SHOWA DENKOFINANCIALREPORT

2021

Corporate Philosophy
PurposeChange society through the power of chemistry
Contribute to the sustainable development of global society by creating functions
required of the times as an advanced material partner

ValuesPassionate & Results Driven
By taking pride and passion to our work,
By focusing our strengths and performance,
We will became a globally recognized top player.

Open Minds & Open Connections
By showing mutual trust and respect,
By collaborating openly beyond boundaries,
We will co-create new value with all stakeholders.

Agile & Flexible
By learning through trial-and-error,
By thinking flexibly and acting swiftly,
We will transform into a dynamic organization.

Solid Vision & Solid Integrity
We truly recognize the power and potential of chemistry,
We prioritize sustainability for future generations,
We commit to upholding our values of integrity to all
stakeholders and ethics in developing chemical technologies.

ProfileShowa Denko K.K. (SDK) was founded in 1939. Ranked as one of Japan’s leading chemical companies, SDK
operated in seven major segments until December 2021: petrochemicals, chemicals, electronics, inorganics,
aluminum, Showa Denko Materials, and others. From January 2022, SDK introduces new segments for information
disclosure which are in line with the new management system: semiconductor and electronic materials, mobility,
innovation enabling materials, and chemicals.
The Showa Denko Group noticed high potential for abundant hydro power, a major resource in Japan. The
Group began by focusing on the promising future of the electrochemical industry, which can make the most ofhydroelectric power, and expanded business domains to cover inorganic chemicals, organic chemicals, andmetallic materials. Today, the Group is a unique chemical manufacturer that supplies petrochemicals, chemicals,
electronics, inorganics, and aluminum.
In 2020, the Group brought Hitachi Chemical Company, Ltd. (currently Showa Denko Materials Co., Ltd.
(Showa Denko Materials)) into a member of the Group.
SDK has formulated “Long-term Vision (2021-2030) for Newly Integrated Company” (Long-term Vision) following
integration with Showa Denko Materials.
Showa Denko and Showa Denko Materials are committed to providing new functions and value as an integrated
company in the chemicals industry where global competition and changes in market structure are expected tointensify, in this way we will contribute the realization of a sustainable society.

1
Our Strengths2Consolidated 11-Year
Summary
4
Showa Denko at a Glance
5
Management’s
Discussion and Analysis
8
Risk Factors
10
Financial Data

Please visit our website
Sustainability site

Contents

Integrated reports

https://www.sdk.co.jp/english/csr.html https://www.sdk.co.jp/english/csr/report/csr_report.html

43
Corporate Data

Our Strengths

Showa Denko has many products maintaining
high world market shares.
Here we would like to introduce semiconductor materials where the Showa Denko Group has a special advantage.
The semiconductor materials market is expected to continue growing rapidly due partly to the spread of 5G, IoT, increase in
the xEVs’ share of the car market, and more investment in data centers. The Showa Denko Group is one of leading manufacturersof semiconductor materials in the world, and our annual sales of semiconductor materials comes to about ¥200 billion.
The Group manufactures and sells a wide range of semiconductor materials from wafer process to packaging process,including high purity gases and solvents for electronics, CMP slurries, copper clad laminates, photosensitive films, and epoxy
molding compounds.
The Group will continue developing leading-edge products by making the most of our technological strengths which havegrown through the integration of Showa Denko and Showa Denko Materials, and responding to customers’ expectations byproviding one-stop solutions, in this way achieving growth of our semiconductor materials business that exceeds the
expansion of the market.

Manufacturing process forsemiconductors

Film formation
Photoresist application
Exposure• Showa Denko• Showa Denko Materials

Key products of the Showa Denko Group

High-purity gases
and solventsfor electronics

85% of sales of semiconductor materials is earned
by products with global top-three market share
World No. 1

Wafer Process

High-purity gases
Etching
Photoresist removal

CMP
Cleaning

Substrate

Packaging Process

Rewiring layer formation
DicingHigh-purity gases
for electronics

CMP slurries

Copper clad laminates
Photosensitive films
Solder resist

High-purity solvents

Ceria slurry World No. 1

CMP slurries

Packaging substrate materials
World No. 1

Copper clad laminates
World No. 1

Die bonding
Wire bonding

Photosensitive films
Die bonding
materials

World No. 1

Die bonding materials
Molding

Epoxy molding
compounds

World No. 2

Epoxy molding compounds

Note: The global market positions shown on this page are SDK’s estimates.

1Consolidated 11-Year Summary
Financial Highlights
Showa Denko K.K. and Consolidated Subsidiaries
December 31

For the year
Net sales
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Operating income
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Net income attributable to owners of the parent
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Free cash flow
R&D expenditures
Capital expenditures
Depreciation and amortization
At year-end
Total assets
Total net assets
Interest-bearing debt
Debt/equity ratio (to FY2018, gross; from FY2019, net) (times) (Note 5)

Millions of yen

2011

2012

2013

2014

2015

2016 (Note 2)¥854,158
250,396130,203
165,01177,564
124,280—
150,583(43,879)
47,3573,484
2,035
30,242
9,640
6,212
—
1,860
(6,116)
16,98069,437(38,671)
30,766
21,59738,79449,413¥739,675
190,939
127,252
163,306
65,57392,194—135,280(34,870)
28,108(977)(875)
32,311
2,954
1,581
—
89
(6,975)
9,368
53,310(41,741)
11,56920,63342,503
46,232¥847,803
286,732
130,402
136,548
65,91990,369—176,516(38,684)
25,953
4,398
2,559
21,940
(838)
5,845
—
(626)
(7,324)
9,065
63,565(55,203)
8,362
20,43544,37039,779¥ 872,785
281,400
138,695
138,537
67,557
97,946—
191,610(42,959)
20,551(4,930)5,460
25,770
(300)
2,999
—
(1,041)(7,406)2,929
66,996(46,876)
20,12020,36247,31840,673¥775,732
231,288
142,292
131,492
63,476
100,756—
147,233(40,805)
33,508
10,543
10,707
17,472(1,249)
2,563
—
1,329
(7,857)921
61,170(42,497)
18,674
20,28944,05942,137¥671,159
185,783
134,529
120,461
50,87098,575—
128,740(47,800)
42,053
20,69013,82415,015(5,758)4,416—
623(6,758)12,30568,949(53,754)
15,195
17,31339,276
38,761

941,303295,745
347,308
1.17

933,162
314,966
342,262
1.09

985,771
345,811353,686
1.02

1,009,843
319,087
383,124
1.20

940,494308,142368,835
1.20

932,698
311,231359,929
1.16

Yen

Per share (Note 6)
Net income—primary (Note 7)
Net income—fully diluted (Note 7)
Net assets
Cash dividends (applicable to the period) (Note 8)
Number of employees at year-end¥ 11.35
11.20
168.33
3.00
11,542¥ 6.26
6.26
182.243.00
9,890¥ 6.066.06
201.27
3.00
10,234¥ 1.991.99
209.76
3.00
10,577

¥

6.45
6.45
2,076.05
3.00
10,561

¥

86.27
86.27
2,080.85—
10,146

Notes: 1. Yen amounts have been translated into U.S. dollars, for convenience only, at the rate of ¥115.02 to US$1.00, the approximate rate of exchange at December 31, 2021.
2. ‌Changing the segmentation
LIB materials was transferred from “Others” to “Electronics” from the year ended December 31, 2017. The segment information for the year ended December 2016 in the above table are based on the new
segmentation. SiC epitaxial wafers for power devices was also transferred from “Others” to “Electronics” from the year ended December 31, 2019. The segment information for the year ended December 2018
in the above table are based on the new segmentation.
3. ‌The tentative accounting policy applied to calculation of 2017 financial results due to consolidation of former SGL GE Holding GmbH was finalized when the Company settled accounts for the third quarterof 2018. Accordingly, the amounts of depreciation and amortization and some other costs for the year ended December 2017 were changed. The amounts in the above table include those retroactively
changed numbers for the year ended December 2017.
4. ‌Showa Denko K.K. started on July 1, 2020 to incorporate Showa Denko Materials’ sales figures and incomes/losses into its financial statements as “Showa Denko Materials segment.”

Net Sales by Segment

Operating Income by Segment

Net Income Attributable to
Owners of the Parent(Billions of yen)
1,500(Billions of yen)
200

(Billions of yen)
120

1,200

150

900
600

0

0

0

2017

Petrochemicals
Chemicals

2

40

50

300

(300)

80

100

2018
Electronics
Inorganics

SHOWA DENKO K.K.

2019

2020

AluminumShowa Denko
Materials

2021
OthersAdjustments

FINANCIAL REPORT 2021

(50)

2017

Petrochemicals
Chemicals

2018

2019

Electronics
Inorganics

2020

AluminumShowa Denko
Materials

2021
OthersAdjustments

(80)

2017

2018

2019

2020

2021

Showa Denko K.K. and Consolidated Subsidiaries

December 31
For the year
Net sales
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Operating income
Petrochemicals
ChemicalsElectronics
Inorganics
AluminumShowa Denko Materials (Note 4)
OthersAdjustments
Net income attributable to owners of the parent
Net cash provided by operating activities
Net cash provided by (used in) investing activities
Free cash flow
R&D expenditures
Capital expenditures
Depreciation and amortization
At year-end
Total assets
Total net assets
Interest-bearing debt
Debt/equity ratio (to FY2018, gross; from FY2019, net) (times) (Note 5)

Thousands of
U.S. dollars (Note 1)

Millions of yen

2021

2017 (Note 3)2018 (Note 2)

2019

2020

¥ 780,387
251,128
148,758
123,064
73,442
105,439—
133,624(55,067)
77,70833,357
16,47421,925
6,979
6,697
—
633
(8,357)37,404
67,235(29,866)
37,36918,53941,78738,565¥ 992,136
268,879
156,541
111,912266,149
108,254—
137,324(56,922)180,003
20,333
17,393
13,557
132,445
4,942
—
1,734
(10,400)
111,503
149,785(49,338)
100,447
19,73541,72739,459¥ 906,454
250,678
157,480
96,445230,135
97,542—
126,163(51,989)
120,798
17,201
13,656
4,880
89,256
1,746
—
1,819
(7,759)73,08878,554(48,156)
30,397
20,60550,21637,704¥ 973,700
193,385
155,769
97,41582,89980,185
302,742
107,301(45,996)(19,449)
4,927
13,481
9,133(32,300)
421(6,303)
1,199(10,006)(76,304)
109,286(930,047)(820,761)
34,37969,05260,592¥1,419,635
283,145
186,873
120,868
102,300
76,179635,033
44,059(28,822)87,19820,701
21,597
16,153
14,412
6,902
20,316(38)(12,845)(12,094)
115,283
28,606
143,889
46,75078,64781,885$12,342,508
2,461,703
1,624,699
1,050,845
889,409662,314
5,521,066
383,057(250,585)
758,112
179,976
187,764
140,438
125,299
60,006
176,633(326)(111,677)(105,146)
1,002,289
248,704
1,250,992
406,448
683,768
711,918

1,026,999
368,994
346,726
0.94

1,074,983
465,340
287,968
0.62

1,076,381
519,433
298,5240.36

2,203,606
718,080
1,060,146
1.84

2,142,390
818,452
850,603
1.15

18,626,235
7,115,738
7,395,265

Yen

Per share (Note 6)
Net income (loss)—primary (Note 7)
Net income—fully diluted (Note 7)
Net assets
Cash dividends (applicable to the period) (Note 8)
Number of employees at year-end¥ 262.44
262.442,473.06
80.00
10,864¥ 758.15
758.15
3,057.16
120.0010,476¥ 501.03
501.03
3,423.25
130.0010,813

U.S. dollars (Note 1)¥¥ (523.06)(523.06)
2,782.79
65.00
33,684(77.40)(77.40)2,838.51
65.00
26,054$ (0.67)(0.67)
24.68
0.57

5. ‌In accordance with the consolidation of Showa Denko Materials Co., Ltd., SDK calculated the D/E ratio with an assumption as follows, starting from the third quarter of the fiscal year ended December 31, 2020.
Regarding preferred shares issued by HC Holdings K.K., which is a subsidiary of SDK, we added the amount equivalent to 50% of the value of issued preferred shares to interest-bearing debts and the remaining 50%
of it to the equity capital of SDK. SDK also added lease liability to the equity capital of SDK, and net interest-bearing debt (interest-bearing debt minus cash and deposits) in calculation of D/E ratio. The assumptionthat we consider 50% of the total value of issued preferred stocks as equity capital is based on the credit rating given by Japan Credit Rating Agency, Ltd. on April 21, 2020. Furthermore, D/E ratio for 2019 wasadjusted in the same way.
6. ‌SDK consolidated every ten shares of common stock into one share on July 1, 2016. “Per share” indicators for 2015 and 2016 (except for cash dividends) are calculated on the basis of the number of outstanding
shares after this consolidation.
7. ‌Net income per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year. Fully diluted net income per share additionally assumes theconversion of the convertible bonds.
8. ‌SDK resolved payment of dividends of ¥30.00 per share based on the record date of May 11, 2017 at the extraordinary general meeting of shareholders held in June 2017. Cash dividends applicable to 2017
include this amount.

Interest-Bearing Debt
Debt/Equity Ratio

Capital Expenditures
Depreciation and Amortization(Billions of yen)
1,200(Times)2.0

Cash Flows(Billions of yen)(Billions of yen)

80

150

900

1.5

60

100

600

1.0

40

50

300

0.5

20

0

0

0

0

2017

2018

2019

Interest-bearing debt (left axis)
Debt/Equity ratio (right axis, gross)
Debt/Equity ratio (right axis, net)

2020

2021

2017

2018

2019

Capital expenditures
Depreciation and amortization

2020

2021

(1,000)

2017

2018

2019

2020

Cash flows from operating activities
Cash flows from investing activities

2021

Free cash flow3

Showa Denko at a Glance
3.0%
Inorganics

19.6 %
43.8 %

Consolidated BusinessResults (Millions of yen)

Net sales
2021¥1,419.6 12.9%

2021

2020

Increase/decrease

Rate ofchangeSales

102,300

82,89919,401

23.4%

Operating Income

14,412(32,300)

46,712—Graphite electrodes and ceramics (alumina and abrasives)

billion

8.3%

Note: ‌The ratios ofrespective
segments havebeen calculated
after adding theamount ofadjustments to
net sales.

7.1%

Aluminum

5.3 %Petrochemicals

Consolidated BusinessResults (Millions of yen)

2021

2020

Increase/decrease

Rate ofchangeSales

283,145

193,385

89,76046.4%

Operating Income

20,701

4,927

15,774320.2%

Consolidated BusinessResults (Millions of yen)

2021

2020

Sales

76,17980,185(4,006)(5.0%)

Operating Income

6,902

421

6,481

—

Consolidated BusinessResults (Millions of yen)Showa Denko Materials
Consolidated BusinessResults (Millions of yen)

2021

2020

Increase/decrease

Rate ofchangeSales

186,873

155,769

31,10420.0%

Operating Income

21,597

13,481

8,116

60.2%

Functional chemicals (polymer emulsion and unsaturated polyester
resin), industrial gases (liquefied carbon dioxide, dry ice, oxygen,nitrogen, and hydrogen), basic chemicals (liquefied ammonia,
acrylonitrile, and chloroprene rubber), electronic chemicals (highpurity gases for electronics), and coating materials

2021

2020

Increase/decrease

Rate ofchangeSales

635,033

302,742

332,291

109.8%

Operating Income

20,316(6,303)

26,619—

Electronics materials (epoxy molding compounds, die bonding materials,
CMP slurries, anisotropic conductive films), printed wiring boards materials(copper clad laminates, photosensitive dry films), mobility components(plastic molded products, friction materials, powder metal products, carbon
anode materials for LIB), energy storage devices and systems (automotive
and industrial batteries, industrial batteries), and life sciences (diagnostics,
contracted manufacturing of regenerative medicine products)

OthersElectronics
Consolidated BusinessResults (Millions of yen)

2021

2020

Increase/decrease

Rate ofchangeSales

120,868

97,41523,453

24.1%

Operating Income

16,153

9,133

7,020

76.9%

Hard disks (HDs), SiC epitaxial wafers for power devices, compound
semiconductors (LED chips), and lithium-ion battery (LIB) materials

4

SHOWA DENKO K.K.

Rate ofchangeRolled products (high-purity foils for capacitors), specialty components(cylinders for laser beam printers [LBPs], extrusions, forged products,
and heat exchangers), and beverage cansOlefins (ethylene and propylene), organic chemicals (vinyl acetatemonomer, ethyl acetate, and allyl alcohol), and polymer (polypropylene)

Chemicals

Increase/decrease

FINANCIAL REPORT 2021

Consolidated BusinessResults (Millions of yen)

2021

2020

Sales

44,059107,301

(38)

1,199

Operating Income

Building materials and general trading

Increase/decrease

Rate ofchange(63,242) (58.9%)(1,237)—

Management’s Discussion and Analysis
Results of Operations
In 2021, the Group recorded consolidated net sales of ¥1,419,635 million(US$12,343 million), up 45.8% from the previous year. Sales in the Others
segment fell significantly due to transfer of shares in the SHOKO CO., LTD.
and the resulting unconsolidation of the company. Sales in the Aluminumsegment also decreased due to the transfer of operations for rolled
aluminum products and aluminum cans. However, sales in the
Petrochemicals segment rose following a recovery in market prices for
products. Sales in the Chemicals, Electronics, and Inorganics segments
also increased due to a recovery in sales volumes over the previous year
when the spread of COVID-19 significantly affected sales. Full-year
consolidation of the Showa Denko Materials segment also contributed
to higher net sales for the Group.
The cost of sales rose ¥267,264 million, or 32.8%, to ¥1,081,642 million(US$9,404 million) over the previous year, due mainly to the full-year
consolidation of Showa Denko Materials Co., Ltd. (SDMC) and a substantial
rise in prices for raw materials and fuels.
Selling, general and administrative expenses increased ¥72,025 million,
or 40.3%, to ¥250,796 million (US$2,180 million), mainly the result of the
full-year consolidation of SDMC and higher physical distribution costs.
R&D expenditures increased ¥12,371 million, or 36.0%, to ¥46,750 million(US$406 million) due mainly to the full-year consolidation of SDMC.
Operating income for the Group in 2021 significantly increased by¥106,647 million to ¥87,198 million (US$758 million). Operating income
in all segments was negatively affected by lower production of
automobiles caused by the shortage of semiconductors and a rise in raw
material prices. Operating income in the Others segment decreased due
to SHOKO CO., LTD. being unconsolidated. However, operating incomein the Petrochemicals segment increased due mainly to significant
improvements in the naphtha factor. Operating income in the Inorganics
segment was up due mainly to significantly higher shipment volumes
for graphite electrodes caused by a recovery in the demand for steel.
Full-year consolidation of the Showa Denko Materials segment also
increased the operating income of the Group. Operating income in theChemicals, Electronics, and Aluminum segments rose as well, mainly the
result of initiatives to improve profitability.

Information by Business Segment
A breakdown of net sales and operating income by business segment
follows.

Petrochemicals Segment
In the Petrochemicals segment, sales increased by 46.4% from theprevious year to ¥283,145 million (US$2,462 million). In our olefin
operations, sales rose due to an improved supply and demand balancein East Asia resulting from a recovery in demand from China and rising
prices of products, including ethylene and propylene, resulting fromhigher prices for raw materials. Sales of organic chemicals grew, owing
to a rise in sales volumes of ethyl acetate and vinyl acetate as a result ofa rebound from the periodic shutdown for plant maintenance to produce
these products that took place in the first quarter of 2020, in addition to
the effect of a significant rise in market prices of organic chemicals. As aresult, the Petrochemicals segment recorded operating income of¥20,701 million (US$180 million), a momentous increase of 320.2% fromthe previous year, due to a significant improvement in the raw naphtha
price factor and higher market prices for these products.

Chemicals Segment
In the Chemicals segment, sales increased 20.0% from the previous yearto ¥186,873 million (US$1,625 million). Sales of basic chemicals rose.
Sales of liquefied ammonia were higher due to an increase in shipment
volumes. Sales of acrylonitrile increased due to a tight supply anddemand balance resulting from the impact of a hurricane in the US, asignificant rise in product prices resulting from substantially higher raw
material and fuel prices, and an increase in shipment volumes for theseproducts. Sales of chloroprene rubber increased due to the higher
volume of exports. Sales of electronic chemicals were also up due to anincrease in shipments of products to respond to the demand from thebooming semiconductor industry. Sales of functional chemicals
increased due to higher shipment volumes for the Japanese market aswell as exports, despite the recent influence of higher prices for raw
materials and lower production of automobiles. Sales of industrial gases
and coating materials also increased due to higher shipment volumes.
Operating income for the segment increased 60.2% from the previous
year to ¥21,597 million (US$188 million).

Electronics Segment
In the Electronics segment, sales rose by 24.1% from the previous year to¥120,868 million (US$1,051 million). Sales of HD media increased
because of higher shipment volumes of HD media for data centers andPCs. Sales of compound semiconductors increased due to more export
sales. Sales of lithium-ion battery (LIB) materials were up due to anincrease in sales volumes of Showa Denko Packaging’s aluminum
laminate film (SPALFTM) used as packaging material for LIBs built into
cars, PCs, and mobile devices. SiC epitaxial wafer sales were higher due
to an increase in sales volumes resulting from higher demand and thestart of long-term contracts to supply SiC epitaxial wafers to several
manufacturers of power semiconductor equipment. Operating income
for the segment increased 76.9% to ¥16,153 million (US$140 million).

Inorganics Segment
In the Inorganics segment, sales went up by 23.4% from the previous
year to ¥102,300 million (US$889 million). Sales of graphite electrodes
rose due to higher sales volumes caused by increased global demand forsteel, which started in the second half of 2020. Sales of ceramics were up
due to growth in sales volumes of abrasives and fine ceramics forelectronics. Operating income for the segment rose significantly to¥14,412 million (US$125 million), a major increase of ¥46,712 million
from the previous year due partly to a rebound from applying the lowerof cost or market method to inventory in the previous year.

Aluminum Segment
In the Aluminum segment, sales fell 5.0% from the previous year to¥76,179 million (US$662 million). Sales of aluminum specialty components
rose due to higher demand for our products for use in automotive parts,
machine tools, and office automation equipment. Sales of rolled
products and aluminum cans decreased due to the transfer of thesebusinesses in 2021. Operating income for the segment increased ¥6,481
million from the previous year to ¥6,902 million (US$60 million).

5Management’s Discussion and Analysis (cont.)
Showa Denko Materials Segment

Sales in China

We began to consolidate Showa Denko Materials Co., Ltd. and related
subsidiaries in the second quarter of 2020, creating a new segment forreporting, and started to incorporate sales figures and operating income
for the new segment into SDK’s consolidated financial statements at the
beginning of the third quarter of 2020. The Showa Denko Materials
segment recorded net sales of ¥635,033 million (US$5,521 million) in
2021, an increase of 109.8% over the previous year. Sales of electronicmaterials—polishing materials for flattening semiconductor circuits(CMP slurries) and materials for circuit boards, including copper cladlaminates—remained strong due mainly to higher demand forsemiconductors. Sales of mobility components, including molded resins,
recovered from the previous year when there was a negative impact
from the spread of COVID-19. However, in the second half of 2021, salesof mobility components were negatively affected by lower productionof automobiles due to the recent shortage of semiconductors. As aresult, the segment recorded operating income of ¥20,316 million(US$177 million), an increase of ¥26,619 million from the previous year.
Operating income for this segment includes amortization of the
goodwill of the former company, Hitachi Chemical Company, Ltd., theresult of acquiring shares in the former Hitachi Chemical, and otherlosses amounting to about ¥33,400 million (US$290 million).

Sales in China grew considerably, due mainly to the full-year consolidationof the Showa Denko Materials segment. Recovery in shipment volumesof graphite electrodes and higher shipment volumes of LIB materials
also increased the Group’s sales in China.
As a result, consolidated sales from operations in China rose
¥50,687 million, or 42.5%, from the previous year to ¥170,047 million(US$1,478 million).

Others Segment
In the Others segment, sales significantly decreased by 58.9% from theprevious year to ¥44,059 million (US$383 million) due mainly to SHOKO
CO., LTD. being unconsolidated, resulting from the transfer of SDK’s
shares in SHOKO CO., LTD. that took place in the second quarter of 2021.
Operating income for the segment fell by ¥1,237 million, resulting in an
operating loss of ¥38 million (US$0.3 million).

Information by Geographic Area
Sales in Japan
Sales in the Petrochemicals segment in Japan rose owing to a substantial
increase in market prices of petrochemical products resulting from asubstantial rise in raw naphtha prices. Sales in the Chemicals segment
increased due to the reduced influence of COVID-19. In basic chemicals
operations, sales improved due partly to higher sales of acrylonitrile andliquefied ammonia resulting from strengthening domestic demand.
Sales of industrial gases also rose, due partly to higher shipment
volumes of carbonic acid gas for beverages and other gases. In theElectronics segment, sales were up, mainly due to increasing demandfor SiC epitaxial wafers. In the Inorganics segment, sales of graphite
electrodes rose due to an increase in shipment volumes. Sales ofceramics also went up due partly to higher shipment volumes ofabrasives. In the Aluminum segment, sales decreased due to the sale of
the rolled product and aluminum can businesses in 2021. Sales in theShowa Denko Materials segment increased due to full-year
consolidation. In the Others segment, sales fell, due mainly to SHOKO
CO., LTD. being unconsolidated, a consequence of the transfer of SDK’s
shares in SHOKO CO., LTD.
As a result, consolidated sales from operations in Japan increased¥226,905 million, or 42.8%, to ¥757,708 million (US$6,588 million).

6

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Sales in Asia (excluding Japan and China)
Sales in the Petrochemicals segment in Asia were up due to higher market
prices for olefin products, despite a fall in export volumes for olefin
products caused by more shipments in the strong domestic market. In
the Chemicals segment, sales of electronic chemicals improved becauseof higher shipment volumes of high purity gases for electronics resulting
from a recovery in production in the semiconductor and display
industries of East Asia. Sales of coating materials also rose due to higher
shipment volumes. In the Electronics segment, sales of hard disk media
grew due to an increase in shipment volumes. In the Inorganics segment,
sales of graphite electrodes also rose, due to a recovery in demand forsteel. In the Aluminum segment, sales fell, due mainly to the sale of thealuminum can business. Full-year consolidation of the Showa Denko
Materials segment also increased sales figures for the Group in Asia.
As a result, consolidated sales from operations in Asia (excluding
Japan and China) rose ¥81,273 million, or 38.4% over the previous year,to ¥292,947 million (US$2,547 million).

Sales in the Rest of the World
Sales in the rest of the world were up due mainly to an increase in sales
in the Inorganics segment, the result of higher shipment volumes ofgraphite electrodes caused by a recovery of steel production in theEuropean and US markets. Full-year consolidation of the Showa Denko
Materials segment also significantly contributed to higher sales in therest of the world.
As a result, consolidated sales from operations in the rest of theworld increased ¥87,072 million, or 77.8% over the previous year, to¥198,933 million (US$1,730 million).

Other Income (Expenses) and Net Incomes
The gap between interest expenses and interest and dividend income (ornet financial expenses) deteriorated ¥3,158 million to the expenditure of¥7,738 million (US$67 million), mainly the result of higher interest expenses.
We recorded a gain on equity from earnings of unconsolidated
subsidiaries and affiliates, to which the equity method is applied, of¥5,251 million (US$46 million), an increase of ¥4,006 million due mainly
to a higher dividend from a synthetic resin production company causedby higher market prices for products, and the full-year contribution ofShowa Denko Materials’ unconsolidated subsidiaries and affiliates, towhich the equity method is applied.
For foreign exchange gain (losses), the Group recorded foreignexchange gain of ¥4,281 million (US$37 million) in 2021, an improvementof ¥7,260 million from the previous year.
We recorded a loss of ¥3,733 million (US$32 million), net, on
retirement and sales of noncurrent assets, lower by ¥3,751 million
from the previous year.

Gain on sales of investment securities increased ¥2,879 million fromthe previous year, to ¥5,814 million (US$51 million).
We recorded impairment losses of ¥11,564 million (US$101 million),
down ¥5,038 million from the previous year, due mainly to retiring aplant that produced thermal insulation parts in the Showa Denko
Materials segment.
We also posted business restructuring expenses of ¥32,767 million(US$285 million), up ¥26,859 million from the previous year, mainly the
result of the transfer of the energy storage devices and systems businesses.
As a result, other income/loss (non-operating and extraordinary
income/loss) deteriorated by ¥15,460 million, year on year, to a net lossof ¥64,272 million (US$559 million).
The net result was that the Company recorded a net income before
income taxes and non-controlling interests of ¥22,926 million (US$199
million), an improvement of ¥91,187 million from the previous year.
Consequently, the Company recorded a net loss attributable to ownersof the parent of ¥12,094 million (US$105 million), an improvement of¥64,210 million from the previous year.

Financial Position
Total Assets
Total assets at the end of the year amounted to ¥2,142,390 million(US$18,626 million), a decrease of ¥61,216 million from the level at
December 31, 2020. Total assets fell, due mainly to the decrease intangible fixed assets and intangible fixed assets including goodwill,despite an increase in notes and accounts receivable–trade due to arecovery in product sales, an increase in inventories due to rising prices
for products and raw materials, and an increase in cash and deposits
due to an increase in funds received from a public stock offering.
Cash and deposits increased ¥37,254 million from the end of theprevious year to ¥236,237 million (US$2,054 million).
Net property, plant and equipment fell ¥67,598 million to ¥659,521
million (US$5,734 million).
Total investments and other assets fell ¥22,071 million to ¥372,572
million (US$3,239 million). Goodwill fell ¥47,434 million to ¥311,766 million(US$2,711 million).

million to ¥78,647 million (US$684 million) for the entire Group as aresult of continued strict selection of investment projects to cope withthe slowdown in demand caused by COVID-19, despite an increase of
approximately ¥12,000 million in the Showa Denko Materials segment
due to the full-year consolidation.

Cash FlowsNet cash provided by operating activities increased ¥5,997 million fromthe previous year to ¥115,283 million (US$1,002 million), due partly to ahigher profit before income taxes.
Net cash provided by investing activities totaled ¥28,606 million(US$249 million), a decrease of ¥958,653 million from net cash used ininvesting activities in the previous fiscal year, which included ¥892,030
million for the purchase of investments in subsidiaries resulting in achange in the scope of consolidation, due to the impact of proceeds of¥83,915 million from the business transfer.
As a result, free cash flow ended at the proceeds of ¥143,889 million(US$1,251 million), an improvement of ¥964,650 million. Net cash
provided by financing activities fell ¥1,018,262 million to an expenditureof ¥121,741 million (US$1,058 million), due partly to the effect of an
expenditure of ¥307,247 million for repaying long-term debt and proceedsof ¥702,163 million from borrowing of long-term debt in the previous
year, although there were proceeds of ¥82,405 million resulting fromissuing new shares and ¥99,539 million from issuing a corporate bond.
As a result, cash and cash equivalents at December 31, 2021 rose
¥37,011 million from the end of the previous year to ¥234,938 million(US$2,043 million), including the effect of exchange rate fluctuations.

Liabilities
Total liabilities dropped ¥161,588 million to ¥1,323,937 million (US$ 11,510
million), due mainly to a decrease in interest bearing debt, despite anincrease in accounts payable–trade. Interest bearing debt fell significantlyby ¥209,543 million to ¥850,603 million (US$ 7,395 million) due mainly
to the repayment of this debt by using net cash provided by operating
activities and cash provided by the sale of businesses.

Net Assets
Net assets at the end of the year amounted to ¥818,452 million (US$ 7,116
million), up ¥100,372 million from the end of 2020, due partly to anincrease in foreign currency exchange adjustments and a higher capitalstock and capital surplus resulting from a public stock offering to raise
funds for investments in plants and equipment in advance of rapidly
rising demand for semiconductor materials.

Capital Expenditures
Capital expenditures for the fiscal year under review rose by ¥9,595

7

Risk Factors
The Showa Denko Group faces risks, as explained below, that could adversely affect our
future performance, financial position, and cash flows, and we are working to put in place
an improved risk management system to minimize these risks.
The following covers those risks considered material as of March 30, 2022. This list is
not exhaustive.
The Group will continue to monitor the impact of the novel coronavirus (COVID-19)
on our operation.

Substantial fluctuations in the performances

1 of individual businesses

The Group is manufacturing and selling a wide variety of products, such as petrochemicals,
chemicals, electronics, inorganics, and aluminum. The following risks are expected in
major business fields, but those are not limited to the businesses mentioned below.

The Group implements mergers, acquisitions, capital tie-ups, business reorganization andrestructuring at home and overseas to expand the scope of businesses and improve
profitability. The Group undertakes careful due diligence for companies being considered
as acquisition targets, and scrupulously verifies post-merger plans to mitigate risk. However,
if changes in the business environment for the Group or companies that the Group invests
in effectively prevent the desired results from being achieved, this could have a negative
impact on the Group’s performance and financial position. The Group’s performance andfinancial position could also be affected if the Group restructures businesses, such as
withdrawing from unprofitable businesses or reorganizing affiliated companies.

Unexpected fluctuations in financial position

2 and cash flows(1) Petrochemicals(1) Substantial fluctuations in exchange rates

The Group purchases and imports a large amount of feedstock, including naphtha. Whenthe price of naphtha or other types of feedstock fluctuates due to a change in crude oil
prices, a change in the supply-demand balance, or a currency fluctuation, and when wecannot secure sufficient spreads between the manufacturing cost and selling prices of
products, the Group’s performance and financial position can be affected. Furthermore,earnings from petrochemicals largely depend on the supply-demand balance. Constructionof large plants by competitors and the resultant oversupply as well as a sharp decrease indemand due to unfavorable changes in the Japanese or world economies can affect theGroup’s performance and financial position. In addition, the amount of investment andexpenditure necessary for the Group to cope with global movement toward carbon
neutrality that aims to mitigate climate change may be affected if there is any change inthe schedule for implementation of necessary countermeasures.
To deal with these risks, the Group is stabilizing revenue, including by reviewing sales
methods and by working to reduce costs.

For foreign-currency-based transactions centering on exports/imports, the Group makes
best efforts to minimize exchange rate fluctuation risks, mainly through exchange
contracts. However, substantial fluctuations in exchange rates can affect the Group’s
performance and financial position. In particular, a sharp appreciation of the yen against
other currencies can affect the Group’s performance. Exchange rate fluctuations can also
affect the Group’s performance and financial position through the conversion of overseas
subsidiaries’ financial statements into Japanese yen.

(2) HD media
In the Group’s HD media business, the sales volume is largely influenced by demand for
IT devices and electric appliances. This business requires innovations at a rapid pace andinvolves fierce international competition. Fluctuations in demand and intensification ofcompetition will cause fluctuations in selling prices. The Group is prepared to develop
and provide products meeting the market requirements and has established a global
production/marketing setup. However, when market requirements change more quickly
than we expected, when supply-demand balance changes substantially, and when
exchange rates sharply fluctuate, the Group’s performance and financial conditions canbe affected.

(3) Inorganics
The Group produces graphite electrodes in Asia, North America, and Europe, and sells
those products globally. When the demand for graphite electrodes suddenly decreases
due to unfavorable changes in the Japanese or world economies, deterioration in supplydemand balance may not allow us to secure sufficient spreads between the manufacturing
cost and selling prices of products, and can affect the Group’s performance andfinancial position.
In response to these risks, the Group is working to strengthen the revenue basethrough such initiatives as maintaining inventory at levels appropriate to market
conditions and by further reducing costs.

(4) Aluminum
The Group imports a large amount of aluminum metal from overseas sources. When thealuminum ingot price rises due to higher London Metal Exchange (LME) prices, a rise in thepremiums on aluminum, or a weaker yen, and when we cannot absorb the manufacturing
cost increase in the form of higher product prices, the Group’s performance and financial
position can be affected. Furthermore, most of our products are sold as materials andcomponents for the automobile, electric appliance, and electronics sectors. Trends inthose industries, which are beyond our control, can substantially affect our businesses.
In response, the Group hedges against the risk of fluctuations in aluminum raw
material prices by hedging on the LME and other currency exchanges, and we are working
to build a more stable revenue structure by reducing costs and by taking other steps.

(5) Overseas operations
The Group is producing and selling in Asia, North America, and Europe. Operations
overseas involve such special risks as unexpected changes in laws and regulations,deterioration in political/economic situations, and social disorder due to war andterrorism. Such risks can become real and affect our overseas operations, resulting in an
adverse impact on the Group’s performance and financial position.

8(6) ‌Mergers, acquisitions, capital tie-ups, business reorganization
and restructuring

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

(2) ‌Trends in financial markets and changes in the fund-raising
environment
The trends in the financial markets and deterioration in the Group’s financial indexes canaffect the Group’s fund-raising and interest expenses: for example, in the form of prompt
repayment of a loan owing to the terms of financial covenants. In that event, the Group’s
performance and financial position could be affected.
In the event that the financial results, financial position, and financial indicators, etc.
originally expected are not achieved, credit ratings may be reduced, which could in turnnegatively affect the refinancing of existing debt and the terms for new borrowing.
In response to these risks, we are working to strengthen the Group’s financial
standing, as well as to secure liquidity through commitment lines and other agreementswith financial institutions, to smooth out fluctuations in repayments and redemptions,and to take an effective approach to fundraising that balances fixed and variable interest
rates, among other factors.

(3) Employees’ severance indemnities
The Group’s employees’ severance indemnities and expenses are calculated based on
various basic rates and the yield of pension assets used in pension calculations. Fluctuationsin the current price of pension assets, trends in interest rates, and changes in the retirement
benefit/pension systems can affect the Group’s performance and financial position.

(4) Securities
As the Group owns securities with current prices, fluctuations in stock prices can result invaluation losses, affecting the Group’s performance and financial position.

(5) Accounting for impairment of fixed assets
The Group may incur additional losses from the impairment of fixed assets including
goodwill, intangible assets, and land, due to lower profitability resulting fromaggravation in the business environment, due to a considerable reduction in the current
prices of land and other fixed assets. These losses can affect the Group’s performanceand financial position.
Further, the takeover of Hitachi Chemical Company, Ltd. (now Showa Denko Materials
Co., Ltd.) led to an increase in the amount of goodwill and intangible assets. A deteriorationin the financial results of the Showa Denko Materials group, could result in the Company
incurring impairment losses that could in turn negatively affect the business performanceand financial position of the Showa Denko Group.
Looking at the impact of COVID-19, in the event that the spread of infection is
prolonged, some businesses could incur impairment losses, which could negatively affectthe business performance and financial position of the Showa Denko Group.

(6) Deferred tax assets
The Group’s financial statements include deferred tax assets in relation to temporary
differences (differences between the assets/liabilities on the consolidated financial
statements and the assets/liabilities in calculation of taxable income). The calculation ofdeferred tax assets is based on various projections for future taxable income. Thus, when
actual taxable income differs from the projections or in case of a revision of the taxation
system (including tax rates), it becomes necessary to revise deferred tax assets. Thatsituation could affect the Group’s performance and financial position.

Also, regarding the impact of COVID-19, in the event that the spread of infection is
prolonged, some businesses may need to revise their assumptions in relation to therecoverability of these deferred tax assets, which could negatively affect the businessperformance and financial position of the Showa Denko Group.

3 Specific regulations
The Group’s businesses are subject to various restrictions as required by laws and regulations.
The restrictions relate to industrial safety (such as the Law for Prevention of Disasters at
Petroleum Complexes, Etc.; the Fire Service Law; and the High Pressure Gas Safety Law) andthe environment and chemical substances (such as the Basic Environment Law; the Air
Pollution Control Law; and the Law concerning the Examination and Regulation of Manufacture,
Etc. of Chemical Substances). The Group observes these laws and regulations when conducting
business. The Group shares information on laws and regulations that relate to manufacturing
plants, and confirms the state of compliance when updating existing plants or building new
ones. Nevertheless, in the event that the Group fails to observe any of the laws and regulations,
the Group’s activities could be restricted. In case stricter regulations are introduced, resulting
in higher costs, the Group’s performance and financial position can be affected.

4 Important lawsuits
While the Group makes best efforts to observe laws and agreements, the Group may besued when conducting a wide range of businesses.

5 Others(1) R&D
As a hybrid advanced material company combining midstream materials technology anddownstream application technology, the Showa Denko Group focuses on achieving
innovation through integration. The Group will continue to provide a broad range ofsolutions to the market, while focusing on research and development that strengthens
existing businesses and creates new businesses. This will be accomplished by integrating
three specific technologies: chemistry to synthesize for midstream materials, chemistry to
formulate for downstream applications, and chemistry to think for evaluation/simulation,
structural analysis, and computational science.
However, in case the actual results materially differ from original plans, the Group’s
performance and financial position could be affected.

(2) Intellectual property
The Group is making best efforts to obtain, use, and protect intellectual property, such asindustrial property rights and know-how, in recognition of the ability to make the Group’sbusinesses more competitive. The Group also respects other companies’ rights. However,in the event of failure to duly obtain or use the rights, infringement by a third party, or if
the Group is considered to have infringed a third party’s intellectual property, or in theevent that know-how, etc. owned by the Group is leaked unlawfully to a third party, theGroup’s operations can be hindered and the Group’s performance and financial position
could be affected.

(3) Quality assurance and product liability
The Group has established internal rules on quality assurance and quality control, as wellas organizations for managing and promoting quality assurance. Furthermore, the Grouphas obtained certification under ISO 9001 standards to ensure strict quality control.
However, in the event of a serious quality defect or being sued for product liability, theGroup’s reputation could be damaged and the Group may be forced to pay compensation
to customers. This could affect the Group’s performance and financial position.
In response to these risks, the Group implements procedures, such as maintaining
facilities for reliable process management, installing measuring equipment, providing
operating manuals, and training employees. In addition to building a system to prevent
defective goods from being shipped, the Group maintains manufactured goods liability
insurance policies both in Japan and overseas.

(4) Accidents and disasters
The Group is committed to securing steady and safe operations. The Group conducts
regular inspections of all manufacturing facilities in an effort to minimize any risk factors
pertaining to the suspension of operations or accidents due to problems with
manufacturing facilities. In the event of injury or damage to property due to an accident,a large-scale natural disaster, a cyberattack, etc., the Group’s reputation could bedamaged. The Group may incur substantial costs in dealing with the situation and may
lose business opportunities due to the suspension of production. This could affect theGroup’s performance and financial position.
In response to these risks, the Group has analyzed both internal and external
accidents and disasters, created checklists of the lessons learned, and used them toidentify risks and to compile educational materials. In addition to taking steps aimed atpreventing accidents and minimizing damage when accidents do occur, the Group has
prepared for cyberattacks by adopting comprehensive information management
practices and by devising countermeasures to reduce the impact, if any incidents occur.
Furthermore, even when the Group’s manufacturing facilities are not directly
influenced, the Group’s production activities may be restricted by trouble withprocurement or disruption of supply chains due to accidents at suppliers’ sites, a natural
disaster, or a pandemic of infectious disease, or by a shortage of power supply. These
factors could affect the Group’s performance and financial position.
To minimize the impact of this type of damage at suppliers, the Purchasing
Department has prepared a manual for gathering information for emergencies and forassessing the impact on the Group’s production, and we hold BCP training sessions.

(5) Impact on the environment
The Group is committed to the principles of Responsible Care, which means that we areworking to ensure the health and safety of everyone and to protect the environment
from harm caused by chemical substances throughout their life cycles, namely, thedevelopment, production, distribution, use, and disposal. In the event of causing impact
on the environment, the Group’s reputation can be damaged. The Group may incur costs,
including compensation, lose business opportunities due to the suspension of
production, and/or pay compensation to customers. These factors can affect the Group’s
performance and financial position.
In response to these risks, the Group has implemented environmental risk
evaluations after performing exhaustive risk assessments at every business location, andwe are promoting safety at environmental sites. In addition, we have implemented asystematic program of inspections and repairs to prevent environmental pollution
caused by age-related deterioration.
Moreover, the need to respond to the demands of society in relation toenvironmental issues, which has been increasing steadily in recent years, as well as
strengthened environmental laws and regulations could have a negative impact on theGroup’s results of operations and financial position.

(6) Infectious disease pandemics
If another global pandemic occurs, such as the one caused by the novel coronavirus, theoperating results and financial position of the Group could be affected by suspended
production at manufacturing plants and suspended activity at sales offices, etc.
In response to the spread of COVID-19, the Group has established a COVID-19
Countermeasures Headquarters to review information from Japan and overseas, deliver
regular alerts to employees, and provide instruction on ways to counter infection. The
Group CEO sent this message to all Group employees: (1) We have assigned the highest
priority to the health of employees and of all employees at cooperating companies; (2)We will fulfill our social responsibility to provide goods that are indispensable to life insociety; and (3) We are preparing for the growth of the Showa Denko Group after wehave conquered COVID-19.
In addition, a business continuity plan (BCP) has been drawn up, and measures arebeing taken to minimize the impact of risks on our business operations.

(7) Impact of climate change
The Showa Denko Group uses petrochemical materials and fuels to produce various products
and emits greenhouse gases (GHGs). On the other hand, the Group manufactures manykinds of products that contribute to energy conservation and the carbon cycle. It is
becoming more and more important for the Group to contribute to its customers’ effort toachieve carbon neutrality in order to strengthen business relations with them. In addition,
the Group’s costs including that of conforming to laws and regulations, capital investment,purchasing renewable energy, and preparation for large-scale natural disasters are
expected to increase. Therefore, the Group continues making every effort to understandthe physical, transitional, and business risks concerning climate change, and investigatescountermeasures. The Group also continues to reduce its GHG emissions to 30% less thanthe level in 2013.

(8) Respect for human rights
In 2021, the Showa Denko Group formulated its Human Rights Policy, and started due
diligence on human rights with the aim of grasping the risks of human rights violations in
the Group and its supply chains. The Group will continue operating its business in a waythat respects human rights. The Group will also continue identifying problems that haverisks of human rights violation, dealing with them, and formulating remedies for humanrights, thereby mitigating human-rights related business risks of the Group.

9Consolidated Balance Sheets
Showa Denko K.K. and Consolidated Subsidiaries
As at December 31, 2021 and 2020

Thousands of
U.S. dollars (Note 6)

Millions of yen

2021

ASSETS

2020

2021

Current assets
Cash and deposits (Notes 7, 8, and 12)
Notes and accounts receivable (Notes 8, 11, and 12)
Allowance for doubtful accounts
Inventories (Note 12)¥236,237
319,546¥

198,982$ 2,053,875

287,900

2,778,181(1,426)(1,092)(12,398)

203,879

190,208

1,772,548

40,29546,645350,329

798,531722,644

6,942,536

Land (Note 20)

242,556

264,589

2,108,816

Buildings and structures

343,574

351,987

2,987,084

Machinery, equipment and vehicles

955,138

1,016,307

8,304,101

Leased assets (Note 17)30,42934,026

264,554

Other current assets (Notes 8 and 10)
Total current assets

Property, plant and equipment (Notes 12 and 15)

Construction in progress
Less : Accumulated depreciation
Net property, plant and equipment

38,782

38,980337,173

1,610,479

1,705,890

14,001,727(950,958)(978,771)(8,267,762)

659,521727,119

5,733,965

Investments and other assets
Customer related assets

141,141

152,564

1,227,100

Investment securities (Notes 8, 9, and 12)

103,798

106,408

902,434

674

741

5,856

Net defined benefit asset (Note 13)

33,08821,184

287,668

Deferred tax assets (Note 14)

15,207

15,883

132,208

Other (Notes 8, 10, and 15)

79,131

105,609687,980

Long-term loans

Allowance for doubtful accounts
Total investments and other assets

Goodwill (Note 15)

Total assets
See notes to financial statements.

10

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

(466)

(7,747)(4,051)

372,572

394,643

3,239,195

311,766

359,200

2,710,539¥ 2,142,390¥ 2,203,606$ 18,626,235

Thousands of
U.S. dollars (Note 6)

Millions of yen

2021

LIABILITIES AND NET ASSETS

2021

2020

Current liabilities
Short-term debt (Notes 8 and 12)¥74,451¥

72,645$647,287

Current portion of long-term debt (Notes 8, 12, and 21)

72,85756,387

633,425

Notes and accounts payable (Notes 8, 11, and 12)

239,897

191,067

2,085,702

Income taxes payable

17,180

6,041

149,364

Provision for repairs

4,848

28

42,152

Provision for bonuses

8,815

8,815

76,642

Provision for bonuses for directors

71

—

617

Provision for stock payments (Note 4)

39

13

336

Provision for business structure improvement

—

1,748

—

70,49275,327

612,869

488,650

412,0714,248,394

Long-term debt less current portion (Notes 8, 12, and 21)

683,448906,365

5,941,991

Deferred tax liabilities (Note 14)

60,14463,372522,900

Provision for repairs

96

3,168

835

Provision for stock payments (Note 4)

196

204

1,708

Provision for business structure improvement

812

654

7,058

Net defined benefit liability (Note 13)

17,52324,750152,345

Deferred tax liabilities for land revaluation (Note 20)

30,12830,241

261,934

Other noncurrent liabilities (Notes 8 and 10)

42,94144,701

373,333

835,287

1,073,455

7,262,102

1,583,604

Other current liabilities (Notes 8, 10, 12, and 21)
Total current liabilities
Noncurrent liabilities

Total noncurrent liabilities
Contingent liabilities (Note 18)
Net assets (Note 19)
Shareholders' equity
Capital stock
Authorized, 330,000,000 shares
Issued (2021): 184,901,292 shares

182,146—

Issued (2020): 149,711,292 shares—

140,564—

Capital surplus

119,772

78,1901,041,317

Retained earnings

143,335

165,572

1,246,172

Less: Treasury stock at cost (2021): 3,824,243 shares(11,655)—(101,331)—(11,657)—

433,598

372,669

3,769,761

Valuation difference on available-for-sale securities

2,838

3,728

24,678Deferred gains or losses on hedges

1,167

908

10,146

Revaluation reserve for land (Note 20)

28,92829,034

251,504

Foreign currency translation adjustments

38,421(506)

334,040

Remeasurements of defined benefit plans (Note 13)

9,036

128

78,564

Total accumulated other comprehensive income

80,39133,292698,932

304,463

312,119

2,647,045

Less: Treasury stock at cost (2020): 3,828,732 shares
Total shareholders' equity
Accumulated other comprehensive income

Non-controlling interests
Total net assets
Total liabilities and net assets

818,452

718,080

7,115,738¥ 2,142,390¥ 2,203,606$ 18,626,235

11

Consolidated Statements of Operations
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2021 and 2020

Thousands of
U.S. dollars (Note 6)

Millions of yen

2021

2020

2021

¥ 1,419,635¥ 973,700$ 12,342,508

1,081,642

814,378

9,403,943

337,994

159,3222,938,565

250,796

178,771

2,180,453

87,198(19,449)

758,112Interest and dividends income

2,267

2,405

19,713Equity in earnings of unconsolidated subsidiaries and affiliates

5,251

1,245

45,657

Gain on sales of investment securities, net (Note 9)

5,814

2,934

50,544Foreign exchange gain (loss)

4,281(2,979)37,221

Net sales
Cost of sales (Notes 23 and 24)
Gross profit
Selling, general and administrative expenses (Notes 22 and 23)
Operating income (loss)
Other income (expenses)

1,104

2,645

9,602

Interest expenses(10,006)(6,986)(86,993)

Loss on retirement of noncurrent assets(4,838)(2,627)(42,062)

Impairment loss (Note 15)(11,564)(16,602)(100,542)

Environmental expenses (Note 27)(8,958)—(77,882)

Business structuring expenses (Notes 15 and 29)(32,767)(5,908)(284,881)—(16,075)—

Gain on sale of businesses (Note 26)

15,123—

131,478

Loss on sale of businesses (Note 28)(12,078)—(105,008)

Other, net(17,901)(6,864)(155,635)

Total(64,272)(48,811)(558,787)

22,926(68,260)

199,325

Current

26,957

6,891

234,371

Deferred(6,688)(10,051)(58,144)2,657(65,101)

23,098Gain on sales of noncurrent assets, net

Financing expenses (Note 25)

Income (loss) before income taxes
Income taxes (Note 14)

Net income (loss)
Net income attributable to non-controlling interests
Net loss attributable to owners of the parent¥

14,751

11,203(12,094)¥ (76,304)
Yen

128,244$(105,146)

U.S. dollars (Note 6)

Per share amounts
Net loss attributable to owners of the parent : Basic¥ (77.40)¥ (523.06)$ (0.67)

Net loss attributable to owners of the parent : Diluted(77.40)(523.06)(0.67)Cash dividends (applicable to the period)

65.00

65.00

0.57

Notes: Net income per share has been computed based on the average number of shares of common stock outstanding during the respective fiscal year.
See notes to financial statements.

12

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Consolidated Statements of Comprehensive Income
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2021 and 2020

Thousands of
U.S. dollars (Note 6)

Millions of yen

Net income (loss)

2021

2020

2021

¥ 2,657¥ (65,101)$ 23,098(949)(6,101)(8,250)

Other comprehensive income:
Valuation difference on available-for-sale securities, net of tax

259

474

2,251

Foreign currency translation adjustments

39,074(4,770)339,713

Remeasurements of defined benefit plans, net of tax

8,927

5,257

77,610

958

54

8,328

Deferred gains or losses on hedges, net of tax

Share of other comprehensive income of unconsolidated subsidiaries
and affiliates accounted for using equity method¥ 48,268¥ (5,087)$ 419,651¥ 50,925¥ (70,188)$ 442,749

Owners of the parent

35,111(81,294)

305,260

Non-controlling interests

15,814

11,107

137,489

Total other comprehensive income (Note 16)
Comprehensive income
Comprehensive income attributable to:

See notes to financial statements.

13

Consolidated Statements of Changes in Net Assets
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2021 and 2020

Thousands

Millions of yen

Number ofshares ofcapital stock

Capitalstock

CapitalsurplusRetainedearnings

Valuation
Foreign
RemeasureDeferred
Nondifference
Revaluationments
currency
Treasury
gains
controllingon availablereserve fortranslation of definedstock
or losses
interests
for-salelandadjustments benefit planson hedges
securities

149,711¥ 140,564¥ 78,912¥ 249,246¥ (11,664)¥ 9,789

Issuance of new shares

—

—

—

—

—

Dividends from surplus

—

—

—

(11,693)—

Net loss attributable to owners of the parent

—

—

—

(76,304)

Purchase of treasury stock

—

—

—

—

Disposal of treasury stock

—

—

(0)

Increase by increase of consolidated subsidiaries——

Decrease by decrease of consolidated subsidiaries——

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders—

Changes in liabilities for written put options overnon-controlling interests

Balance as at December 31, 2019

¥ 33,060

—

—

—

—

—

—

—

—

—

—

—

—

—

(11,693)

—

—

—

—

—

—

—

(76,304)

(3)

—

—

—

—

—

—

(3)

—

11

—

—

—

—

—

—

11

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(1,392)

—

—

—

—

—

—

—

—

(1,392)

—

—

660

—

—

—

—

—

—

—

—

660

Change due to merger

—

—

10

—

—

—

—

—

—

—

—

10

Reversal of revaluation reserve for land

—

—

—

4,323

—

—

—

—

—

—

—

4,323

Net changes of items other than shareholders' equity

—

—

—

—

—

(6,061)475(4,026)(4,646)

5,241

292,052

283,036

149,711¥ 140,564¥ 78,190¥ 165,572¥ (11,657)¥ 3,728908¥ 29,034

128¥ 312,119¥ 718,080

Issuance of new shares

35,19041,583

41,583

—

—

—

—

—

—

—

—

83,165

Dividends from surplus

—

—

—

(9,500)

—

—

—

—

—

—

—

(9,500)Net loss attributable to owners of the parent

—

—

—

(12,094)

—

—

—

—

—

—

—

(12,094)

Purchase of treasury stock

—

—

—

—

(6)

—

—

—

—

—

—

(6)

Disposal of treasury stock

—

—

0

—

7

—

—

—

—

—

—

7

Increase by increase of consolidated subsidiaries

—

—

—

45

—

—

—

—

—

—

—

45

Decrease by decrease of consolidated subsidiaries

—

—

—

(690)

—

—

—

—

—

—

—

(690)

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders

—

—

—

—

—

—

—

—

—

—

—

—

Changes in liabilities for written put options overnon-controlling interests

—

—

—

—

—

—

—

—

—

—

—

—

Change due to merger

—

—

—

—

—

—

—

—

—

—

—

—

Reversal of revaluation reserve for land

—

—

—

1

—

—

—

—

—

—

—

1

Net changes of items other than shareholders' equity

—

—

—

—

—

(890)

259

(106)

38,928

8,909(7,656)39,443

184,901¥ 182,146¥ 119,772¥ 143,335¥ (11,655)¥ 2,838¥ 1,167¥ 28,928¥ 38,421¥ 9,036¥ 304,463¥ 818,452

Retainedearnings

Valuation
Foreign
RemeasureDeferred
Nondifference
Revaluationments
currency
Treasury
gains
controllingon availablereserve fortranslation of definedstock
or losses
interests
for-salelandadjustments benefit planson hedges
securities

Total
net assets

Balance as at December 31, 2021

Thousands
Number ofshares ofcapital stock
Balance as at December 31, 2020

¥

4,140

(506)

¥ (5,114) ¥ 20,067¥

Thousands of U.S. dollars (Note 6)

Capitalstock

Capitalsurplus149,711 $ 1,222,079 $

679,791 $ 1,439,509 $ (101,345)

7,895$ 252,427

Issuance of new shares

35,190361,525

361,525——

Dividends from surplus

—

—

—

(82,598)

—

—

—

—

—

—

—

—

—

—

—

—

—

Net loss attributable to owners of the parent

—

—

—

(105,146)(82,598)

—

—

—

—

—

—

—

(105,146)

Purchase of treasury stock

—

—

—

Disposal of treasury stock

—

—

0

—

(49)

—

—

—

—

—

—

(49)

—

63

—

—

—

—

—

—

Increase by increase of consolidated subsidiaries

—

—

64

—

394

—

—

—

—

—

—

—

394

Decrease by decrease of consolidated subsidiaries—

Change in treasury shares of the parent arising fromtransactions with non-controlling shareholders

—

—

—

(5,998)

—

—

—

—

—

—

—

(5,998)

—

—

—

—

—

—

—

—

—

—

Changes in liabilities for written put options overnon-controlling interests

—

—

—

—

—

—

—

—

—

—

—

—

—

Change due to merger

—

—

—

—

—

—

—

—

—

—

—

—

Reversal of revaluation reserve for land

—

—

—

10

—

—

—

—

—

—

—

10

Net changes of items other than shareholders' equity

—

—

—

—

—

(7,738)

2,251

(923)

338,442

77,452(66,562)

342,921

184,901 $1,583,604 $1,041,317 $1,246,172 $ (101,331)$ 24,678$ 10,146$ 251,504$ 334,040

Balance as at December 31, 2021

See notes to financial statements.

14

¥

¥

¥ 519,433

433

Balance as at December 31, 2020

¥

Total
net assets

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

$ 32,416$$(4,402)$

1,112 $ 2,713,608 $ 6,243,090
723,050$ 78,564 $2,647,045 $7,115,738

Consolidated Statements of Cash Flows
Showa Denko K.K. and Consolidated Subsidiaries
For the years ended December 31, 2021 and 2020

Thousands of
U.S. dollars (Note 6)

Millions of yen

Cash flows from operating activities
Income (loss) before income taxes
Adjustments for:
Depreciation and amortization
Impairment loss
Amortization of goodwill
Increase (decrease) in net defined benefit liability
Interest and dividends income
Interest expenses
Financing expenses
Equity in (earnings) losses of unconsolidated subsidiaries and affiliates
Loss (gain) on sales and valuation of investment securities
Loss on retirement of noncurrent assets
Loss (gain) on sales of noncurrent assets
Loss (gain) on sales of businesses
Business structuring expenses
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes (paid) refund
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of investments in subsidiaries resulting in change in the scope of consolidation (Note 7)
Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation (Note 7)
Net decrease (increase) in short-term loans receivable
Payments of long-term loans receivableCollection of long-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term debt
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from share issuance of bonds
Redemption of bonds
Proceeds from issuance of preferred stock
Purchase of treasury stock
Proceeds from sales of treasury stock
Cash dividends paid
Proceeds from stock issuance to non controlling shareholders
Cash dividends paid to non-controlling shareholders
Purchase of investments in subsidiaries without change in scope of consolidation
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Increase in cash and cash equivalents resulting from newly consolidated subsidiaries
Cash and cash equivalents at the end of the year (Note 7)

2021

2020

2021

¥ 22,926¥ (68,260)$ 199,325

97,726
11,564
17,7204,038(2,267)
10,006—(5,251)(5,101)
4,838(1,104)(3,045)32,767(51,628)(43,739)
72,694(34,230)
127,9147,266(9,999)(9,898)115,283

68,643
16,6029,322
2,431(2,405)
6,986
16,075(1,245)(2,619)2,627(2,645)—
5,908
14,87970,713(22,744)
13,272
127,540
6,546(5,371)(19,429)
109,286

849,646
100,542
154,058
35,107(19,713)
86,993—(45,657)(44,348)
42,062(9,602)(26,474)
284,878(448,859)(380,274)
632,008(297,587)
1,112,104
63,174(86,931)(86,058)
1,002,289(1,666)
1,507(67,741)
2,223(3,270)9,318—
84,133(1,230)(246)
14,271(8,693)28,606(885)
1,144(64,500)
7,723
(286)
22,697(890,230)
—
67
(630)
275
(5,422)(930,047)(14,486)
13,101(588,952)
19,327(28,432)
81,009—731,460(10,691)(2,139)124,078(75,571)248,704

11,352
24,300(307,247)
99,539(25,000)
82,405(7)
0(9,479)29,766(16,117)(5,293)(5,960)(121,741)
14,63436,782
197,928229¥ 234,938(9,226)702,163(44,134)——
268,503(3)
18(11,674)—(1,397)(1,987)(5,742)896,521434
76,194
121,734—¥ 197,928

98,695211,268(2,671,246)
865,407(217,354)
716,437(58)
2(82,416)
258,790(140,123)(46,018)(51,822)(1,058,437)
127,228
319,784
1,720,811
1,991$ 2,042,585

See notes to financial statements.

15

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

1. B‌ ASIS OF REPORTING AND FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared in accordance with accounting principles and practices
generally accepted in Japan, which are different in certain respects as tothe application and disclosure requirements from International Financial
Reporting Standards ("IFRS"), and restructured and translated into
English from the consolidated financial statements which have been
filed with the Kanto Local Finance Bureau as required by the Financial
Instruments and Exchange Law of Japan.

2. S‌ UMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The consolidated financial statements for the years ended December 31,
2021 and 2020 include the accounts of Showa Denko K.K. ("theCompany") and its 124 and 151 significant subsidiaries, respectively(collectively “the Companies”).
For the purposes of the consolidated financial statements, allsignificant intercompany transactions, account balances and unrealized
profits among the Companies are eliminated and the portions thereof
attributable to non-controlling interests are credited or charged to
non-controlling interests.
The Company applies the “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries, etc. for
Consolidated Financial Statements” (ASBJ Practical Issues Task Force[PITF] No. 18, June 28, 2019) and makes necessary adjustments for the
consolidated settlement of accounts of its foreign subsidiaries.
Showa Denko Singapore (Pte.) Ltd. is consolidated using its financial
statements as of its fiscal year end, which falls on September 30, andnecessary adjustments are made to its financial statement to reflect any
significant transactions.
Of the consolidated subsidiaries, GMM Coatings Private Limited and
13 subsidiaries of Showa Denko Materials Co., Ltd. have business year
ends on March 31. For these companies, financial statements based on
the provisional settlement of accounts implemented on the date of
consolidated settlement of accounts are used in the preparation of theconsolidated financial statements.
The business year ends of all other consolidated subsidiaries are on
December 31. From the fiscal year ended December 31, 2021, thebusiness year ends of 26 subsidiaries of Showa Denko Materials Co., Ltd.,
have been changed from March 31 to December 31, the same date as
the date of consolidated settlement of accounts. Accordingly, theperformance for the twelve-month period from January 1, 2021 to December
31, 2021 for these companies has been included in the consolidated
financial statements for the fiscal year ended December 31, 2021.
In the initial consolidation, assets and liabilities of subsidiaries including
those attributable to non-controlling interests are recorded based onfair value in the accompanying consolidated financial statements.
Goodwill is amortized on a straight-line basis over a period during
which the effect of such goodwill lasts but does not exceed 20 years
from recognition. In addition, negative goodwill arising from businesscombinations prior to April 1, 2010 is amortized on a straight-line basis
over a period during which the effect of such negative goodwill lasts but
does not exceed 20 years from recognition.
(b) Investments in Unconsolidated Subsidiaries and Affiliates
The Company applied the equity method of accounting for investments
in 1 unconsolidated subsidiary in 2021 and 2 in 2020, as well as 12 affiliates
in 2021 and 11 in 2020.
All underlying intercompany profits obtained from transactions
among the Companies and unconsolidated subsidiaries and affiliates towhich the equity method is applied are eliminated in the consolidated
financial statements.

16

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

(c) Translation of Foreign Currency Accounts
All receivables and payables denominated in foreign currencies at thebalance sheet date are translated into Japanese yen at the current
exchange rates.
The resulting exchange gains or losses are credited or charged toincome.
The financial statements of certain consolidated foreign subsidiaries
are translated into Japanese yen at the year-end rate for assets andliabilities, at historical rates for the other balance sheet accounts
exclusive of the current year’s net income, and at the average annual
rate for revenue and expense accounts and net income.
Translation adjustments resulting from the process of translating thefinancial statements of foreign subsidiaries into Japanese yen are
accumulated and reported as a component of net assets on the
consolidated balance sheets.
(d) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows
are composed of cash on hand, bank deposits available for withdrawal
on demand, and short-term investments with original maturities of threemonths or less and minor risk of value fluctuation.
(e) Securities
Debt securities that are intended to be held to maturity (“held-tomaturity debt securities”) are stated at amortized cost on the balance
sheets. Available-for-sale securities with available fair market values arestated at fair market values. Unrealized gains and unrealized losses onthese available-for-sale securities are reported, net of applicable income
taxes, as a separate component of the net assets.
Realized gains or losses on the sale of the available-for-sale securities
are computed using primarily the moving-average cost.
Available-for-sale securities with no available fair market values arestated primarily at the moving-average cost.
(f) Allowance for Doubtful Accounts
To provide for losses from bad debts, the allowance is provided
according to the actual rate of default for ordinary receivables and inview of the probability of recovery for specific doubtful receivables.
(g) Inventories
Inventories are stated at the lower of cost or market, using principally
the gross-average cost method. The carrying value on the consolidatedbalance sheets is stated by the devaluation method based on declines in
profitability.
(h) Property, Plant and Equipment
Property, plant and equipment is stated at cost, in principle. Property,
plant and equipment is depreciated using the straight-line method.
(i) Intangible Assets
The Company and some of the consolidated subsidiaries principally
apply the straight-line method over 5 years to amortize intangible assets.
(j) Leased Assets
Leased assets in finance lease transactions that do not transfer
ownership to the lessee are depreciated using the straight-line methodon the assumption that the useful life is equal to the lease term and theresidual value is equal to zero. For leases with a residual value guarantee,
the contracted residual value is considered to be the residual value forfinancial accounting purposes.
Subsidiaries that have adopted IFRS have applied IFRS 16 “Leases.”
With the application of IFRS 16, lessees record all leases as assets andliabilities on their balance sheets, in principle. Capitalized right-of-use
assets are depreciated using the straight-line method.

(k) Provision for Business Structure Improvement
The Company and some of the consolidated subsidiaries record theprovision for business structure improvement on an accrual basis toprovide for expenses and losses resulting from their restructuring
programs.
(l) Provision for Bonuses
A provision for bonuses is provided at an amount estimated based on
the bonus to be paid subsequent to the balance sheet date.
(m) Provision for bonuses for directors
A provision for bonuses for directors is provided at an amount estimatedbased on the bonus to be paid subsequent to the balance sheet date.
(n) Provision for Repairs
The Company and some of the consolidated subsidiaries provide a
provision for repairs in an amount estimated to be necessary for thescheduled maintenance for certain production equipment.
(o) Provision for Stock Payments
To provide for the Company’s share payments to its Directors (excluding
outside Directors), Corporate Officers, and Councilors, the provision isbased on the Director Share Payment Regulations.
(p) Accounting Policy for Retirement Benefits(1) Method of attributing expected benefits to periods
The attribution of expected benefits to periods up to the current
consolidated fiscal year, upon calculating the retirement benefit
obligations, is done on the benefit formula basis.
(2) M‌ ethod of amortization of actuarial gain or loss and past service costs
The actuarial gain or loss is amortized starting from the year after suchan actuarial loss is determined on a straight-line basis over certain
periods (mainly 12 years) within the average remaining service periods.
Past service costs are amortized on a straight-line basis over certain
periods (mainly 12 years) within the average remaining service periods.
(3) Application of a simplified method to small businesses
For the calculation of liabilities concerning retirement benefits andretirement benefit expenses, some consolidated subsidiaries haveadopted a simplified method, which deems term-end amounts payablefor voluntary retirement related to retirement benefits as retirement
benefit obligations.
(q) Significant Revenue and Expense Recognition Standards
Subsidiaries that have adopted IFRS have applied IFRS 15 “Revenue fromContracts with Customers,” and recognize revenue in an amount thatreflects the consideration which they expect to receive in exchange forgoods or services at the time the control of the promised goods orservices is transferred to the customer.
(r) Income Taxes
Income taxes consist of taxes on corporation, enterprises, andinhabitants. The provision for income taxes is computed based on thepretax income of the Company and each of its consolidated subsidiaries
with certain adjustments required for consolidation and tax purposes.
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. (Valuation allowances are recorded to reduce deferred tax
assets based on the assessment of the realizability of the tax benefits.)

Application of the Consolidated Taxation System
The Company and certain domestic subsidiaries adopt theconsolidated taxation system.
Application of Tax Effect Accounting for the Transition from theConsolidated Taxation System to the Group Tax Sharing System
With regard to the items subject to the transition to the group tax
sharing system created under the “Act on Partial Revision of the
Income Tax Act, etc.” (Act No. 8 of 2020) and a review of the nonconsolidated taxation system in line with the transition to the grouptax sharing system, the Company and certain domestic subsidiaries
have not applied the provisions of Paragraph 44 of the “Implementation
Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28, February
16, 2018) and have recorded the amounts of deferred tax assets anddeferred tax liabilities based on the provisions of the tax laws before
the revision, as allowed in the treatment of Paragraph 3 of the“Treatment of Tax Effect Accounting for the Transition from theConsolidated Taxation System to the Group Tax Sharing System”(ASBJ PITF No. 39, March 31, 2020).
(s) Derivative Financial Instruments and Hedge Accounting
The Company and certain subsidiaries state all derivative financial instruments
at fair value and recognize changes in fair value as gains or losses unlessthe derivative financial instruments are used for hedging purposes.
If the derivative financial instruments meet certain hedging criteria,
the Company and certain subsidiaries defer the recognition of gains orlosses resulting from changes in the fair value of derivative financial
instruments until the related gains or losses on hedged items are recognized.
However, when forward exchange contracts meet certain hedging
criteria, the hedged items are stated by the forward exchange contract
rate. If interest rate swap contracts meet certain hedging criteria, the net
amount to be paid or received under the interest rate swap contracts isadded to or deducted from the interest on the assets or liabilities forwhich the interest rate swap contracts were executed.
Subsidiaries that have adopted IFRS use fair value hedges and cash
flow hedges.
(t) Reclassifications
Certain reclassifications have been made in the 2020 financial
statements to conform to the presentation of 2021.

3. ‌SIGNIFICANT ACCOUNTING ESTIMATES
Appropriateness of the Company’s judgment concerning theidentification of an impairment indicator for intangible fixed assets
including goodwill recognized as a result of acquiring Showa Denko
Materials Co., Ltd. as a consolidated subsidiary(a) Amounts Recorded in the Consolidated Financial Statements for
the Current Consolidated Fiscal YearIn the consolidated balance sheets for the current consolidated fiscal
year, goodwill related to making Showa Denko Materials Co., Ltd.
(hereinafter referred to as “SDMC”) a consolidated subsidiary of ¥309,659
million (US$2,692,214 thousand), customer related assets of ¥139,799
million (US$1,215,434 thousand), and other intangible fixed assets of¥44,017 million (US$382,693 thousand) have been recorded.
(b) Information on the Contents of Significant Accounting Estimates
Related to Identified Items
The Companies use a larger unit that includes goodwill allocated to theasset group related to the business (hereinafter referred to as the “Asset
Group Including Goodwill”) to identify an indication of impairment of
goodwill, decide whether to recognize impairment losses, and measure
them.

17

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

Intangible fixed assets including goodwill recognized as the excess
earnings potential of SDMC are amortized on a systematic basis.
However, it is determined that an impairment indicator exists, if thebusiness performance set forth in the original business plan developed
when the Company acquired SDMC as its consolidated subsidiary has
not been achieved, and therefore there have been, or are expected tobe, events such as operating losses or continuous negative cash flows, asignificant deterioration of the business environment and a change that
may significantly decrease the recoverable amount. Whenever there is
an impairment indicator for these intangible fixed assets including
goodwill, they need to be tested for impairment by comparing theundiscounted future cash flows that are expected to be generated fromthe related Asset Group Including Goodwill with their carrying amounts.
If the recognition of an impairment loss is deemed necessary, thecarrying amount is reduced to the recoverable amount, and the resulting
decrease in the carrying amount is measured as an impairment loss.
The Companies assessed the business results of the Asset Group
Including Goodwill through this fiscal year and examined the businessplans for the subsequent fiscal years, considering whether the
aforementioned events had occurred or are expected to occur. As a result,
the Companies determined that there was no impairment indicator forthis fiscal year.
The business plan used in decisions on indication of impairment
includes key assumptions such as sales increase associated with growthof the markets related to the Asset Group Including Goodwill. This
assumption, which is affected by factors such as changes in the market
environment, involves uncertainties, and is likely to have a significant
impact on the evaluation of intangible fixed assets including goodwill in
the consolidated financial statements for the following consolidated
fiscal year. As long as the above assumption changes within a reasonable
range, the Companies assessed that there is little possibility of an
indication of impairment to occur in relation to the Asset Group
Including Goodwill.

4. ADDITIONAL INFORMATION(a) Board Benefit Trust (BBT)
Based on the resolution at the 107th ordinary general meeting ofshareholders held on March 30, 2016, the Company introduced a new
stock compensation plan called the Board Benefit Trust (BBT) ("theScheme") for Directors and Corporate Officers on May 11, 2016.
Following the resolution of the Board of Directors on March 5, 2019,
the Company decided to include its Councilors within the scope of the
Scheme and revised the maximum amount of funds the Company willcontribute to the trust, which are to be used by the trust to acquire
shares in the company.
(1) Outline of the transaction
In the Scheme, the shares of the Company are granted to its Directors(excluding outside Directors) Corporate Officers, and Councilors
pursuant to the Director Share Grant Regulations set forth by theCompany.
The Company grants performance-linked points to its Directors,
Corporate Officers, and Councilors every year, and grants shares of theCompany to them based on the number of points granted when they
resign from the Company. Provided that, however, with regard to acertain portion of the points, an amount of money corresponding to theprevailing market price of the Company’s shares will be paid to any
Director, Corporate Officer, or Councilor meeting the relevant
requirements set forth in the Director Share Grant Regulations. The
Company’s shares that are granted to Directors, Corporate Officers, andCouncilors, including those to be granted in the future, shall be acquiredby the trust using the entrusted funds and separately managed astrusted assets.

18

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

For the accounting treatment related to this trust agreement, theCompany applied the gross method in which the assets and liabilities of
the trust are recorded as assets and liabilities in the balance sheet byreferring to the Practical Solution on Transactions of Delivering theCompany’s Own Stock to Employees etc. through Trusts (ASBJ PITF No.
30, issued on March 26, 2015).
(2) Residual shares of the company in the trust
Residual shares of the Company in the trust have been recorded astreasury stock under net assets at the book value in the trust (excluding
the amount of ancillary expenses). The book value and the number ofsuch treasury stock were ¥305 million (US$2,648 thousand) and 271,000
shares at the end of the fiscal year ended December 31, 2021, and ¥312
million and 277,300 shares at the end of the fiscal year ended December
31, 2020, respectively.
(b) Accounting Estimates in Conjunction with the Spread of the
COVID-19 pandemic
The worldwide COVID-19 pandemic has caused the Company's
customers in certain businesses, specifically manufacturing, to suspend
production or to reduce production volume. This, in turn, has affected
the Companies’ performance and financial condition. As it continues tobe difficult to anticipate when the pandemic will end, accounting
estimates are made on the valuation of noncurrent assets including
goodwill and the recoverability of deferred tax assets on the assumptionthat the Companies' performance and financial conditions will recoverto the levels prior to the pandemic in one to two years.
(c) C‌ hanges in Reportable Segments
In the current consolidated fiscal year, the Company operated in sevenreportable segments, comprising the six segments of “Petrochemicals,”“Chemicals,” “Electronics,” “Inorganics,” “Aluminum,” and “Others” addedwith the “Showa Denko Materials” segment, which is the business groupof Showa Denko Materials Co., Ltd. with the Company’s subsidiary HC
Holdings K.K. being the parent company. In conjunction with theorganization restructuring with the aim of accelerating integration of
the Company and the Showa Denko Materials Co., Ltd. and promoting
efficient management as the Showa Denko Group, decisions were madeto review the Company's internal management classification.
Accordingly, “Semiconductor and Electronic Materials,” “Mobility,”“Innovation Enabling Materials,” and “Chemicals” will be the Company's
four reportable segments from the following consolidated fiscal year.
The amounts of net sales, income or loss, and other items byreportable segments for the current consolidated fiscal year based on
segments after the change are currently under calculation.

5. ‌‌CHANGES IN ACCOUNTING POLICIES(a) ‌New Accounting Standards Not Yet Applied(1) “Accounting Standard for Revenue Recognition” (ASBJ Statement
No. 29, March 31, 2020. Accounting Standards Board of Japan),“Implementation Guidance on Accounting Standard for Revenue
Recognition” (ASBJ Guidance No. 30, March 31, 2020. AccountingStandards Board of Japan), and “Implementation Guidance on
Disclosures about Fair Value of Financial Instruments” (ASBJ
Guidance No. 19, March 31, 2020. Accounting Standards Boardof Japan)(i) Overview
The International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) jointly developed a comprehensive
accounting standard for revenue recognition, and published “Revenue
from Contracts with Customers” (IFRS 15 at IASB, Topic 606 at FASB) in
May 2014. Given that IFRS 15 will be applied to fiscal years starting on orafter January 1, 2018 and Topic 606 will be applied to fiscal years startingon or after December 15, 2017, the Accounting Standards Board ofJapan developed a comprehensive accounting standard for revenue
recognition and published them together with implementation
guidance. The basic policy of the Accounting Standards Board of Japanin developing the accounting standard for revenue recognition is toestablish an accounting standard with the incorporation of the basic
principles of IFRS 15 as a starting point from the perspective ofcomparability between financial statements, which is one of the benefitsof seeking consistency with IFRS 15, and to add alternative treatments if
there are any matters in Japanese practices as far as the comparability is
not hindered.
(ii) Scheduled date of application
The standard will be applied from the beginning of the fiscal year 2022.
(iii) Impact of application
The impact of the application of the accounting standard andimplementation guidance for revenue recognition on the consolidated
financial statements is currently under review.
(2) “Accounting Standard for Fair Value Measurement” (ASBJ
Statement No. 30, July 4, 2019), “Implementation Guidance on
Accounting Standard for Fair Value Measurement” (ASBJ
Guidance No. 31, July 4, 2019), “Accounting Standard for
Measurement of Inventories” (ASBJ Statement No. 9, July 4,2019), “Accounting Standard for Financial Instruments” (ASBJ
Statement No. 10, July 4, 2019) and “Implementation Guidanceon Disclosures about Fair Value of Financial Instruments” (ASBJ
Guidance No. 19, March 31, 2020)(i) Overview“Accounting Standard for Fair Value Measurement” and “Implementation
Guidance on Accounting Standard for Fair Value Measurement”(hereinafter referred to as “Fair Value Measurement AccountingStandards, etc.”) were developed to increase the comparability withinternational accounting standards, and guidance and other rules were
established with regard to the method for fair value measurement. Fair
Value Measurement Accounting Standards, etc., will be applicable forfair values of the following items:• ‌Financial instruments included in “Accounting Standard for Financial
Instruments”• ‌Inventories held for trading purposes included in “Accounting Standard
for Measurement of Inventories”
In addition, “Implementation Guidance on Disclosures about Fair
Value of Financial Instruments” was revised to include notes regarding
the breakdown by level of fair values of financial instruments.
(ii) Scheduled date of application
The standard will be applied from the beginning of the fiscal year 2022.
(iii) Impact of application
The impact of the application on the consolidated financial statements
is currently under review.

for corporate taxes and local corporate taxes as well as tax effectaccounting when the group tax sharing system is applied.
(ii) Scheduled date of application
The practical solution will be applied from the beginning of the fiscal
year 2023.
(iii) Impact of application
The impact of the application on the consolidated financial statements
is currently under review.
(b) Changes in Presentation
Application of “Accounting Standard for Disclosure of Accounting
Estimates”
The “Accounting Standard for Disclosure of Accounting Estimates” (ASBJ
Statement No. 31, March 31, 2020) has been applied from the current
consolidated fiscal year, and notes on accounting estimates areprovided. These notes do not include details for the previous
consolidated fiscal year in accordance with the provisional treatment
stipulated in proviso of Paragraph 11 of this Accounting Standard.

6. J‌ APANESE YEN AND TRANSLATION INTO U.S. DOLLARSThe Companies’ accounting records are maintained in yen. Yen amounts
included in the financial statements are rounded to the nearest one
million unit. Therefore, the total and subtotal amounts presented in thefinancial statements may not equal the exact sum of the individual
balances. The U.S. dollar amounts appearing in the accompanying
financial statements and notes thereto represent the arithmetical resultsof translating yen into U.S. dollars at the rate of ¥115.02 to US$1.00, theapproximate rate of exchange as at December 31, 2021. The inclusion ofsuch U.S. dollar amounts is solely for the convenience of readers; it does
not carry with it any implication that yen amounts have been or could
be converted into U.S. dollars at that rate.

7. CASH FLOW STATEMENTS(a) Cash and Cash Equivalents
Cash and deposits as of December 31, 2021 and 2020 on the
consolidated balance sheets and cash equivalents as at December 31,
2021 and 2020 on the consolidated statements of cash flows werereconciled as follows:
Millions of yen

Cash and deposits
Original maturities more than three months
Cash and cash equivalents

Thousands of
U.S. dollars

2021

2020

2021

¥ 236,237¥ 198,982$ 2,053,875(1,299)(1,055)(11,290)¥ 234,938¥ 197,928$ 2,042,585(b) Assets and Liabilities of Newly Consolidated Subsidiaries
through the Acquisition of Shares
As of December 31, 2021
Not applicable.

(3) “Practical Solution on the Accounting and Disclosure Under theGroup Tax Sharing System” (ASBJ PITF No.42, August 12, 2021)(i) Overview
Following the review of the consolidated taxation system in line with thetransition to the group tax sharing system under the “Act on Partial
Revision of the Income Tax Act, etc.” (Act No. 8 of 2020), which wasformed on March 27, 2020, the practical solution was issued by ASBJ
with the aim of clarifying the treatment of the accounting and disclosure

19Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

As of December 31, 2020
A breakdown of the major assets and liabilities at the time of the initialconsolidation of Showa Denko Materials Co., Ltd. and its 90 subsidiaries,
obtained through a share acquisition, as well as the acquisition values
and expenditures for the acquisition (net amount) were as follows:
Millions of yen

Millions of yen

Thousands of
U.S. dollars¥ 8,999$ 78,237

Current assets¥315,505

Noncurrent assets

9,514

82,720Noncurrent assets

604,006

Current liabilities(978)(8,503)

Goodwill

365,123

Noncurrent liabilities

(101)

(878)

Current liabilities(159,969)

Loss on sale of businesses(10,345)(89,937)

Noncurrent liabilities(152,292)

Other(8,333)

Non-controlling interests

Current assets

Sale price of shares in the sold company(559)(4,859)¥ 6,531$ 56,780(20,099)

Acquisition value of shares of the acquired company¥964,040

Securities received as consideration(2,312)

Cash and cash equivalents of the acquired company(73,809)

Cash and cash equivalents of the sold company(1,944)(16,902)¥890,230

Less: Proceeds from sale of the sold company¥ 2,275$ 19,780

Less: Expenditures for the acquisition(c) Assets and Liabilities of Companies that Ceased to be
Consolidated Subsidiaries of the Company due to Sale of Shares
As of December 31, 2021
(1) Transfer of investments in subsidiaries
A breakdown of the assets and liabilities at the time of the sale of sharesin SHOKO CO., LTD. and its 4 subsidiaries, when they ceased to beconsolidated subsidiaries due to the sale, the sale price of the shares,
and proceeds from the sale were as follows:
Millions of yen¥ 42,918

Current assets

Thousands of
U.S. dollars$ 373,132

6,344

Noncurrent assets

55,158(4) Transfer of printed wiring board businessA breakdown of assets and liabilities at the time of the sale due to thetransfer of the printed wiring board business, the sale price of the shares,
and proceeds from the sale were as follows:
Millions of yen

Thousands of
U.S. dollars¥ 19,316$ 167,936

Noncurrent assets

19,465

169,231

Current liabilities(7,555)(65,684)

Noncurrent liabilities(2,787)(24,231)

Accumulated other comprehensive income

2,466

21,440(1,733)(15,067)

Current assets

Current liabilities(21,179)(184,137)

Loss on sale of businesses

Noncurrent liabilities(15,935)(138,542)

Other
Sale price of shares in the sold company

(17)

(148)

¥ 29,155$ 253,478

Non-controlling interests(7,155)(62,208)

Investment accounts after sales of shares(1,168)(10,157)

Cash and cash equivalents of the sold company(6,103)(53,060)(5,998)Less: Proceeds from sale of the sold company¥ 23,052$ 200,417

Decrease in retained earnings due to exclusion from consolidation(690)

Loss on sales of shares in subsidiaries and associates(332)(2,886)

Other

(287)

(2,494)¥ 2,515$ 21,867

Sale price of shares in the sold company(2,297)

Cash and cash equivalents of the sold company
Less: Proceeds from sale of the sold company¥

218(19,972)$

1,895(2) Transfer of aluminum can businessA breakdown of assets and liabilities at the time of the sale due to thetransfer of the aluminum can business, the sale price of the shares, andproceeds from the sale were as follows:(5) Transfer of energy storage devices and systems businessA breakdown of assets and liabilities at the time of the sale due to thetransfer of the energy storage devices and systems business, the saleprice of the shares, and proceeds from the sale were as follows:

Current assets

Millions of yen

Thousands of
U.S. dollars¥ 57,524$ 500,119

Noncurrent assets

31,698275,585

Current liabilities(36,280)(315,421)

Noncurrent liabilities(4,619)(40,159)

Accumulated other comprehensive income(3,650)(31,733)
37,289Millions of yen

Thousands of
U.S. dollars¥ 27,135$ 235,919

Gain on sale of businesses

4,289

Noncurrent assets

26,385229,391

Other

(198)

(1,721)

Current liabilities(14,317)(124,474)

Sale price of shares in the sold company¥ 48,764¥ 423,958

Current assets(584)(5,074)

Cash and cash equivalents of the sold company(7,707)(67,006)

Non-controlling interests(29,766)(258,790)

Less: Proceeds from sale of the sold company¥ 41,057¥ 356,952

Gain on sale of businesses

9,061

78,780Noncurrent liabilities

184

1,600

¥ 18,099$ 157,351

Other
Sale price of shares in the sold company

20(3) Transfer of aluminum rolling businessA breakdown of assets and liabilities at the time of the sale due to thetransfer of the aluminum rolling business, the sale price of the shares,
and proceeds from the sale were as follows:

Cash and cash equivalents of the sold company(4,200)(36,517)

Less: Proceeds from sale of the sold company¥ 13,898$ 120,834

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

As of December 31, 2020
Not applicable.

8. FINANCIAL INSTRUMENTS(a) Overview(1) Management policy relating to financial instruments
The Companies finance necessary long-term funds by bank loans andbond issues following the capital investment plans and finance shortterm operating funds by bank loans and commercial paper. Temporary
excess funds are invested exclusively in financial instruments whichhave fixed returns and low risk of falling below par values. The
Companies use derivative transactions to hedge the following risks anddo not enter into derivative transactions for speculative purposes.
(2) Types of financial instruments and related risks
Operating receivables, such as notes and accounts receivable, are exposedto credit risk. Foreign-currency-denominated accounts receivable
incurred through exports are exposed to foreign currency fluctuation risk.
However, the Companies hedge the risk by utilizing forward exchange
contracts, currency options, and currency swaps based on internal
policies that set out foreign currency risk management principles.
Marketable securities and investment securities mainly consist of thestocks of partner companies to maintain and strengthen their business
relationships and are exposed to market fluctuation risk.
Operating payables, such as notes and accounts payable-trade andother, are due within one year. Foreign-currency-denominated accounts
payable incurred through imports of raw materials are exposed toforeign currency fluctuation risk. The Companies hedge the risk by
utilizing forward exchange contracts following internal policies that set
out the foreign currency risk management principles. Short-term debt
and commercial paper are mainly used to finance short-term operating
funds, and long-term debts and bonds are mainly used to financeequipment funds. Since some loans have financial covenants attached,
they may affect liquidity risk related to financing. Variable interest rateloans are exposed to interest rate fluctuation risk. However, certain loans
use interest rate swaps to hedge the risk.
The Companies utilize derivative transactions, such as forward
exchange contracts, currency options, and currency swaps, to hedge theforeign currency fluctuation risk of operating receivables and payables
denominated in foreign currencies and financing transactions
denominated in foreign currencies. Interest rate swaps are utilized tohedge the interest rate fluctuation risk, and forward contracts andcommodity swaps are utilized to hedge the market fluctuation risk.
(3) Risk management relating to financial instruments(i) Credit risk management (risk of default by the counterparties)
The Company follows internal policies that set out accounts receivable
management principles. The compliance department works with thesales division in each sector and monitors the customers’ credit
conditions periodically and reviews the sales policy checking the sales
volume and balances. The Company takes measures to obtain
information on and minimize the credit risk that may arise due to thedeterioration in the financial condition of their customers. Consolidated
subsidiaries monitor their customers’ financial and credit conditions
based on their internal policies.
The held-to-maturity debts are limited to only highly rated securities.
The Companies utilize derivative transactions only with creditworthy
financial institutions and trading companies to minimize credit risk.
The maximum credit risk as of December 31, 2021 is disclosed as thebalance sheet amount of financial instruments exposed to credit risk.
(ii) Market risk management (risk of fluctuations in foreign currency
and interest rates)
For operating receivables and payables and loans denominated inforeign currencies, the Company and certain consolidated subsidiaries
utilize forward exchange contracts, currency options, and currency

swaps to hedge some of the foreign currency fluctuation risk, which iscategorized by currency and maturity date. The Company and certain
consolidated subsidiaries utilize currency swaps to hedge the interest
rate fluctuation risk of loans.
For marketable securities and investment securities, the Companies
regularly review the fair value and issuers’ financial conditions, andreview the Companies’ portfolio on an ongoing basis, except for held-tomaturity debt securities, according to market conditions and thebusiness relationships with counterparties.
The Company has internal management policies that set out theapproval authorities and procedures of the derivative transactions.
The derivative transactions are carried out based on the appropriate
approver set out in the internal policies. For currency-related
derivative transactions, each division and the treasury department
perform and manage transactions and report to the director in charge
periodically. For interest-related derivative transactions, the treasury
department performs and manages the transactions and reports to thedirector in charge periodically. For commodity-related derivativetransactions, each division performs and manages the transactions,and reports to the director in charge periodically. Consolidated
subsidiaries perform and manage derivative transactions based on
their internal management standards.
(iii) Liquidity risk management (risk of default on payment due dates)
The Company manages liquidity risk by requiring the treasury
department to prepare and update cash plans, based on the schedule
for cash inflows and disbursements in each division. In addition, theCompany signs commitment line contracts and makes otherarrangements with financial institutions to secure the necessary
liquidity. Consolidated subsidiaries manage their liquidity risk throughsimilar procedures.
(4) ‌Supplemental explanation on fair value of financial instruments
Along with the values being based on market prices, the fair value offinancial instruments includes values that are reasonably calculated incase market prices do not exist. As the calculation of those values uses
certain assumptions, those values may vary in the case of different
assumptions being applied. Also, for the contract amount and others
regarding derivative transactions described in Note 10. DERIVATIVEFINANCIAL INSTRUMENTS, the contract amount itself does not indicate
market risk related to derivative transactions.
(b) Fair Value of Financial Instruments
As at December 31, 2021 and 2020, book value, fair value, and difference
were as follows.
The financial instruments whose fair value is extremely difficult todetermine are not included below.
Year ended December 31, 2021

Millions of yen

Book value(1) Cash and deposits(2) Notes and accounts receivable-trade(3) Marketable securities and investment securities
Total assets(1) Notes and accounts payable-trade

Fair value¥ 236,237 ¥ 236,237
278,641

278,641

19,73819,738Difference
¥

—
—
—

¥ 534,616 ¥ 534,616¥—¥ 207,745 ¥ 207,745¥—(2) Short-term debt

74,451

74,451—(3) Current portion of long-term debt

72,857

72,90750(4) Accounts payable-other54,72854,728—(5) Long-term debt less current portion

683,448

682,953(495)

Total liabilities¥ 1,093,229 ¥ 1,092,784¥ (444)

Derivative transactions*¥¥

1,160 ¥

1,160

—

21

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

Year ended December 31, 2021

Millions of yen

Year ended December 31, 2020

(1) Cash and deposits

Book value

Fair value

Difference¥ 198,982¥ 198,982¥ —271,628

271,628(2) Notes and accounts receivable-trade(3) Marketable securities and investment securities
Total assets(1) Notes and accounts payable-trade

Thousands of U.S. dollars

Book value

Fair value(1) Cash and deposits$ 2,053,875 $ 2,053,875—(2) Notes and accounts receivable-trade

2,422,540

2,422,540(3) Marketable securities and investment securities

171,607

171,607

27,576

27,576—¥ 498,187¥ 498,187¥ —Total assets(1) Notes and accounts payable-trade

Difference
$

—
—
—

$ 4,648,023 $ 4,648,023$—$ 1,806,167 $ 1,806,167$—¥ 164,356¥ 164,356¥ —(2) Short-term debt

72,64572,645—(2) Short-term debt

647,287

647,287—(3) Current portion of long-term debt

56,38756,41932(3) Current portion of long-term debt

633,425

633,863438

475,816

475,816—

5,941,991

5,937,689(4,302)(4) Accounts payable-other

43,253

43,253—(4) Accounts payable-other(5) Long-term debt less current portion

906,365

906,666

301(5) Long-term debt less current portion

Total liabilities¥ 1,243,006¥ 1,243,339¥ 333

Total liabilities$ 9,504,685 $ 9,500,821$ (3,864)

Derivative transactions*

¥

¥

¥ —

Derivative transactions*

$

$

1,218

1,218

10,082 $10,082—*Derivative assets and liabilities are on a net basis.
Notes: 1. ‌Valuation method for financial instruments and information on marketable securities and derivative transactions
AssetsCash and deposits and Notes and accounts receivable-trade
The book value is deemed to approximate the fair value since these are scheduled to be settled in a short period of time.
Marketable securities and investment securities
The fair value of these securities is based on the price on stock exchanges. Refer to Note 9. SECURITIES regarding the securities categorized by holding purposes.
Liabilities
Notes and accounts payable-trade, Short-term debt, Commercial paper (included in the above Short-term debt), and Accounts payable-other
The book value is deemed to approximate the fair value since these are scheduled to be settled in a short period of time.
Current portion of long-term debt and Long-term debt (included in the above Long-term debt less current portion)
The fair value is measured as the net present value of the estimated cash flows by discounting the principal and interest value using the interest rate applied to the
new loans. Parts of the long-term loans are variable rate loans, and they are subject to special treatment of interest rate swaps (refer to Note 10. DERIVATIVEFINANCIAL INSTRUMENTS); the fair value is measured as the net present value of the estimated cash flows by discounting the total amount of principal and interest
processed as interest rate swaps using the interest rate applied to the new loans
Current portion of bonds (included in the above Current portion of long-term debt) and Bonds (included in the above Long-term debt less current portion)
The fair value is based on the market prices.
Derivative transactions
Refer to Note 10. DERIVATIVE FINANCIAL INSTRUMENTS.
Notes: 2. ‌Financial instruments for which fair value is extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen

Non-listed equity securities

2021

2020

2021

¥ 84,063¥ 78,856$ 730,853

These securities are not included in the above Marketable securities and investment securities, as it isextremely difficult to determine the fair value. As there was no quoted market value, estimating the future cash
flows is deemed to be practically impossible.

22

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Notes: 3. Redemption schedule for financial assets and securities with maturities
Year ended December 31, 2021

Cash and deposits
Notes and accounts receivable-trade
Total

Millions of yen

Due in 1 year or lessDue after 1 year
through 5 years

Due after 5 years
through 10 years

Due after 10 years¥ 236,237

¥—

¥—

¥—

278,641———¥ 514,877

¥—

¥—

¥—

Due after 5 years
through 10 years

Due after 10 years

Millions of yen

Year ended December 31, 2020

Cash and deposits
Notes and accounts receivable-trade

Due in 1 year or lessDue after 1 year
through 5 years¥ 198,982

¥—

¥—

¥—

271,628

¥—

¥—

¥—

Marketable securities and investment securities:
Held-to-maturity debt securities
Government and local bonds and others
Total

20

—

—

—

¥ 470,631

¥—

¥—

¥—

Due in 1 year or lessDue after 1 year
through 5 years

Due after 5 years
through 10 years

Due after 10 years$ 2,053,875

$—

$—

$—

2,422,540———$ 4,476,416

$—

$—

$—

Year ended December 31, 2021

Cash and deposits
Notes and accounts receivable-trade
Total

Thousands of U.S. dollars

Notes: 4. Scheduled maturities of bonds and long-term debt after December 31, 2021 and 2020
Year ended December 31, 2021

Millions of yen

Due in 1 year or lessDue after 1 year
through 2 years—¥

Due after 3 years
through 4 years—¥

Due after 4 years
through 5 years—¥

Due after 5 years(1) Short-term debt

¥ 74,451(2) Long-term debt

72,85854,46180,488185,284

68,770294,500¥ 147,308¥ 54,461¥ 80,488¥ 185,284¥ 68,770¥ 294,500

Due in 1 year or lessDue after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after 5 years

Total

¥

Due after 2 years
through 3 years

—

¥

—

Millions of yen

Year ended December 31, 2020

(1) Short-term debt

¥ 72,645(2) Long-term debt

56,38775,33855,76549,186355,825

370,323¥ 129,032¥ 75,338¥ 55,765¥ 49,186¥ 355,825¥ 370,323

Due in 1 year or lessDue after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 4 years
through 5 years

Due after 5 years

Total

¥

—

¥

Year ended December 31, 2021

—

¥

—

¥

—

¥

—

Thousands of U.S. dollars(1) Short-term debt

$ 647,287(2) Long-term debt

633,434

473,494

699,770

1,610,885

597,896

2,560,424$ 1,280,720$ 473,494$ 699,770$ 1,610,885$ 597,896$ 2,560,424

Total

$

—

$

—

Due after 3 years
through 4 years
$

—

$

—

$

—

23

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

9. SECURITIES(b) Available-for-sale Securities Sold in the Years Ended December
31, 2021 and 2020:(a) Available-for-sale Securities
Year ended December 31, 2021

Year ended December 31, 2021

Millions of yen

Book value

Acquisition
cost

Difference

Equity securities

Available-for-sale securities whose bookvalue exceeds their acquisition cost
Equity securities
Other

Total
¥ 14,962¥ 10,050¥ 4,912

183

164

20

Total

5,243

(650)

¥ 19,738¥ 15,456¥ 4,283¥ 4,727¥ (154)¥ 7,402¥ 4,727¥ (154)

Total

Book value

Acquisition
cost

Difference

Equity securities¥ 20,549¥ 11,951¥ 8,599

Other

183

159

24

Total

¥ (2,004)¥ 22,866¥ 4,959¥ (2,004)

Total
Year ended December 31, 2021

6,824

8,986

(2,162)¥ 27,556¥ 21,096¥ 6,460

Thousands of U.S. dollars

Book value

Acquisition
cost

Difference$ 130,081$ 87,372$ 42,709

1,595

1,422

174

Sales

Gross gain

$ 64,354$ 41,099

Gross loss
$ (1,337)$ 64,354$ 41,099$ (1,337)(c) Impairment of securities
For the years ended December 31, 2021 and 2020, the Companies
recorded an impairment loss of ¥713 million (US$6,196 thousand) on
available-for-sale securities and ¥315 million on available-for-salesecurities with fair market values, respectively.
Securities are deemed to have “substantially declined” when their fairvalues have declined 30% or more. When their fair values have declined
50% or more, the impairment losses are recorded on those securities.
When their fair values have declined between 30% and 50%, theimpairment losses are recorded on those securities unless such values
are considered to be recoverable on an individual basis.

Available-for-sale securities whose bookvalue is less than their acquisition cost
Equity securities

Gross loss

¥ 4,959

Thousands of U.S. dollars

Equity securities

Available-for-sale securities whose bookvalue exceeds their acquisition cost

Gross gain

¥ 22,866

Year ended December 31, 2021
Millions of yen

Year ended December 31, 2020

Gross loss

Millions of yen

Sales
Equity securities

4,593

Gross gain

¥ 7,402

Year ended December 31, 2020

Available-for-sale securities whose bookvalue is less than their acquisition cost
Equity securities

Millions of yen

Sales

Available-for-sale securities whose bookvalue exceeds their acquisition cost
Equity securities
Other
Available-for-sale securities whose bookvalue is less than their acquisition cost
Equity securities
Total

39,93145,580(5,649)$ 171,607$ 134,373$ 37,234

10. DERIVATIVE FINANCIAL INSTRUMENTS(a) Derivative Transactions to Which Hedge Accounting is Not Applied
Millions of yen

Currency related:
Forward exchange contracts:
Selling
U.S. Dollar
Euro
Swiss Franc
Yuan Renminbi
Currency options:
Buying and selling
U.S. Dollar

Thousands of U.S. dollars

2021

2020

2021

Contract Contract
Valuationamount Fair value gain
amount over(loss)
1 yearContract Contract
Valuationamount Fair value gain
amount over(loss)
1 yearContract Contract
Valuationamount Fair value gain
amount over(loss)
1 year

¥ 9,099
5,670
—
19

¥—
—
—
—

¥ (102)(69)—(0)¥ (102)
(69)
—
(0)

¥

939
9,540
1,506
—

¥—
—
—
—

¥ 11
(13)
(1)
—

¥ 11 $ 79,107(13)
49,297
(1)
—
—
162

$—
—
—
—

$

¥ 12,206¥—¥ (151)¥ (151)¥ 16,013

¥—

¥ 98

¥ 98

$ 106,121$—$ (1,313) $ (1,313)(888) $
(602)
—
(3)

Notes: Fair‌value calculation method:
1. Fair values of forward exchange contracts are stated by the forward exchange rates.
2. Fair values of currency options are measured at the quoted price obtained from the financial institutions.
3. Currency options are zero-cost option contracts, and call options and put options are shown as a lump sum because they are included in integrated contract.

24

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

(888)
(602)
—
(3)

(b) Derivative Transactions to Which Hedge Accounting is Applied
Millions of yen

Thousands of U.S. dollars

2021
Contract
amount(1) Currency related:
Principle method
Forward exchange contracts:
BuyingU.S. Dollar
Euro
Selling
U.S. Dollar
Euro
Allocation method
Forward exchange contracts:
BuyingU.S. Dollar
Euro
Selling
U.S. Dollar
Euro
Yuan Renminbi
Currency swaps:
Receipt U.S. Dollar
Payment Yen
Cash flow hedge
Forward exchange contracts:
Selling
U.S. Dollar
Fair value hedge
Forward exchange contracts:
Selling
U.S. Dollar
Euro
Mexican Peso(2) Interest rate related:
Special method
Interest rate swaps:
Receipt-variable rate/Payment-fixed rate(3) Commodity related:
Principle method
Aluminum forward contracts:
BuyingSelling
Cash flow hedge
Commodity swaps:
BuyingCommodity future contracts:
BuyingSelling¥ 11,329—

Contract
amountover 1 year

¥

7,643
—

¥ 1,553
32——

Fair value

Contract
amountContract
amountover 1 year

¥

309
—

¥10,5819¥ 1,454
—

(82)
—

2,638
5

—
—

—
—

¥ 9,951
42

—
—
—

2,932
428
1,406

—
—
—

—
—

¥

8,167
754
38

—
—

2021

2020

¥

—
—
—

¥

—
—

Fair value

Contract
amountContract
amountover 1 year

¥

31
0

$ 98,498
—

$

6
(0)

66,449———$ 13,504
278

—
—
—

71,006
6,559
330

¥

$

Fair value——$ 2,684
—

—
—

(713)
—

—
—

$

—
—
—

—
—
—
—
—

¥ 2,000

¥

—

¥

—

¥ 2,000¥ 2,000¥—$ 17,388

$

—

$

—

¥ 3,419

¥

—

¥

(24)

¥ 1,051

¥

—

¥

22

$ 29,725

$

—

$

(209)

¥ 2,269
10,142
2,053

¥

—
—
—

¥

(31)
(90)
(38)

¥ 1,578
—
1,787

¥

—
—
—

¥

33
—
(162)

$ 19,727
88,176
17,849

$

—
—
—

$

(270)
(782)
(330)

¥ 2,600¥ 2,600¥—¥ 2,600¥ 2,600¥—$ 22,605$ 22,605$—¥ 5,953
1,235

¥

—
—

¥ 1,469(80)¥ 9,998857¥ 1,971—¥ 1,172(10)$ 51,756
10,737$——$ 12,771
(692)

¥

—

¥

—

¥

—

¥ 2,067

¥

—

¥

9

$

—

$

—

$

—

¥ 1,012
267

¥

—
—

¥

37
(2)

¥

¥

21
—

¥

19
4

$ 8,798
2,321

$

—
—

$

322
(17)

689
225

Notes: 1. ‌The main items hedged by forward exchange contracts are accounts payable for buying, accounts receivable for selling and long-term debt by interest rate swaps.
The main items hedged by aluminum forward transactions are aluminum metal transactions.
The main items hedged by commodity swaps and commodity future contracts are copper and lead purchase transactions.
2. ‌Fair value calculation method:
The fair values of forward exchange contracts are stated by the forward exchange rates. The fair values of currency swaps are measured at the quoted priceobtained from the financial institutions. The fair values of aluminum forward transactions are stated by forward quotations of the London Metal Exchange.
The fair values of commodity swaps and commodity future contracts are measured at the quoted price obtained from the financial institutions.
3. The fair values of forward exchange contracts and currency swaps that meet the allocation method criteria are reflected in the fair values of accounts receivable,accounts payable and debts of their hedged items.
4. The fair values of interest rate swaps that meet the special treatment criteria are reflected in the fair values of long-term debt of their hedged item.

25

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

The aggregate annual maturities of the noncurrent portion of long-term
debt were as follows:

11. ‌EFFECT OF YEAR-END DATE ON FINANCIAL
STATEMENTS
The year-end date of 2021, December 31, 2021, was a bank holiday.
Although notes receivable and payable maturing on this date wereaccordingly settled on January 4, 2022, the Companies accounted for
those notes in their financial statements as if they had been settled on
the maturity date.
Notes outstanding as at December 31, 2021 and 2020 dealt with in
the above-mentioned manner were as follows:
Thousands of
U.S. dollars

Millions of yen

Notes receivable

2021

2020

2021

¥ 351

¥ 1,068$3,055—

608—

Notes payable

Years ending December 31

ofMillions of yen Thousands
U.S. dollars

2023¥ 54,461 $ 473,494

2024

80,488

699,7702025

185,284

1,610,885

2026

68,770597,8962027 and thereafter

294,500

2,560,424¥ 683,503 $ 5,942,469

Total

As at December 31, 2021 and 2020, the assets pledged as collateral for
long-term debt were as follows:

2021
Cash and deposits

As at December 31, 2021 and 2020, the short-term debt of theCompanies consisted of the following:

2021

Thousands of
U.S. dollars

Bank loans at the average interest rateof 0.54%¥ 59,451¥ 62,645$ 516,875

15,00010,000130,412¥ 74,451¥ 72,645$ 647,287

Commercial paper
Total

2021

2020

2020

2021

¥ 10,548 $

47,566

Assets pledged as collateral

12. SHORT-TERM DEBT AND LONG-TERM DEBT

Millions of yen

Thousands of
U.S. dollars

Millions of yen

¥

5,471

Notes and accounts receivable-trade

—

1,486

—

Inventories

—

3,146

—

Investment securities

—

134

—
991,249

Property, plant and equipment, lessaccumulated depreciation

114,013

127,712Total¥ 119,484¥ 143,026 $ 1,038,814

In addition to the above, the following assets that have been eliminatedas intercompany transactions have been pledged as collateral.
Thousands of
U.S. dollars

Millions of yen

2021

As at December 31, 2021 and 2020, the long-term debt of theCompanies consisted of the following:Thousands of
U.S. dollars

Millions of yen

2021
0.630% bonds due 2021 (*1)¥

Investments in subsidiaries—¥ 15,000 $—10,0000.200% bonds due 2021 (*1)—

10,000—0.500% bonds due 2026 (*1)

7,000

7,000

60,8590.190% bonds due 2024 (*1)

10,00010,00086,9410.430% bonds due 2029 (*1)

10,00010,00086,9410.040% bonds due 2024 (*1)

30,000—260,8240.200% bonds due 2026 (*1)

20,000—173,8830.300% bonds due 2028 (*1)

5,000

—

43,4710.550% bonds due 2031 (*1)

45,000—391,236

86,941

1.191% bonds due 2022 (*2)

9,999

9,994

86,9330.375% bonds due 2027 (*2)

19,945

19,935

173,405

Loans principally from banks andinsurance companies due 2023 to 2028
at the average interest rate of 0.90%
Less: current portion

589,360

870,823

5,123,981

756,304

962,752

6,575,416(72,857)(56,387)(633,425)¥ 683,448

Total

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

1,231,308

57,041Thousands of
U.S. dollars

Millions of yen

2021

2021

2020

Secured short-term debt and longterm debt
Short-term debt
Long-term debt
Other debt
Total

¥

—
209,951577 $¥

1,825,343

1,456

1,052

121
¥ 210,072—

392,917¥ 394,950 $ 1,826,395

As at December 31, 2021 and 2020, the non-recourse liabilities were as
follows.
The following amounts are included in the amounts stated as collateral
assets and secured liabilities above:
Thousands of
U.S. dollars

Millions of yen

2021
Long-term debt
Other debt
Total

26

141,625

As at December 31, 2021 and 2020, the liabilities with collateral were as
follows:¥ 906,365 $ 5,941,991*1 Showa Denko K.K.
*2 Showa Denko Materials Co., Ltd.

¥ 977,437 $ 8,554,660

2021

2020

10,0000.734% bonds due 2022 (*1)

Loans receivable from subsidiaries
and affiliates

2021

2020

¥ 983,957¥ 209,700
121¥ 209,821

2020

2021

¥ 392,400 $ 1,823,161
1,404

1,052

¥ 393,804 $ 1,824,213

As at December 31, 2021 and 2020, the assets corresponding to the
non-recourse liabilities were as follows:
Thousands of
U.S. dollars

Millions of yen

2021
Cash and deposits

2021

2020

¥ 209,700

2021

Thousands of
U.S. dollars

Millions of yen

Investments in subsidiaries
Loans receivable from subsidiaries
and affiliates

2021

2020

¥ 983,957
141,625¥ 977,437 $ 8,554,660
57,041

1,231,308

13. RETIREMENT BENEFITS(a) Defined benefit pension plan, including the plans using thesimplified method(1) Reconciliation of opening and closing balance of retirement
benefit obligation for the years ended December 31, 2021 and2020 was as follows:
Millions of yen

2021

2020

Balance of retirement benefit obligation
at the beginning of the year
¥ 192,099

2021

2020

Funded retirement benefit obligations¥ 164,088¥ 179,789 $ 1,426,604

Plan assets(182,719)(188,533) (1,588,588)(18,631)(8,744)(161,985)

Unfunded retirement benefit obligations

3,067

12,30926,661

Net amount of relevant liabilities and assets
on the consolidated balance sheets(15,565)

3,566(135,323)

Net defined benefit liability

17,52324,750152,345

Net defined benefit asset(33,088)(21,184)(287,668)

Net amount of relevant liabilities and assets
on the consolidated balance sheets(15,565)

3,566(135,323)(4) Retirement benefit expenses and the components of theamounts thereof for the years ended December 31, 2021 and2020 were as follows:
Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Service cost

2021

Interest cost
Expected return on plan assets¥ 102,553 $ 1,670,133

Thousands of
U.S. dollars

Millions of yen¥ 10,548 $ 1,823,161

In addition to the above, the following assets that have been
eliminated as intercompany transactions have been pledged ascollateral.

2021(3) Reconciliation of the ending balance of retirement benefit
obligations and plan assets, and the net defined benefit liability
and the net defined benefit asset for the years ended December
31, 2021 and 2020 was as follows:

2021

2020

2021

¥ 6,768¥ 4,971$ 58,843

932

574

8,107

(2,257)(1,822)(19,623)

Amortization of actuarial gain and loss

29

2,131

252

Service cost

6,768

4,971

58,843

Amortization of past service cost

108

134

942

Interest cost

932

574

8,107

Retirement benefit expenses related tothe defined benefit pension plan

¥ 5,581¥ 5,988$ 48,521

Actuarial gain and loss

(4,285)393(37,257)

Retirement benefits paid

(12,444)(9,134)(108,188)

115

138

1,002

112

92,888974(16,627)(163)(144,557)

484

(121)

4,212

Past service cost
Increase from changes in scope of
consolidation
Decrease from changes in scope of
consolidation
Other
Balance of the retirement benefit
obligation at the end of the year

¥ 167,155¥ 192,099 $ 1,453,268(2) Reconciliation of opening and closing balance of plan assets forthe years ended December 31, 2021 and 2020 was as follows:

2021

2,257

1,822

19,623

Actuarial gain and loss

8,205

5,780

71,338Contribution from employer

6,330

5,201

55,030(11,233)(7,597)(97,660)—

90,303—(11,895)—(103,417)

522

197

4,542

Increase from changes in scope of
consolidation
Decrease from changes in scope of
consolidation
Other
Balance of plan assets
at the end of the year

¥ 182,719

Actuarial gain and loss
Total

¥

2021

2020
7

(12,852)¥ (12,845)¥

5(7,522)$

59(111,740)¥ (7,517) $ (111,680)¥ 92,827 $ 1,639,133

Expected return on plan assets

Retirement benefits paid

2021
Past service cost

2021

2020

¥ 188,533

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Millions of yen

Balance of plan assets
at the beginning of the year(5) Remeasurements of defined benefit plans
The components of items (before tax) reported under remeasurementsof defined benefit plans for the years ended December 31, 2021 and2020 were as follows:¥ 188,533 $ 1,588,588

27

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(6) Accumulated remeasurements of defined benefit plans
The components of items (before tax) reported under accumulated
remeasurements of defined benefit plans for the years ended December
31, 2021 and 2020 were as follows:

2021
¥

2021

2020
(8)

¥ (15) $(71)

Thousands of
U.S. dollars

Millions of yen

2021

2020

2021

Deferred tax assets:(12,806)

46(111,341)

Tax loss carryforwards (Note 2)¥ 24,589¥ 21,366$ 213,783¥ (12,815)¥ 31$ (111,412)

Impairment loss

16,674

22,110144,962

Write-down of marketable andinvestment securities

12,50916,184

108,754

Depreciation and amortization

9,542

5,492

82,962

Net defined benefit liability

6,977

9,610

60,660Loss on valuation of inventories

2,466

1,519

21,444

Provision for bonuses

2,070

2,046

17,995

Undetermined accrued liabilities

1,946

1,983

16,917

1,508

975

13,111

694

4,053

6,032

Unrecognized actuarial gain and lossTotal(a) As at December 31, 2021 and 2020, significant components ofdeferred tax assets and liabilities were as follows:

Thousands of
U.S. dollars

Millions of yen

Unrecognized past service cost

14. INCOME TAXES(7) Matters regarding plan assets(i) Major content of the plan assets
The percentages of major asset types that account for the total plan
assets as of December 31, 2021 and 2020 were as follows:
Ratio

2021

2020

Bonds

48 %

50 %

Provision for repairs

Stocks28

27

Allowance for doubtful accounts

General accounts of life insurance company

9

9

Other

14,965

16,794130,108

Subtotal of deferred tax assets

93,940102,133

816,730

Valuation allowance related to tax loss
carryforwards (Note 2)(14,464)(11,711)(125,754)

Valuation allowance related to the totalof deductible temporary differences(39,555)(48,431)(343,893)

Total valuation allowance (Note 1)(54,019)(60,143)(469,647)

Total deferred tax assets

39,921

41,990347,082

Cash and deposits

7

7

Other

8

7

100 %

100 %

Total

(ii) Method for setting the long-term rate of expected return on plan
assetsTo determine the long-term rate of expected return on plan assets, thecurrent and anticipated long-term yield rates of various assets that
constitute the plan assets as well as the current and projecteddistribution of plan assets, have been taken into account.

Deferred tax liabilities:(8) Matters regarding the assumptions for actuarial calculations
Key assumptions for actuarial calculations as of December 31, 2021 and2020 were as follows:
Ratio

2021

2020

Discount rate

Mainly 0.4% Mainly 0.5%

Long-term rate of expected return on plan assets

Mainly 1.8% Mainly 1.8%(b) Defined contribution pension plan
The amounts required to be contributed by consolidated subsidiaries forthe years ended December 31, 2021 and 2020 were ¥1,819 million(US$15,815 thousand), and ¥1,697 million, respectively.

Year ended December 31, 2021

Amount of revaluation from the book value(58,505)(66,543)(508,648)

Net defined benefit asset(9,608)(6,388)(83,535)

Special depreciation reserve(7,880)(7,175)(68,510)Foreign subsidiaries' undistributed
retained earnings(4,333)(5,520)(37,668)

Valuation difference on available-forsale securities(1,658)(1,853)(14,411)

Deferred gains or losses on hedges

(508)

(384)

(4,417)(2,368)(1,616)(20,586)(89,478)(737,776)

Other
Total deferred tax liabilities(84,859)

Net deferred tax assets (liabilities)¥ (44,938)¥ (47,488) $ (390,693)

Notes: 1. ‌Valuation allowance decreased by ¥6,124 million (US$53,241 thousand).
The main reason for this decrease was the decrease in valuation allowanceand others related to the amount of deductible temporary differences, asa result of the exclusion from the scope of consolidation of SHOKO CO.,LTD. and its four subsidiaries through a share transfer of SHOKO CO., LTD.,
and Showa Aluminum Can Corp. and its subsidiary Hanacans Joint Stock
Company through a share transfer of Showa Aluminum Can Corp.
2. ‌A breakdown of tax loss carryforwards and valuation allowance by expiry
date as of December 31, 2021 and 2020 were as follows.
Millions of yen

Due in 1
year or lessDue after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after
5 years

Tax loss carryforwards*1

¥ 367

¥ 298

¥ 378

¥ 536

¥ 814

¥ 19,405¥ 24,589

Valuation allowance

(210)

(141)

(221)

(380)

(90)

(10,101)(14,464)

Deferred tax assets

157

157

157

157

724

9,304

10,126 *2

Total*1. Tax loss carryforwards are multiplied by the statutory effective tax rate.
*2. ‌For the tax loss carryforwards of ¥24,589 million (US$213,784 thousand), the amount obtained by multiplying by the statutory tax rate, ¥10,126 million (US$88,035 thousand)was booked as deferred tax assets.
The Company does not recognize valuation allowances for the portion of the tax loss carryforwards deemed to be recoverable due to the prospect of future taxable income.

28

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Millions of yen

Year ended December 31, 2020

Due in 1
year or lessDue after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Due after
5 years

Tax loss carryforwards*1¥ 95¥ 2,095¥ 2,450

¥ 489

¥ 278

¥ 15,959¥ 21,366

Valuation allowance
Deferred tax assets

(72)
23

(213)
1,882

(975)
1,476

(489)
—

(138)
140

(9,825)
6,134(11,711)9,655*2

Total*1. Tax loss carryforwards are multiplied by the statutory effective tax rate.
*2. ‌For the tax loss carryforwards of ¥21,366 million, the amount obtained by multiplying by the statutory tax rate, ¥9,655 million was booked as deferred tax assets.
The Company does not recognize valuation allowances for the portion of the tax loss carryforwards deemed to be recoverable due to the prospect of future taxable income.
Year ended December 31, 2021

Thousands of U.S. dollars

Due in 1
year or lessDue after 1 year
through 2 years

Due after 2 years
through 3 years

Due after 3 years
through 4 years

Due after 4 years
through 5 years

Tax loss carryforwards$ 3,188$ 2,589$ 3,284$ 4,661

Valuation allowance
Deferred tax assets(1,826)
1,362(1,228)1,362(1,922)
1,362(3,300)1,362(b) Significant items in the reconciliation of the statutory tax rate with theeffective tax rate as at December 31, 2021 and 2020 were as follows:
2021

2020

Due after
5 years

Total$ 7,073$ 168,708$ 213,784

(780)
6,292

(87,818)
80,890(125,749)
88,035

16. ‌CONSOLIDATED STATEMENTS OFCOMPREHENSIVE INCOME
Reclassification adjustments and tax effects for components of othercomprehensive income for the year ended December 31, 2021, wereas follows:

Statutory tax rate

30.6%

—%

Transfer of business

38.3

—

Amortization of goodwill

23.7

—

Effect on the reexamination of recoverability

20.6

—

Differences of statutory tax rate in subsidiaries(11.0)—Tax credit(10.2)—

Increase during the year

¥ 2,202$ 19,142

Unrealized income on inventories

(4.0)

—

Reclassification adjustments(3,629)(31,552)

Permanently non-taxable dividends received

(3.6)

—

Amount before income tax effect(1,427)(12,410)Foreign taxes

1.9—

Income tax effect

Other

2.2

—

88.4%

—%

Effective tax rate

Due to the recording of a loss before income taxes, significant items in thereconciliation of the statutory tax rate with the effective tax rate as at December
31, 2020 have been omitted.

15. IMPAIRMENT LOSS
As at December 31, 2021, major impairment losses on fixed assets wereas follows:
Location

Major use

Minato Ward, Tokyo
Prefecture

Rhineland-Palatinate,
Germany

—

Other
Total

Conductive
paste
technology forphotovoltaic
cells

Asset
category

Intangible
asset

Valuation difference on available-for-sale securities

Total

479

4,161

¥

(949)

$ (8,250)

¥

831

$

Deferred gains or losses on hedges
Increase during the year

203

1,763

Adjustments of acquisition cost of assets(661)(5,746)

Amount before income tax effect

372

3,238

Income tax effect

(114)

Total

¥

$ 13,415

259

(988)
$

2,251

Foreign currency translation adjustments
Increase during the year

¥ 40,553$ 352,572

Reclassification adjustments(1,479)(12,859)

Amount before income tax effect39,074

339,713——¥ 39,074$ 339,713¥ 12,731$ 110,686

Income tax effect¥ 1,543

7,221

Reclassification adjustments

Total
Remeasurements of defined benefit plans, net of tax

Production
facilities for
Leased asset,
thermaletc.
insulation parts
Energy storage
devices andsystemsbusinessofMillions of yen Thousands
U.S. dollarsofMillions of yen Thousands
U.S. dollars

Increase during the year
9,101

79,125

Reclassification adjustments
Amount before income tax effect

Goodwill, etc.

30,069261,422

920

8,001

¥ 41,633$ 361,963

The amount in the above table included ¥30,069 million (US$261,422
thousand) which was reported as business structuring expenses on the
consolidated statements of operations.

994

12,845

111,680(3,919)(34,071)¥ 8,927$ 77,610

¥

$

8,328

$

8,328

Income tax effect
Total

114

Share of other comprehensive income ofunconsolidated subsidiaries and affiliates
accounted for using the equity method
Increase during the year
Total
Total other comprehensive income

958—

Reclassification adjustments¥

958¥ 48,268—$ 419,651

29

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

17. LEASES(a) Finance Leases as a Lessee
Finance lease transactions other than those involving transfer ofownership to the lessee and right-of-use assets of subsidiaries that haveapplied IFRS 16(1) Type of leased assetsa) Tangible fixed assets: Principally office buildingsb) Intangible fixed assets: Principally software(2) Method of depreciation
The depreciation method of leased assets is described in Note 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (j) Leased Assets.
(b) Operating Leases as a Lessee
As at December 31, 2021 and 2020, assets leased under non-capitalized
operating leases were as follows:
Future minimum lease payments for the remaining lease periods:
Thousands of
U.S. dollars

Millions of yen

Due within 1 year

2021

2020

2021

¥ 215

¥ 272

$ 1,873

2,425

2,582

21,079¥2,640¥ 2,854$ 22,952

Due over 1 year
Total(c) Operating Leases as a Lessor
As at December 31, 2021 and 2020, non-cancelable operating leasereceivables for the remaining lease periods were as follows:
Future minimum lease receivables for the remaining lease periods:

2021

2021

2020

Due within 1 year¥1¥1

Due over 1 year

1

—

5

¥1

¥1

$ 11

Total

$ 6

18. CONTINGENT LIABILITIESAs at December 31, 2021 and 2020, the Companies were guarantors forthe borrowings below. The guarantees were principally for
unconsolidated subsidiaries, affiliates and others.
Thousands of
U.S. dollars

Millions of yen

2021
Guarantees¥ 1,006

2020
¥ 758

2021
$ 8,745

As the amounts include joint and several guarantors' portions as wellas the Companies', the actual amounts that the Companies were
contingently liable to pay were smaller than the above.

The Corporation Law of Japan (the "Law") provides that the entire
amount paid for new shares may be credited to the stated capital, withthe provision that, by resolution of the Board of Directors, up to one-halfof such amount paid for new shares may be credited to additional
paid-in capital, which is included in capital surplus.
The Law provides that an amount equal to 10% of cash
appropriations of retained earnings shall be set aside as additional
paid-in capital or a legal earnings reserve until the total of such reserve
and additional paid-in capital equals 25% of the stated capital.

SHOWA DENKO K.K.

The Company and some of its consolidated subsidiaries revalued theland they own for business in accordance with the Law concerning the
Revaluation of Land. The difference between the revalued amount andthe book value, after the deduction of applicable tax, is stated as a land
revaluation reserve. The revaluation was conducted using methods
stipulated in the ordinance for enforcement of the law, specifically, themethod in Item 4 of Article 2 (Reasonable Adjustment of the Appraised
Value Relating to Land Price Tax), and the method in Item 5 of Article 2(Estimation by Experts). The excess of the carrying amount of therevalued land over the market value as at December 31, 2021 was¥52,881 million (US$459,755 thousand).

As of December 31, 2021
Part of debt for the fiscal year ended December 31, 2021 contains
certain financial covenants, mainly the maintenance of net assets andthe maintenance of profits. There is no debt that is in contravention of
the financial covenants as of the end of the fiscal year ended December
31, 2021.
As of December 31, 2020
Part of debt for the fiscal year ended December 31, 2020 contains
certain financial covenants, mainly the maintenance of net assets andthe maintenance of profits. There is no debt that is in contravention of
the financial covenants as of the end of the fiscal year ended December
31, 2020.

22. S‌ ELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended
December 31, 2021 and 2020 were summarized as follows:
Millions of yen

FINANCIAL REPORT 2021

Thousands of
U.S. dollars

2021

2020

2021

¥ 51,106¥ 34,585$ 444,320

Employees' compensation

49,834

38,461

433,263

Experiment and research expenses

28,61918,154

248,813

Depreciation

27,616

16,015240,099

Other

93,621

71,556

813,957¥ 250,796¥ 178,771$2,180,453

Freight

19. NET ASSETS

30

20. REVALUATION RESERVE FOR LAND

21. FINANCIAL COVENANTS

Thousands of
U.S. dollars

Millions of yen

Additional paid-in capital and the legal earnings reserve may be used toeliminate or reduce a deficit, if any, or be capitalized by resolution at theordinary general meeting of shareholders. All additional paid-in capitaland the legal earnings reserve may be transferred to other capital surplus
and retained earnings, respectively, which are potentially available fordividends. Additional paid-in capital and the legal earnings reserve areincluded in capital surplus and retained earnings, respectively.
The Law does not have a definition about the classification of paid-in
capital between common stock and preferred stock. Accordingly, theCompany states its capital in the total amount paid by issuing common
stock and preferred stock.
The maximum amount that the Company can distribute as dividends
is calculated based on the unconsolidated financial statements of theCompany in accordance with Japanese laws and regulations.

Total

Research and development expenses included in selling, general andadministrative expenses for the years ended December 31, 2021 and2020 were ¥35,385 million (US$307,643 thousand) and ¥28,307 million,
respectively.

23. RESEARCH AND DEVELOPMENT

30. BUSINESS COMBINATION

Research and development costs included in manufacturing costs,
selling, general and administrative expenses for the years ended
December 31, 2021 and 2020 were ¥46,750 million (US$406,448
thousand) and ¥34,379 million, respectively.

(a) Transfer of Investments in Subsidiaries(1) Overview of the business divestiture( i ) Name of the divestiture target company
SKT Holdings Ltd.,

24. INVENTORY WRITE DOWNS(ii) Description of the divested business• Divested business
General trading business (SHOKO CO., LTD. (hereinafter referred to
as “SHOKO”) and its four subsidiaries)• Business description
Sale of chemicals, resins, metals and other industrial materials

As at December 31, 2021 and 2020, inventory write-downs of ¥(19,941)
million (US$(173,373) thousand) and ¥17,790 million, respectively, basedon the lower of the cost or market method were deducted from thecarrying value of inventories.

25. FINANCING EXPENSES
Year ended December 31, 2021
Not applicable.
Year ended December 31, 2020
Financing expenses include one-time expenses paid to financial
institutions relating to the share acquisition of Hitachi Chemical
Company, Ltd. (current Showa Denko Materials Co., Ltd.).

26. GAIN ON SALE OF BUSINESSYear ended December 31, 2021
Gain on transfer of business relates to the transfer of the aluminum canbusiness of the Companies.
Year ended December 31, 2020
Not applicable.

27. ENVIRONMENTAL EXPENSES
Year ended December 31, 2021
The expenditure is for the implementation of measures to prevent
groundwater pollution at Kitakata Plant of the Company.
Year ended December 31, 2020
Not applicable.

28. LOSS ON SALE OF BUSINESSYear ended December 31, 2021
Loss on transfer of business relates to the transfer of the aluminum
rolling business of the Companies.
Year ended December 31, 2020
Not applicable.

29. BUSINESS STRUCTURING EXPENSES(iii) Main reason for conducting the business divestiture
The Company has been considering measures to improve corporate
value by resolving reform issues in mid-term business plans at SHOKO
under a rapidly changing business environment. Under thesecircumstances, the Company received a proposal from iSigma Capital
Corporation to improve corporate value at SHOKO. Upon carefulconsideration of the proposal, the Company has come to the conclusionthat SHOKO can further accelerate growth and increase its corporate
value through facilitating the development of customers and sales
channels, expanding its product lineup, improving profitability by taking
advantage of economies of scale, improving management efficiency,
and so on, by utilizing the domestic and overseas networks andmanagement know-how of iSigma Capital Corporation and its parent
company, Marubeni Corporation, as well as its group companies.
Therefore, the Company has determined to transfer the shares in SHOKO
to SKT Holdings Ltd., through a tender offer.
Furthermore, a shareholder agreement has also been executed withiSigma Business Advancement Fund III Investment LLP in view of the factthat the Company will continue to hold a part of the shares in SHOKO
after the tender offer. The Company has agreed on the business
operations of SHOKO after this transaction, such as the appointment ofcertain candidates to become directors of SHOKO after this transaction,and the handling of the shares issued by SHOKO.
The transfer of applied shares held by the Company to SKT Holdings
Ltd. made SHOKO cease to be one of the consolidated subsidiaries of theCompany; however, the Company plans to continue the business
relationship with SHOKO even after the transfer of the applied shares.
(iv) Business divestiture date
April 22, 2021 (date of share sale)
April 1, 2021 (deemed date of sale)(v) Overview of the transaction including its legal form
Share transfer in exchange for cash(2) Overview of accounting treatment( i ) Amount of transfer gain or loss
Loss on sales of shares in subsidiaries and associates:¥332 million (US$2,886 thousand)Year ended December 31, 2021
Business structuring expenses principally consist of impairment loss on
goodwill, etc., due to decisions made to transfer the energy storage
devices and systems business of Showa Denko Materials Co., Ltd.
Year ended December 31, 2020
Business structuring expenses are expenses and losses expected inconjunction with the closing, etc., of manufacturing bases. The main
component includes retirement-related expenses.

31Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(ii) Appropriate book values of assets and liabilities related to thetransferred business and their main breakdown
Millions ofyen

Thousands of
U.S. dollars¥ 42,918$ 373,132

Noncurrent assets

6,344

55,158

Total assets¥ 49,262$ 428,290

Current liabilities¥ 21,179$ 184,137

Current assets

Noncurrent liabilities

15,935

138,542

Total liabilities¥ 37,115$ 322,679(iii) Accounting treatment
The amount after deducting expenses related to the sale from the difference
between the consolidated book value and the sale price of the shares in
SHOKO and its subsidiaries that were held by the Company is recordedin other expenses on the consolidated statements of operations.
(3) Name of the reportable segment in which the divested business
was included
Others segment(4) Estimated amount of gains or losses related to the divested
business recorded in the consolidated statements of operations
for the current consolidated fiscal year
Millions ofyen

Thousands of
U.S. dollars

Net sales¥ 14,947$ 129,955

Operating income

¥

$

391

(v) Overview of the transaction including its legal form
For the aluminum can business of the Company, after an absorption-typecompany split (simple company split), in which SAC is the successor
company, was conducted without consideration, all of the shares issued
by SAC were transferred to Alpha Japan Acquisition Co., Ltd. in exchange
for cash.
(2) Overview of accounting treatment( i ) Amount of transfer gain or loss
Gain on sale of businesses: ¥9,061 million (US$78,780 thousand)* The final transfer price adjustment prescribed by the share transfer agreement has been
completed, and this amount reflects such price adjustment.

(ii) Appropriate book values of assets and liabilities related to thetransferred business and their main breakdown

Current assets

Millions ofyen

Thousands of
U.S. dollars¥ 27,135$ 235,919

Noncurrent assets

26,385229,391

Total assets¥ 53,520$ 465,309

Current liabilities¥ 14,317$ 124,474

Noncurrent liabilities
Total liabilities

584

5,074

¥ 14,901$ 129,548

3,402(iii) Accounting treatment
The amount after deducting expenses related to the sale from the difference
between the consolidated book value and the sale price of the aluminum
can business of the Company and the shares in SAC and HAC is recorded
in recorded in gain on sale of businesses on the consolidated statementsof operations.

(ii) Description of the divested business• Divested business
The aluminum can business (including Showa Aluminum Can Corp.,
which is a wholly owned consolidated subsidiary of the Company(hereinafter referred to as “SAC”), and its subsidiary Hanacans Joint
Stock Company (hereinafter referred to as “HAC”))• Business description
Manufacture and sale of aluminum cans for beverages(3) Name of the reportable segment in which the divested business
was included
Aluminum segment(iii) Main reason for conducting the business divestiture
In light of the rapidly changing business environment, the Company has
been examining the optimal allocation of management resources andportfolio management to realize sustainable growth. After carefulconsideration of all available options, the Company reached theconclusion that the expansion of the aluminum can business and thealuminum rolling business would be best achieved through business
partners that have specialized knowledge and management resources
to enable future growth of these businesses together with theemployees engaged in the respective business. Taking these factors into
consideration, the Company decided to execute the transactions set
forth in the master agreement with Apollo (a collective reference to a
special-purpose company formed by funds managed by affiliates of
Apollo Global Management, Inc.), which is one of the world’s leading
alternative investment managers and has a wealth of experience
supporting aluminum-related industries for more than 20 years.

(b) Transfer of Aluminum Can Business(1) Overview of the business divestiture( i ) Name of the divestiture target company
Alpha Japan Acquisition Co., Ltd.

32(iv) Business divestiture dateJune 24, 2021 (date of share sale)
June 30, 2021 (deemed date of sale)

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

(4) Estimated amount of gains or losses related to the divested
business recorded in the consolidated statements of operations
for the current consolidated fiscal year
Millions ofyen

Thousands of
U.S. dollars

Net sales¥ 19,879$ 172,832

Operating income¥ 2,183$ 18,978(c) Transfer of Aluminum Rolling Business(1) Overview of the business divestiture( i ) Name of the divestiture target company
Showa Aluminum Can Corp. (hereinafter referred to as “SAC”)
Alpha Japan Acquisition Corporation(hereinafter referred to as “Acqco”)(ii) Description of the divested business• Divested business
The aluminum rolling business (including Showa Denko Aluminum(Nantong) Co., Ltd., which is a wholly owned consolidated subsidiaryof the Company (hereinafter referred to as “SDAN”))• Business description
Manufacture and sale of high-purity aluminum foil mainly to be used
for electrolytic capacitors

(iii) Main reason for conducting the business divestiture
Details are as stated in (b) Transfer of Aluminum can Business.
(iv) Business divestiture dateAugust 2, 2021 (effective date of absorption-type merger, date of share sale)
July 1, 2021 (deemed date of sale)(v) Overview of the transaction including its legal form
For the aluminum rolling business of the Company, after an absorptiontype company split (simple company split), in which Showa Denko Sakai
Aluminum Corp. (hereinafter referred to as “Sakai Aluminum”) is the
successor company, was conducted without consideration, anabsorption-type merger, in which Sakai Aluminum is the disappearing
company and SAC is the surviving company, was conducted. As
consideration for shares in Sakai Aluminum, the Company received
shares in Alpha Japan Holdings Co., Ltd. (hereinafter referred to as“Holdco”), which is the parent company of Acqco, and all of the sharesissued by SDAN were transferred to Acqco in exchange for cash.
(2) Overview of accounting treatments( i ) Amount of transfer gain or loss
Loss on sale of businesses: ¥10,345 million (US$89,941 thousand)* The final transfer price adjustment prescribed by the share transfer agreement has been
completed, and this amount reflects such price adjustment.

(ii) Appropriate book values of assets and liabilities related to thetransferred business and their main breakdown

Current assets

Millions ofyen

Thousands of
U.S. dollars¥ 8,999$ 78,237

Noncurrent assets

9,514

82,720Total assets¥ 18,513$ 160,957

¥

$

8,503

$

9,381

Current liabilities
Noncurrent liabilities
Total liabilities

978
101

¥ 1,079

878(iii) Accounting treatment
The amount after deducting expenses related to the sale from the sumof the difference between the book value of shares in Sakai Aluminum,
to which the aluminum rolling business of the Company is divested, andthe acquisition value of shares in Holdco and the difference between
the consolidated book value and the sale price of the shares in SDAN isrecorded in loss on sale of businesses on the consolidated statementsof operations.
(3) Name of the reportable segment in which the divested business
was included
Aluminum segment(4) Estimated amount of gains or losses related to the divested
business recorded in the consolidated statements of operations
for the current consolidated fiscal year
Millions ofyen

Thousands of
U.S. dollars

Net sales¥ 12,671$ 110,163

Operating income¥ 2,013$ 17,501(d) Transfer of Printed Wiring Board Business(1) Overview of the business divestiture( i ) Name of the divestiture target company
PTCJ-S Holdings Co., Ltd.
(ii) Description of the divested business• Divested business
The printed wiring board business• Business description
Manufacture and sale of printed wiring boards(iii) Main reason for conducting the business divestiture
The Company made Showa Denko Materials Co., Ltd. its consolidated
subsidiary in the second quarter of the previous fiscal year, and the twocompanies are scheduled to integrate in 2023. Preceding the integration,
the Company is currently in the process of optimally allocating its
management resources, reorganizing its business portfolio, and working
to create innovations by combining the technologies of both companies
to achieve sustainable growth. As part of this process, carefulconsideration was given to the printed wiring board business, and theCompany reached the conclusion that the expansion of the printed
wiring board business by fully leveraging its strengths, including its
technological competitiveness and strong relationships with customers,
would be best achieved through Polaris Capital Group, which has awealth of investment experience and is well experienced in increasing
the corporate value of its portfolio companies, and decided to transfer
the printed wiring board business.
(iv) Business divestiture date
October 1, 2021 (date of share sale)(v) Overview of the transaction including its legal form
Showa Denko Materials Co., Ltd. established two wholly owned companies
and transferred the printed wiring board business held by Showa Denko
Materials Co., Ltd. (including its shares in Yamagishi AIC Inc. (hereinafterreferred to as “YGA”) and Showa Denko Materials (Singapore) Pte. Ltd.)and the printed wiring board business held by Showa Denko Materials
Electronics Co., Ltd. (hereinafter referred to as “SDME”) (including its
shares in YGA) by means of company splits (hereinafter, the company
succeeding the printed wiring board business held by Showa Denko
Materials Co., Ltd. is referred to as “NewCo”, and the company succeeding
the printed wiring board business held by SDME is referred to as “NewCo(SDME)”). Showa Denko Materials Co., Ltd. transferred all shares in the
NewCo (Note) to PTCJ-S Holdings Co., Ltd. in exchange for cash.
Note: NewCo holds all shares in NewCo (SDME) after the company split
where Showa Denko Materials Co., Ltd. transferred all of its sharesin NewCo (SDME) to NewCo.
(2) Overview of accounting treatments( i ) Amount of transfer gain or loss
Loss on sale of businesses: ¥1,733 million (US$15,067 thousand)(ii) Appropriate book values of assets and liabilities related to thetransferred business and their main breakdown

Current assets

Millions ofyen

Thousands of
U.S. dollars¥ 19,316$ 167,936

Noncurrent assets

19,465

169,231

Total assets¥ 38,781$ 337,167

Current liabilities¥ 7,555$ 65,684

Noncurrent liabilities

2,787

24,231

Total liabilities¥ 10,342$ 89,915

33

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries(iii) Accounting treatment
The difference between the consolidated book value and the transfer
price of the transferred shares is recorded in loss on sale of businesseson the consolidated statements of operations.
(3) Name of the reportable segment in which the divested business
was included
Showa Denko Materials segment(4) Estimated amount of gains or losses related to the divested
business recorded in the consolidated statements of operations
for the current consolidated fiscal year
Millions ofyen

Thousands of
U.S. dollars

Net sales¥ 31,200$ 271,257

Operating income¥ 2,527$ 21,972

company split, and thereafter, transferred all shares of Japan NewCo andthe directly or indirectly owned shares of Energy System Service Japan
Co., Ltd., CSB Energy Technology Co., Ltd., Siam Magi Co., Ltd., Thai
Energy Storage Technology Public Company Limited, Thai Nonferrous
Metal Co., Ltd., 3K Products Company Limited, and Power Plas Company
Limited to SBS, whose largest shareholders are the funds served by
Advantage Partners Inc., in exchange for cash.
(2) Overview of accounting treatment( i ) Amount of transfer gain or loss
Gain on sale of businesses: ¥4,289 million (US$37,289 thousand)(ii) Appropriate book values of assets and liabilities related to thetransferred business and their main breakdown

Current assets(e) Transfer of Energy Storage Devices and Systems Business(1) Overview of the business divestiture( i ) Name of the divestiture target company
Sustainable Battery Solutions, Inc. (hereinafter referred to as “SBS”)(ii) Description of the divested business• Divested business
The energy storage devices and systems business• Business description
Manufacture and sale of energy storage devices and system service
business related thereto(iii) Main reason for conducting the business divestiture
The Company made Showa Denko Materials Co., Ltd. its consolidated
subsidiary in the second quarter of the previous fiscal year, and the twocompanies are scheduled to integrate in 2023. Preceding the integration,
the Company is currently in the process of optimally allocating its
management resources, reorganizing its business portfolio, and working
to create innovations by combining the technologies of both companies
to achieve sustainable growth. As part of this process, carefulconsideration was given to all available options for operation of theenergy storage devices and systems business (hereinafter referred to as
the “Business”) of Showa Denko Materials Co., Ltd., a consolidated
subsidiary of the Company. As a result, the Company reached theconclusion that the best option for stakeholders, including clients of theBusiness, daily end-users of the Companies’ Business products, andemployees engaged in the Business, is to promote the expansion of theBusiness through business partners that possess or have access to
specialized knowledge and management resources for renewableenergy and automobile industry that are relevant to the Business. The
Company decided that the best business partner for this endeavorwould be SBS, one of the leading investment companies in Japan, withexperience in a considerable number of projects similar to thetransaction, and with a variety of expertise. The Company therefore
determined to promote the transaction with SBS.
(iv) Business divestiture date
December 1, 2021 (date of share sale)(v) Overview of the transaction including its legal form
Showa Denko Materials Co., Ltd., the Company’s consolidated subsidiary,
had its newly established, wholly owned subsidiary (hereinafter referred
to as “Japan NewCo”) succeed the energy storage devices and systems
business in which Showa Denko Materials Co., Ltd. had been engaged at
its Saitama Works and Nabari Works through an absorption-type

34

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Millions ofyen

Thousands of
U.S. dollars¥ 57,524$ 500,119

Noncurrent assets

31,698275,585

Total assets¥ 89,222$ 775,704

Current liabilities¥ 36,280$ 315,421

Noncurrent liabilities

4,619

40,159Total liabilities¥ 40,899$ 355,581(iii) Accounting treatment
The difference between the consolidated book value and the transfer
price of the transferred shares is recorded in gain on sale of businesseson the consolidated statements of operations.
(3) Name of the reportable segment in which the divested business
was included
Showa Denko Materials segment(4) Estimated amount of gains or losses related to the divested
business recorded in the consolidated statements of operations
for the current consolidated fiscal year
Millions ofyen

Thousands of
U.S. dollars

Net sales¥ 94,800$ 824,204

Operating income¥$ 57,668

6,633

31. SEGMENT INFORMATION(a) Information about sales, operating income, assets, and other items by reportable segment
Year ended December 31, 2021

Millions of yen

Petrochemicals Chemicals

Showa Denko
Materials

Electronics

Inorganics

Aluminum¥ 119,470¥ 98,991¥ 72,434 ¥ 634,792

Others

Total

Adjustments Consolidated

Sales
Outside customers¥ 277,717¥ 40,668 ¥ 1,419,635

5,428

11,311

1,398

3,309

3,745

241

3,391

28,822

283,145

186,873

120,868

102,300

76,179635,033

44,0591,448,458

6,902 ¥

20,316

Inter-segment
Total¥ 175,562(28,822)—(28,822) 1,419,635

Operating income (loss)¥ 20,701¥ 21,597¥ 16,153¥ 14,412¥¥ 161,643¥ 239,502¥ 164,823¥ 209,185¥ 53,623 ¥ 1,132,158

4,133

9,883

9,652

8,174

2,813

59,632

2,734

97,020706

97,726

—

(9)

12

8

108

17,596

4

17,720—17,720Investments in unconsolidated
subsidiaries and affiliates

10,729

4,474

—

1,739

—

50,836393

68,170—68,170

Increase in property, plant andequipment and intangible assets

2,686

9,985

14,759

8,265

3,872

35,165

3,587

78,320327

78,647

Depreciation and amortization(38) ¥ 100,043— ¥ 1,419,635

AssetsAmortization of goodwill¥¥¥ 118,262 ¥ 2,079,195¥ (12,845) ¥87,198¥ 63,194 ¥ 2,142,390

Notes: 1. Adjustments are as follows:(1) ‌Elimination of inter-segment transactions of ¥(530) million (US$(4,610) thousand) and total corporate expenses of ¥(12,315) million (US$(107,067) thousand) thatwere not allocated to any reportable segment were included in “Adjustments” for “Operating income” of ¥(12,845) million (US$(111,677) thousand). The total
corporate expenses principally consist of the total corporate common research expenses that are not attributable to any reportable segment.
(2) ‌Elimination of inter-segment receivables and payables and assets of ¥(54,205) million (US$(471,269) thousand) and total corporate assets of ¥117,400 million(US$1,020,688 thousand) that were not allocated to any reportable segment were included in “Adjustments” for “Assets” of ¥63,194 million (US$549,419 thousand).
The total corporate assets principally consist of surplus funds of the Companies under management (in the form of cash and deposits), deferred tax assets andassets related to the total corporate common research and development expenses.
2. Amortization of negative goodwill was included in “Amortization of goodwill.”

Millions of yen

Year ended December 31, 2020

Petrochemicals Chemicals

Electronics

Inorganics

AluminumShowa Denko
Materials

OthersTotal¥ 96,296¥ 77,158¥ 73,559¥ 302,687¥ 100,310¥ 973,700

Adjustments Consolidated

Sales
Outside customers¥ 184,173

Inter-segment
Total¥ 139,517¥ 973,700

9,213

16,251

1,119

5,741

6,626

55

6,991

45,996(45,996)—

155,769

97,41582,89980,185

302,742

107,301

1,019,696(45,996)

973,700

Operating income (loss)

¥

4,927

¥ 13,481¥

9,133¥ (32,300)¥¥ 122,760¥ 230,846¥ 138,788¥ 199,410¥ 113,935¥ 1,241,782¥ 150,011¥ 2,197,530

4,186

9,489

9,371

8,252

4,539

29,592

2,504

—

(60)

12

8

211

9,128

23

Investments in unconsolidated
subsidiaries and affiliates

9,827

3,854

—

1,677

—

50,966

Increase in property, plant andequipment and intangible assets

5,088

11,397

8,305

8,074

9,666

267,087

Depreciation and amortization—

193,385

AssetsAmortization of goodwill

¥

421

¥

(6,303)

¥

1,199

¥

(9,443)¥ (10,006) ¥¥(19,449)

6,076¥ 2,203,606

67,933710

68,643

9,322

—

9,322

249

66,574—

66,574

2,694

312,312700

313,011

Notes: 1. Adjustments are as follows:(1) ‌Elimination of inter-segment transactions of ¥198 million and total corporate expenses of ¥(10,204) million that were not allocated to any reportable segment were
included in “Adjustments” for “Operating income” of ¥(10,006) million. The total corporate expenses consist of the expenses relating to the share acquisition of
Hitachi Chemical Company, Ltd. (current Showa Denko Materials Co., Ltd.) of ¥(3,546) million and the total corporate common research expenses that are not
attributable to any reportable segment of ¥(6,659) million.
(2) ‌Elimination of inter-segment receivables and payables and assets of ¥(54,890) million and total corporate assets of ¥60,966 million that were not allocated to any
reportable segment were included in “Adjustments” for “Assets” of ¥6,076 million. The total corporate assets principally consist of surplus funds of the Companies
under management (in the form of cash and deposits), deferred tax assets and assets related to the total corporate common research and development expenses.
2. Amortization of negative goodwill was included in “Amortization of goodwill.”

35

Notes to Financial Statements
Showa Denko K.K. and Consolidated Subsidiaries

Year ended December 31, 2021

Thousands of U.S. dollars

Petrochemicals Chemicals

Electronics

Inorganics

AluminumShowa Denko
Materials$2,414,514$1,038,691$ 860,640$ 629,754$5,518,971

Others

Total

Adjustments Consolidated

Sales
Outside customers$1,526,363$ 353,575 $ 12,342,508— $ 12,342,508

47,18998,336

12,15428,76932,5602,095

29,482

250,585

2,461,703

1,624,699

1,050,845

889,409662,314

5,521,066

383,057

12,593,093

Operating income (loss)$ 179,976$ 187,764$ 140,438$ 125,299$ 60,006$ 176,633$

Assets$1,405,345$2,082,267$1,432,994$1,818,680$ 466,204$9,843,139$1,028,188 $ 18,076,816

35,92985,927

83,912

71,06624,456

518,445

23,773

843,508

6,139

849,646

—

(75)

102

73

942

152,98135

154,058—

154,058

Investments in unconsolidated
subsidiaries and affiliates

93,28038,898—

15,116—441,972

3,415

592,682—592,682

Increase in property, plant andequipment and intangible assets

23,35586,810128,316

71,85833,664

305,733

31,186680,923

2,845

683,768

Inter-segment
Total

Depreciation and amortization
Amortization of goodwill(b) Information about geographical areas
Year ended December 31, 2021

Sales

Millions of yen

Japan

China

Asia
(exc. China)

OthersTotal¥ 757,708¥ 170,047¥ 292,947¥ 198,933¥ 1,419,635

Millions of yen

Year ended December 31, 2020

Sales

Japan

China

Asia
(exc. China)

OthersTotal¥ 530,804¥ 119,360¥ 211,674¥ 111,862¥ 973,700

Year ended December 31, 2021

Sales

Thousands of U.S. dollars

Japan

China

Asia
(exc. China)

OthersTotal$ 6,587,622$ 1,478,412$ 2,546,921$ 1,729,553$ 12,342,508

Year ended December 31, 2021

Property, plant and equipment

Millions of yen

Japan

Asia

OthersTotal¥ 456,825¥ 120,624¥ 82,071¥ 659,521

Japan

Asia

OthersTotal¥ 495,516¥ 143,439¥ 88,164¥ 727,119

Millions of yen

Year ended December 31, 2020

Property, plant and equipment
Year ended December 31, 2021

Property, plant and equipment

36$

SHOWA DENKO K.K.

Thousands of U.S. dollars

Japan

Asia

OthersTotal$ 3,971,704$ 1,048,724$ 713,537$ 5,733,965

FINANCIAL REPORT 2021

(326) $

869,789(250,585)—(250,585) 12,342,508$ (111,677) $758,112$ 549,419 $ 18,626,235

(c) Information about impairment loss on property, plant and equipment by reportable segment
Year ended December 31, 2021

Millions of yen

Petrochemicals
Impairment loss on assets¥—

ChemicalsElectronics

Inorganics

Aluminum

¥ 29

¥ 56

¥ 165

¥ 242

Petrochemicals¥ 93

ChemicalsElectronics

Inorganics

Aluminum

¥2

¥ 244

¥ 9,049¥ 8,802

Year ended December 31, 2021

Elimination

¥ 49

¥—

OthersElimination

¥ 66

¥—

OthersElimination

$ 426

$—

OthersElimination

Total¥ 41,633

Showa Denko
Materials
¥ 288

Total
¥ 18,545

Thousands of U.S. dollars

Petrochemicals
Impairment loss on assets¥ 41,091

OthersMillions of yen

Year ended December 31, 2020

Impairment loss on assets

Showa Denko
Materials$—

ChemicalsElectronics

Inorganics

AluminumShowa Denko
Materials

$ 252

$ 491

$ 1,438$ 2,108$ 357,248

Total$ 361,963(d) Information about amortization of goodwill and unamortized balance by reportable segment
Year ended December 31, 2021

Millions of yen

Petrochemicals
Amortization
Unamortized balanceElectronics

Inorganics

Aluminum

¥—

¥ 237

¥ 44

¥ 8

¥ 135

¥ 17,596¥8¥—¥ 18,028

—

3,104

111

13

—

309,659——

312,886

OthersElimination

9,128

¥ 26

¥—

355,995

68—

OthersElimination

Petrochemicals
Amortization

ChemicalsElectronics

Inorganics

Aluminum

¥—

¥ 248

¥ 44

¥ 8

¥ 265

—

3,123

155

21

1,618

Year ended December 31, 2021

Unamortized balance

Showa Denko
Materials
¥

Total
¥

9,719
360,980

Thousands of U.S. dollars

ChemicalsElectronics

Inorganics

AluminumShowa Denko
Materials$—$ 2,062

$ 385

$ 73

$ 1,175$ 152,981

$ 66

$—

$ 156,742—

26,984

963

110

—

2,692,214——

2,720,271

Petrochemicals
Amortization

Total

Millions of yen

Year ended December 31, 2020

Unamortized balance

Showa Denko
Materials

Chemicals

Total

Amortization of negative goodwill arose from business combinations prior to April 1, 2010 and its unamortized balance are as follows:Year ended December 31, 2021

Millions of yen

Petrochemicals
Amortization
Unamortized balance

ChemicalsElectronics

Inorganics

Aluminum

¥—

¥ 246

¥ 33

¥—

¥ 27

—

918

195

—

—

Petrochemicals

Unamortized balance

ChemicalsElectronics

Inorganics

Aluminum

¥—

¥ 308

¥ 33

¥—

¥ 54

—

1,164

228

—

379

Year ended December 31, 2021

Amortization

Elimination

Total

¥—

¥4

¥—

¥ 309

—

6

—

1,119

Showa Denko
Materials

OthersElimination

Total

¥—

¥ 4

¥—

¥ 398

—

10

—

1,780

OthersElimination

Thousands of U.S. dollars

Petrochemicals

Unamortized balance

OthersMillions of yen

Year ended December 31, 2020

Amortization

Showa Denko
Materials

Showa Denko
Materials

ChemicalsElectronics

Inorganics

Aluminum$—$ 2,137

$ 283

$—

$ 233

$—

$ 31

$—

$ 2,684

—

7,985

1,696

—

—

—

51

—

9,732

Total

37

Report of Independent Certified Public Accountants

Independent auditor’s report
To the Board of Directors of Showa Denko K.K.:
OpinionWe have audited the accompanying consolidated financial statements of Showa Denko K.K. (“theCompany”) and its consolidated subsidiaries (collectively referred to as “the Group”), which comprisethe consolidated balance sheets as at December 31, 2021 and 2020, the consolidated statements ofoperations, statements of comprehensive income, statements of changes in net assets and statements ofcash flows for the years then ended, and notes, comprising a summary of significant accounting policies
and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at December 31, 2021 and 2020, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Appropriateness of the Company’s judgment concerning the identification of an impairment indicator
for intangible fixed assets including goodwill recognized as a result of acquiring Showa Denko
Materials Co., Ltd. as a consolidated subsidiary

38

SHOWA DENKO K.K.

The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheets of Showa
Denko K.K. (hereinafter, the “Company”),
intangible fixed assets of ¥522,489 million wererecognized. As described in Note 3, “Significant
accounting estimates, Judgment concerning the

The primary procedures we performed to assess
the appropriateness of the Company’s judgment as
to whether there was an impairment indicator for
intangible fixed assets including goodwill

FINANCIAL REPORT 2021

identification of an impairment indicator for
intangible fixed assets including goodwill
recognized as a result of acquiring Showa Denko
Materials Co., Ltd. as a consolidated subsidiary”,
included therein were goodwill of ¥309,659
million, customer related assets of ¥139,799
million, and other intangible fixed assets of¥44,017 million related to the acquisition ofShowa Denko Materials Co., Ltd. (hereinafter,“SDMC”) as a consolidated subsidiary, which
represented approximately 23.0% of total assets.
The judgment concerning the identification of an
impairment indicator for intangible fixed assets
including goodwill was made in consideration of alarger unit where intangible fixed assets including
goodwill were added to the asset groups related to
the Company’s businesses (hereinafter, the “Asset
Group Including Goodwill”).
Intangible fixed assets including goodwill
recognized as the excess earnings potential of
SDMC are amortized on a systematic basis.
However, it is determined that an impairment
indicator exists, if the business performance set
forth in the original business plan developed when
the Company acquired SDMC as its consolidated
subsidiary has not been achieved, and therefore
there have been, or are expected to be, events suchas operating losses or continuous negative cash
flows, a significant deterioration of the businessenvironment and a change that may significantly
decrease the recoverable amount. Whenever there
is an impairment indicator for these intangible
fixed assets including goodwill, they need to betested for impairment by comparing theundiscounted future cash flows that are expected
to be generated from the related Asset Group
Including Goodwill with their carrying amounts.
If the recognition of an impairment loss is deemednecessary, the carrying amount is reduced to therecoverable amount, and the resulting decrease in
the carrying amount is measured as an impairment
loss.

recognized as a result of acquiring SDMC as aconsolidated subsidiary included the following:(1) Internal control testing
We tested the design and operating effectivenessof certain of the Company’s internal controls
relevant to judging whether there was an
impairment indicator for intangible fixed assets
including goodwill. In this assessment, we
focused our testing on whether internal controls
have been established and operate to examine thereliability of the business plans used for
determining whether an impairment indicator
exists.
(2) Assessment of the appropriateness of thejudgment concerning the identification of an
impairment indicator
In order to assess the appropriateness of theCompany’s judgment as to whether there was an
impairment indicator for the Asset Group
Including Goodwill, we inquired of management
and the personnel responsible for the respective
businesses. In addition, we:inspected the minutes of the board of
directors and the documents for
management meetings to understand
SDMC’s business environment;assessed the precision of management’s
estimates by analyzing the original
business plan developed when SDMC
became a consolidated subsidiary
including the causes of variances withactual results; and

assessed the consistency of the sales
increase of the asset groups considered as
key assumptions in the business plans
with the growth forecast data publishedby external organizations for the key
markets to which the asset groups
belong.

The Company assessed the business results of theAsset Group Including Goodwill through thisfiscal year and examined the business plans forthe subsequent fiscal years, considering whether

39Report of Independent Certified Public Accountants

the aforementioned events had occurred or are
expected to occur. As a result, the Company
determined that there was no impairment indicator
for this fiscal year.
Key assumptions, such as sales increase
associated with growth of the markets related to
the Asset Group Including Goodwill, were
included in the business plans used by theCompany for assessing whether an impairment
indicator existed and involved uncertainty as
management’s significant judgment was required.
We, therefore, determined that our assessment of
the appropriateness of the judgment concerning
the identification of an impairment indicator for
intangible fixed assets including goodwill
recognized as a result of acquiring SDMC as aconsolidated subsidiary was the most significant
in our audit of the consolidated financial
statements for this fiscal year, and accordingly, a
key audit matter.

Responsibilities of Management and Corporate Auditors and the Audit and Supervisory Boardfor the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Corporate auditors and the Audit and Supervisory board are responsible for overseeing the directors’
performance of their duties with regard to the design, implementation and maintenance of the Group’s
financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.

40

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.



Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with corporate auditors and the Audit and Supervisory board regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the Audit and Supervisory board with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.
From the matters communicated with corporate auditors and the Audit and Supervisory board, we
determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended December 31, 2021 are presented solely for convenience. Our audit also included the translationof yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the41

Report of Independent Certified Public Accountants

basis described in Note 6 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

Michitaka Shishido
Designated Engagement Partner
Certified Public Accountant

Noriaki Sakurai
Designated Engagement Partner
Certified Public Accountant

Daio Aida
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Tokyo Office, Japan
April 12, 2022
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

42

SHOWA DENKO K.K.

FINANCIAL REPORT 2021

Corporate Data
Investor Information
Head Office
Showa Denko K.K.

Number of Shares Outstanding
184,901,292 as of December 31, 2021

13-9, Shiba Daimon 1-chome, Minato-ku, Tokyo 105-8518, Japan
URL: https://www.sdk.co.jp/english
Phone: +81-3-5470-3235
E-mail: sdk_prir@showadenko.com

Number of Shareholders
88,110 as of December 31, 2021

Classification of Stock

Ordinary General Meeting

All stock issued by Showa Denko is common stock.

The Ordinary General Meeting of Shareholders was held on
March 30, 2022.

Shareholders (Top 10) 

Stock Transfer Agent(As of December 31, 2021)

Mizuho Trust & Banking Co., Ltd.
3-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8241, Japan

Rate of
Number of
Shares Held Shareholding(%)(in thousands)

Shareholder

The Master Trust Bank of Japan Ltd. (T)26,121

14.40

Custody Bank of Japan, Ltd. (T)

8,757

4.83

KOREA SECURITIES DEPOSITORY - SAMSUNG

7,017

3.87

Fukoku Mutual Life Insurance Company

4,517

2.49

STATE STREET BANK CLIENT OMNIBUS OM04

3,834

2.11

JAPAN SECURITIES FINANCE CO., LTD.

3,200

1.76

SMBC Nikko Securities Inc.

2,807

1.55

BNYM AS AGT/CLTS NON TREATY JASDEC

2,805

1.55

The Dai-ichi Life Insurance Company Limited

2,700

1.49

Meiji Yasuda Life Insurance Company

2,512

1.39

Shareholders by Sector (As of December 31, 2021)

Japanese corporate
entities

Treasury shares
3,553 thousand

1.92%

6,204 thousand

3.36%

Security
firms

Overseas
corporate
entities, etc.
57,513 thousand

31.10%

Note: ‌Each rate of shareholding was calculated after deducting the number oftreasury shares (3,553 thousand) from the number of shares outstanding.

13,879 thousand

7.51%
Total numberof shares held

184,901
thousandIndividuals

Financial

38,711 thousand

65,041 thousand

35.18%

20.94%

Stock Price and Trading Volume
Stock price (JPY)
5,000

2,500
Volume(shares)
120,000,000

60,000,000

2019
Jan

2019
Apr

2019
Jul

2019
Oct

2020
Jan

2020
Apr

2020
Jul

2020
Oct

2021
Jan

2021
Apr

2021
Jul

2021
Oct

0

43

SHOWA DENKO K.K.
13-9, Shiba Daimon 1-chome,
Minato-ku, Tokyo 105-8518, Japan
https://www.sdk.co.jp/english