NICHICONCORPORATION and Consolidated Subsidiaries

NICHICONCORPORATION and Consolidated Subsidiaries

Consolidated Financial Statements as of and for the Year Ended March 31, 2020 and

Independent Auditor's Report

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NICHICON CORPORATION and Consolidated Subsidiaries

Consolidated Balance Sheet As of March 31, 2020

Millions of Yen

Thousands of U.S. Dollars

(Note 1)

ASSETS 2020 2019 2020 CURRENT ASSETS:

Cash and cash equivalents (Note 12) ¥ 18,441 ¥ 13,628 $ 169,444 Marketable securities (Notes 4 and 12) 2,623 3,108 24,102 Receivables (Note 12):

Trade 34,109 34,385 313,418 Unconsolidated subsidiaries and associated companies 137 166 1,261 Allowance for doubtful accounts (40 ) (50 ) (371 )

Inventories (Note 5) 21,682 22,104 199,232 Other current assets 903 2,285 8,300

Total current assets 77,855 75,626 715,386

PROPERTY, PLANT, AND EQUIPMENT (Notes 2.(8) and 16):

Land 5,154 5,277 47,356 Buildings and structures 39,516 39,454 363,097 Machinery and equipment 105,748 104,083 971,683 Furniture and fixtures 9,730 9,374 89,401 Lease assets 2,167 3,048 19,912 Construction in progress 1,906 1,875 17,523

Total property, plant, and equipment 164,221 163,111 1,508,972

Accumulated depreciation (130,454 ) (131,301 ) (1,198,702 )

Net property, plant, and equipment 33,767 31,810 310,270

INVESTMENTS AND OTHER ASSETS:

Investment securities (Notes 4 and 12) 20,974 25,535 192,723 Investments in and advances to unconsolidated

subsidiaries and associated companies (Note 12) 4,639 4,503 42,623 Deferred tax assets (Note 9) 358 462 3,285 Asset for retirement benefit (Note 7) 256 192 2,356 Other assets 1,809 1,872 16,619 Allowance for doubtful accounts (Note 12) (231 ) (230 ) (2,119 )

Total investments and other assets 27,805 32,334 255,487

TOTAL ¥ 139,427 ¥ 139,770 $ 1,281,143

See notes to consolidated financial statements.

Millions of Yen


(Note 1)

LIABILITIES AND EQUITY 2020 2019 2020 CURRENT LIABILITIES:

Short-term borrowings (Notes 6 and 12) ¥ 2,400 ¥ 1,800 $ 22,053 Current portion of long-term debt (Note 6) 5,004 3,726 45,977 Payables (Note 12):

Trade 20,527 24,359 188,619 Unconsolidated subsidiaries and associated companies 90 19 828 Construction 1,202 1,673 11,040

Income taxes payable 673 863 6,186 Accrued expenses 5,429 6,330 49,883 Other current liabilities 1,182 608 10,863

Total current liabilities 36,507 39,378 335,449

NON-CURRENT LIABILITIES:

Long-term debt (Note 6) 18,582 10,988 170,744 Liability for retirement benefits (Note 7) 1,678 1,862 15,417 Deferred tax liabilities (Note 9) 3,128 4,251 28,740 Provision for product warranties 1,418 1,315 13,030 Other long-term liabilities 663 662 6,097

Total non-current liabilities 25,469 19,078 234,028

CONTINGENT LIABILITIES (Note 17) EQUITY (Notes 8 and 15):

Common stock, authorized, 137,000,000 shares; issued, 78,000,000 shares in 2020 and 2019 14,287 14,287 131,275

Capital surplus 16,861 17,069 154,926 Retained earnings 48,855 47,714 448,910 Treasury stock, at cost,

9,581,061 shares in 2020 and 8,362,873 shares in 2019 (11,625 ) (10,124 ) (106,813 ) Accumulated other comprehensive income:

Unrealized gain on available-for-sale securities 7,834 9,872 71,989 Foreign currency translation adjustments (618 ) 361 (5,682 )

Total 75,594 79,179 694,605 Noncontrolling interests 1,857 2,135 17,061

Total equity 77,451 81,314 711,666

TOTAL ¥ 139,427 ¥ 139,770 $ 1,281,143

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Consolidated Statement of Operations For the Year Ended March 31, 2020

Millions of Yen


(Note 1)

2020 2019 2020 NET SALES (Note 16) ¥ 119,676 ¥ 122,860 $ 1,099,659 COST OF SALES (Note 11) 101,463 101,125 932,310

Gross profit 18,213 21,735 167,349 SELLING, GENERAL, AND ADMINISTRATIVE

EXPENSES (Notes 10 and 11) 15,664 16,262 143,926

Operating income 2,549 5,473 23,423

OTHER INCOME (EXPENSES):

Interest and dividend income 568 646 5,216 Interest expense (63 ) (47 ) (575 ) Foreign exchange gain, net 388 984 3,566 Equity in earnings of associated companies 164 192 1,507 Loss on sales and disposals of property, plant, and

equipment, net (61 ) (65 ) (564 ) Environmental expenses - (254 ) - Losses relating to antitrust laws (Note 17) - (14,285 ) - Write-down of investment securities (112 ) - (1,027 ) Gain on sales of investment securities 218 1,337 2,008 Other, net 15 57 136

Other income (expenses), net 1,117 (11,435 ) 10,267

INCOME (LOSS) BEFORE INCOME TAXES 3,666 (5,962 ) 33,690

INCOME TAXES (Note 9):

Current 818 1,068 7,517 Deferred (188 ) 687 (1,720 )

Total income taxes 630 1,755 5,797

NET INCOME (LOSS) 3,036 (7,717 ) 27,893 NET INCOME ATTRIBUTABLE TO NONCONTROLLING

INTERESTS 224 236 2,053

NET INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF

THE PARENT ¥ 2,812 ¥ (7,953 ) $ 25,840

Yen U.S. Dollars

(Note 1)

PER SHARE OF COMMON STOCK (Notes 2.(19) and 14): Basic net income (loss) ¥40.59 ¥(114.21 ) $0.37 Diluted net income 39.41 - 0.36 Cash dividends applicable to the year 24.00 23.00 0.21


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Consolidated Statement of Comprehensive Income For the Year Ended March 31, 2020

Millions of Yen


(Note 1)

2020 2019 2020 NET INCOME (LOSS) ¥ 3,036 ¥ (7,717 ) $ 27,893 OTHER COMPREHENSIVE (LOSS) INCOME (Note 13):

Unrealized loss on available-for-sale securities (2,012 ) (4,424 ) (18,484 ) Foreign currency translation adjustments (954 ) (466 ) (8,766 ) Share of other comprehensive loss in associates (106 ) (117 ) (971 )

Total other comprehensive loss (3,072 ) (5,007 ) (28,221 )

COMPREHENSIVE LOSS ¥ (36 ) ¥ (12,724 ) $ (328 )

TOTAL COMPREHENSIVE INCOME (LOSS)

ATTRIBUTABLE TO: Owners of the parent ¥(205 ) ¥(12,991 ) $(1,879 ) Noncontrolling interests 169 267 1,551


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Consolidated Statement of Changes in Equity For the Year Ended March 31, 2020

Thousands Millions of Yen

Accumulated Other

Comprehensive Income

Number of Shares of

Common Stock Outstanding

Common Stock

Capital Surplus

Retained Earnings

Treasury Stock

Unrealized Gain on Available-for-Sale Securities

Foreign Currency

Translation Adjustments Total

Noncontrolling Interests Total Equity

BALANCE, APRIL 1, 2018 69,638 ¥ 14,287 ¥ 17,069 ¥ 57,199 ¥ (10,123 ) ¥ 14,267 ¥ 1,004 ¥ 93,703 ¥ 2,060 ¥ 95,763

Net loss attribute to owners of the parent - - - (7,953 ) - - - (7,953 ) - (7,953 ) Cash dividends, ¥23.0 per share - - - (1,532 ) - - - (1,532 ) - (1,532 ) Purchase of treasury stock (1 ) - - - (1 ) - - (1 ) - (1 ) Net change in the year - - - - - (4,395 ) (643 ) (5,038 ) 75 (4,963 )

BALANCE, APRIL 1, 2019 69,637 14,287 17,069 47,714 (10,124 ) 9,872 361 79,179 2,135 81,314

Net income attribute to owners of the parent - - - 2,812 - - - 2,812 - 2,812 Cash dividends, ¥24.0 per share - - - (1,671 ) - - - (1,671 ) - (1,671 ) Purchase of treasury stock (1,218 ) - - - (1,501 ) - - (1,501 ) - (1,501 ) Purchase of shares of consolidated subsidiary - - (208 ) - - - - (208 ) - (208 ) Net change in the year - - - - - (2,038 ) (979 ) (3,016 ) (278 ) (3,295 )

BALANCE, MARCH 31, 2020 68,419 ¥ 14,287 ¥ 16,861 ¥ 48,855 ¥ (11,625 ) ¥ 7,834 ¥ (618 ) ¥ 75,594 ¥ 1,857 ¥ 77,451

Thousands of U.S. Dollars (Note 1)

Accumulated Other

Comprehensive Income

Common

Stock Capital Surplus

Retained Earnings

Treasury Stock

Unrealized Gain on Available-for-Sale Securities

Foreign Currency

Translation Adjustments Total

Noncontrolling Interests Total Equity

BALANCE, APRIL 1, 2019 $ 131,275 $ 156,841 $ 438,427 $ (93,024 ) $ 90,711 $ 3,315 $ 727,545 $ 19,619 $ 747,164

Net income attribute to owners of the parent - - 25,840 - - - 25,840 - 25,840 Cash dividends, $0.22 per share - - (15,357 ) - - - (15,357 ) - (15,357 ) Purchase of treasury stock - - - (13,789 ) - - (13,789 ) - (13,789 ) Purchase of shares of consolidated subsidiary - (1,915 ) - - - - (1,915 ) - (1,915 ) Net change in the year - - - - (18,722 ) (8,997 ) (27,719 ) (2,558 ) (30,277 )

BALANCE, MARCH 31, 2020 $ 131,275 $ 154,926 $ 448,910 $ (106,813 ) $ 71,989 $ (5,682 ) $ 694,605 $ 17,061 $ 711,666


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Consolidated Statement of Cash Flows For the Year Ended March 31, 2020

Millions of Yen


(Note 1)

2020 2019 2020 OPERATING ACTIVITIES:

Income (loss) before income taxes ¥ 3,666 ¥ (5,962 ) $ 33,690

Adjustments for: Income taxes paid (992 ) (1,172 ) (9,116 ) Depreciation and amortization 5,336 4,491 49,035 Loss on sales and disposals of property, plant, and

equipment, net 61 65 564 Changes in assets and liabilities:

Increase in trade accounts receivable (316 ) (2,545 ) (2,904 ) Decrease (increase) in inventories 56 (3,493 ) 512 (Decrease) increase in trade accounts payable (1,913 ) 1,904 (17,582 ) Decrease in accrued expenses and other current

liabilities (862 ) (124 ) (7,923 ) Decrease in liability for retirement benefits (184 ) (274 ) (1,694 )

Losses relating to antitrust laws - 14,285 - Surcharge paid (1,531 ) (28,494 ) (14,066 ) Other, net 1,490 (1,471 ) 13,691

Total adjustments 1,145 (16,828 ) 10,517

Net cash provided by (used in) operating activities 4,811 (22,790 ) 44,207

INVESTING ACTIVITIES: Payments into time deposits - (766 ) - Withdrawal of time deposits - 766 - Purchases of marketable and investment securities (2,080 ) (13,424 ) (19,112 ) Proceeds from sales and redemption of marketable and

investment securities 4,350 21,252 39,972 Purchases of property, plant, and equipment (6,887 ) (7,923 ) (63,280 ) Other, net (159 ) (75 ) (1,375 )

Net cash used in investing activities (4,766 ) (170 ) (43,795 )

FINANCING ACTIVITIES: Net increase in short-term borrowings 600 - 5,513 Purchases of treasury stock (1,501 ) (1 ) (13,789 ) Dividends paid (1,786 ) (1,724 ) (16,409 ) Proceeds from long-term bank loans - 14,000 - Repayments of long-term bank loans (3,504 ) - (32,197 ) Proceeds from issuance of convertible bonds 12,120 - 111,366 Other, net (946 ) (289 ) (8,704 )

Net cash provided by financing activities 4,983 11,986 45,780

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (215 ) (239 ) (1,975 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,813 (11,213 ) 44,217

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,628 24,841 125,227

CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 18,441 ¥ 13,628 $ 169,444


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Notes to the Consolidated Financial Statements As of and for the Year Ended March 31, 2020

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

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

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2019 consolidated financial statements to conform them to the classifications used in 2020.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which NICHICON CORPORATION (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 ¥108.83 to $1, the approximate rate of exchange at March 31, 2020. 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.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Consolidation

The consolidated financial statements as of March 31, 2020, include the accounts of the Company and its 21 significant subsidiaries (together, the "Group"), which are listed below.

Name

Country and Jurisdiction of Incorporation

Equity Ownership

Percentage at March 31, 2020

Fiscal Year End

NICHICON HI-TECH FOIL CORPORATION Japan 100.0% March 31 NICHICON (KUSATSU) CORPORATION Japan 100.0% March 31 NICHICON (KAMEOKA) CORPORATION Japan 100.0% March 31 NICHICON (OHNO) CORPORATION Japan 100.0% March 31 NICHICON (IWATE) CORPORATION Japan 100.0% March 31 NICHICON (WAKASA) CORPORATION Japan 100.0% March 31 TORISHIMA ELECTRIC WORKS LTD. Japan 100.0% March 31 NIPPON LINIAX CO., LTD. Japan 100.0% March 31 YUTAKA ELECTRIC MFG. CO., LTD. Japan 100.0% March 31 NICHICON (AMERICA) CORPORATION U.S.A. 100.0% March 31 NICHICON (HONG KONG) LTD. China

(Hong Kong) 100.0% March 31

NICHICON (SINGAPORE) PTE. LTD. Singapore 100.0% March 31 NICHICON (MALAYSIA) SDN. BHD. Malaysia 100.0% March 31 NICHICON (TAIWAN) CO., LTD. Taiwan 100.0% March 31 NICHICON (AUSTRIA) GmbH Austria 100.0% March 31 NICHICON (THAILAND) CO., LTD. Thailand 49.0% March 31 NICHICON ELECTRONICS (WUXI) CO., LTD. China 100.0% December 31 NICHICON ELECTRONICS TRADING

(SHANGHAI) CO., LTD. China 100.0% December 31

NICHICON ELECTRONICS TRADING (SHENZHEN) CO., LTD. *1

China 100.0% December 31

WUXI NICHICON ELECTRONICS R&D CENTER CO., LTD.

China 100.0% December 31

NICHICON ELECTRONICS (SUQIAN) CO., LTD. China 100.0% December 31

*1 Although the consolidated subsidiary, "NICHICON ELECTRONICS TRADING (SHENZHEN) CO., LTD.," has a closing date falling on December 31, the consolidated financial statements contained herein are based on the statements of provisional settlement of accounts, which were performed on the consolidated closing date.

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.

Investment in two associated companies are accounted for by the equity method. Investments in four unconsolidated subsidiaries and one 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 have been material.

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.

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(2) 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 should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been recorded in the equity through other comprehensive income; (3) expensing capitalized development costs of research and development ("R&D"); (4) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting; and (5) recording a gain or loss through profit or loss on the sale of an investment in an equity instrument for the difference between the acquisition cost and selling price, and recording impairment loss through profit or loss for other-than-temporary declines in the fair value of an investment in an equity instrument, where a foreign subsidiary elects to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument.

(3) 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: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (3) expensing capitalized development costs of R&D; (4) cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting; and (5) recording a gain or loss through profit or loss on the sale of an investment in an equity instrument for the difference between the acquisition cost and selling price, and recording impairment loss through profit or loss for other-than-temporary declines in the fair value of an investment in an equity instrument, where a foreign associate elects to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument.

(4) Cash Equivalents

Cash and cash equivalents are composed of cash on hand, bank deposits that are able to be withdrawn on demand, and highly liquid time deposits with an insignificant risk of changes in value and that have maturities of three months or less when purchased.

(5) Inventories

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

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(6) Allowance for Doubtful Accounts

The allowance for doubtful accounts is stated in amounts considered to be appropriate based on each company's past credit loss experience and an evaluation of potential losses in the receivables outstanding.

(7) Marketable and Investment Securities

Marketable and investment securities are classified and accounted for, depending on management's intent, as follows:

i) Held-to-maturity debt securities, for which there is a positive intent and ability to hold to maturity, are reported at amortized cost.

ii) Available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as 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.

(8) 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 substantially by the declining balance method, while the straight-line method is applied to buildings acquired on or after April 1, 1998, and building improvements and structures acquired on or after April 1, 2016, and lease assets. Depreciation of consolidated foreign subsidiaries is computed principally by the straight-line method. The range of useful lives is from 6 to 50 years for buildings and structures, and from 4 to 11 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases.

Under certain conditions, such as exchanges of similar kinds of fixed assets, sales and purchases resulting from expropriation and acquisitions made with the benefit of a government subsidy, Japanese tax laws permit companies to defer the profit arising from such transactions by reducing the cost of the assets acquired or by providing a special reserve in the equity section. The cumulative reduction in acquisition cost of property, plant, and equipment as of March 31, 2020 and 2019, was ¥7,120 million ($65,423 thousand) and ¥7,098 million, respectively.

(9) 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 would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

(10) Capitalized Computer Software Costs

Capitalized computer software costs comprise costs related to software used in the Group's business. Amortization of capitalized computer software costs, which are included in "Other assets" in investments and other assets, is computed using the straight-line method over five years, the estimated useful life of the assets.

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(11) Provision for Product Warranties

A provision for product warranties is provided to cover the cost of all services anticipated to be incurred during the entire warranty period and based on past experience.

(12) Retirement and Pension Plans

The Company and certain consolidated domestic subsidiaries have noncontributory, funded defined benefit pension plans and lump-sum severance payment plans. The Company and certain consolidated overseas subsidiaries have defined contribution pension plans.

The Company accounts for the liability for retirement benefits based on the 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. Past service costs and actuarial gains and losses are charged or credited to income as incurred.

(13) R&D Costs

R&D costs are charged to income as incurred.

(14) Leases

Finance lease transactions are capitalized by recognizing lease assets and lease obligations in the balance sheet.

All other leases are accounted for as operating lease.

Change in Accounting Policy – Certain overseas subsidiaries apply IFRS 16, "Leases," for annual periods beginning on or after April 1, 2019. This standard requires lessees to recognize most leases on the balance sheet thereby resulting in the recognition of right-of-use assets and lease liabilities. The cumulative effect of initially applying this accounting standard was recognized at the date of initial application. The impact on the consolidated statement for the year ended March 31, 2020 from this change in the accounting policy was immaterial.

(15) Income Taxes

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

The Company and certain domestic subsidiaries applied for approval for the consolidated taxation system during the current fiscal year, and they expect to adopt the consolidated taxation system beginning from the following fiscal year. Therefore, the corresponding accounting for the current fiscal year assumes such adoption of the consolidated taxation system in accordance with "Practical Solution on Tentative Treatment of Tax Effect Accounting Under Consolidated Taxation System (Part 1)" (ASBJ PITF No. 5, December 28, 2015) and "Practical Solution on Tentative Treatment of Tax Effect Accounting Under Consolidated Taxation System (Part 2)" (ASBJ PITF No. 7, March 14, 2016).

Moreover, the Company and certain subsidiaries measured deferred taxes relating to the Group Tax Sharing System by applying the income tax laws before amendments in accordance with "Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System" (ASBJ PITF No. 39, March 31, 2020).

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(16) 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 operations to the extent that they are not hedged by forward exchange contracts.

(17) Foreign Currency Financial Statements

The balance sheet 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. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.

(18) Derivatives and Hedging Activities

The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign currency exchange rates. Foreign exchange forward contracts are utilized by the Group to reduce foreign currency exchange rate risks. The Group does not enter into derivatives for trading or speculative purposes.

The foreign currency forward contracts employed to hedge foreign exchange exposures for export sales are measured at fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at fair value, but the unrealized gains/losses are deferred until the underlying transactions are completed.

(19) Per Share Information

Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits.

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 stock acquisition rights.

Cash dividends per share presented in the accompanying consolidated statement of operations are dividends applicable to the respective years including dividends to be paid after the end of the year.

(20) Bond Issue Costs

Bond issue costs are amortized by the straight-line method over the bond term in accordance with ASBJ PITF No. 19, "Tentative Solution on Accounting for Deferred Assets," which was issued by the ASBJ in August 2006.

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(21) Accounting Changes and Error Corrections

Under ASBJ Statement No. 24, "Accounting Standard for Accounting Changes and Error Corrections," and ASBJ Guidance No. 24, "Guidance on Accounting Standard for Accounting Changes and Error Corrections," accounting treatments are required as follows: (1) Changes in Accounting Policies—When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standards include specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors—When an error in prior-period financial statements is discovered, those statements are restated.

(22) New Accounting Pronouncements

Accounting Standard for Revenue Recognition – On March 30, 2018, the ASBJ issued the following accounting standards and implementation guidance (these standards and guidance were revised on March 31, 2020):

— ASBJ Statement No. 29, "Accounting Standard for Revenue Recognition"

— ASBJ Guidance No. 30, "Implementation Guidance on Accounting Standard for Revenue Recognition"

— ASBJ Guidance No. 19 (revised 2020), "Implementation Guidance on Disclosures about Fair Value of Financial Instruments"

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 customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisfies 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.

Accounting Standards for Fair Value Measurement, etc. – On July 4, 2019, the ASBJ issued the following accounting standards and implementation guidance:

— ASBJ Statement No. 30, "Accounting Standard for Fair Value Measurement"

— ASBJ Guidance No. 31, "Implementation Guidance on Accounting Standard for Fair Value Measurement"

— ASBJ Statement No. 9 (revised 2019), "Accounting Standard for Measurement of Inventories"

— ASBJ Statement No. 10 (revised 2019), "Accounting Standard for Financial Instruments"

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In order to enhance consistency and comparability of requirements under the Japanese accounting standards to those under international accounting standards, "Accounting Standard for Fair Value Measurement" and "Implementation Guidance on Accounting Standard for Fair Value Measurement" have been developed and the guidance on the method of fair value measurement, etc. have been established.

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. ADDITIONAL INFORMATION

The Group foresees that the economic expansion of its business domain remains on track in the medium to long term. However, the Group is expecting the global economy to fall substantially and uncertainties to arise in the first half of the fiscal year ending March 31, 2021 due to the spread of the novel coronavirus disease. Accounting estimates, such as the impairment of assets and the collectability of deferred tax assets, are reflected in accounting treatment based on these assumptions. There are many uncertainties in these assumptions. In the case that it takes more time to contain the spread of the novel coronavirus and the impact of the novel coronavirus is prolonged, the Group could record losses.

4. MARKETABLE AND INVESTMENT SECURITIES

Marketable and investment securities at March 31, 2020 and 2019, consisted of the following:

Millions of Yen Thousands of U.S. Dollars

2020 2019 2020

Current: Government and corporate bonds ¥2,623 ¥3,108 $24,102

Non-current:

Marketable equity securities ¥ 19,223 ¥ 22,144 $ 176,632 Government and corporate bonds 1,810 3,232 16,632 Unlisted equity securities 159 159 1,460

Total ¥ 21,192 ¥ 25,535 $ 194,724

The costs and aggregate fair values of marketable and investment securities at March 31, 2020 and 2019, were as follows:

Millions of Yen

Cost Unrealized

Gains Unrealized

Losses Fair Value

March 31, 2020

Securities classified as:

Available-for-sale securities ¥8,331 ¥11,267 ¥375 ¥19,223 Held-to-maturity debt

securities 4,215 1 3 4,213

March 31, 2019

Securities classified as: Available-for-sale securities ¥8,283 ¥14,064 ¥203 ¥22,144 Held-to-maturity debt

securities 6,340 5 2 6,343

- 17 -


Cost Unrealized

Gains Unrealized

Losses Fair Value

March 31, 2020

Securities classified as:

Available-for-sale securities $76,554 $103,526 $3,448 $176,632 Held-to-maturity debt

securities 38,734 11 37 38,708

Any marketable and investment securities whose fair values cannot be reliably determined at March 31, 2020 and 2019, were as follows:


2020 2019 2020 Non-current:

Available-for-sale equity securities ¥159 ¥159 $1,460

The information for available-for-sale securities, which were sold during the years ended March 31, 2020 and 2019, is as follows:

Millions of Yen

March 31, 2020 Proceeds Realized

Gains Realized Losses

Available-for-sale:

Equity securities ¥387 ¥218 ¥ -

March 31, 2019 Available-for-sale:

Equity securities ¥2,130 ¥1,337 ¥ -


March 31, 2020 Proceeds Realized

Gains Realized Losses

Available-for-sale:

Equity securities $3,560 $2,008 $ -

The impairment loss on investment securities for the year ended March 31, 2020, were ¥111 million ($1,020 thousand). No impairment loss on investment securities was recognized in 2019.

5. INVENTORIES

Inventories at March 31, 2020 and 2019, consisted of the following:


2020 2019 2020

Finished products ¥ 8,214 ¥ 9,346 $ 75,475 Work in process 5,343 5,437 49,093 Raw materials and supplies 8,125 7,321 74,664

Total ¥ 21,682 ¥ 22,104 $ 199,232

- 18 -

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Short-term borrowings at March 31, 2020 and 2019 consisted of notes to banks and bank overdrafts. The weighted-average annual interest rates applicable to the short-term borrowings at March 31, 2020 and 2019 were 0.1% and 0.2%, respectively.

Long-term debt at March 31, 2020 and 2019, consisted of the following:


2020 2019 2020

Zero coupon convertible bonds due 2024 ¥ 12,112 ¥ - $ 111,293 Unsecured 0.2% bank loans due 2023 10,496 14,000 96,444 Obligations under finance leases 978 714 8,984 Less current portion (5,004 ) (3,726 ) (45,977 )

Long-term debt, less current portion ¥ 18,582 ¥ 10,988 $ 170,744

Annual maturities of long-term debt as of March 31, 2020, were as follows:

Year Ending March 31 Millions of

Yen Thousands of U.S. Dollars

2021 ¥ 5,004 $ 45,977 2022 4,937 45,360 2023 1,346 12,370 2024 45 409 2025 12,141 111,565 2026 and there after 113 1,040

Total ¥ 23,586 $ 216,721

Zero coupon convertibles bonds in long-term debt as of March 31, 2020 were as follows:

Class of Shares to Be Issued Ordinary Shares of Common Stock

Issue price for stock acquisition rights - Exercise price per share ¥1,687 ($15.50) Total amount of debt securities issued ¥12,000 million ($110,264 thousand) Total amount of shares issued by exercising

stock acquisition rights - Percentage of shares with stock acquisition

rights (%) 100 Exercise period January 6, 2020 – December 9, 2024

If all the outstanding stock acquisition rights incorporated in convertible bonds had been exercised at March 31, 2020, 7,113 thousand shares of common stock would have been issued. The conversion price of the convertible bonds is subject to adjustments to reflect stock splits and certain other events.

The Company had loan commitment agreements amounting to ¥13,500 million ($124,047 thousand) and ¥13,500 million with four banks as of March 31, 2020 and 2019, respectively. Under these loan commitment agreements, ¥2,400 million ($22,053 thousand) and ¥1,800 million were executed as of March 31, 2020 and 2019, respectively.

- 19 -

7. RETIREMENT AND PENSION PLANS

Under the pension plans, employees of the Company with more than three years of service are generally entitled to receive lump-sum payments at the time of retirement. Employees terminating their employment are, in most circumstances, entitled to pension payments based on their average pay during their employment, length of service, and certain other factors.

The defined benefit obligations of certain subsidiaries are calculated using a simplified method, which is permitted for small-size companies in accordance with the accounting standard for retirement benefits.

(1) The changes in defined benefit obligation for the years ended March 31, 2020 and 2019, were as follows (excluding the above simplified method):


2020 2019 2020

Balance at beginning of year ¥ 9,560 ¥ 9,453 $ 87,844 Current service cost 580 576 5,329 Interest cost 76 74 700 Actuarial losses 71 45 651 Benefits paid (425 ) (588 ) (3,907 )

Balance at end of year ¥ 9,862 ¥ 9,560 $ 90,617

(2) The changes in plan assets for the years ended March 31, 2020 and 2019, were as follows

(excluding the above simplified method):


2020 2019 2020

Balance at beginning of year ¥ 7,940 ¥ 7,532 $ 72,956 Expected return on plan assets 119 113 1,094 Actuarial losses (31 ) (18 ) (283 ) Contributions from the employer 893 879 8,210 Benefits paid (418 ) (567 ) (3,843 )

Balance at end of year ¥ 8,503 ¥ 7,939 $ 78,134

(3) The changes in defined benefit obligation calculated using the simplified method for the years

ended March 31, 2020 and 2019, were as follows:


2020 2019 2020

Balance at beginning of year ¥ 50 ¥ 24 $ 458 Benefit costs 72 116 660 Benefits paid (20 ) (53 ) (184 ) Contributions from the employer (39 ) (37 ) (357 )

Balance at end of year ¥ 63 ¥ 50 $ 577

- 20 -

(4) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets was as follows (including the above simplified method):


2020 2019 2020

Funded defined benefit obligation ¥ 10,023 ¥ 9,728 $ 92,095 Plan assets (9,051 ) (8,498 ) (83,166 )

972 1,230 8,929 Unfunded defined benefit obligation 450 440 4,132

Net liability arising from defined benefit

obligation ¥ 1,422 ¥ 1,670 $ 13,061


2020 2019 2020

Liability for retirement benefits ¥ 1,678 ¥ 1,862 $ 15,417 Asset for retirement benefits (256 ) (192 ) (2,356 )

Net liability arising from defined benefit

obligation ¥ 1,422 ¥ 1,670 $ 13,061

(5) The components of net periodic benefit costs for the years ended March 31, 2020 and 2019,

were as follows:


2020 2019 2020

Service cost ¥ 580 ¥ 576 $ 5,329 Interest cost 76 75 700 Expected return on plan assets (119 ) (113 ) (1,094 ) Recognized actuarial losses 102 63 935 Benefit costs calculated using the simplified

method 71 116 659

Net periodic benefit costs ¥ 710 ¥ 717 $ 6,529

(6) Plan assets

a. Components of plan assets Plan assets as of March 31, 2020 and 2019, consisted of the following:

2020 2019

Life insurance company general accounts 84.6 % 84.6 % Debt investments 15.1 15.1 Equity investments 0.2 0.2 Others 0.1 0.1

Total 100.0 % 100.0 %

- 21 -

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

(7) Assumptions used for the years ended March 31, 2020 and 2019, are set forth as follows:

2020 2019

Discount rate 0.8% 0.8% Expected rate of return on plan assets 1.5% 1.5%

The Company determines the compensation increase index in accordance with the Company's human resources and wage policy for the calculation of the defined benefit obligation. The Company uses the indices as of November 30, 2019 and 2018, for the calculation as of March 31, 2020 and 2019, respectively.

The amount of contributions which the Company and certain consolidated overseas subsidiaries should contribute under the defined contribution plan is ¥27 million ($251 thousand) and ¥27 million for the years ended March 31, 2020 and 2019, respectively.

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 and 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. However, the Company does not meet all the above criteria.

The Companies Act permits companies to distribute dividends-in-kind (non-cash 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 Surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends, until the 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 within equity under certain conditions upon resolution of the shareholders.

- 22 -

c. Treasury Stock and Treasury Stock Acquisition Rights

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by a specific formula.

Under the Companies Act, stock acquisition rights are now 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. 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 approximately 30.6% for the years ended March 31, 2020 and 2019. Consolidated foreign subsidiaries are subject to income taxes in the countries in which they operate.

The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets and liabilities at March 31, 2020 and 2019, are as follows:


2020 2019 2020

Deferred tax assets: Tax loss carryforwards ¥ 10,402 ¥ 10,056 $ 95,582 Liability for retirement benefits 485 505 4,459 Allowance for doubtful accounts 78 77 721 Allowance for accrued bonuses 327 329 3,008 Expenses for environmental protection

measures 425 622 3,909 Property, plant, and equipment 2,147 1,618 19,726 Losses relating to antitrust laws 24 469 224 Other 991 918 9,092

Total of tax loss carryforwards and temporary differences 14,879 14,594 136,721

Less valuation allowance for tax loss carryforwards (10,011 ) (9,770 ) (91,986 )

Less valuation allowance for temporary differences (4,136 ) (4,120 ) (38,011 )

Total valuation allowance (14,147 ) (13,890 ) (129,997 )

Total of deferred tax assets 732 704 6,724

Deferred tax liabilities: Net unrealized gain on available-for-sale

securities 3,360 4,208 30,875 Reserve for advanced depreciation of non-

current assets 24 25 218 Other 118 261 1,086

Total deferred tax liabilities 3,502 4,494 32,179

Net deferred tax liabilities ¥ 2,770 ¥ 3,790 $ 25,455

- 23 -

The expiration of tax loss carryforwards, the related valuation allowances and resulting net deferred tax assets as of March 31, 2020 and 2019, were as follows:

Millions of Yen

March 31, 2020 1 Year or

Less

After 1 Year through 2 Years

After 2 Years through 3 Years



After 5 Years Total

Deferred tax assets

relating to tax loss carryforwards ¥ 122 ¥ 766 ¥ 900 ¥ 631 ¥ 281 ¥ 7,702 ¥ 10,402

Less valuation allowances for tax loss carryforwards (105 ) (711 ) (900 ) (623 ) (281 ) (7,391 ) (10,011 )

Net deferred tax assets relating to tax loss carryforwards 17 55 - 8 - 311 391

Millions of Yen


Less





After 5 Years Total

Deferred tax assets

relating to tax loss carryforwards ¥ 221 ¥ 324 ¥ 571 ¥ 900 ¥ 669 ¥ 7,371 ¥ 10,056

Less valuation allowances for tax loss carryforwards (221 ) (301 ) (515 ) (900 ) (661 ) (7,172 ) (9,770 )

Net deferred tax assets relating to tax loss carryforwards - 23 56 - 8 199 286



Less





After 5 Years Total

Deferred tax assets

relating to tax loss carryforwards $ 1,122 $ 7,037 $ 8,269 $ 5,806 $ 2,581 $ 70,767 $ 95,582

Less valuation allowances for tax loss carryforwards (965 ) (6,533 ) (8,269 ) (5,727 ) (2,581 ) (67,911 ) (91,986 )

Net deferred tax assets relating to tax loss carryforwards 157 504 - 79 - 2,856 3,596

Deferred tax assets for the tax loss carryforwards are recognized in accordance with the probability that taxable profit will be available.

- 24 -

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of operations for the year ended March 31, 2020, is as follows:

2020

Normal effective statutory tax rate 30.6 % Expenses not deductible for income tax purposes 3.0 Per capita inhabitant tax 0.8 Foreign withholdings tax 2.4 Difference between Japanese and foreign tax rates (5.4 ) Changes in valuation allowance (0.7 ) Equity in earnings of associated companies (1.4 ) Adjustments in elimination of allowance for doubtful accounts (7.2 ) Unrecognized tax effect on unrealized profit (3.3 ) Difference between statutory tax rate and reduced tax rates 0.5 Amendment of deferred tax asset by changing tax rate (0.3 ) Other, net (1.8 )

Actual effective tax rate 17.2 %

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of operations for the year ended March 31, 2019 is not presented because of the net loss for the period.

10. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

Selling, general, and administrative expenses in the accompanying consolidated statements of operations for the years ended March 31, 2020 and 2019, consisted of the following:


2020 2019 2020

Freight charges ¥ 2,612 ¥ 3,075 $ 24,000 Advertising 395 312 3,627 Employees' salary and bonuses 4,730 4,549 43,464 Net periodic retirement benefit costs 221 195 2,030 Provision for bonuses 265 258 2,431 R&D expenses 1,560 1,694 14,332 Provision for product warranties 286 118 2,626 Depreciation and amortization 597 451 5,482 Commission 1,466 1,946 13,468 Others 3,532 3,664 32,466

Total ¥ 15,664 ¥ 16,262 $ 143,926

11. R&D COSTS

R&D costs charged to income were ¥4,496 million ($41,315 thousand) and ¥4,818 million for the years ended March 31, 2020 and 2019, respectively.

- 25 -

12. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(1) Group Policy for Financial Instruments

The Group uses bank loans and convertibles bonds for its ongoing operations and capital investment. Cash surpluses are invested in low risk financial assets. Derivatives are not used for speculative purposes, but to hedge the exchange rate risk of the trade receivables denominated in foreign currencies.

(2) Nature and Extent of Risks Arising from Financial Instruments, and Risk Management for Financial Instruments

Trade receivables, such as trade notes and trade accounts, are exposed to customer credit risk. The Group, pursuant to its credit management rule, manages customers' credit by monitoring the collection terms and balances of trade receivables and by updating customer credit conditions annually. Receivables denominated in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates.

As for the held-to-maturity debt securities, the Group, according to its securities management rule, invests only in high-rated bonds. Thus, the Group believes that the held-to-maturity debt securities included in marketable and investment securities are exposed to little credit risk. Equity securities held for business-relation purposes, included in investment securities, are exposed to the risk of market fluctuations. The Group regularly reviews balances of investment equity securities according to the market price and the financial condition of the issuers.

Advances to unconsolidated subsidiaries are regularly monitored for changes in the credit condition of such affiliated companies.

Most payment terms of payables, such as trade notes and trade accounts, are less than one year. Although trade payables and borrowings are exposed to liquidity risk, the Group manages the liquidity risk by appropriately preparing monthly cash flow projections.

Short-term and long-term bank loans are used for its ongoing operations and capital investment.

Convertible bonds are used to fund the Group's capital investment, repayments of long-term debt, and purchase of treasury stock.

The Group deals and manages derivative transactions in accordance with its derivatives management policy. To minimize credit risk associated with the derivatives transactions, the Group carries out derivative transactions only with highly rated financial institutions.

- 26 -

(3) Fair Values of Financial Instruments

Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, another rational valuation technique is used instead.

(a) Fair value of financial instruments

Millions of Yen

March 31, 2020 Carrying Amount

Fair Value

Unrealized Gain/Loss

Cash and cash equivalents ¥ 18,441 ¥ 18,441 ¥ - Receivables, net 34,206 34,206 - Marketable and investment securities:

Held-to-maturity debt securities 4,215 4,213 (3 ) Available-for-sale securities 19,223 19,223 -

Investments in associated companies 912 1,366 454 Advances to unconsolidated subsidiaries 1,345 Allowance for doubtful accounts (1 )

Advances to unconsolidated subsidiaries, net 1,344 1,344 -

Total ¥ 78,341 ¥ 78,793 ¥ 451

Short-term borrowings ¥ 2,400 ¥ 2,400 ¥ - Payables 21,819 21,819 - Long-term debt:

Convertible bonds 12,112 11,580 (532 ) Bank loans, including current portion 10,496 10,496 (0 )

Total ¥ 46,827 ¥ 46,295 ¥ (532 )

Millions of Yen


Fair Value


Cash and cash equivalents ¥ 13,628 ¥ 13,628 ¥ - Receivables, net 34,501 34,501 - Marketable and investment securities:

Held-to-maturity debt securities 6,340 6,343 3 Available-for-sale securities 22,144 22,144 -

Investments in associated companies 934 2,759 1,825 Advances to unconsolidated subsidiaries 1,181 Allowance for doubtful accounts (1 )


Total ¥ 78,727 ¥ 80,555 ¥ 1,828

Short-term borrowings ¥ 1,800 ¥ 1,800 ¥ - Payables 26,051 26,051 - Long-term debt: bank loans, including

current portion 14,000 13,995 (5 )

Total ¥ 41,851 ¥ 41,846 ¥ (5 )

- 27 -



Fair Value


Cash and cash equivalents $ 169,444 $ 169,444 $ - Receivables, net 314,308 314,308 - Marketable and investment securities:

Held-to-maturity debt securities 38,734 38,708 (26 ) Available-for-sale securities 176,632 176,632 -

Investments in associated companies 8,379 12,552 4,173 Advances to unconsolidated subsidiaries 12,361 Allowance for doubtful accounts (6 )


Total $ 719,852 $ 723,999 $ 4,147

Short-term borrowings $ 22,053 $ 22,053 $ - Payables 200,487 200,487 - Long-term debt:

Convertible bonds 111,293 106,404 (4,889 ) Bank loans, including current portion 96,444 96,444 (0 )

Total $ 430,277 $ 425,388 $ (4,889 )

Cash and Cash Equivalents, and Receivables

The carrying values of cash and cash equivalents, and receivables approximate fair value because of their short maturities.

Marketable and Investment Securities

The fair values of marketable and investment securities are measured at the quoted market price of the stock exchange for the equity instruments, and at the quoted price obtained from the financial institution for certain debt instruments. Fair value information for marketable and investment securities by classification is included in Note 4.

Investments in Associated Companies

The fair value of investments in an associated company is measured at the quoted market price of the stock exchange for the equity instruments.

Advances to Unconsolidated Subsidiaries

The fair values of advances to unconsolidated subsidiaries based on floating interest rates are determined by book values because their market value approximates book value.

Payables and Short-Term Borrowings

The carrying values of payables and short-term borrowings approximate fair value because of their short maturities.

Long-Term Debt

The fair value of convertible bonds is measured at the quoted price obtained from the financial institution.

The fair value of bank loans is estimated at present value, which is calculated by discounting principal and interest at a rate assumed to be applied to a similar new bank loan.

- 28 -

(b) The carrying amount of financial instruments whose fair values cannot be reliably determined is as follows:


2020 2019 2020

Investments in equity instruments that do not have a quoted market price in an active market ¥2,648 ¥2,662 $24,332

(4) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Millions of Yen

March 31, 2020

Due in One Year or Less

Due after One Year through

Five Years

Due after Five Years

through 10 Years

Due after 10 Years

Cash and cash equivalents ¥ 18,441 ¥ - ¥ - ¥ - Receivables, net 34,206 - - - Marketable and investment

securities: Held-to-maturity securities 2,405 1,810 - - Negotiable certificates of

deposit 218 - - - Advances to unconsolidated

subsidiaries 256 419 404 265

Total ¥ 55,526 ¥ 2,229 ¥ 404 ¥ 265

Millions of Yen

March 31, 2019



Five Years


through 10 Years

Due after 10 Years

Cash and cash equivalents ¥ 13,628 ¥ - ¥ - ¥ - Receivables, net 34,501 - - - Marketable and investment

securities: Held-to-maturity securities 3,108 3,232 - -

Advances to unconsolidated subsidiaries 265 371 327 226

Total ¥ 51,502 ¥ 3,603 ¥ 327 ¥ 226

- 29 -


March 31, 2020



Five Years


through 10 Years

Due after 10 Years

Cash and cash equivalents $ 169,444 $ - $ - $ - Receivables, net 314,308 - - - Marketable and investment

securities: Held-to-maturity securities 22,103 16,631 - - Negotiable certificates of

deposit 2,000 - - - Advances to unconsolidated

subsidiaries 2,358 3,846 3,718 2,439

Total $ 510,213 $ 20,477 $ 3,718 $ 2,439

Please see Note 6 for annual maturities of long-term debt.

13. COMPREHENSIVE LOSS

The components of other comprehensive loss for the years ended March 31, 2020 and 2019, were as follows:


2020 2019 2020

Unrealized loss on available-for-sale securities: Losses arising during the year ¥ (2,966 ) ¥ (7,665 ) $ (27,257 ) Reclassification adjustments to profit or loss 106 1,337 979

Amount before income tax effect (2,860 ) (6,328 ) (26,278 ) Income tax effect 848 1,904 7,794

Total ¥ (2,012 ) ¥ (4,424 ) $ (18,484 )

Foreign currency translation adjustments:

Adjustments arising during the year ¥ (954 ) ¥ (466 ) $ (8,766 )

Total ¥ (954 ) ¥ (466 ) $ (8,766 )

Share of other comprehensive loss in associates:

Losses arising during the year ¥ (106 ) ¥ (117 ) $ (971 )

Total ¥ (106 ) ¥ (117 ) $ (971 )

Total other comprehensive loss ¥ (3,072 ) ¥ (5,007 ) $ (28,221 )

- 30 -

14. NET INCOME (LOSS) PER SHARE

Millions of Yen

Thousands of Shares Yen

U.S. Dollars

Net Income

(Loss)

Weighted-Average Shares EPS

Year Ended March 31, 2020:

Basic earnings per share ("EPS") Net income available to common

shareholders ¥ 2,812 69,281 ¥ 40.59 $ 0.37

Effect of dilutive securities: Convertible bonds - 2,074

Diluted EPS - Net income for

computation ¥ 2,812 71,356 ¥ 39.41 $ 0.36

Year Ended March 31, 2019:

Basic earnings per share Net loss available to common

shareholders ¥(7,953 ) 69,638 ¥(114.21 )

Diluted net income per share is not disclosed because no dilutive securities were outstanding and basic EPS was at a loss position for the year ended March 31, 2019.

15. SUBSEQUENT EVENT

Appropriation of Retained Earnings

The Company's Board of Directors approved a resolution, which is subject to approval at the general meeting of shareholders on June 26, 2020, outlining a plan to pay cash dividends.

The resolution of cash dividends is as follows:

Millions of Yen


Year-end cash dividends, ¥12.0 ($0.11) per share ¥821 $7,544

- 31 -

16. 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 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 main operations are manufacturing and distributing capacitors and related products. The Group consists of business segments based on sales offices and manufacturing bases. Since the factors of each sales office and manufacturing base, such as the economic characteristics, the contents of the products and services, and the manufacturing or marketing processes of products, are similar, the Group's reportable segment is a single segment, namely "manufacturing and distributing capacitors and related products." Therefore, the Group has omitted segment information.

(2) Information about Products and Services

Millions of Yen

2020

Capacitors for

Electronics

Capacitors for Electric Apparatus and Power Utilities,

and Capacitor Applied Systems

Circuit Products Other Total

Sales to external

customers ¥62,222 ¥16,354 ¥40,623 ¥477 ¥119,676

Millions of Yen

2019

Capacitors for

Electronics




Sales to external

customers ¥77,568 ¥13,980 ¥30,299 ¥1,013 ¥122,860


2020

Capacitors for

Electronics




Sales to external

customers $571,739 $150,270 $373,268 $4,382 $1,099,659

- 32 -

(3) Information about Geographical Area

(a) Sales

Millions of Yen

2020

Japan USA Greater China Asia Other Total

¥58,174 ¥8,523 ¥34,153 ¥11,262 ¥7,564 ¥119,676

Millions of Yen

2019


¥49,682 ¥9,355 ¥43,079 ¥11,732 ¥9,012 ¥122,860


2020


$534,540 $78,312 $313,818 $103,483 $69,506 $1,099,659

(b) Property, plant, and equipment

Millions of Yen

2020


¥24,700 ¥321 ¥4,971 ¥3,697 ¥78 ¥33,767

Millions of Yen

2019


¥23,642 ¥392 ¥4,541 ¥3,190 ¥45 ¥31,810


2020


$226,957 $2,954 $45,673 $33,971 $715 $310,270

Note: Prior to April 1, 2019, Greater China was included in Asia. Such amount rose to a material level and as such, is disclosed separately for the year ended March 31, 2020. The comparative information for the year ended March 31, 2019, is also adjusted accordingly using the new classification.

- 33 -

17. INVESTIGATION BY COMPETITION AUTHORITIES AND CLASS ACTION LAWSUITS

The Group had been investigated by the authorities of several countries regarding the sale of capacitors. The authorities completed their investigation, and the Group has already paid fines. Moreover, class action lawsuits were filed against the Group in the United States of America and Canada over the alleged violation of applicable laws. The Group reached settlement agreements in the United States of America and the Group continues to deal with lawsuits in Canada in an appropriate manner. As these procedures are ongoing, the final conclusion might have future consequences on the Group's business results.

In connection with the charge that the Company and its subsidiary's electrolytic capacitor sales violated United States antitrust competition law, the Company and its subsidiary reached settlement agreements with Indirect Purchasers Plaintiffs ("IPPs") on September 27, 2018. The Company and its subsidiary paid $21.5 million (¥2,404 million) to IPPs in accordance with this agreement. Moreover, the Company and its subsidiary reached settlement agreements with Direct Purchasers Plaintiffs ("DPPs") on December 6, 2018. The Company and its subsidiary paid $90 million (¥10,026 million) to DPPs in accordance with this agreement. Including these agreements, the Group recognized losses relating to antitrust law amounting to ¥14,285 million as other expense for the year ended March 31, 2019.

18. RELATED PARTY DISCLOSURES

There is no transactions of the Group and associated companies in 2020.

Transactions of the Group and associated companies for the year ended March 31, 2019, was as follows:

Millions of Yen

2019

Proceeds from sale of the stock of an associated company ¥623

The sales price was decided based on the third-party evaluation.

* * * * * *

NICHICONCORPORATION and Consolidated Subsidiaries

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