Meidensha : Financials Report 2024

Published September 29, 2024 at 10:00 p.m. UTC

Source: MarketScreener

Financials Report 2024

For the year ended March 31, 2024

Contents

Financial Highlights	2
CONSOLIDATED BALANCE SHEETS	3
CONSOLIDATED STATEMENTS OF INCOME / CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	5
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS	6
CONSOLIDATED STATEMENTS OF CASH FLOWS	7
Notes to Consolidated Financial Statements	8
Independent Auditor's Report	36

Forward-Looking Statements

This financial report contains forward-looking statements regarding the future results and performance of the Meiden Group. Such statements are based on information available at the time of preparation of this report, and include various potential risks and uncertainties. As a result, actual results could differ materially from those anticipated by these forward-looking statements.

Financial Highlights

Meidensha Corporation and Consolidated Subsidiaries Years ended March 31

				Millions of Yen	Thousands of U.S. Dollars
				(except per share data)	(except per share data)
	2020	2021	2022	2023	2024	2024

For the year:
Order received	¥ 244,181	¥ 221,365	¥ 259,636	¥ 302,939	¥ 329,316	$ 2,180,901
Net sales	255,749	231,254	255,047	272,579	287,880	1,906,490
Operating income	12,726	8,384	9,468	8,540	12,731	84,311
Net income attributable to owners of the parent	8,208	7,304	6,734	7,129	11,206	74,212
Capital expenditures	16,043	15,575	10,749	12,347	9,981	66,099
Depreciation and amortization	9,766	10,448	12,535	11,163	11,011	72,920
R&D expenses	10,468	9,469	9,870	10,257	10,099	66,881
Per share data (yen and U.S. dollars):
Net income	180.91	160.98	148.43	157.13	247.00	1.64
Cash dividends	50.00	48.00	50.00	50.00	75.00	0.50
At year-end:
Total assets	270,411	279,059	290,899	307,391	334,788	2,217,139
Total net assets	90,118	99,737	105,422	110,882	129,489	857,543
Number of employees	9,599	9,647	9,923	9,816	9,810	－

Notes: 1. The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate on March 31, 2024, which was ¥151 to U.S $1.

Figures for employee numbers exclude those employees on temporary contracts.
The amount of cash dividends per share for March 31. 2024 is ¥75, which is the total of the interim dividends of ¥25 and the year-end dividends of ¥50.

In the year ended March 31, 2024, the Japanese economy saw an improvement in investment sentiment in a wide range of private-sector industries, reflecting progress in the normalization of supply chains, a recovery in the flow of people after the COVID-19 pandemic, and a return of manufacturing to the domestic market. In addition to this, demand from the public sector remained stable, and inquiries for our heavy electrical products and systems remained strong throughout the year. Meanwhile, prices for various materials and energy have remaining high and delays in construction progress caused by the labor shortage that is becoming a nationwide issue have put pressure on profitability in some business segments.

Furthermore, in the global economy, the emergence of various business risks associated with geopolitical disruptions, continuously rising prices in major countries, and loosening of supply and demand in the semiconductor market had no small impact on the Company's business performance. Meanwhile, the expansion of energy investments in various countries aimed at the realization of a decarbonized society and the increasing need for environmentally friendly products provided a tailwind that led to a significant improvement in the profitability of our overseas operations.

Amid such conditions, the Group focused on businesses and products contributing to the environment based on the policies set forth in Medium-Term Management Plan 2024, and promoted moves such as the implementation of various measures aimed at strengthening the earnings base in overseas business and the implementation of sustainability management.

As a result, consolidated net sales in the consolidated fiscal year ended March 31, 2024, increased by 5.6% from the previous

consolidated fiscal year to ¥287,880	million, operating income increased by 49.1% to ¥12,731 million, and net income attributable to
owners of the parent increased by 57.2% to ¥11,206 million.
Net sales	Net income attributable to owners of	Total assets
( Millions of yen )	the parent	( Millions of yen )
	( Millions of yen )

300,000
	255,749		255,047	272,579	287,880
250,000
		231,254
200,000
150,000
100,000
50,000
0
	2020	2021	2022	2023	2024

12,000
					11,206
10,000
8,000	8,208	7,304
		6,734	7,129

6,000
4,000
2,000
0
	2020	2021	2022	2023	2024
			2

350,000				334,788

300,000		290,899	307,391

270,411	279,059
250,000
200,000
150,000
100,000
50,000
0
2020	2021	2022	2023	2024

CONSOLIDATED BALANCE SHEETS

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (as of March 31, 2024 and 2023)

	Millions of yen		Thousands of
		U.S. dollars (Note1)
Assets	2024	2023	2024

Current assets:
Cash and time deposits (Note 23)	¥18,984	¥14,917	$125,722
Receivables:
Trade notes (Note 6 and Note 18)	2,564	4,090	16,980
Electronically recorded monetary claims	9,318	8,761	61,709
Trade accounts and contract assets (Note 6 and Note 18)	103,798	95,255	687,404
Loans receivable and advances	937	1,241	6,205
Due from unconsolidated subsidiaries and affiliates	25	12	166
Allowance for doubtful accounts	(302)	(184)	(2,000)
Inventories (Note 5)	67,225	58,739	445,199
Other current assets	5,954	4,920	39,430

Total current assets	208,503	187,751	1,380,815

Property, plant and equipment:
Land (Note 22)	12,543	12,697	83,066
Buildings and structures (Note 7 and Note 22)	101,484	98,385	672,079
Machinery and equipment (Note 7 and Note 22)	97,030	90,406	642,583
Right of use assets (Note 17)	3,886	3,684	25,735
Construction in progress (Note 10)	2,877	6,107	19,053
Accumulated depreciation	(142,456)	(135,491)	(943,417)

Net property, plant and equipment	75,364	75,788	499,099

Investments and other assets:
Investment securities (Notes 3, 4 and 12)	26,282		16,420	174,053
Investments in unconsolidated subsidiaries and affiliates (Note 4)	276		276	1,828
Long-term loans receivable (Note 3)	31		37	205
Deferred tax assets (Note 21)	14,378		16,535	95,219
Software (Note 7 and Note 10)	4,775		4,862	31,623
Goodwill	2,176		2,676	14,411
Other assets	3,031		3,075	20,071
Allowance for doubtful accounts	(28)		(29)	(185)

Total investments and other assets	50,921		43,852	337,225

Total assets	¥ 334,788	¥	307,391	$ 2,217,139

See accompanying notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (as of March 31, 2024 and 2023)

			Millions of yen			Thousands of
				U.S. dollars (Note1)
Liabilities and Net assets		2024		2023			2024

Current liabilities:
Short-term borrowings (Note 11)	¥	8,649	¥	6,411	$	57,278
Commercial paper (Note 11)		10,000		8,000			66,225
Current portion of long-term debt (Note 3 and 11)		1,263		9,103			8,364
Current Portion of corporate bonds (Note 3 and 11)		6,000		－			39,735
Payables:
Trade notes			3,516		4,526			23,285
Electronically recorded monetary obligations		4,238		3,998			28,066
Trade accounts			32,372		34,433			214,385
Due to unconsolidated subsidiaries and affiliates		31		12			205
Contract liability (Note 18)		19,462		16,534			128,887
Accrued income taxes		3,216		3,263			21,298
Accrued bonuses for employees		8,348		7,858			55,285
Provision for product warranties		1,282		1,105			8,490
Provision for loss on orders		834		590			5,523
Other current liabilities		25,032		22,474			165,775

Total current liabilities		124,243		118,307			822,801
Long-term liabilities:
Corporate bonds (Note 3 and 11)		－		6,000			－
Long-term debt (Note 3 and 11)		28,767		20,995			190,510
Net defined benefit liability (Note 13)		47,445		45,996			314,205
Provision for environmental measures		63		314			417
Deferred tax liabilities (Note 21)		44		68			291
Other Long-term liabilities		4,737		4,829			31,372

Total Long-term liabilities		81,056		78,202			536,795
Contingent liabilities (Note 16)
Net assets (Note 14):
Common stock
Authorized	− 115,200,000 shares
Issued	− 45,527,540 shares		17,070		17,070			113,046
Capital surplus			10,227		10,212			67,728
Retained earnings			78,642		69,569			520,808
Less:Treasury stock, at cost		(196)		(194)			(1,297)
Unrealized gains (losses) on securities, net of taxes		13,297		6,525			88,060
Unrealized gains (losses) on hedging derivatives, net of taxes		－		6			－
Foreign currency translation adjustment		7,610		5,103			50,397
Remeasurements of defined benefit plans, net of taxes		(242)		(393)			(1,603)
Non-controlling interests		3,081		2,984			20,404

Total net assets			129,489		110,882			857,543

Total liabilities and net assets	¥	334,788	¥	307,391	$	2,217,139

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (years ended March 31, 2024, 2023 and 2022)

			Millions of yen					Thousands of
						U.S. dollars (Note1)
		2024		2023		2022			2024
Net sales (Note 18 and Note 20)	¥	287,880	¥	272,579	¥	255,047	$	1,906,490
Cost of sales (Notes 19)		218,887		209,599		193,924			1,449,583
Selling, general and administrative expenses (Notes 19)		56,262		54,440		51,655			372,596
Operating income (Note 20)		12,731		8,540		9,468			84,311
Other income (expenses):
Interest and dividend income		849		739		639			5,623
Interest expense		(908)		(824)		(564)			(6,013)
Equity in net loss of unconsolidated subsidiaries and affiliates		－		－		(26)			－
Gain on sales of fixed assets		3,265		613		39			21,623
Loss on disposal of fixed assets		(253)		(189)		(100)			(1,675)
Impairment loss (Note 10)		(471)		(381)		(501)			(3,119)
Gain on conversion rights		－		－		2,157			－
Loss on reduction of fixed assets		－		－		(2,157)			－
Gain on sales of investment securities (Note 4)		64		1,140		573			424
Loss on valuation of investment securities (Note 4)		－		－		(4)			－
Loss on liquidation of unconsolidated subsidiaries and affiliates		(197)		(74)		－			(1,305)
Loss on sales of investment securities (Note 4)		－		(0)		(291)			－
Litigation expenses		－		(35)		(151)			－
Insurance claim income (Note 8)		687		－		－			4,550
Loss on fire (Note 9)		(792)		－		－			(5,245)
Compensation income		－		351		－			－
Others		781		517		903			5,170
Income before income taxes and non-controlling interests		15,756		10,397		9,985			104,344
Income taxes :
Current		5,225		3,698		3,677			34,603
Deferred		(814)		(562)		(647)			(5,391)
Total		4,411		3,136		3,030			29,212
Net income		11,345		7,261		6,955			75,132
Net income (loss) attributable to non-controlling interests		139		132		221			920
Net income attributable to owners of the parent (Note 25)	¥	11,206	¥	7,129	¥	6,734	$	74,212
				Yen				U.S. dollars (Note1)
		2024		2023		2022			2024
Amounts per share of common stock (Note 25):
Net income	¥	247.00	¥	157.13	¥	148.43	$	1.64
Cash dividends applicable to the year		75.00		50.00		50.00			0.50
See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (years ended March 31, 2024, 2023 and 2022)

					Thousands of
		Millions of yen			U.S. dollars
				(Note1)
	2024	2023	2022	2024

Net income	¥ 11,345	¥ 7,261 ¥	6,955	$ 75,132
Other comprehensive income
Unrealized gains (losses) on securities, net of taxes	6,773	(302)	(718)	44,854
Unrealized gains (losses) on hedging derivatives, net of taxes	(6)	－	－	(39)
Foreign currency translation adjustment	2,534	1,424	2,543	16,781
Remeasurements of defined benefit plans	151	381	95	1,000
Share of other comprehensive income of entities accounted for using equity method	－	－	11		－
Total other comprehensive income (Note 15)	9,452	1,503	1,931	62,596
Comprehensive income	20,797	8,764	8,886	137,728
Comprehensive income attributable to:
Owners of the parent	20,631	8,600	8,642	136,629
Non-controlling interests	166	164	244	1,099
See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (years ended March 31, 2024, 2023 and 2022)

										Millions of yen

						Unrealized gains	Unrealized gains	Foreign	Remeasure-
					Treasury	(losses) on	(losses) on hedging	currency	ments of defined	Non-
	Number of	Common	Capital	Retained	stock, at	securities, net of	derivatives, net of	translation	benefit plans, net	controlling
	shares issued	stock	surplus	earnings	cost	taxes	taxes	adjustment	of taxes	interests	Total
Net assets at April 1, 2021	45,527,540	¥17,070	¥10,928	¥60,867	¥(191)	¥7,544	¥6	¥1,180	¥(869)	¥3,202	¥99,737

Cumulative effects of changes in				(¥351)							(351)
accounting policies
Restated net assets at April 1, 2021		¥17,070	¥10,928	¥60,516	¥(191)	¥7,544	¥6	¥1,180	¥(869)	¥3,202	¥99,386
Net income (loss) attributable to
owners of the parent				6,734							6,734
Cash dividends paid				(2,405)							(2,405)
Purchase of treasury stock					(2)						(2)
Disposal of treasury stock			0		0						0
Change in ownership interest of
parent due to transactions			(454)								(454)
with non-controlling interests
Others, net						(717)		2,531	95	253	2,162
Balance at March 31, 2022	45,527,540	¥17,070	¥10,474	¥64,845	¥(193)	¥6,827	¥6	¥3,711	¥(774)	¥3,455	¥105,421

Net assets at April 1, 2022	45,527,540	¥17,070	¥10,474	¥64,845	¥(193)	¥6,827	¥6	¥3,711	¥(774)	¥3,455	¥105,421

Net income (loss) attributable to
owners of the parent				7,129							7,129
Cash dividends paid				(2,405)							(2,405)
Purchase of treasury stock					(1)						(1)
Disposal of treasury stock											―
Change in ownership interest of
parent due to transactions with			(262)								(262)
non-controlling interests
Others, net						(302)		1,392	381	(471)	1,000
Balance at March 31, 2023	45,527,540	¥17,070	¥10,212	¥69,569	¥(194)	¥6,525	¥6	¥5,103	¥(393)	¥2,984	¥110,882

Net assets at April 1, 2023	45,527,540	¥17,070	¥10,212	¥69,569	¥(194)	¥6,525	¥6	¥5,103	¥(393)	¥2,984	¥110,882


Net income (loss) attributable to				11,206							11,206
owners of the parent
Cash dividends paid				(2,133)							(2,133)
Purchase of treasury stock					(2)						(2)
Disposal of treasury stock											―
Change in ownership interest of
parent due to transactions with			15								15
non-controlling interests
Others, net						6,772	(6)	2,507	151	97	9,521
Balance at March 31, 2024	45,527,540	¥17,070	¥10,227	¥78,642	¥(196)	¥13,297	―	¥7,610	¥(242)	¥3,081	¥129,489

									Thousands of U.S. dollars (Note 1)
						Unrealized gains	Unrealized gains	Foreign	Remeasure-
					Treasury	(losses) on	(losses) on hedging	currency	ments of defined	Non-
	Number of	Common	Capital	Retained	stock, at	securities, net of	derivatives, net of	translation	benefit plans, net	controlling
	shares issued	stock	surplus	earnings	cost	taxes	taxes	adjustment	of taxes	interests	Total
Net assets at April 1, 2023	45,527,540	$113,046	$67,629	$460,722	$(1,285)	$43,212	$40	$33,795	$(2,603)	$19,762	$734,318


Net income (loss) attributable to				74,212							74,212
owners of the parent
Cash dividends paid				(14,126)							(14,126)
Purchase of treasury stock					(12)						(12)
Disposal of treasury stock											―
Change in ownership interest of
parent due to transactions with			99								99
non-controlling interests
Others, net						44,848	(40)	16,602	1,000	642	63,052
Balance at March 31, 2024	45,527,540	$113,046	$67,728	$520,808	$(1,297)	$88,060	―	$50,397	$(1,603)	$20,404	$857,543

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES (Years ended March 31, 2024, 2023 and 2022)

									Thousands of
			Millions of yen				U.S.dollars (Note1)
		2024		2023		2022			2024
Operating activities:
Income before income taxes and non-controlling interests	¥	15,756	¥	10,397	¥	9,985	$	104,344
Adjustments to reconcile income before income taxes and non-
controlling interests to net cash provided by operating activities:
Depreciation and amortization		10,297		10,382		11,929			68,192
Impairment loss		471		381		501			3,119
Amortization of goodwill		714		781		605			4,728
Increase (decrease) in provisions		633		(384)		192			4,192
Increase (decrease) in net defined benefit liability		1,658		1,718		1,774			10,980
Interest and dividend income		(849)		(739)		(638)			(5,623)
Interest expense		908		824		564			6,013
Equity in net loss (income) of unconsolidated subsidiaries and		－		－		26			－
affiliates
Loss (gain) on sales of property, plant and equipment		(3,236)		(583)		－			(21,430)
Loss (gain) on sale of investment securities		(64)		(1,140)		(282)			(424)
Loss on valuation of investment securities		－		－		4			－
Income from compensation for damage		－		－		(7)			－
Insurance claim income		(687)		－		－			(4,550)
Compensation income		－		(351)		－			－
Loss on fire		792		－		－			5,245
Decrease (increase) in trade receivables and contract assets		(4,112)		(1,889)		(10,347)			(27,231)
Decrease (increase) in inventories		(6,622)		(6,698)		(3,041)			(43,853)
Increase (decrease) in trade payables		(3,379)		3,978		2,702			(22,377)
Others		1,824		(756)		1,220			12,079

Sub-total		14,104		15,921		15,187			93,404
Interest and dividend received		837		739		638			5,543
Interest expense paid		(905)		(825)		(566)			(5,993)
Proceeds from insurance claim		208		－		－			1,377
Proceeds from compensation		5		420		－			33
Payments for loss on fire		(196)		－		－			(1,298)
Income taxes paid		(5,084)		(2,512)		(3,869)			(33,669)
Net cash provided by operating activities		8,969		13,743		11,390			59,397
Investing activities:
Proceeds from sales of property, plant and equipment		3,450		1,327		29			22,848
Purchase of property, plant and equipment, and intangible assets		(9,344)		(12,396)		(8,913)			(61,881)
Proceeds from sales of investment securities		67		1,462		1,375			444
Proceeds from purchase of investment in consolidated subsidiaries in		－		－		68			－
resulting change in scope of consolidation
Others		(1,722)		(900)		(62)			(11,437)
Net cash used in investing activities		(7,554)		(10,507)		(7,503)			(50,026)
Financing activities:
Net increase (decrease) in short-term borrowings		1,744		(4,066)		2,160			11,550
Redemption of bonds		－		(5,000)		－			－
Increase (decrease) in commercial paper		2,000		6,000		(3,000)			13,245
Proceeds from long-term debt		8,760		4,731		9,381			58,012
Repayment of long-term debt		(9,107)		(536)		(9,390)			(60,311)
Cash dividends paid		(2,132)		(2,405)		(2,406)			(14,119)
Cash dividends paid to non-controlling interests		(53)		(104)		(76)			(351)
Payments from changes in ownership interests in subsidiaries that do		－							－
not result in change in scope of consolidation			(794)		(502)
Others		(463)		(512)		(432)			(3,066)

Net cash provided by (used in) financing activities		749		(2,686)		(4,267)			4,960
Changes in exchange rates on cash and cash equivalents		943		312		571			6,245

Net increase (decrease) in cash and cash equivalents		3,107		862		191			20,576
Cash and cash equivalents at beginning of year		14,117		13,255		13,064			93,490

Cash and cash equivalents at end of the year (Note 23)	¥	17,224	¥	14,117	¥	13,255	$	114,066
See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

MEIDENSHA CORPORATION AND CONSOLIDATED SUBSIDIARIES

1. Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements of MEIDENSHA CORPORATION ("the Company") and its consolidated subsidiaries (collectively, "the Group") have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

The Company applied The Practical Issues Task Force No. 18 "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements" ("PITF No. 18"), issued by the Accounting Standards Board of Japan ("ASBJ")).PITF No. 18 requires that accounting policies and procedures applied by a parent company and its subsidiaries to similar transactions and events under similar circumstances should, in principle, be unified for the preparation of the consolidated financial statements. The accounts of consolidated overseas subsidiaries are prepared in accordance with either International Financial Reporting Standards or U.S. generally accepted accounting principles with necessary adjustments upon consolidation.

The accompanying consolidated financial statements have been reformatted and translated into English (with some expanded descriptions) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Japanese Financial Instruments and Exchange Law. Certain supplementary information included in the statutory Japanese language consolidated financial statements is not presented in the accompanying consolidated financial statements.

The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate on March 31, 2024, which was ¥151 to U.S. $1. The convenience translations should not be construed as representations of what the Japanese yen amounts have been, could have been, or could be in the future when converted into U.S. dollars at this or any other rate of exchange.

2. Summary of Significant Accounting Policies

a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 39, 40 and 42 consolidated subsidiaries in the fiscal years ended March 31, 2024, 2023 and 2022, respectively.

Principles of Consolidation for the fiscal years ended March 31, 2024, 2023 and 2022 were as follows:

(2024)

MEIDEN SHOJI Co.,Ltd. was previously accounted for as consolidated subsidiaries which was dissolved in an absorption- type merger with the Company, and hence, excluded from the scope of consolidation.

(2023)

MEIDEN O&M CORPORATION was previously accounted for as consolidated subsidiaries which was dissolved in an absorption-type merger with the Company, and hence, excluded from the scope of consolidation.

MEIDEN ELECTRIC (THAILAND) LTD. was liquidated and excluded from the scope of consolidation.

(2022)

An affiliated company Vietstar Industry Corporation was added to the scope of consolidation due to purchase of additional shares and acquiring a controlling interest. Along with purchasing of additional shares, it changed its trade name to Vietstar Meiden Corporation.

DONGGUAN MEIDEN PACIFIC ELECTRICAL ENGINEERING COMPANY LIMITED was liquidated and excluded from the scope of consolidation.

b) Equity Method

Investments in affiliated companies (all 20% to 50% owned) are accounted for by the equity method for the fiscal years ended March 31, 2024, 2023 and 2022.

The equity method was not applicable for the fiscal years ended March 31, 2024, 2023 and 2022, respectively.

Investments in 4, 4 and 4 unconsolidated subsidiaries and 3, 3 and 3 other affiliated companies, that would not have material effect on the consolidated financial statements, were stated at cost in the fiscal years ended March 31, 2024, 2023 and 2022, respectively.

c) Securities

Securities are classified based on the intent of holding as (a) securities held for trading purposes (hereafter, "trading securities"),

debt securities intended to be held to maturity (hereafter, "held-to-maturity debt securities"), (c) equity securities issued by unconsolidated subsidiaries and affiliated companies, and (d) all other securities that are not classified in any of the above categories (hereafter, "available-for-sale securities").
The Group does not hold trading securities and held-to-maturity debt securities. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted for using the equity method are stated at the moving-average cost. Available-for-sale securities with no available fair market values are stated at the moving-average cost.

If the market value of equity securities issued by unconsolidated subsidiaries and affiliated companies and available-for-sale securities declines significantly, such securities are stated at fair market value and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline unless the declines are considered temporary. If the fair market value of equity securities issued by unconsolidated subsidiaries and affiliated companies not accounted for by the equity method and available-for-sale is not readily available, such securities should be written down to net asset value with a corresponding charge in the consolidated statements of income in the event net asset value declines significantly unless the decline is considered as recoverable.

Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of net assets. Realized gains and losses on sale of such securities are computed using the moving-average cost.

d) Derivatives and Hedge Accounting

Derivative financial instruments are stated at fair value, and the Group recognizes changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.

If derivative financial instruments are used as hedging instruments and meet certain hedging criteria, the Group defers recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the corresponding losses or gains on the hedged items are recognized.

However, in cases where forward foreign exchange contracts are used as hedging instruments and meet certain hedging criteria, forward foreign exchange contracts and hedged items are accounted for in the following manner:

1. If a forward foreign exchange contract is executed to hedge an existing foreign currency receivable or payable,

the difference, if any, between the Japanese yen amount of the hedged foreign currency receivable or payable translated using the spot rate at the inception date of the contract and the book value of the receivable or payable is recognized in the statements of income in the period which includes the inception date, and
The discount or premium on the contract (that is, the difference between the Japanese yen amount of the contract translated using the contracted forward rate and that translated using the spot rate at the inception date of the contract) is recognized over

the term of the contract.

2. If a forward foreign exchange contract is executed to hedge a future transaction denominated in a foreign currency, the future transaction will be recorded using the contracted forward rate when the future transaction occurs, and no gains or losses on the

forward foreign exchange contract are separately recognized. ("Allocation treatment")

Also, if interest rate swap contracts are used as hedging instruments and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap contract is added to or deducted from the interest on the assets or liabilities for which the swap contract is executed. ("Special treatment")

e) Inventories

Inventories of the Group are stated at cost determined principally by the weighted-average method as to materials and supplies, and the specific identification method as to finished products and work-in-process. The carrying amounts stated on the balance sheet are calculated after devaluation reflecting reduced profitability.

f) Property, Plant and Equipment and Depreciation

The Group computes depreciation of the assets principally by the declining-balance method at rates based on the useful lives and residual values determined in accordance with the Corporation Tax Law of Japan. However, the Group computes depreciation by the straight-line method for buildings (excluding facilities attached to buildings), which were acquired on or after April 1, 1998, facilities attached to buildings, and structures and machinery of the Company's Real Estate Division (Osaki, Shinagawa Ward, Tokyo), and facilities attached to buildings and structures which were acquired on or after April 1, 2016.

The estimated useful lives primarily range from 2 to 60 years for buildings and structures and from 2 to 13 years for machinery and equipment.

g) Intangible Assets

Amortization of the software for internal use is computed by the straight-line method over the estimated useful lives (3 to 5 years). And, other intangible assets (except for software for internal use) are computed by the straight-line method.

Amortization of the customer relation is computed by the straight-line method based on effected period (mainly 12 years).

h) Goodwill

Goodwill is amortized using the straight-line method over mainly 10 years of effective period.

i) Lease

Property, plant and equipment capitalized under finance lease arrangements are depreciated over the lease term of the respective assets up to no residual values. However, as permitted, finance leases commencing prior to April 1, 2008, which do not transfer ownership of the leased property to the lessee, are accounted for as operating leases with disclosure of certain "as if capitalized" information.

Consolidated overseas subsidiaries apply International Financial Reporting Standards and issue financial reports. In principle, lessees are required to recognize almost all leases as assets or liabilities in the balance sheet, and Right-of-Use assets are amortized using the straight-line method.