of Directors proposed the following appropriation of retained earnings, at March 31, 2017, which was approved at the general meeting of the shareholders of the Company held on June 27, 2017:


Year-end cash dividends, ¥12.5 (US$0.11) per share ¥3,340 $29,772

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25.Business Combination

Acquisition of a company through share acquisition(1) Outline of the business combination On February 17, 2016, the Company agreed to commence procedures to acquire the entire issued shares of KBC Advanced

Technologies plc (Headquarters: Walton on Thames, Surrey, UK, CEO: Andrew Howell) (hereafter “KBC”) to make it a wholly owned subsidiary. The Company acquired the shares on April 7, 2016.a Name of acquired company and its business outline Name of the acquired company: KBC Advanced Technologies plc Business outline: Provides consulting services and software to various customers in the oil and gas industryb Major reason for the business combination The integration of KBC’s premium consulting services and software capabilities with the Company’s operational advantage

in the industrial automation field, such as control equipment, will enable the Group to provide one-stop solutions to various customers from their senior management level to field level. By providing consulting services and supplying control equip-ment throughout the life-cycle of customers’ assets, the Company expects to create additional value for existing and new customers through enhancement of technology and product innovation.

c Date of business combination April 7, 2016d Legal form of business combination Share acquisition in consideration for cashe Name of the company after the business combination KBC Advanced Technologies Limitedf Ratio of voting rights acquired 100%g Basis for determining the acquirer It is based on the fact that the Company acquired 100% of voting rights by means of share acquisition in consideration for

cash.(2) Period for which the acquired company’s business results are included in the consolidated financial statements April 1, 2016 to March 31, 2017(3) Determination of acquisition cost Acquisition cost of the acquired company and related details of each class of consideration:

Cash consideration of GBP180 million which is equivalent to ¥27,921 million (US$248,873 thousand) (4) Details and amounts of main acquisition costs Advisory fee, etc.: ¥788 million (US$7,025 thousand)(5) Amount, reason, amortization method and period of goodwill recognized (1) Amount of goodwill recognized ¥14,306 million (US$127,515 thousand) (2) Reason for goodwill recognized The future excess earning power expected as a result of business development going forward (3) Method and period of amortization Straight-line method over 10 years(6) Assets acquired and liabilities assumed on the date of business combination and their major components


Current assets ¥10,421 $92,888Fixed assets 2,406 21,439Total assets ¥12,827 $114,327Current liabilities ¥4,998 $44,547Long-term liabilities - -Total liabilities ¥4,998 $44,547Note: Amounts allocated to intangible assets other than goodwill and their related deferred tax assets are not included.

(7) Amounts allocated to intangible assets other than goodwill, their major component types, and weighted average amortization period by major type

Type AmountsWeighted average amortization period by

major types (Year)


Customer related assets ¥3,719 $33,145 15Technology assets 1,996 17,793 7Others 1,518 13,535 4Total ¥7,233 $64,473 8

(8) Estimate of impact on the consolidated income statement for the consolidated fiscal year if the business combination is com-pleted other than on the start of this consolidated fiscal year under review, and the method used to estimate

Since the deemed date of purchase of the business was the beginning of the fiscal year ended March 31, 2017 there is no impact from the merger of business.

26. Segment Information

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 report-able 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. Gener-ally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment perfor-mance and deciding how to allocate resources to operating segments.

1. Description of reportable segmentsThe Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Compa-ny’s management is being performed in order to decide how resources are allocated among the Group. The Group operates in three business segments: industrial automation and control, test and measurement, and aviation and other businesses.

The industrial automation and control business offers comprehensive solutions including field instruments such as flow meters, differential pressure/pressure transmitters, and process analyzers; control systems and programmable controllers; various types of software that enhance productivity; and services that minimize plant lifecycle costs.

The test and measurement business offers waveform measuring instruments; optical communications measuring instruments; signal generators; electric voltage, current, and power measuring instruments; LCD drivers; and confocal scanners for observation of live cells.

The aviation and other businesses segment mainly offers cockpit flat-panel displays, engine meters, and other instruments for avia-tion use; marine navigation equipment such as gyrocompasses and autopilot systems; and meteorological/hydrological monitoring system equipment.

2. Accounting methods for each reportable segment’s sales, income (loss), assets, and other itemsThe accounting policies for each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant Accounting Policies.”

The aggregate of the income or loss for each reportable segment corresponds to the operating income or loss in the consolidated statement of income.

The assets of a reportable segment consist of receivables-trade notes and trade accounts, inventory, property, plant and equip-ment, and intangible assets.

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3.Information about sales, income (loss), assets and other items

Millions of yen

2017Reportable segment

Industrial automation and

controlTest and

measurement Aviation and otherEliminations/

Corporate

Consolidated

Sales to customers ¥348,047 ¥22,243 ¥21,144 ¥391,434

Intersegment sales 0 ¥(0)

Total sales ¥348,047 ¥22,243 ¥21,144 ¥(0) ¥391,434

Segment income ¥30,637 ¥898 ¥73 ¥31,608Segment assets 253,745 15,338 30,180 299,263Depreciation and amortization 14,460 865 968 16,293Increase in property, plant and equipment and intangible assets 33,924 877 907 35,708

Amortization of goodwill 1,718 1,718Goodwill 16,842 16,842

Millions of yen



controlTest and


Corporate

Consolidated

Sales to customers ¥366,723 ¥23,372 ¥23,638 ¥413,733

Intersegment sales 0 ¥(0)

Total sales ¥366,723 ¥23,372 ¥23,638 ¥(0) ¥413,733

Segment income ¥36,686 ¥2,390 ¥564 ¥39,640Segment assets 234,001 15,425 30,496 279,922Depreciation and amortization 13,185 874 1,065 15,124Increase in property, plant and equipment and intangible assets 15,847 1,430 1,072 18,349

Amortization of goodwill 202 112 314Goodwill 3,448 3,448




controlTest and


Corporate

Consolidated

Sales to customers $3,102,300 $198,258 $188,468 $3,489,026

Intersegment sales 3 $(3)

Total sales $3,102,300 $198,261 $188,468 $(3) $3,489,026

Segment income $273,079 $8,006 $654 $281,739Segment assets 2,261,739 136,716 269,013 2,667,468Depreciation and amortization 128,886 7,713 8,624 145,223Increase in property, plant and equipment and intangible assets 302,380 7,815 8,084 318,279

Amortization of goodwill 15,312 15,312Goodwill 150,121 150,121

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4.Information about geographical areasa. Sales

Millions of yen

2017

Japan Asia EuropeNorth

AmericaMiddle

East Other Total

Sales ¥127,944 ¥98,121 ¥31,185 ¥32,906 ¥45,555 ¥55,723 ¥391,434

Millions of yen

2016


AmericaMiddle

East Other Total

Sales ¥127,112 ¥100,477 ¥34,822 ¥40,435 ¥46,762 ¥64,125 ¥413,733


2017


AmericaMiddle

East Other Total

Sales $1,140,422 $874,594 $277,964 $293,309 $406,057 $496,680 $3,489,026Note: Sales are categorized in each country or area based on the location of end users.

b. Property, Plant and Equipment

Millions of yen

2017


AmericaMiddle

East Other Total

¥53,829 ¥13,328 ¥6,813 ¥3,040 ¥1,253 ¥567 ¥78,830

Millions of yen

2016


AmericaMiddle

East Other Total

¥54,010 ¥14,325 ¥6,964 ¥3,280 ¥1,310 ¥479 ¥80,368


2017


AmericaMiddle

East Other Total

$479,801 $118,798 $60,726 $27,101 $11,169 $5,054 $702,649

5.Information about major customersNo customer accounts for 10% or more of total sales of the Group.

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Corporate Data / Stock Information As of March 31, 2017

Corporate Name:Yokogawa Electric Corporation President and CEO

Takashi Nishijima Headquarters:

2-9-32 Nakacho, Musashino-shi, Tokyo 180-8750, Japan Founded:

September 1, 1915 Incorporated:

December 1, 1920 Paid-in Capital:

43,410 million yen Number of Employees:

18,329 (consolidated)2,537 (non-consolidated) Subsidiaries and Affiliates:

99 Overseas, 13 Japan

Number of Shares Authorized:600,000,000 Number of Shares of Common Stock Issued:

268,624,510 Number of Shareholders:

17,718 Stock Exchange Listing:

Tokyo Stock Exchange Administrator of the Register of Shareholders:

Mizuho Trust & Banking Co., Ltd.1-2-1 Yaesu, Chuo-ku, Tokyo 103-8670, Japan Annual General Meeting of Shareholders:

The annual general meeting of shareholders of the Company is held in June. Accounting Auditor:

Deloitte Touche Tohmatsu LLC

Number of shares held:268,624

(thousand shares)

●Financial institutions 134,151,140 shares （49.94％）●Foreign investors 87,087,026 shares （32.42％）●Individual investors 27,981,985 shares （10.42％）●Others 10,532,273 shares （ 3.92％）●Securities companies 7,455,463 shares （ 2.78％）●Treasury stock 1,416,623 shares （ 0.53％）

North America● United StatesYokogawa Corporation of AmericaYokogawa Nuclear Solutions, LLCYokogawa USA, Inc.Industrial Evolution, Inc.Soteica Visual Mesa, LLCYokogawa Venture Group, Inc.● CanadaYokogawa Canada, Inc.● MexicoYokogawa de Mexico, S.A. de C.V.

South America●BrazilYokogawa America do Sul Ltda.Yokogawa Service Ltda.●ColombiaYokogawa Colombia S.A.S

Europe● NetherlandsYokogawa Europe B.V.Yokogawa Europe Solutions B.V.Yokogawa Europe Branches B.V.Yokogawa Process Analyzers Europe B.V.● AustriaYokogawa GesmbH, Central East

Europe● BelgiumYokogawa Belgium N.V./S.A.● FranceYokogawa France S.A.S.● GermanyYokogawa Deutschland GmbHRota Yokogawa GmbH & Co. KG● HungaryYokogawa Hungaria Kft.● ItalyYokogawa Italia S.r.l.● PolandYokogawa Polska Sp.zo.o● SpainYokogawa Iberia S.A.● TurkeyYokogawa Turkey Industrial

Automation Solutions A.S.Yokogawa Turkey International

Automation Solutions A.S.● United KingdomYokogawa United Kingdom LimitedKBC Advanced Technologies Limited

● RussiaYokogawa Electric CIS Ltd.Yokogawa Electric Sakhalin Ltd.● KazakhstanYokogawa Electric Kazakhstan Ltd.● UkraineYokogawa Electric Ukraine Ltd.

Middle East● BahrainYokogawa Middle East & Africa B.S.C. (c)Yokogawa Engineering Bahrain SPC● Saudi ArabiaYokogawa Saudi Arabia Ltd.Yokogawa Services Saudi Arabia Ltd.● United Arab EmiratesYokogawa Engineering Middle East &

Africa FZE

Africa● South AfricaYokogawa South Africa (Pty) Ltd.Yokogawa Anglophone African Regions

(Pty) Ltd.● NigeriaYokogawa Nigeria Limited

Oceania● AustraliaYokogawa Australia Pty. Ltd.● New ZealandYokogawa New Zealand Limited

Asia● SingaporeYokogawa Electric International Pte. Ltd.Yokogawa Engineering Asia Pte. Ltd.Yokogawa Electric Asia Pte. Ltd.Plant Electrical Instrumentation Pte. Ltd.● IndonesiaP.T. Yokogawa IndonesiaP.T. Yokogawa Manufacturing Batam● MalaysiaYokogawa Electric (Malaysia) Sdn. BhdYokogawa Kontrol (Malaysia) Sdn. BhdYokogawa Industrial Safety Systems

Sdn. BhdYokogawa Analytical Solutions Sdn. Bhd● PhilippinesYokogawa Philippines Inc.

● ThailandYokogawa (Thailand) Ltd.● VietnamYokogawa Vietnam Company Ltd.● IndiaYokogawa India Ltd.Yokogawa IA Technologies India

Private Limited● ChinaYokogawa China Investment Co., Ltd.Yokogawa China Co., Ltd.Yokogawa Electric China Co., Ltd.Yokogawa Sichuan Instrument Co., Ltd.Yokogawa Shanghai Instrumentation Co., Ltd.Yokogawa Shanghai Trading Co., Ltd.Yokogawa Process Control (Shanghai) Co., Ltd.Yokogawa Information Systems

(Dalian) CorporationYokogawa Software Engineering

(WUXI) Co., Ltd.Yokogawa System Integration &

Procurement (WUXI) Co., Ltd.● KoreaYokogawa Electric Korea Co., Ltd.Yokogawa Electronics Manufacturing

Korea Co., Ltd.● TaiwanYokogawa Taiwan Corporation

Subsidiaries and affiliates in JapanYokogawa Solution Service CorporationYokogawa Meters & Instruments CorporationOmega Simulation Co., Ltd.Yokogawa Medical Solutions CorporationYokogawa & Co., Ltd.Yokogawa Denshikiki Co., Ltd.Yokogawa Pionics Co., Ltd.Yokogawa Foundry CorporationYokogawa Manufacturing CorporationYokogawa Rental & Lease Corporation

Subsidiaries and Affiliates As of March 31, 2017

Number of shareholders:

17,718

●Individual investors 16,874（95.24％）●Foreign investors 521（ 2.94％）●Others 233（ 1.32％）●Financial institutions 59（ 0.33％）●Securities companies 30（ 0.17％）●Treasury stock 1（ 0.01％）

Corporate Data

Shareholders by Category

Shareholders Number of shares held (thousand shares) Shareholding ratio (%)

Master Trust Bank of Japan Limited (trust account) 32,181 12.0Japan Trustee Services Bank, Limited (trust account) 15,960 6.0The Dai-ichi Life Insurance Company, Limited 15,697 5.9Nippon Life Insurance Company 13,484 5.0Japan Trustee Services Bank, Limited (trust account 9) 11,536 4.3Retirement Benefit Trust in Mizuho Trust & Banking Co., Ltd. (Mizuho Bank, Ltd. account); Trust & Custody Services Bank, Ltd. as a Trustee of Retrust 11,261 4.2

State Street Bank and Trust Company 505223 7,479 2.8Yokogawa Electric Employee Shareholding Program 6,616 2.5Japan Trustee Services Bank, Limited (trust account 5) 3,983 1.5Trust & Custody Services Bank, Ltd. (Trust Collateral Account) 3,785 1.4Notes: 1. The Company holds 1,416 thousand shares of treasury stock.

2. The shareholding ratio is calculated after deducting treasury stock.

Major Shareholders (Top 10)

Investor Information

Shareholding by Category

89

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2017 Yokogawa ReportFor the year ended March 31, 2017

Published in September 2017Printed in Japan

IR Department, Corporate Administration Headquarters2-9-32 Nakacho, Musashino-shi, Tokyo 180-8750, JapanPhone: +81-422-52-6845 Facsimile: +81-422-55-1202

http://www.yokogawa.com/

2017 Yokogawa Report

Yokogawa Electric Corporation

2017 Yokogawa Report

Documents

Transcript of 2017 Yokogawa Report