A n n u a l R e p o r t

2 0 1 8

（Year ended March 31, 2018）

Business expanded into landing gear and heat exchangers for aircraft

Start of integrated production of propellers

Research into duralumin

The development department investigates and develops new business operations

G r o w t h H i s t o r y▶ Starting with high-precision technology for engineering aircraft equipment, SPP has

extended its business into a broad range of creative areas.▶ SPP is particularly strong in the precision machining of high-strength metal materials,

thermal management, and joining of metal materials.▶ SPP has some 15% of the world market for landing gear systems used in regional jets.▶ We boast world-class shares of the markets for plate-fin heat exchangers and LNG

vaporizers.

Fu tu re1900 1950 20001961

First industrial heat exchangers produced by leveraging aircraft heat exchanger technology

Commercial hydraulic equipment operations started by applying hydraulic technology for propellers

Leveraging system technologies to enter the environmental systems market

Introduction of vacuum pump technology Start of liquid crystal

manufacturing equipment operations

Start of semiconductor/MEMS manufacturing equipment business

Control taken of a plasma etching specialist

C o n t e n t s

3

6

7

9

11

13

15

17

19

37

38

M e s s a g e f r o m t h e P r e s i d e n t

F i n a n c i a l H i g h l i g h t s

S e g m e n t O v e r v i e w

A e r o s p a c e a n d R e l a t e d P r o d u c t s

H e a t E n e r g y a n d E n v i r o n m e n t a l R e l a t e d P r o d u c t s

I C T R e l a t e d P r o d u c t s

C o r p o r a t e G o v e r n a n c e

C S R A c t i v i t i e s

E n v i r o n m e n t a l P r e s e r v a t i o n

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s

D o m e s t i c a n d O v e r s e a s B a s e s

C o m p a n y P r o f i l e / S t o c k I n f o r m a t i o n

Net Sales 47.2 billion yen

Business Mix (results for f iscal 2017)

▶

Aerospace and Related Products

30.9 （65%）

Aerospace and Related Products

30.9 （65%）

Heat Energy andEnvironmental

Related Products

8.3（18%）

Heat Energy andEnvironmental

Related Products

8.3（18%）

ICT RelatedProducts

8.0（17%）

ICT RelatedProducts

8.0（17%）

Landing Gearsand

Landing GearControl SystemsHeat Control

Products

OtherProducts

MEMS/SemiconductorManufacturing

Equipment

EnvironmentalSystems and others

HeatExchangersfor Aircraft

HydraulicControl

Products

Notes on forward-looking statementsInformation provided in this annual report contains certain forward-looking statements concerning performance forecasts and projections made by SPP using information available at present (performance forecasts for fiscal 2018 are the figures announced on April 27) and is subject to various risks and uncertainties. Due to various changes, actual results may vary from those projected in the forward-looking statements.

MEMS manufacturing equipment technology employed to start sensor business

21

Various technical resources funneled into new operations on fuel cells

A e r o s p a c e P r o d u c t s

H y d r a u l i c C o n t r o l P r o d u c t s

H e a t C o n t r o l P roducts

Env i ronmenta l Sys tems(Ozone Genera to r )

F u e l C e l l

M E T（Liquid Crystal

Manufacturing Equipment）

M E M S /S e m i c o n d u c t o r M a n u f a c t u r i n g E q u i p m e n t

M E M S D e v i c e s

Aerospace and Re la ted Products

Heat Energy and Environmental Related Products

ICT Re la ted Products

Foundation of SPP

2.4％

¥0.5 billion

0.77

Our basic idea is to emphasize qualitative (earnings power) improvement rather than quantitative (net sales) growth.

M e s s a g e f r o m t h e P r e s i d e n t

First Final Surplus since Fiscal 2014

In fiscal 2017, SPP posted net sales of ¥47.24 billion, a year-on-year decline of 1.8%. While ICT Related Products had high incoming orders due to strong business conditions, the Heat Energy business suffered primarily from sluggish investments in energy-related projects. Operating income was ¥2.03 billion, an increase of ¥1.3 billion due to a better sales mix and streamlining progress. The brisk performance of the subsidiaries related to hydraulic equipment and MEMS/Semiconductor Manufacturing Equipment also contributed to this growth. Despite an exchange loss recognized as a non-operating item, the fiscal year’s ordinary income of ¥2.04 billion benefited primarily from the sale of SPP-held shares of business partners and an increase in equity in earnings of associated companies. Income attributable to parent company shareholders reached ¥0.5 billion by posting ¥0.6 billion in goodwill impairment loss related to noncurrent assets and shares resulting from declines in incoming orders due to the Canadian subsidiaries.

While maintaining the basic policy of paying out dividends in a stable and sustainable fashion, SPP decided on an annual dividend of ¥5 per share for fiscal 2017, unchanged from the previous year. The company still needs to complete its reforms to really improve earnings power and financial strength.

Positive Free Cash Flow for the Second Year in a Row

In fiscal 2017, SPP achieved free cash flow of ¥4.4 billion, a positive figure for the second year in a row. With the posting of positive free cash flow for two straight years, SPP reduced its interest-bearing debts to ¥28.8 billion at the end of March 2018, using methods such as repaying loans as scheduled. The figure is well below the peak of ¥31.7 billion reached at the end of March 2016. SPP expects to post another positive figure for fiscal 2018, despite planning to increase investment to a certain extent from the substantially reduced previous level. We will continue to ensure the improvement of financial strength and thus maintain and consolidate the capability of achieving positive cash flow in a stable manner.

Outlook for Fiscal 2018 For fiscal 2018, net sales are forecast to increase slightly to ¥48.5 billion due to the recovery of demand for heat exchangers and public demand for aerospace equipment. Operating and ordinary income, however, will decline to ¥1.3 billion and ¥1.0 billion, respectively, due to the stronger yen and changes in sales mix for semiconductor/MEMS manufacturing equipment. Income attributable to parent company shareholders is expected to be ¥0.45 billion yen, which is comparable with fiscal 2017.

Mid-Term Management Plan As it now stands, the Mid-Term Management Plan through fiscal 2020 includes no numeric targets for net sales and earnings. Instead it only defines basic management policies, financial indicator targets and basic business strategies for individual segments. Our basic idea is to emphasize qualitative improvement rather than quantitative growth, which means prioritizing earnings over revenue. The ongoing business restructuring focuses on enabling

the company to secure earnings in a sustainable fashion. Measures include selecting strong businesses and concentrating on them. This business restructuring, which we have been implementing since fiscal 2017, has progressed almost as planned. As a company operating in multiple segments, SPP is also attaching greater importance to business portfolio-based management. To this end, we will articulate our priorities even more when it comes to allocating business resources. Currently we are internally studying promising areas that require particular focus to accelerate growth. We have also been mulling the possibility of creating synergy and leveraging the strengths of SPP and Sumitomo Corporation, which has been our largest shareholder since fiscal 2017.

Business Strategies As stated above, we will move forward toward 2020, striving to achieve optimized allocation of business resources to improve earnings and create growth opportunities, leveraging future synergy between SPP and Sumitomo Corporation.

Basic Pol icy

Targets for major consol idated indicators

■ Continue business restructuring to secure stable earnings without increasing net sales.■ Accelerate the shift toward portfolio-based management to ensure clearly prioritized allocation

of investment resources.■ Invest aggressively in promising projects despite the basic rules limiting investments within the

level of amortization.■Develop advanced technologies for the market launch of high-value-added products leveraging

SPP strengths.■ Create synergy between SPP and Sumitomo Corporation and aggressively develop promising

business domains.

Planned for f iscal 2018

ROIC (rate of return on invested capital)

Free cash flow

D/E ratio (debt-to-equity ratio)

Indicator

5% or higher

Sustainable annual figure of ¥2.0 billion

Below 0.7

Target for f iscal 2020

We will strengthen our corporate constitution through restructuring our business and optimizing our resource allocation.

Pres ident

3 4

Forecast

56,236

52,295

40,170

45,03147,135

42,766

48,80551,210

48,096 47,241 48,500

80,095

72,60275,584

79,94881,28277,673

81,898 82,956

77,81180,305 79,500

29.4

35.0

45.644.1

41.042.4

39.6 40.5 40.5 41.1

2011201020092008 2012 2013 2014 2015 2016 2017 2011201020092008 2012 2013 2014 2015 2016 2017

（%） （%）

Aerospace and Related Products will continue cost reduction in its landing gear systems business through reviewing the operations at individual sites and the manufacturing restructuring initiative. The business for heat management systems used in aircraft will allocate more business resources to joining promising new programs related to heat exchangers for aircraft engines and aircraft air-conditioning equipment, productivity reforms, and research and development. Considering the long business cycle that we operate in, we will continue our work to open up a bright future, including developing EHA and high-performance oil coolers. Heat Energy and Environmental Related Products have implemented reforms for cost reduction to accommodate the market downturn facing the segment’s heat exchangers. In the near future, the segment will review its product portfolio to improve its earning power. ICT Related Products expects rapid growth for the market demanding SPP’s MEMS/semiconductor manufacturing equipment and MEMS devices. The segment will therefore leverage every opportunity available to proactively work on promising projects in which its strengths count.

Continued Commitment to Strengthen Corporate Governance To strengthen corporate governance, SPP continually evaluates the effectiveness of the Board of Directors, e.g. by interviewing directors. The company takes measures to resolve issues identified in the process, working to help the Board of Directors perform more effectively. In fiscal 2017, SPP replaced its management system with a new executive officer system to separate business decisions and supervising from business operation implementation. At the same time, SPP established a non-statutory Appointment and Compensation Committee to enable greater transparency in considering the appointment of and compensation for directors and other officials with the appropriate involvement and advice of independent outside directors.

To ensure the sustainable growth of corporate value, we are committed to business restructuring, transferring to portfolio-based management and strengthening corporate governance. We would appreciate the continued understanding and support of our stakeholders.

34.2

△1.7

0.6

2.0

1.21.1

2.1

3.4

2.6

1.5

0.0

-2.5

5.0

2.5

10.0

7.5

15.0

12.5

17.5 100

90

80

70

60

50

40

30

20

10

0

4.3

2.7

SPP works with customers to create value in global growth markets

Aerospace and Related Products

● Improve the earnings structure (manufacturing restructuring).● Aggressively invest in promising programs.● Develop next-generation technologies such as EHA (Electro-Hydrostatic Actuation) systems　 and high-performance oil coolers.

Heat Energy and Environmental Related Products

● Increase cost-competitiveness through business restructuring.● Review the product portfolio.● Focus on promising fields to accommodate changes in demand.

ICT Related Products

● Focus on individual projects in growth markets.● Promote sales of manufacturing equipment using proprietary technology.● Promote sales of devices in optical communication and sensor markets.

F i n a n c i a l H i g h l i g h t sF o r t h e y e a r s e n d e d M a r c h 3 1 , 2 0 1 8

Net sales

Operating income

Operating margin

Net income attributable to owners of the parent

Total assets

Equity ratio

Per share

Net income

Cash dividends

(million ¥)

(million ¥)

(%)

(million ¥)

(million ¥)

(%)

(¥)

(¥)

45,0319632.1

58579,948

41.0

11.057.00

2013

47,1351,597

3.41,450

81,89842.4

27.397.00

2014

51,2101,306

2.6△ 624

82,95639.6

△ 11.807.00

2015

48,0967301.5

△ 1,48877,811

40.5

△ 28.125.00

2016

47,2412,034

4.3501

80,30540.5

9.475.00

2017

48,5001,300

2.7450

79,50041.1

8.505.00

2018

▶ Net Sa les・Operat ing Marg in (not including the SPTS business) ▶ Tota l Asse ts・Equ i t y Ra t io（million ¥）

0

-10,000

10,000

20,000

30,000

40,000

50,000

60,000

70,000（million ¥）

0

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

2018Forecast

2018Forecast

Net SalesContribution from SPTS*

Operating Margin (not including the SPTS business)

Total AssetsEquity Ratio

*SPP Process Technology Systems (SPTS) has been excluded from consolidation since the third quarter of fiscal 2011, following the transfer of the SPTS shares in the first half of that fiscal year.

¥47.24 billion (- 1.8%) (+ ¥1.30 billion) (+ 1.98 billion)

¥2.03 billion ¥0.5 billion

Resul ts for F iscal 2017

N e ts a l e s

Operatingincome

N e ti n c o m e*

* Net income attributable to owners of the parent

5 6

20172016 20172016 2018（Forecast）

2018（Forecast）

Number of aircraftin service

0

10,000

20,000

40,000

30,000

-10,000

-20,000

01,000

-1,000-2,000-3,000-4,000

2,0003,0004,0005,000

2017 20372017～37 2017 20372017～37

Bus iness Pro f i l eThe root of SPP’s Aerospace and Related Products segment is propeller production, which started in 1933, and its main products currently include landing gear and heat exchangers.In 1957, SPP delivered the landing gear system for the T-33 training aircraft to the former Japanese Defense Agency. Since then, aircraft for the Agency (now upgraded to a ministry) have almost exclusively been equipped with landing gear systems from SPP. SPP has also entered into the regional jet market and has been successful in the area of commercial aircraft. In 1997, the company worked with U.S.-based Menasco to win a landing gear system project for the CRJ700 from Bombardier in Canada. In addition, the company is striving to increase its market share, receiving orders from customers including an order from Mitsubishi Aircraft Corporation for the MRJ 90 landing gear system.Furthermore, SPP offers general industrial hydraulic products using hydraulic control technologies developed in the aircraft equipment business.

Major product lines and SPP’s Strengths

Thermal management and the joining of metal materials are SPP’s specialties here.

High efficiency, compact size, and low weight as well as shapes that help reduce air drag contribute to reducing the fuel consumption and noise of aircraft engines.

Since the 1980s, SPP has supplied heat exchangers for almost all engine series of Rolls-Royce, one of the big three manufacturers of aircraft engines.

Technologies developed for aircraft hydraulic equipment are leveraged to offer hydraulic pumps featuring low consumption, low pulsation, and low noise for various applications such as transport equipment and general industrial equipment.

Under strong partnership with the Haitian group, the world’s largest manufacturer of injection molding equipment, a joint venture has been established to develop business in China.

Many years of experience in the design, development, and production technology for landing gear, with a focus on the outstanding precision machining of high-strength metal materials

Today, SPP products account for some 80% of the landing gear systems installed in the Defense Ministry’s air fleet.

Approximately 15% share of the regional jet market

Involvement in the development projects on the MRJ and HondaJet, both promising products for Japan’s future aviation industry provide opportunities to make technical achievements as a landing gear system integrator.

Purchase of a Canadian specialized surface finishing service provider leads to establishing a production system combining precision machining and specialized surface finishing.

In Japan, SPP took over ANA MRO operations to found a subsidiary in Nagasaki. SPP also works with Lufthansa to strengthen overseas MRO.

Landing Gear Systems

CRJ700/900/1000Dressed Main Landing Gear AssyImpact absorption during landing

CRJ700/900/1000Dressed Nose Landign Gear AssySteering of surface movement

CRJ1000(from Bombardier Web Page)

QT PumpsHS Pump

Trent 1000® Engine FOHETrent 1000® Engine(Photograph ： Courtesy of Rolls Royce plc.)

Trent 1000® Engine SACOC

Heat Management Systems

CX Pump

Hydraulic Control Products

Improving Productivity and Streamlining Cost by Optimizing Business Structure in Japan and Abroad SPP has strengthened its business structure in Japan and abroad by shifting the focus of the landing gear business to private-sector applications. One goal is to win further projects as a Tier 1 supplier following the MRJ. We have been unsuccessful in this respect, however. After winning an order from Dornier in 2014, we have received no new Tier 1 orders for landing gear used in commercial passenger aircraft. In Japan, a delay has also occurred in launching the commercial production of the MRJ, which represents the most important project for SPP. Under these circumstances, the functions of both the domestic organization and the Canadian subsidiary SPP Canada Aircraft

(SPPCA) are being consolidated. At domestic production sites, SPP is also optimizing production. To this end, we are preparing for increasing demand for MRO (maintenance, repairs and overhaul) by transferring repairs for some items from the Main Plant to SPP Nagasaki Engineering. SPP will also reduce costs for external procurement. Here, we focus on developing suppliers to increase our procurement base, while enhancing the global supply chain by upgrading procurement capability in North America. These measures will help enrich the quality of this segment’s business and improve profitability.

Pro jected Demand for Regiona l Jets wi th 20 to 99 seats(Source: Japan Ai rcraf t Deve lopment Corporat ion)

Pro jected Demand for Bus iness Jets(Source: Japan Ai rcraf t Deve lopment Corporat ion)

Number of aircraft

Number of aircraft

Number of aircraftin service3,234

Retirements

-2,731

New deliveries2,907

Number of aircraftin service3,410 20,502

Retirements

-11,775

New deliveries21,494

Number of aircraftin service30,221

In the fiscal year under review (fiscal 2017), Aerospace and Related Products achieved net sales of ¥30.89 billion, a decline of 1.0% from the previous year. Operating income rose by 54.1% to ¥1.24 billion. The sales reduction remained slight because a temporary decline in public demand was almost completely offset by increased revenues from heat exchangers for aircraft and hydraulic control products. The year-on-year growth in earnings was primarily due to the positive results of the ongoing streamlining.For fiscal 2018, net sales are forecast to increase slightly. The negative effect of the stronger yen will likely be more than canceled by the recovery of public demand. Operating income is expected to drop to ¥0.9 billion, due to the negative results of the stronger yen and an increase in development cost.

▶ Overview of Business Performance 　 in Fiscal 2017

10,000

0

20,000

30,000

40,000

500

0

1,000

1,500

Net Sales（million ¥）

OperatingIncome

（million ¥）

30,897 31,50031,120

900

1,248

810

¥30.89 billionN e ts a l e s

¥1.24 billionOperatingincome

7 8

S e g m e n t O v e r v i e w A e r o s p a c e a n d R e l a t e d P r o d u c t s

S e g m e n t O v e r v i e wH e a t E n e r g y a n d E n v i r o n m e n t a l R e l a t e d P r o d u c t s

Bus iness Pro f i l e

As for Heat Control Products, SPP is proud to have the world’s No. 1 share in the LNG vaporizer market and is highly regarded in various industries for its compact, high-performance plate-fin heat exchangers that can be used for various energy-related products.In the environmental business area, SPP will provide ozone generators used for water treatment, semiconductor manufacturing, etc.

Major product lines and SPP’s Strengths

Heat Control Products

Ozone generating technology is used as a basis to deliver advanced water treatment systems that are ideal for decomposing persistent substances.

Ozone generators are also provided for the production of semiconductors.

Technology developed for aircraft heat exchangers is applied to industrial equipment.

SPP open-rack LNG vaporizers (ORVs) have a higher share (60%) of the world market than any other competitor.

With their high reliability and quality, SPP’s high-performance, compact, and lightweight plate-fin heat exchangers are acclaimed as world-class products.

Domestic market share of heat exchangers for cryogenic applications (for air separation plants, petrochemical plants, etc.) is almost 100%, while the global share is 20%.

SPP serves Japanese heavy electrical equipment manufacturers as their main supplier of inverter-controlled element coolers for fast trains. SPP’s element coolers for Shinkansen bullet trains boast the monopoly of the Japanese market.

Reviewing Priorities for Sales Promotion Areas in Response to Demand Changes Due to stagnant customer investment, mainly in energy-related sectors, SPP’s Heat Energy segment is facing dipping net sales and thus also struggling in terms of earnings. Action against the weak demand includes not only strong streamlining measures such as personnel cuts. In addition, a sales promotion team has been established to funnel our resources to promising fields in response to demand changes. For large products, SPP is working harder to develop markets for energy applications related to natural gas. Sales promotion for

general-purpose products is being increased in the markets for railroad cars and power semiconductors in overseas regions. High-temperature technology is focused on using diffusion bonding technology to develop new applications for hydrogen stations, offshore LNG plant, plants and other areas. While pursuing these goals, SPP Heat Energy and Environmental Products will improve its profitability by replacing traditional product groups with new ones and identifying and developing new differentiating products.

Concentrating resources on promising fields

Strengthening efforts to develop markets for petrochemical, natural gas and other energy applications

Large products

Sales promotion is being stepped up in overseas markets, e.g., for railroad cars and power semiconductors

General-purpose products

Using diffusion bonding technology to develop new applications for hydrogen stations, offshore LNG plant, plants and other areas

High-temperature technology

Replacing traditional product groups with new ones

Identifying and developing new differentiating products

In the fiscal year under review (fiscal 2017), Heat Energy and Environmental Related Products achieved net sales of ¥8.36 billion, a year-on-year decline of 19.1%, and incurred an operating loss of ¥0.27 billion. The lower revenue was due to continued slow recovery in energy-related investments and a prolonged downturn in demand for heat exchangers. The operating loss for fiscal 2017 was much the same as the figure for the previous year. The streamlining effects produced by business restructuring were more than offset by the reduced net sales. In fiscal 2018, the segment expects to post net sales of ¥9.5 billion due to demand recovery. The streamlining of the ongoing business restructuring will also help raise the segment’s operating income to a positive figure of ¥0.15 billion.

▶ Overview of Business Performance 　 in Fiscal 2017 ¥8.36 billion

△¥0.27 billion

N e ts a l e s

Operatingincome

-200

-100

0

100

200

9,5008,366

10,345

20172016

5,000

10,000

0

150

△271△255

20172016-300

Net Sales（million ¥）

OperatingIncome

（million ¥）

2018（Forecast）

2018（Forecast）

Environmental Systems

LNG Vaporizer Heat Exchanger for Air Separation Plant

AOP（Advanced Oxidation Process） water treatment system

Ozone generator

9 10

■MEMS Gyro & Systems

■MEMS Devices for Optical Communications

7,5007,977

6,630

250

1,057

175

201720160

8,000

6,000

4,000

2,000

20172016

200

400

600

800

0

1,200

1,000

Bus iness Pro f i l e

The ICT Related Products segment provides MEMS and semiconductor manufacturing equipment. SPP is a leading company providing silicon etching equipment and silicon oxide sacrificial layer etching equipment which are indispensable for MEMS production. In 1995, SPP became the first provider in the world of silicon etching equipment.SPP will also strive to develop high-precision sensors and other MEMS devices using MEMS manufacturing equipment.

Major product lines and SPP’s Strengths

MEMS/Semiconductor Manufacturing Equipment

MEMS Devices

Silicon Deep Etching System

High Precision Gyro

MEMS VOA SHUTTER

SiO2 Sacrificial Layer Etching System

Satisfactory product line-up of MEMS and semiconductor manufacturing equipment enabling users to conduct a wide range of processes from development and trial production to commercial production

As for silicon etching equipment used for three-dimensional forming of electronic devices such as MEMS, our main products, we supply 90% of products demanded globally using our original technologies, together with SPTS Technologies, our partner company (SPP conducts this business mainly in the Japanese market).

Acquired a US-based Thermal Products business for semiconductor industry in June 2015. Aim to secure a foothold for overseas business development and obtain synergies.

Since 1999, joint venture company, Silicon Sensing Systems, has been mass-producing MEMS gyros.

MEMS gyro and systems from SPP finds extensive use in a broad range of applications such as the attitude control in various mobile equipment including biped robots, autonomous helicopters, GPS antennas, and satellites as well as safety systems in automobiles and trains.

After winning great success by supplying this technology for skid control systems in automobiles, the company advanced into the markets for small sensors and high-accuracy sensors.

Based on MEMS process technology and experience from mass production of silicon gyro sensors by SPP and its group companies since the last century, we are now providing high quality MEMS devices for the Optical Communications Market.

We have decided to move into this area to support this market which is expanding continuously due to the fact that the data traffic volume is increasing sharply as you well know. We look forward to working with many new partners in this field to contribute to society with small-sized and lower-power consumption products.

Increasing Added Value by Development for Differentiation SPP’s ICT Related Products segment has two business pillars: MEMS/semiconductor manufacturing equipment and MEMS devices. For MEMS/semiconductor manufacturing equipment, the segment improves equipment performance by enabling mass-production and accommodating requirements for higher precision. The segment also strives to open up new markets by offering minimal fab technology for semiconductor manufacturing, which is designed to form a production line of minimal size and launch small-scale production of semiconductor

chips quickly at low cost. At the same time, the segment will make resources input more efficient, e.g. by module sharing. The segment will attach importance to the sales promotion of sensors and communication devices; the market for these products indispensable for the IoT is expected to enter its full-fledged growth phase going forward. The ICT Rated Products segment will continue to commit itself to increasing the added value of products through development for differentiation.

In the fiscal year under review (fiscal 2017), ICT Related Products achieved net sales of ¥7.97 billion, an increase of 20.3% from the previous fiscal year. Operating income was ¥1.05 billion. Thanks to a strong market, the segment posted a year-on-year increase in net sales, due to high levels of incoming orders for both MEMS/semiconductor manufacturing equipment produced in Japan and semiconductor heat treatment equipment manufactured overseas. Earnings also grew significantly, primarily due to a more favorable sales mix.In fiscal 2018, the segment expects slightly lower net sales of ¥7.5 billion, which is primarily due to completing the ongoing round of customer investments in MEMS/semiconductor manufacturing equipment. Operating income is expected to drop to ¥0.25 billion, due to the adverse results of a changing sales mix and a carryover of development costs from the previous fiscal year.

▶ Overview of Business Performance 　 in Fiscal 2017 ¥7.97 billion

¥1.05 billion

N e ts a l e s

Operatingincome

25

20

15

10

5

0

MET,MEMS Devices,and othersSPTS(transfer business) MEMS/Semiconductor Manufacturing EquipmentNet Sales（billion ¥）

SPTS business transferPurchase of a heat treatment business

Withdrawal from sensor network business

Withdrawal from M2M

20103.30.9

3.01.1

2.70.8

3.9

1.75.3

1.36.9

1.1

6.5

1.0

2011 2012 2013 2014 2015 2016 2017 2018（Forecast）

3.42.1

4.32.1

11 12

S e g m e n t O v e r v i e w I C T R e l a t e d P r o d u c t s

Net Sales（million ¥）

OperatingIncome

（million ¥）

2018（Forecast）

2018（Forecast）

C o r p o r a t e G o v e r n a n c e

■ C o r p o r a t e G o v e r n a n c e S y s t e m

■ I n t e r n a l C o n t r o l S y s t e m

SPP has excellent corporate governance that consists of the Board of Directors including independent external directors and the Audit & Supervisory Board. The Board of Directors meets at least monthly to decide on important matters and supervises the implementation of specific operations. Management Conference meetings of the senior management and Business Study Meetings at individual departments are also held as appropriate to ensure exhaustive discussion. If necessary, the legal advisor provides relevant advice. These procedures allow the company to carry out its operations in a fast and appropriate fashion. After the Ordinary Shareholder Meeting of June 28, 2017, SPP introduced an executive officer system. By separating the business decision-making and supervising from the implementation of business operations, the new system is designed to enable the Board of Directors to supervise more successfully, while strengthening SPP’s

implementing business operations.Furthermore, SPP operates a non-statutory Appointment and Compensation Committee as an advisory body for the Board of Directors. This committee, with outside directors consisting of half of the committee, serves to secure greater transparency and fairness in considering the appointment of and compensation for directors.Audit and Supervisory Board members attend meetings of the Board of Directors and other significant meetings to correctly understand and supervise the way the company is actually managed. They also utilize the Audit and Supervisory Board Members’ Office to help audit the internal control system and the risk management structure. Under an agreement with an accounting auditor, the company conducts regular audits and, as the need arises, receives professional advice.

SPP carries resolutions at its Board of Directors meetings with regard to the basic policy of its internal control system (i.e. the foundation of corporate governance), and then verifies the effectiveness of the system whenever necessary, aiming for system enhancement and improvement at all times. The outline of the system is described below.

(1) ComplianceSPP aims to make its employees more aware of legal compliance through Compliance Committee activities and has also set up a whistle-blowing desk for early discovery and prevention of violations of laws, etc.

(2) Risk managementSPP holds special committees on business execution risk on a regular basis, aiming to understand and reduce individual risks. The CSR Committee is responsible for overall risk management by controlling individual special committees.

(3) Business executionSPP determines important management matters by holding Board of Directors meetings where executive directors regularly report their job execution statuses. SPP has also implemented a system to promote appropriate and prompt business operations by holding regular Management Conference meetings and Business Study Meetings at individual departments and having discussions on important issues.

(4) Group managementSPP offers CSR training to employees including those of its subsidiaries, etc. so that it can disseminate its group corporate principles and code of conduct. In addition, its special committee activities include those for subsidiaries, etc. SPP also aims to comply with its management policy by obligating its subsidiaries to discuss and report important matters, giving careful consideration when preparing annual plans and semiannual budgets, and holding information exchange meetings.

(5) Audit and Supervisory Board membersAudit and Supervisory Board members conduct audits by attending important meetings including the Board of Directors meetings, inspecting important documents, gathering information including directors’ reports, etc., and conducting other activities.

Advice

AccountingAuditor

Cooperation

Cooperation

Cooperation

External audit

BoardInside 2/Outside 3

Affiliated Companies

Individual business segments and indirect department

Appointment and Compensation Committee

Executive Officer

ComplianceCommittee and

other specialcommittees

Management ConferenceBusiness Study Meetings

Internal audit

Decision-making Supervision Audit

Audit

Appointment/dismissal Appointment/dismissal

Direction/Supervision

Direction/SupervisionMonitoring

control

President

Board of Directors Inside 5/Outside 2

CSR Committee

Internal Auditing Department

Appointment/dismissal

General Meeting of Shareholders

Yoshio TAOKAPresident

Aerospace, Hydraulic Control

Katsuhiko HAMADADirectorExecutive Vice President

Senior Advisor, Daikin Industries, Ltd.Outside Director, ICHINEN HOLDINGS CO., LTD.

Guntaro KAWAMURAOutside Director

Former Mayor of Amagasaki CityOutside Director, GUNZE LIMITEDOutside Director, PEGASUS SEWING MACHINE MFG. CO., LTD. Outside Director, Sanyo Chemical Industries, Ltd.

Aya SHIRAIOutside Director

Corporate Planning, Controlling & Treasury, Information Systems, Materials & Procurement

Akira SATAKEDirectorExecutive Vice President

Sales & Marketing for Aerospace

Kenro ITAKURADirector Managing Executive Officer

Heat Exchangers, Environmental Systems, Microelectronics Technology, MEMS/Semiconductor Equipment, MEMS Devices, Corporate R&D, Fuel Cell Systems

Machi NAKATADirectorExecutive Vice President

Affiliated Companies in North America for Aerospace

Natsuo HASHIMOTOManaging Executive Officer

Takayuki DEJIMASenior Audit & Supervisory Board Member

Tetsuya MATSUNAGASenior Audit & Supervisory Board Member

EiichiMORIOutside Audit & Supervisory Board Member

Yukinobu YOKOOOutside Audit & Supervisory Board Member

Yasumasa NAKANISHIOutside Audit & Supervisory Board Member

Corporate R&D, Fuel Cell Systems

Jun SHIRAISHIManaging Executive Officer

General Administration, Human Resources, Factory Innovation

Junichi SUEKANEManaging Executive Officer

Project Manegement, Production, Procurement for Aerospace

Masato AYANIManaging Executive Officer

Heat Exchangers for Aerospace, Hydraulic Control

HideakiTAKAHASHIExecutive Officer

Corporate Planning, Controlling & Treasury

SyogoISHIMARUExecutive Officer

MEMS/Semiconductor Equipment

ToshihiroHAYAMIManaging Executive Officer

Environmental Systems, Microelectronics Technology, MEMS Devices

AyumuTAKAHASHIManaging Executive Officer

Business Strategy Planning, Production, Procurement, Engineering, Quality Assurance for Heat Exchangers

TakayukiKASHIWAManaging Executive Officer

Materials & Procurement

Akihiko MATSUYUKIManaging Executive Officer

Attorney at Law Attorney at Law

Directors, Executive Officers and Audit & Supervisory Board Members (As of June 27, 2018)

■ D i r e c t o r s

■ A u d i t & S u p e r v i s o r y B o a r d M e m b e r s

■ E x e c u t i v e O f f i c e r s

13 14

15 16

Safety education in the experience-based facility

Test-riding the Segway® at the kids’ event

Considering a balanced workforce age mix, SPP continues recruiting to secure all important talent. The company has the basic policy of hiring 10 to 20 university and college graduates and 20 to 30 graduates from professional schools and high schools on a periodical basis. SPP also responds flexibly to the needs to expand operations by recruiting mid-career employees (SPP welcomed 20 periodically hired employees in April 2018, after recruiting 14 mid-career employees during fiscal 2017).The SPP management also faces up to the challenge of promoting diversity. Specific measures include positive recruitment of the disabled (the current

employment of 31 persons surpasses the legally required number of 27) and establishing and improving structures for empowering women (in fiscal 2016, MHLW certified SPP as an Eruboshi business under the Act on Promotion of Women’s Participation and Advancement in the Workplace). In recent years, SPP has also committed to recruiting foreign employees and interns in anticipation of retaining qualified personnel.

Recruitment plans and diversity commitment1

Employee Relat ions

The “Regulations on Measures against Natural Disasters” provide for emergencies caused by natural disasters such as earthquakes and typhoons. Following procedures stated in these regulations, every July the company registers equipment likely to cause a hazard during natural disasters, designates evacuation routes and spaces, and maintains an emergency contact network. In addition, drills on responding to an earthquake early

warning (EEW) are conducted regularly—in May and November—to ensure the safety of employees. Emergencies other than natural disasters are addressed by establishing the “Crisis Management Regulations.” Cards showing “Action to Be Taken in Emergencies Such as Earthquakes and Terrorist Attacks” are provided to all employees to ensure the fastest possible action and communication in the event of a disaster.

Measures against natural disasters and other emergencies2

Human r ights/Diversity4To increase employee awareness of human rights, promote diversity, and thereby prevent and eliminate all forms of discrimination, SPP provides relevant education programs including an annual human rights/diversity lecture meeting as well as educational material distributed to all employees during Human Rights Week (December 4 to 10). In addition, we strive to take every opportunity to raise the employee awareness of the need to eliminate discrimination and

promote diversity. Examples include providing education for new employees (both new graduates and mid-career employees) and having representatives participate in education programs provided by authorities.SPP properly addresses harassment–most typically sexual harassment and workplace bullying–by providing both male and female employees with the opportunity to meet separately with male and female counselors.

In addition to committing itself to safety education, SPP holds meetings of the Safety and Health Committee and monthly ceremonies to pray for safety at an in-house shrine to improve the safety awareness of all employees.In 2018, we will prioritize four areas: continued implementation of measures to increase safety sensibility, continued operation of the Occupational Safety and Health Management System (S-OSHMS), continued strengthening of the workplace safety and health management structure and improvement of the relevant environment, and improving the environment of the experience-based safety education facility and provision of such education.As part of our commitment toward employee mental health, SPP asks an external

counselor to visit the company twice a month to open a temporary clinic for consultation on various concerns (such as those related to psychological and physical health, human relationships, and family problems).

Safety, health, and f i re prevention3

Social contr ibutions1

Relat ions with Society

SPP’s biannual blood donation events attracted a total of 320 contributors in fiscal 2017. In fiscal 2017, SPP cooperated with the All Japan Student Indoor Flying Robot Contest sponsored by the Japan Society for Aeronautical and Space Sciences, serving as a presenter to

provide and present winners with extra prizes. Contributing to developing Japan’s aerospace technology and related human resources, the competition has been increasing its scope year after year and now has an additional multicopter category for drones.

Shareholder and Investor Relat ions

IR activit ies and disclosureSPP conducts IR activities to help shareholders and investors better understand our business policies and strategies. More specifically, these include biannual (spring and autumn) presentations of financial results for institutional investors and analysts, financial summaries and annual reports for shareholders, and communication via the SPP website. Initiated in fiscal 2016, the shareholders’ factory tour program was continued in fiscal 2017.We will continue to disclose material facts and other relevant information in an appropriate manner via the security exchange, news media, and our website.We will remain committed to upgrading our information disclosure and ensuring the timeliness and usefulness of IR information.

Safety and Health Committee

Product Liability Committee

Quality Assurance Committee

Human Rights/Diversity Promotion Committee

Environmental Management Committee

Information Security Committee

Risk Management Committee

Compliance Committee

CSRCommittee

The SPP Group actively conducts CSR activities to fulfill its corporate social responsibility. Chaired by the President, the CSR Committee has built a framework for CSR activities to probe into group management from the CSR perspective.At the same time, we have established the “Code of Conduct” on the basis of the “Corporate Principles.” Copies of a brochure describing our CSR activities and the above rules and basic ideas are distributed to all employees to develop a keen CSR awareness.

CSR Activit ies

SPP cares about the communities it operates in. We interact with local residents by donating to local events and inviting them to our summer festival. In fiscal 2017, SPP helped organize Eco Kids Messe 2017, an experience for children held in the company’s hometown of Amagasaki, by providing a Segway® two-wheeled self-balancing personal transporter, which integrates products from one of our affiliates. Many visitors enjoyed the rare opportunity to test-ride the unique electric vehicle.

Seihokai, the group of SPP’s front-line supervisors, spearheads the biannual cleanup of walks and ditches around the SPP Main Plant. We also take part in Hyogo Prefecture’s “Hyogo Adopt-Lighting Maintenance Partners” project, helping maintain road lighting installed along a prefectural route.

Local contr ibutions2Following the Sumitomo business slogan of “valuing credibility and ensuring reliability,” the Sumitomo Precision Products group conducts business on the following corporate principles. In so doing we

discharge our responsibilities to different stakeholders in ensuring sustained business development and an increase in corporate value.

Corporate Principles

1. COMPLIANCE: Complying with laws and regulations, we will conduct all business activities based on the highest ethical standards.

2. CUSTOMER SATISFACTION: Focusing intensely on market demands and clients´ needs, we will continue to offer quality products and services to achieve the highest customer satisfaction possible.

3. CHANGE & CHALLENGE: Responding sensitively to global trends, we will boldly try to fully meet these changes and keep our eyes open to new opportunities that accompany this changing atmosphere.

4. HUMAN RESOURCES: Respecting our human resources, we will provide a supportive environment that encourages each individual's fulfillment and harmony among all employees.

5. COEXISTENCE WITH SOCIETY: By playing an active role in society, we will promote good citizenship with our community and harmony with the surrounding environment.

“Toward a Promising Future” Sumitomo Precision Products Group will continue to increase i ts g loba l p resence wi th innovative technology, and will pave its way toward a prosperous tomorrow.

C S R A c t i v i t i e s

Eruboshi label conferred under PWPAW (two stars)

Year20162017

2018（As of end of June）

211

300

Accidents resulting in leave Accidents not resulting in leavePlant tour offered to shareholders

17 18

To reduce the environmental impact of its operations, SPP strongly commits itself toward company-wide activities for saving energy and resources.The resources-saving initiative focuses on recycling activities, including not only the reuse of metallic waste generated from the production process, but also the reuse of logistics and packaging materials and the recycling of paper by meticulous separation.The energy-saving work is spearheaded by the Energy-Saving Committee. Individual workplaces are expected to reduce energy use through stringent control. In addition, they try to make a difference through small efforts, such as switching to energy-saving equipment, removal of some lights, and turning off the power to unused equipment. These activities do not immediately result in a substantial reduction in company-wide energy usage because, at SPP, energy usage during manufacturing differs depending on

the product. But they do help us in our efforts to maintain it at certain levels and even reduce it.

Ini t iat ives for reducing environmental impact

General Manager of Corporate Environmental Control & Facilities Engineering Department

Corporate Environmental Control & Facilities Engineering Department

Environmental Management Committee

Internal Environmental Auditor

Working Departments

Environmental Management Officer

As a responsible member of society, we recognize the significant need to preserve the local and global environment and meet the challenge of “harmony with the surrounding environment” stated in the company principle as one of the top priorities in management, through the following actions: 1. Set environmental targets, aim to achieve these targets through environmental

preservation work involving all employees, and continually improve the environmental management system to achieve higher environmental performance.

2. Reduce the environmental impact of individual phases of business operations, such as by preventing burden on and polluting the environment, to contribute to its preservation.

3. Carefully meet relevant legal requirements and other obligations.4. Improve the environmental awareness of employees and facilitate their

environmental preservation activities.5. Promote activities for resource and energy saving and 3 R’s (reduce, reuse, and recycle).6. Take advantage of basic technologies that have long been developed in individual

fields including Aerospace, Hydraulic Control, Heat Control, and Industrial Products, and Environmental Systems to promote the development of environmental preservation technologies and products as a means of social contribution.

Purchasing / Research /Corporate Environmental Control &Facilities Engineering Department

Sensor /New Operation Department

Industrial Equipment Systems Department

Heat ExchangersDepartment

AerospaceDepartment

Management andSales Department

All organizations of SPP commit themselves to environmental preservation in accordance with the Environmental Policy:

Environmental Pol icy and Environmental Management

In the area of heat exchangers, SPP offers many product lines that help spread clean energy sources and promote the efficient

use of energy by providing support in saving energy and reducing environmental impact.

Heat Exchangers

Natural gas is regarded as friendly to the environment since it generates low emissions of CO2 and NOx and no sulfur oxides during combustion. SPP develops and produces equipment that vaporizes natural gas liquefied for transport purposes (LNG).

■ LNG Vaporizers

Hydrogen is raising expectations as a clean source of energy since the gas generates no CO2 emissions during combustion. All-out national efforts are now underway to build a hydrogen-based society. Hydrogen supply infrastructure is the key requirement for a widespread use of hydrogen fuel cell vehicles. In this connection, SPP has worked on the development of diffusion bonded heat exchangers for hydrogen stations.

■ Development of heat exchangers for hydrogen stations

Efficient, compact, and lightweight, SPP heat exchangers for aircraft engines help increase aircraft fuel efficiency. Some of them feature shapes that help reduce air drag, contributing to reducing noise.

■ Heat exchangers for energy-saving aircraft engines

Heat Exchangers for Aircraft Engines

Environmental ly-Fr iendly Products

Committed toward social contributions through its business activities, SPP offers many environmentally-friendly products, which are designed to reduce environmental risks, increase the efficiency of

resources and energy use, or facilitate environmental preservation. The company also strives to develop new environmental products and technologies.

2012 2013 2014 2015 2016 2017

In developing new aerospace products, SPP always focuses on weight savings, because component weight is an important determinant of the

aircraft’s fuel consumption, hence its environmental impact.

Aerospace Products

In the aircraft industry, various types of electric components are currently being used mainly due to the necessity of improving fuel efficiency through weight reduction and reducing the burden on the environment.Against this backdrop, SPP is striving to electrify its landing gear systems. As landing gear extension and retraction system, in medium- and large-sized aircraft require a higher power than any other systems in an aircraft, and it has been technically difficult to electrify such a system, it has not been realized so far. SPP is getting closer to success in this field for the first time in the world by adopting a method to operate an actuator using an electric motor-driven hydraulic pump.

■ Development of electric landing gear extension and retraction systems

A strongly oxidizing substance, ozone has applications including sterilization, deodorization and decoloration. Ozone is also environmentally friendly because it eventually decomposes into oxygen. SPP ozone generators are used for water treatment at tap water/sewage facilities, swimming pools, aquariums, and industrial water/drainage treatment and water recycling facilities. They also help

preserve the natural environment in applications such as decomposing persistent organic substances contained in drainage e.g., from chemical plants, reducing harmful chlorine-based substances contained in paper products and waste water by dechlorinating pulp bleaching processes, and reducing CO2 emissions by using less chemicals and energy consumption in fiber bleaching processes.

Environmental Systems (Ozone Generators)

E n v i r o n m e n t a l P r e s e r v a t i o n

■ Ozone water treatment 　system for recycle waste water ■ Ozone system for pulp bleaching ■ AOP（Advanced Oxidation Process）

　water treatment system

▶ E n e r g y u s a g e

Energy Usage klSpecific consumption per ¥million of added value

EnergyUsage kl

Specificconsumption

0

3,000

6,000

9,000

12,000

15,000

0

0.2

0.4

0.6

0.8

1.0

1.2

Mil l ions of YenThousands ofU.S. Dol lars

(Note 1)

2018 2017 2018

Mil l ions of YenThousands of U.S. Dol lars

(Note 1)

2018 2017 2018

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

C o n s o l i d a t e d B a l a n c e S h e e tM a r c h 3 1 , 2 0 1 8

ASSETS

CURRENT ASSETS:

Cash and cash equiva lents (Note 14)

Notes and accounts receivable (Note 14) :

Trade

Unconsol idated subsid iar ies and associated companies

A l lowance for doubtfu l accounts

Inventor ies (Notes 4 and 7)

Deferred tax assets (Note 11)

Other current assets

Tota l current assets

PROPERTY, PLANT AND EQUIPMENT:

Land (Note 5)

Bui ld ings and structures (Note 5)

Machinery and equipment

Lease assets (Note 12)

Construct ion in progress

Tota l

Accumulated depreciat ion

Net property, p lant and equipment

INVESTMENTS AND OTHER ASSETS:

Investment secur i t ies (Notes 3 and 14)

Investments in and advances to unconsolidated subsidiaries and associated companies

Intangib le assets:

Goodwi l l

Other intangib le assets

Deferred tax assets (Note 11)

Other assets

A l lowance for doubtfu l accounts

Tota l investments and other assets

TOTAL

¥10,600

19,706

343

(11 )

23,800

1,271

630

56,339

4,658

19,891

35,880

387

20

60,836

(44,345 )

16,491

3,554

1,600

592

1,045

425

256

(22 )

7,450

¥80,280

¥8,061

19,108

228

(2 )

23,450

1,132

653

52,630

4,658

19,792

37,063

501

7

62,021

(44,007 )

18,014

2,807

1,359

1,057

1,244

468

291

(59 )

7,167

¥77,811

$99,765

185,468

3,229

(104 )

224,000

11,962

5,929

530,249

43,840

187,209

337,695

3,642

188

572,574

(417,365 )

155,209

33,449

15,059

5,572

9,835

4,000

2,410

(207 )

70,118

$755,576

¥16,184

2,440

3,018

4,517

21

134

2,588

654

1,322

134

3,309

34,321

10,129

1,095

142

708

236

12,310

10,312

11,332

10,400

(101 )

1,758

(452 )

(703 )

32,546

1,103

33,649

¥80,280

¥16,115

2,435

2,230

3,794

19

325

2,350

127

1,291

2,696

31,382

11,890

1,279

140

489

278

14,076

10,312

11,332

10,163

(100 )

1,235

(446 )

(1,001 )

31,495

858

32,353

¥77,811

$152,320

22,965

28,405

42,513

198

1,261

24,357

6,155

12,442

1,261

31,144

323,021

95,332

10,306

1,336

6,664

2,221

115,859

97,054

106,654

97,882

(951 )

16,546

(4,254 )

(6,616 )

306,315

10,381

316,696

$755,576

LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short- term bank loans (Notes 5 and 14)

Current port ion of long-term debt (Notes 5 and 14)

Payables (Note 14) :

Trade notes

Trade accounts

Unconsol idated subsid iar ies and associated companies

Construct ion

Other

Income taxes payable

Accrued expenses

A l lowance for losses on construct ion contracts (Note 7)

Other current l iab i l i t ies

Tota l current l iab i l i t ies

LONG-TERM LIABILITIES:

Long-term debt (Notes 5 and 14)

L iabi l i ty for ret i rement benef i ts (Note 6)

Asset ret i rement obl igat ions

Deferred tax l iab i l i t ies (Note 11)

Other long-term l iab i l i t ies

Tota l long-term l iab i l i t ies

COMMITMENTS AND CONTINGENT LIABILITIES (Note 16)

EQUITY (Notes 8 and 18):

Common stock, authorized, 200,000,000 shares; issued, 53,167,798 shares in 2018 and 2017

Capital surplus

Retained earnings

Treasury stock - at cost 242,503 shares in 2018 and 238,796 shares in 2017

Accumulated other comprehensive income:

Unrealized gain on available-for-sale securities

Foreign currency translation adjustments

Defined retirement benefit plans

Total

Noncontrolling interests

Total equity

TOTAL

See notes to consol idated f inancia l statements.

19 20

Mil l ions of YenThousands of U.S. Dol lars

(Note 1)

Yen U.S. Dol lars

2018 2017 2018

Thousands of U.S. Dol lars

(Note 1)

2018

Mil l ions of Yen

2018 2017

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

C o n s o l i d a t e d S t a t e m e n t o f O p e r a t i o n sY e a r E n d e d M a r c h 3 1 , 2 0 1 8

NET SALES

COST OF SALES (Notes 7 and 12)

Gross prof i t

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 9 and 12)

Operat ing income

OTHER INCOME (EXPENSES):

Interest and div idend income

Interest expense

Loss on devaluat ion of investment secur i t ies

Fore ign currency exchange loss

Equi ty in earn ings of associated companies

Gain on sa les of investment secur i t ies

Gain on exempt ion of indi rect tax

Loss on impaired assets (Note 10)

Subsidy income

PCB disposal cost

Gains f rom ret i rement of research associat ions

Other – net

Other expenses – net

INCOME (LOSS) BEFORE INCOME TAXES

INCOME TAXES (Note 11) :

Current

Deferred

Tota l income taxes

NET INCOME (LOSS)

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

NET INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT

PER SHARE OF COMMON STOCK (Notes 2.v and 18):

Basic net income ( loss)

Cash div idends appl icable to the year

¥47,241

35,865 11,376

9,341 2,035

41 (178)

(7 ) (307)

261 118 164

(608)

(79) (595)

1,440

998 (254)

744

696

195

¥501

¥9.475.00

Di luted net income per share is not presented because no di lut ive secur i t ies ex ist .See notes to consol idated f inancia l statements.

$444,621

337,553 107,068

87,915 19,153

385 (1,675)

(66) (2,889)

2,456 1,111 1,544

(5,722)

(744) (5,600)

13,553

9,393 (2,391)

7,022

6,551

1,836

$4,715

$0.090.05

C o n s o l i d a t e d S t a t e m e n t o f C o m p r e h e n s i v e I n c o m eY e a r E n d e d M a r c h 3 1 , 2 0 1 8

NET INCOME (LOSS)

OTHER COMPREHENSIVE INCOME (Note 16) :

Unreal ized gain on avai lable- for-sa le secur i t ies

Fore ign currency t rans lat ion adjustments

Def ined ret i rement benef i t p lans

Share of other comprehensive income ( loss) in associates

Tota l other comprehensive income

COMPREHENSIVE INCOME (LOSS)

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:

Owners of the parent

Noncontro l l ing interests

¥696

551 (20) 298

36 865

¥1,561

¥1,316 245

¥48,097

37,571 10,526

9,795 731

80 (243) (252) (266)

45

(969) 37

(207) 65

(60) (1,770)

(1,039)

425 (96) 329

(1,368)

120

¥(1,488)

¥(28.12)5.00

¥(1,368)

610 (160)

58 (113)

395

¥(973)

¥(1,060) 87

See notes to consol idated f inancia l statements.

$6,551

5,186 (188)

2,805 338

8,141

$14,962

$12,386 2,306

21 22

Mil l ions of Yen

2018 2017 2018

Thousands of U.S. Dol lars

(Note 1)Thousands of Shares/Mi l l ions of Yen

Common Stock

Shares(Note 18)

Amount Capita lSurplus

Reta inedEarnings

Shares(Note 18)

AmountUnrealized

Gain onAvailable -for-Sale Securities

ForeignCurrency

TranslationAdjustments

DefinedRetirement

BenefitPlans

Tota l Noncontrolling Interests

Tota lEqui ty

Treasury Stock Accumulated Other Comprehensive Income

Thousands of U.S. Dol lars (Note 1)

CommonStock

Amount Capita lSurplus

Reta inedEarnings

AmountUnrealized

Gain onAvailable -for-Sale Securities

ForeignCurrency

TranslationAdjustments

DefinedRetirement

BenefitPlans

Tota l Noncontrolling Interests

Tota lEqui ty

TreasuryStock

Accumulated Other Comprehensive Income

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t yY e a r E n d e d M a r c h 3 1 , 2 0 1 8

BALANCE, APRIL 1, 2016

　Net loss attributable to owners of the parent

　Cash dividends, ¥5.0 per share (Note 18)

　Purchase of t reasury stock

　Net change in the year

BALANCE, MARCH 31, 2017

　Net income attributable to owners of the parent

　Cash dividends, ¥5.0 per share (Note 18)

　Purchase of t reasury stock

　Net change in the year

BALANCE, MARCH 31, 2018

BALANCE, MARCH 31, 2017

Net income attributable to owners of the parent

Cash dividends, $0.05 per share (Note 18)

Purchase of t reasury stock

Net change in the year

BALANCE, MARCH 31, 2018

53,168

53,168

53,168

¥10,312

10,312

¥10,312

¥11,332

11,332

¥11,332

¥11,969

(1,488)

(318)

10,163

501

(264)

¥10,400

(234)

(5)

(239)

(4)

(243)

¥(98)

(2)

(100)

(1)

¥(101)

¥651

584

1,235

523

¥1,758

¥(232)

(214)

(446)

(6)

¥(452)

¥32,875

(1,488)

(318)

(2)

428

31,495

501

(264)

(1)

815

¥32,546

¥771

87

858

245

¥1,103

¥33,646

(1,488)

(318)

(2)

515

32,353

501

(264)

(1)

1,060

¥33,649

¥(1,059)

58

(1,001)

298

¥(703)

$97,054

$97,054

$106,654

$106,654

$95,652

4,715

(2,485)

$97,882

$(941)

(10)

$(951)

$11,624

4,922

$16,546

$(4,198)

(56)

$(4,254)

$296,424

4,715

(2,485)

(10)

7,671

$306,315

$8,075

2,306

$10,381

$304,499

4,715

(2,485)

(10)

9,977

$316,696

$(9,421)

2,805

$(6,616)

See notes to consol idated f inancia l statements.

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w sY e a r E n d e d M a r c h 3 1 , 2 0 1 8

OPERATING ACTIVITIES: Income ( loss) before income taxes Adjustments for : Income taxes paid Income taxes refunded Depreciat ion and amort izat ion Amort izat ion of goodwi l l Increase (decrease) in accrued expenses Increase in l iab i l i ty for ret i rement benef i ts Increase in asset ret i rement obl igat ions Loss on devaluat ion of investment secur i t ies Loss on impaired assets Loss (ga in) on fore ign currency exchange Equi ty in earn ings of associated companies Gain on sa les of investment secur i t ies Changes in assets and l iab i l i t ies, net of ef fects: Decrease ( increase) in t rade notes and accounts receivable Decrease ( increase) in inventor ies Decrease ( increase) in other current assets Increase (decrease) in t rade notes and accounts payable Increase in other current l iab i l i t ies Other – net Tota l adjustments Net cash prov ided by operat ing act iv i t ies

INVESTING ACTIVITIES: Purchases of property, p lant and equipment Purchase of intangib le assets Proceeds f rom col lect ion of long-term loans receivable Proceeds f rom sales of secur i t ies Payment for acquis i t ion of business Other – net Net cash used in invest ing act iv i t ies

FINANCING ACTIVITIES: Increase (decrease) in short- term bank loans – net Proceeds f rom long-term debt Repayments of long-term debt D iv idends paid Other – net Net cash used in f inancing act iv i t ies

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTSNET INCREASE IN CASH AND CASH EQUIVALENTSCASH AND CASH EQUIVALENTS, BEGINNING OF YEARCASH AND CASH EQUIVALENTS, END OF YEAR

¥1,440

(498) 31

2,178 128

31 245

3 7

608 (3)

(261) (118)

(250) (409)

27 1,503

463 52

3,737 5,177

(941) (50)

6 156

26 (803)

187 750

(2,498) (264)

(1 ) (1,826)

(9 )

2,539 8,061

¥10,600

¥(1,039)

(366) 248

2,544 204 (74) 149

3 252 969

2 (45)

3,028 1,390

(81) (1,542)

392 1

7,074 6,035

(1,877)

(106) 3

(1,318) (23)

(3,321)

(1,196) 8,046

(8,058) (318)

(2 ) (1,528)

(83) 1,103 6,958

¥8,061

$13,553

(4,687) 292

20,499 1,205

292 2,306

28 66

5,722 (28)

(2,456) (1,111)

(2,353) (3,849)

254 14,146

4,357 489

35,172 48,725

(8,856) (471)

56 1,468

245 (7,558)

1,760 7,059

(23,511) (2,485)

(9 ) (17,186)

(85) 23,896 75,869

$99,765See notes to consol idated f inancia l statements.

23 24

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements of Sumitomo Precision Products Co., Ltd. (the "Company") 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 accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the Company's consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2017 consolidated financial statements to conform to the classifications used in 2018.The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥106.25 to $1, the approximate rate of exchange at March 31, 2018. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Consolidation - The consolidated financial statements as of March 31, 2018, include the accounts of the Company and its 18 (18 in 2017) significant subsidiaries (together, the "Group"). Under the control and influence concepts, 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 4 (4 in 2017) associated companies are accounted for by the equity method.Investments in the remaining unconsolidated subsidiary and associated company are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition is amortized over a period of 10 years.All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated.

b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements - Under Accounting Standards Board of Japan ("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 consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.

c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method - ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments," requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method, unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.

d. Cash Equivalents - Cash equivalents are short-term investments that are readily convertible into cash and exposed to insignificant risk of changes in value. Cash equivalents include time deposits, which mature or become due within three months of the date of acquisition.

e. Inventories - Inventories are stated at the lower of cost, determined by the average method for finished products, semi-finished products, and work in process, by the specific identification method for certain work in process, and by the moving-average method for all raw materials and supplies, or net selling value.

f. Investment Securities - The standard requires all applicable securities to be classified and accounted for, depending on management's intent, as

trading securities, held-to-maturity debt securities, or available-for-sale securities. The Group does not have securities in the former two categories.Available-for-sale securities, which are not classified as either trading securities or held-to-maturity debt securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Nonmarketable 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. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed generally by the declining-balance method, while the straight-line method is principally applied to buildings, structures acquired on or after April 1, 2016, and lease assets of the Company and property, plant and equipment of consolidated foreign subsidiaries. The range of useful lives is principally from 3 to 50 years for buildings and structures and from 4 to 9 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases.

h. Other Intangible Assets - Intangible assets, except for goodwill, are stated at cost less accumulated amortization, which is computed by the straight-line method over the estimated useful lives of the assets. The useful life is principally 5 years for software for internal use.

i. Long-Lived Assets - The Group reviews its long-lived assets for impairment whenever events or changes in circumstances 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 future cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

j. Derivatives and Hedging Activities - The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.Derivative financial instruments are classified and accounted for as follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of income, and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.Currency swaps are utilized to hedge exchange rate risk exposures in

borrowings denominated in foreign currencies. Long-term debt denominated in foreign currencies are translated at the contracted rates if the currency swaps qualify for hedge accounting.Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expense.

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

l. Allowance for Losses on Construction Contracts - The allowance for losses on construction contracts is provided for an estimated amount of probable losses to be incurred in future years in respect of construction projects in progress. When there are losses on completed-contract method applied contracts, the allowance for losses on construction contracts is offset against the costs of construction contracts in process in the balance sheet.

m. Retirement Benefits - The Company and its consolidated domestic subsidiaries have defined benefit retirement plans covering substantially all of their employees. The Group accounts for the liability for retirement benefits based on projected benefit obligations and plan assets at the consolidated balance sheet date.The projected benefit obligations are attributed to periods on a benefit formula basis. Actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects and are recognized in profit or loss over 10 years, no longer than the expected average remaining service period of the employees.

n. Research and Development Costs - Research and development costs are charged to income as incurred.

o. Asset Retirement Obligations - An asset retirement obligation is recorded for a legal obligation imposed either by law or contract that results from the acquisition, construction, development, and normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an

N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sY e a r E n d e d M a r c h 3 1 , 2 0 1 8

25 26

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

adjustment to the carrying amount of the liability and the capitalized amount of the related asset retirement cost.

p. Leases - Finance lease transactions are capitalized by recognizing lease assets and lease obligations in the consolidated balance sheet. All other leases are accounted for as operating leases.

q. 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.

r. Construction Contracts - Construction revenue and construction costs are recognized by the percentage-of-completion method if 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 consolidated balance sheet date can be reliably measured, the outcome of a construction contract is deemed to be estimated reliably. 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.

s. Income Taxes - The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.

t. Foreign Currency Transactions - All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of income.

u. Foreign Currency Financial Statements - The consolidated balance sheet accounts and revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the consolidated balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income in a separate component of equity.

v. 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. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.Cash dividends per share presented in the accompanying consolidated

statement of income are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year.

w. New Accounting PronouncementsTax effect accounting - On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, "Partial Amendments to Accounting Standard for Tax Effect Accounting," which requires deferred tax assets and deferred tax liabilities to be classified as investments and other assets and long-term liabilities, respectively. Deferred tax assets were previously classified as current assets and investments and other assets, and deferred tax liabilities were previously classified as current liabilities and long-term liabilities under the previous accounting standard. The revised accounting standard is effective for annual periods beginning on or after April 1, 2018. Earlier application is permitted for annual periods ending on or after March 31, 2018. The Company expects to apply the revised accounting standard for annual periods beginning on April 1, 2018, and the effects of applying the accounting standard and guidance in future applicable periods are immaterial.Revenue recognition - On March 30, 2018, the ASBJ issued ASBJ Statement No. 29, "Accounting Standard for Revenue Recognition," and ASBJ Guidance No. 30, "Implementation Guidance on Accounting Standard for Revenue Recognition." The core principle of the standard and guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should recognize revenue in accordance with that core principle by applying the following steps:

Step 1: Identify the contract(s) with a customerStep 2: Identify the performance obligations in the contractStep 3: Determine the transaction priceStep 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisf ies a performance obligation

The accounting standard and guidance are effective for annual periods beginning on or after April 1, 2021. Earlier application is permitted for annual periods beginning on or after April 1, 2018.The Company expects to apply the accounting standard and guidance for annual periods beginning on or after April 1, 2021, and is in the process of measuring the effects of applying the accounting standard and guidance in future applicable periods.

3. INVESTMENT SECURITIES

The cost and aggregate fair value of available-for-sale securities at March 31, 2018 and 2017, were as follows:

The proceeds, realized gains, and realized losses of the available-for-sale securities which were sold during the year ended March 31, 2018, were as follows:

The impairment losses on available-for-sale equity securities for the year ended March 31, 2017, were ¥252 million.

4. INVENTORIES

Inventories at March 31, 2018 and 2017, consisted of the following:

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

Short-term bank loans bear interest at rates ranging from 0.03% to 4.70% at March 31, 2018, and from 0.33% to 3.95% at March 31, 2017.Long-term debt at March 31, 2018 and 2017, consisted of the following:

Annual maturities of long-term debt, as of March 31, 2018, for the next five years and thereafter were as follows:

The carrying amounts of assets pledged as collateral for long-term bank loans of ¥1,608 million ($15,134 thousand) at March 31, 2018, were as follows:

The above assets are provided for a factory foundation mortgage.The above collateralized long-term debt includes the current portion of long-term debt.

6. RETIREMENT BENEFITS

The Company and its domestic consolidated subsidiaries have defined benefit retirement plans for employees. Employees terminating their employment are, under most circumstances, entitled to retirement benefits determined based on the rate of pay at the time of termination, length of service, and conditions under which the termination occurs. If the termination is involuntary, caused by retirement at the mandatory retirement age, or caused by death, the employee is entitled to greater payments than in the case of voluntary termination.Employees of the Company who retire at the mandatory retirement age are entitled to receive approximately 50% of their benefits in the form of an annuity with the balance in a lump-sum payment upon retirement. The funds for the annuity payments are entrusted to an outside trustee.(1) The changes in defined benefit obligation for the years ended March 31,

2018 and 2017, were as follows:

Loans from banks and insurance companies, due serially to 2023 with interest rates ranging from 0.15% to 5.13% (2018 and 2017):

CollateralizedUnsecured

Obligation under finance leasesTotalLess current portionLong-term debt, less current portion

2018

¥1,608 10,819

142 12,569 (2,440)

¥10,129

¥2,07212,019

23414,325(2,435)

¥11,890

$15,134101,826

1,337118,297(22,965)$95,332

2017 2018

Millions of Yen Thousands ofU.S. Dollars

201920202021202220232024 and thereafterTotal

¥2,4403,3212,4663,568

570204

¥12,569

$22,96531,25623,20933,581

5,3651,921

$118,297

Thousands ofU.S. Dollars

Millions ofYen

Year Ending March 31

LandBuildings and structures Total

¥40929

¥438

$3,849273

$4,122

Thousands ofU.S. Dollars

Millions ofYen

Equity securitiesCost¥803

UnrealizedGains

Millions of YenUnrealized

LossesFair Value

¥1,778 ¥2,581

March 31, 2017

Equity securitiesCost

$7,134

UnrealizedGains

Thousands of U.S. DollarsUnrealized

LossesFair Value

$24,282 $18 $31,398

March 31, 2018

Equity securitiesProceeds

Thousands of U.S. DollarsRealized

GainsRealizedLosses

$1,553 $1,111

March 31, 2018

Equity securitiesCost¥758

UnrealizedGains

Millions of YenUnrealized

LossesFair Value

¥2,580 ¥2 ¥3,336

March 31, 2018

Equity securitiesProceeds

¥165

RealizedGains

Millions of YenRealizedLosses

¥118

March 31, 2018

Finished products and semi-finished products

Work in processRaw materials and suppliesTotal

2018

¥4,076

11,286 8,438

¥23,800

¥4,101

10,862 8,487

¥23,450

$38,362

106,22279,416

$224,000

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Balance at beginning of year (as restated)Current service costInterest costActuarial lossesBenefits paid

Balance at end of year

2018¥6,229

42757

150(435)

¥6,428

¥5,947379

53343

(493)¥6,229

$58,626 4,019

536 1,412

(4,094)$60,499

2017 2018

Millions of Yen Thousands ofU.S. Dollars

27 28

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

(2) The changes in plan assets for the years ended March 31, 2018 and 2017, were as follows:

(3) A reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets is as follows:

(4) The components of net periodic retirement benefit costs for the years ended March 31, 2018 and 2017, were as follows:

(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2018 and 2017, were as follows:

(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2018 and 2017, were as follows:

(7) Plan assetsa. Components of plan assets

Plan assets as of March 31, 2018 and 2017, consisted of the following:

b. Method of determining the expected rate of return on plan assetsThe expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the future from the various components of the plan assets.

(8) Assumptions used for the years ended March 31, 2018 and 2017, were set forth as follows:

7. ALLOWANCE FOR LOSSES ON CONSTRUCTION CONTRACTS

(1) Both the costs on uncompleted construction contracts and the allowance for losses on construction contracts are offset in the balance sheet for the year ended March 31, 2018. Amounts of allowance for losses on construction contracts offset by inventories were as follows:

(2) Allowance for loss on construction contracts included in "Cost of sales" for the year ended March 31, 2018, were as follows:

8. EQUITY

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

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders' meeting. Additionally, for companies that meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the Company has prescribed so in its articles of incorporation. The Company meets the above criteria and, accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.The Companies Act permits companies to distribute dividends in-kind (noncash assets) to shareholders subject to a certain limitation and additional requirements.Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock.

The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

(b) Increases/decreases and transfer of common stock, reserve, and 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 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 with equity 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 shareholders, which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the years ended March 31, 2018 and 2017, principally consisted of the following:

10. LONG-LIVED ASSETS

The Group reviewed its long-lived assets for impairment as of March 31, 2018 and 2017.For the year ended March 31, 2018:As the performance of CFN Precision, Ltd., a wholly owned subsidiary, has deteriorated, the Group recognized an impairment loss for certain machinery and equipment, goodwill, and other assets of the Aerospace business. The impairment loss total of ¥608 million ($5,722 thousand) was recorded as other expenses. The recoverable amount of that asset group of the Aerospace business was measured at its value in use and the discount rate used for computation of the present value of future cash flows was 10%.

For the year ended March 31, 2017:The Group recognized an impairment loss for certain idle machinery and equipment in Hyogo Prefecture in Japan. Due to continuing operating losses at SPP Canada Aircraft, Inc., a wholly owned subsidiary, the Group also recognized an impairment loss for certain machinery and equipment, goodwill, and other assets of the Aerospace business. The impairment loss total of ¥969 million was recorded as other expenses. The recoverable amount of that asset group of the Aerospace business was measured at its value in use and the discount rate used for computation of the present value of future cash flows was 10%.

11. INCOME TAXES

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of 30.8% for the years ended March 31, 2018 and 2017.The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2018 and 2017, were as follows:

Debt investmentsEquity investmentsCash and cash equivalentsOthersTotal

41%5027

100%

43%4926

100%

Discount rateExpected rate of return on plan assetsExpected rate of salary increase

0.865-1.011%3.0%

1.4-2.6%

0.865-1.011%3.0%

1.4-2.6%

2018 2017

2018 2017

Employees' salaries and bonusesNet periodic retirement benefit costsDepreciation and amortizationResearch and development costsGoodwill amortization

2018¥3,449

166361927128

¥3,481 176 393

1,063 204

$32,461 1,562 3,398 8,725 1,205

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Deferred tax assets – currentDeferred tax assets – noncurrentLong-term liabilities – noncurrent

2018¥1,271

425 (708)

¥1,132 468

(489)

$11,962 4,000

(6,664)

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Balance at beginning of yearExpected return on plan assetsActuarial gainsContributions from the employerBenefits paid

Balance at end of year

2018¥4,950

148 205 210

(180)¥5,333

¥4,733 142 83

215 (223)

¥4,950

$46,588 1,393 1,929 1,977

(1,694)$50,193

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Defined benefit obligationPlan assets Net liability arising from defined benefit obligation

2018¥6,428

(5,333)¥1,095

¥6,229 (4,950)

¥1,279

$60,499 (50,193)

$10,306

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Work in process ¥285 $2,682

Millions ofYen

Thousands ofU.S. Dollars

¥419 $3,944

Millions ofYen

Thousands ofU.S. Dollars

Service costInterest costExpected return on plan assetsAmortization of prior service costRecognized actuarial lossesOthersNet periodic benefit costs

2018¥427

57 (148)

(7) 382

(2)¥709

¥379 53

(142) (6)

363 12

¥659

$4,019 536

(1,393) (66)

3,596 (19)

$6,673

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Prior service costActuarial lossesTotal

2018¥7

(436)¥(429)

¥6(90)

¥(84)

$66(4,104)

$(4,038)

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Unrecognized prior service costUnrecognized actuarial lossesTotal

2018¥(23)

1,037¥1,014

¥(29)1,472

¥1,443

$(216)9,760

$9,544

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Deferred tax assets:Reserve for accrued bonusesLiability for retirement benefitsLoss on devaluation of inventoriesLoss on devaluation of investment securitiesTax loss carryforwardsOtherLess valuation allowance

TotalDeferred tax liabilities:

Roll-over relief on property, plant and equipmentNet unrealized gain on available-for-sale securitiesPrepaid pension costOther

TotalNet deferred tax assets

2018

¥392 310 584 64

1,415 1,138

(1,755)¥2,148

¥(126) (794) (77)

(163)¥(1,160)

¥988

¥390 441 507

90 1,311 1,056

(1,700)¥2,095

¥(129) (549) (145) (161)

¥(984)¥1,111

$3,689 2,918 5,496

602 13,318 10,711

(16,518)$20,216

$(1,186) (7,473)

(725) (1,534)

$(10,918)$9,298

2017 2018

Millions of Yen Thousands ofU.S. Dollars

Note:The amounts of net deferred tax assets were shown in the following accounts in the consolidated balance sheets as of March 31, 2018 and 2017.

29 30

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying consolidated statement of operations for the year ended March 31, 2018, is as follows:

A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2017 has not been disclosed because the Group was in a net loss position.At March 31, 2018, certain subsidiaries had expiring tax loss carryforwards, aggregating approximately ¥5,282 million ($49,713 thousand), which are available to be offset against taxable income of such subsidiaries in future years. These tax loss carryforwards, if not utilized, will expire as follows:

12. LEASES

Total rental expenses including lease payments under finance lease agreements that do not transfer ownership of the leased property to the Group, accounted for as operating leases, were ¥443 million ($4,165 thousand) and ¥425 million for the years ended March 31, 2018 and 2017, respectively.

13. RELATED PARTY TRANSACTIONS

Balances and transactions of the Company with a subsidiary of Sumitomo Corporation as of and for year ended March 31, 2018, were as follows:Transaction between the Company and a Related Party

14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(1) Group Policy for Financial InstrumentsThe Group uses financial instruments, mainly long-term debt, including bank loans and convertible bonds, based on its capital financing plan. Cash surpluses, if any, are invested in low-risk financial assets. Short-term bank loans are used to fund the Group's ongoing operations. Derivatives are not used for speculative purposes, but to manage exposure to financial risks as described in (2) below.

(2) Nature and Extent of Risks Arising from Financial InstrumentsReceivables, such as trade notes and trade accounts, are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are hedged by using forward foreign currency contracts. Investment securities are mainly equity securities and their fair market values are monitored on a quarterly basis.Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are generally hedged by using forward foreign currency contracts.Maturities of bank loans and lease obligations are less than six and a half years after the consolidated balance sheet date. Although a part of such bank loans and lease obligations are exposed to market risks from changes in variable interest rates and foreign currency exchange rates, those risks are mitigated by using derivatives of interest rate swaps and currency swaps. See Note 15 for more details about derivatives.

(3) Risk Management for Financial InstrumentsCredit risk managementCredit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring payment terms and balances of major customers by each business administration department to identify the default risk of customers at an early stage. Because the counterparties to derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk. See Note 15 for more details regarding derivatives.Market risk management (foreign currency exchange rate risk and interest rate risk)Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such exchange rate risk is hedged principally by forward foreign currency contracts. Interest rate swaps and currency swaps are used to manage exposure to market risks from changes in the interest rates and foreign currency exchange rates of loan payables.Investment securities are managed by monitoring market value and the financial position of issuers on a regular basis.Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and

credit limit amount by the corporate treasury department.Liquidity risk managementLiquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on their maturity dates. The Group manages its liquidity risk by holding an adequate volume of liquid assets along with adequate financial planning by the corporate treasury department.

(4) Fair Values of Financial InstrumentsFair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, other rational valuation techniques are used instead. See Note 15 for details on the fair values of derivatives. (a) Fair values of financial instruments

Cash and cash equivalents and Notes and accounts receivableThe carrying values approximate fair value because of their short maturities. Investment securitiesThe fair values are measured at the quoted market price of the stock exchange for the equity instruments. Fair value information for the investment securities by classification is included in Note 3.

Short-term bank loans and PayablesThe carrying values approximate fair value because of their short maturities. Long-term debtThe fair values of long-term debt and lease obligations are determined by discounting the future cash flows related to the debt at the Group's assumed corporate borrowing rate.DerivativesFair value information for derivatives is included in Note 15.(b) Carrying amount of financial instruments whose fair value cannot

be reliably determined

(5) Maturity analysis for financial assets with contractual maturitiesThe entire balance for cash and cash equivalents, and notes and accounts receivable is due in one year or less as of March 31, 2018 and 2017. See Note 5 for annual maturities of long-term debt.

Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal

Short-term bank loansPayablesLong-term debt *(1)Total

CarryingAmount

Millions of YenFair Value

UnrealizedLoss

¥10,60020,0383,336

¥33,974

¥(16,184) (10,278) (12,569)

¥(39,031)

¥10,60020,0383,336

¥33,974

¥(16,814)(10,278)(12,576)

¥(39,038)¥(7)¥(7)

March 31, 2018

Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal

Short-term bank loansPayablesLong-term debt *(1)Total

CarryingAmount

Millions of YenFair Value

UnrealizedLoss

¥8,06119,3342,807

¥30,202

¥(16,115)(8,718)

(14,325)¥(39,158)

¥8,061 19,334 2,807

¥30,202

¥(16,115) (8,718)

(14,351)¥(39,184)

¥(26)¥(26)

March 31, 2017

Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal

Short-term bank loansPayablesLong-term debt *(1)Total

CarryingAmount

Thousands of U.S. DollarsFair Value

UnrealizedLoss

$99,765188,59331,397

$319,755

$(152,320)(96,734)

(118,297)$(367,351)

$99,765 188,593 31,397

$319,755

$(152,320) (96,734)

(118,362)$(367,416)

$(65)$(65)

March 31, 2018

*(1) The above long-term debt includes the current portion of long-term debt.

201920202021202220232024 and thereafterTotal

¥234 100 262 407 313

3,966¥5,282

$2,202 941

2,466 3,831 2,946

37,327$49,713

Thousands ofU.S. Dollars

Millions ofYen

Year Ending March 31

Normal effective statutory tax rateExpenses not permanently deductible for income tax purposesIncome not permanently taxable for income tax purposesPer capita in local taxAmortization of goodwillEquity in earnings of associated companiesTax rate difference in foreign subsidiariesTax creditChange in valuation allowanceOther – netActual effective tax rate

30.8%0.5

(0.1)1.11.0

(5.5)3.5

(3.5)23.50.3

51.7%

Sales prices and other conditions are determined on general terms and conditions.

Sumitomo Corporation:Accounts receivable-tradeSales

Sumisho Aero-Systems Corporation:Accounts receivable-tradeSales

Sumisho Metalex Corporation:Accounts receivable-tradeSales

¥1,419 3,683

1,774 4,213

852 2,145

$13,355 34,664

16,696 39,652

8,019 20,188

Millions ofYen

Thousands ofU.S. Dollars

Investments in equity instruments that do not have a quoted market price in an active market

Investments in limited partnershipsTotal

2018

¥218

¥218

¥217

9¥226

$2,052

$2,052

2017 2018

Millions of Yen Thousands ofU.S. Dollars

31 32

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

Sales:Sales to external customersIntersegment sales or transfers

TotalSegment profit

(operating income)Segment assetsOther:

DepreciationAmortization of goodwill

Consolidated

Millions of Yen2018

¥47,241

¥47,241

¥2,035

80,280

2,178 128

1,225

805

Reconciliations

¥9,673

Total

¥47,241

¥47,241

¥2,035

70,607

2,178128

1,225

805

ICT RelatedProducts

¥7,978

¥7,978

¥1,058

13,709

25579

1,225

93

Heat Energyand EnvironmentalRelated Products

¥8,366

¥8,366

¥(272)

10,659

487

74

Aerospace and Related

Products

¥30,897

¥30,897

¥1,249

46,239

1,436 49

638

Reportable Segment

Sales:Sales to external customersIntersegment sales or transfers

TotalSegment profit

(operating income)Segment assetsOther:

DepreciationAmortization of goodwill

Consolidated

Millions of Yen2017

¥48,097

¥48,097

¥731

77,811

2,544204

979

1,512

Reconciliations

¥6,797

Total

¥48,097

¥48,097

¥731

71,014

2,544204

979

1,512

ICT RelatedProducts

¥6,631

¥6,631

¥175

11,598

27083

979

73

Heat Energyand EnvironmentalRelated Products

¥10,346

¥10,346

¥(255)

13,604

770

190

Aerospace and Related

Products

¥31,120

¥31,120

¥811

45,812

1,504121

1,249

Reportable Segment

Sales:Sales to external customersIntersegment sales or transfers

TotalSegment profit

(operating income)Segment assetsOther:

DepreciationAmortization of goodwill

Consolidated

Thousands of U.S. Dollars2018

$444,621

$444,621

$19,153

755,576

20,4991,205

11,529

7,576

Reconciliations

$91,040

Total

$444,621

$444,621

$19,153

664,536

20,4991,205

11,529

7,576

ICT RelatedProducts

$75,087

$75,087

$9,958

129,026

2,400744

11,529

875

Heat Energyand EnvironmentalRelated Products

$78,739

$78,739

$(2,560)

100,320

4,584

696

Aerospace and Related

Products

$290,795

$290,795

$11,755

435,190

13,515461

6,005

Reportable Segment

In addition, allocation of expenses was revised in connection with the change in the performance management method in order to more properly reflect segment profit and loss.Segment information disclosed for the previous fiscal year is based on the reportable segments of the current fiscal year and the allocation method after revision.Aerospace and related products consists of manufacturing and sale of propeller systems, landing gear systems, heat control systems, space equipment, hydraulic pumps, hydraulic valves, and others. Heat energy and environmental related products consist of manufacturing and sale of LNG vaporizers, heat exchangers, ozone generators, and others. ICT related products consist of manufacturing and sale of semiconductor equipment and others.

2. Methods of Measurement For the Amounts of Sales, Profit, Assets, and Other Items for Each Reportable SegmentThe accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting Policies."

3. Information about Sales, Profit, Assets, and Other Items

4. Information about Geographical Areas(1) Sales

(2) Property, plant and equipmentInformation about property, plant and equipment by geographical area is not disclosed because Japanese GAAP does not require such disclosure if total assets in Japan represent more than 90% of the consolidated amounts.

5. Information about Major CustomersInformation about major customers is not disclosed for the years ended March 31, 2018 and 2017, because there is no customer that represents more than 10% of net sales in the consolidated statement of income.

6. Information about Impairment Losses of Assets

Interest rate swaps:(fixed rate payment, floating rate receipt)

ContractAmount

HedgedItem

Long-termdebt ¥1,339

2,200

¥1,094

2,140

ContractAmount

Due afterOne Year

FairValue

Millions of YenAt March 31, 2018

Interest rate swaps:(fixed rate payment, floating rate receipt)

ContractAmount

HedgedItem

Long-termdebt $12,602

20,706

$10,296

20,141

ContractAmount

Due afterOne Year

FairValue

Thousands of U.S. DollarsAt March 31, 2018

Interest rate swaps:(fixed rate payment, floating rate receipt)

Currency swaps

Currency swaps

ContractAmount

HedgedItem

Long-termdebt

Long-termdebt

Long-termdebt

Long-termdebt

ContractAmount

Due afterOne Year

FairValue

Millions of YenAt March 31, 2017

Unrealized gain on available-for-sale securities:Gains arising during the yearReclassification adjustments to profit or lossAmount before income tax effectIncome tax effect

Total

Foreign currency translation adjustments:Adjustments arising during the year

Total

Defined retirement benefit plans:Adjustments arising during the yearReclassification adjustments to profit or lossAmount before income tax effectIncome tax effect

Total

Share of other comprehensive income in associates:Gains arising during the year

TotalTotal other comprehensive income

2018

¥684111795

(244)¥551

¥(20)¥(20)

¥54375429

(131)¥298

¥36¥36

¥865

¥639 236 875

(265)¥610

¥(160)¥(160)

¥(273) 357 84

(26)¥58

¥(113)¥(113)¥395

$6,4381,0447,482

(2,296)$5,186

$(188)$(188)

$508 3,530 4,038

(1,233)$2,805

$338$338

$8,141

2017 2018

Millions of Yen Thousands ofU.S. Dollars

15. DERIVATIVES

The Group enters into derivative contracts to hedge market risks such as foreign exchange and interest rate fluctuations associated with certain assets and liabilities.It is the Group's policy to use derivatives only for the purpose of reducing market risks associated with assets and liabilities. The Group does not hold or issue derivatives for speculative purposes.Since all of the Group's derivative transactions are related to qualified hedges of underlying business exposures, market gain or loss risk on derivative instruments is generally offset by opposite movements in the value of the hedged assets or liabilities.Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount. Derivative transactions to which hedge accounting is applied.

The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expense. The above currency swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value.In addition, the fair values of such interest rate swaps and currency swaps in Note 14 are included in that of hedged items (i.e., long-term debt).The contractual or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Group's exposure to credit or market risk.

16. OTHER COMPREHENSIVE INCOME

The components of other comprehensive income for the years ended March 31, 2018 and 2017, were as follows:

17. 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 Disclosures," an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and for which such information is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.1. Description of Reportable Segments

The Group's reportable segments are those for which separate financial information is available and regular evaluation by the Company's management is performed in order to decide how resources are allocated among the Group. The Group consists of three segments: aerospace and related products, heat energy and environmental related products, and ICT related products.Due to the change in the classification method of the reportable segments associated with the change in components for which managers are held responsible, allocation of sales and expenses to each segment was revised in order to appropriately reflect segment profit and loss.

¥47,241Tota l

¥111Other

¥8,010Asia

¥6,175Europe

¥9,382North America

¥23,563Japan

Millions of Yen2018

¥48,097Tota l

¥89Other

¥6,383Asia

¥4,612Europe

¥11,458North America

¥25,555Japan

Millions of Yen2017

$444,621Tota l

$1,045Other

$75,388Asia

$58,118Europe

$88,301North America

$221,769Japan

Thousands of U.S. Dollars2018

Note: Sales are classified by country or region based on the location of customers.

Impairment losses of assets

Millions of Yen2017

¥220¥749

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

¥969

Total

Impairment losses of assets

Millions of Yen2018

¥608

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

¥608

Total

Impairment losses of assets

Thousands of U.S. Dollars2018

$5,722

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

$5,722

Total

Currency swaps

¥2,610

1,583

¥2,200

1,399

Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets

Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets

Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets

33 34

C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s

I n d e p e n d e n t A u d i t o r ’ s R e p o r tM a r c h 3 1 , 2 0 1 8

Amortization of goodwillGoodwill at March 31, 2018

Millions of Yen2018

¥79

573

¥49

19

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

¥128

592

Total

Number of common stock outstanding before the consolidation of stock (as of May 31, 2018)Number of common stock to be decreased by the consolidation of stockNumber of common stock outstanding afterthe consolidation of stock

Millions of Yen2017

¥121

369

¥83

688

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

¥204

1,057

Total

Thousands of U.S. Dollars2018

$744

5,393

$461

179

Heat Energy andEnvironmental

Related Products

Aerospace and Related

ProductsICT Related

ProductsElimination/Corporate

$1,205

5,572

Total

Amortization ofgoodwillGoodwill at March 31, 2017

Amortization ofgoodwillGoodwill at March 31, 2018

7. Information about Amortization of Goodwill

18. SUBSEQUENT EVENTS

Appropriations of Retained EarningsAt the general shareholders' meeting held on June 27, 2018, the Company's shareholders approved the following appropriations of retained earnings as of March 31, 2018:

Consolidation of Shares, Revision of the Number of Shares per Trading Unit and Amendment of the Articles of IncorporationThe Company resolved at the Board of Directors' meeting held on May 18, 2018, to submit a proposal for partial amendment of the Articles of Incorporation for the consolidation of shares and the revision of the number of shares per trading unit to the general shareholders' meeting held on June 27, 2018. The proposal was approved by resolution at the general shareholders' meeting held on June 27, 2018.a. Reason for the consolidation of shares and revision of the number of

shares per trading unitThe Japanese stock exchanges announced the "Action Plan for Consolidating Trading Units" and are pursuing the goal of consolidation of the trading units of listed companies at 100 shares. In accordance therewith, the Company proposed to change the number of shares per trading unit from 1,000 to 100 shares and consolidate its shares.

b. Details of the consolidation of shares(1) Class of stock to be consolidated: Common stock(2) Method of consolidation and ratio:

The Company shall consolidate the shares on October 1, 2018, at a ratio of 10 to 1 held by the shareholders registered on September 30, 2018.

(3) Decrease in the number of common stock due to the consolidation

c. Handling of fractional shares of less than one share unitIf any fractional shares arise as a result of the consolidation of shares, pursuant to the provisions of the Companies Act, the Company will sell all such fractional shares and distribute the proceeds to shareholders having fractional shares in proportion to their respective fractions.

d. The total number of authorized shares on the effective day

e. Impact on per share informationPer share information for the fiscal years ended May 31, 2018 and 2017 is as follows, assuming that the shares were consolidated as such at the beginning of the fiscal year ended May 31, 2017.

Appropriations:Cash dividends, ¥2.5 ($0.05) per share

¥132 $1,242

Thousands ofU.S. Dollars

Millions ofYen

53,167,798 shares

47,851,019 shares

5,316,779 shares

Number of authorized shares before the consolidation of sharesNumber of authorized shares after the consolidation of shares(as of October 1, 2018)

200,000,000 shares

20,000,000 shares

Note:"Number of common stock to be decreased by the consolidation of shares" and "Number of common stock outstanding after the consolidation of shares" are theoretical values calculated based on the number of common stock outstanding before the consolidation of shares and the consolidation ratio.

Net asset per share of common stockNet income per share of common stock

2018¥6,149.45

94.71$57.88

0.89

2017 2018

Millions of Yen Thousands ofU.S. Dollars

¥5,950.51(281.16)

35 36

D o m e s t i c■ Office & Plant ／ ■ Main Affiliated Company

O v e r s e a s

■ Head Office & Main Plant

■ Sumisei Engineering Co., Ltd. （Design, drawing and engineering services） ■ Sumisei Sangyo Co., Ltd. （Sales of all types of materials and machinery parts） ■ Shinsen Seiki Co., Ltd. （Processing of all types of machinery parts）

■ SPP Nagasaki Engineering Co., Ltd （Maintenance, repair and overhaul on aircraft landing gear systems and customer support）

■ Shiga Plant

■ Nagoya Sales Office

■ Tokyo Head Office

■ SPP Technologies Co., Ltd. （Production, sales and support of MEMS/ semiconductor related process tools）

■ Sumisei Hydraulic Systems Co., Ltd. （Production, maintenance and sales of aerospace and hydraulic equipment）

■ Wakayama Plant

■ Iruma Plant

■ Sumitomo Precision USA, Inc. （Production and sales of heat exchangers for aerospace）

■ SPP Canada Aircraft, Inc. （Design, assembly, sales and customer support for Commercial Landing Gear Systems）

■ Sumitomo Precision Shanghai Co., Ltd. （Development and sales of environmental systems）

■ Ningbo SPP Hydraulics Co., Ltd. （Production and sales of QT pumps）

■ Silicon Sensing Systems Ltd. （Production and sales of motion sensors）

■ Tecnickrome Aéronautique Inc. （Surface finishing of aircraft parts）

■ CFN Precision Ltd. （Production and sales of aircraft parts）

■ SPT Microtechnologies USA, Inc. (Manufacture and sales of thermal process furnace equipment etc. and relevant services for semiconductor related device industry)

53,167 thousandshares

Ind iv iduals and other31.5％

Financia l Inst i tut ions12.9％

Domest ic Corporat ions

45.1％

Fore ign Investors

8.9％

Treasury Stock0.5％

Financia l Instrument Companies

1.3％

Sumitomo Precision Products Co., Ltd.January, 1961¥10,311 millionYoshio Taoka1,853 (Consolidated)1,146 (Non-consolidated)1-10 Fuso-cho, Amagasaki, Hyogo 660-0891, JapanMain Plant (Amagasaki), Shiga Plant, Wakayama Plant (Plant site area： 136,844 square Meters)https://www.spp.co.jp

C o m p a n y P r o f i l e ( A s o f M a r c h 3 1 , 2 0 1 8 )

Company NameEstabl ishedPaid- in Capi ta lPres identNumber of Employees

Head Of f icePlantURL

S t o c k I n f o r m a t i o n ( A s o f M a r c h 3 1 , 2 0 1 8 )

F iscal YearOrdinary Shareholder Meet ingRecord Date

Transfer Agent

Method of Publ ic Not icesStock CodeNumber of Author ized SharesNumber of Issued SharesNumber of ShareholdersMin imum Trading Uni tStock Exchange L ist ing

From April 1 of each year through March 31 of the following yearJuneOrdinary Shareholder Meeting: March 31Year-end Dividends: March 31Interim Dividends: September 301-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan Sumitomo Mitsui Trust Bank, Limited To be posted on the Company’s Website （https://www.spp.co.jp）6355200,000,00053,167,7985,3261,000Tokyo

▶ Major Shareholders▶ Breakdown of Shareholders

Name of Shareholder

Sumitomo Corporation

Nippon Steel & Sumitomo Metal Corporation

The Master Trust Bank of Japan, Ltd. (trust account)

Sumitomo Precision Products Co., Ltd. Kyoeikai

Japan Trustee Services Bank, Ltd. (trust account)

DFA INTL SMALL CAP VALUE PORTFOLIO

Masayoshi Yamauchi

Japan Trustee Services Bank, Ltd. (trust account 5)

Kazuyoshi Yamamoto

Sumitomo Mitsui Banking Corporation

14,6257,6491,6541,1721,126

884690626600543

Number ofShares

(thousands)

ShareholdingRatio

(%)

27.6314.45

3.122.212.131.671.301.181.131.03

D o m e s t i c a n d O v e r s e a s B a s e sA s o f J u l y 1 , 2 0 1 8

C o m p a n y P r o f i l e / S t o c k I n f o r m a t i o n

37 38

1-10 Fuso-cho, Amagasaki, Hyogo 660-0891, JapanPhone 81-(0)6-6482-8811 FAX 81-(0)6-6489-5801https://www.spp.co.jp/