HORIBA Report 2018
Financial Section
Consolidated Financial Review
Consolidated Financial Statements for
the Year Ended December 31, 2018, andIndependent Auditor’s Report

1

HORIBA, Ltd. (Consolidated)

HORIBA, Ltd. And Consolidated Subsidiaries | Consolidated Financial Review
With regard to the measurement and analysis equipment industry,In the Medical-Diagnostic Instruments & Systems segment, wein the automotive field, new regulations were introduced inacquired a micro-blood analysis system business from ROHM Co.,

Europe in 2017 and in Japan in 2018. In addition, China and India

Ltd. and expanded the product line-up.

are planning to implement new emission gas regulations in the

In the Semiconductor Instruments & Systems segment, HORIBA

future. The introduction of these regulations has led to the

STEC, Co., Ltd.’s Aso Factory went into full-scale operation

increasing complication of engine control, significant progress ofafter capacity expansion aimed at responding to an increase in

vehicle electrification and rising expectations for next-generation

demand for semiconductor production equipment and enhanced

mobility as exemplified by autonomous driving technology. Under

the stable supply system for mass flow controllers, one of thethese circumstances, automakers and related institutions havesegment’s major products. In addition, the global R&D network

become more active in their capital expenditure and R&D

has been enhanced by the opening of HORIBA Reno Technology

investment.

Center, an R&D site for the semiconductor field of HORIBAIn the semiconductor field, demand for semiconductors, such as

Instruments Incorporated (U.S.).

memory stemming from the increasing data processed in data

In the Scientific Instruments & Systems segment, HORIBA

centers and the spread of AI and IoT, increased significantly. This

Instruments Incorporated (U.S.) opened HORIBA New Jersey

had led investment by semiconductor manufacturers to remain at

Optical Spectroscopy Center, which will be a new key location fora high level in 2017 as well as in the first half of 2018. However,its spectroscopy technologies, in order to enhance development

starting in the second half of 2018, investment for memory felland production capacity.

into a temporary correction phase.

Furthermore, on January 1, 2018, we started the new

In the environmental field, demand for process & environmental

management team, with the intention to strengthen group

instruments and systems was robust on the back of tighter

management, clarify the group management structure and further

environmental regulations in China, India, and Southeast Asia.

enhance HORIBA’s technology and development capabilities.

The annual average exchange rates for 2018 were 110.44 yen

Specifically, we made personnel changes to the representative

against the U.S. dollar and 130.35 yen against the euro,

directors with Atsushi Horiba as Chairman & Group CEO, Juichi

representing year-on-year appreciation of 1.6% against the U.S.

Saito as Executive Vice Chairman & Group COO and Dr.

dollar and depreciation of 2.8% against the euro.

Masayuki Adachi as President & COO.

Under

such

business

environment,

HORIBA,

Ltd.

(“the

Also, in order to strengthen the water measurement business,

Company”) and its consolidated subsidiaries (together “thewhich has been promoted as one of the priority initiatives in the

HORIBA Group” or “HORIBA” as a consolidated group)

Company’s Mid-Long Term Management Plan “MLMAP2020,”

implemented the following measures to strengthen each segment

HORIBA

in fiscal 2018.

HORIBA’s dispersed development and production resources ofIn the Automotive Test Systems segment, we acquired FuelCon

the water measurement business in 2017, strived to grow its

AG (Germany), a German developer of fuel cell and battery test

business and to globally strengthen its brand power.

systems for electric vehicles, and expanded business domains

In addition, with the aim at accelerating business growth andrelated to next-generation mobility technologies. In addition,

improving asset efficiency at the same time, HORIBA’s

HORIBA BIWAKO E-HARBOR, the Biwako factory in Japan

management indices to measure asset efficiency named

which began full operation in 2016, strived to further raise its“HORIBA Premium Value” were fully introduced and have been

productive efficiency and addressed the growing demand driven

implemented by all Group companies.

by new emission gas regulations.

Due to those measures and as a result of sales efforts, HORIBAIn the Process & Environmental Instruments & Systems segment,

increased net sales of 210,570 million yen (up 7.8% y-o-y),

we worked on strengthening local capability in China and India

operating income of 28,838 million yen (up 7.5%) and net income

with the aim of enhancing competitiveness in the rapidly growing

attributable to owners of parent of 22,313 million yen (up 37.0%).

Advanced

Techno,Co., Ltd., which integrated

Asian market. We also launched “HAKARU (Measuring)
EXpress,” a new business in water quality management, andworked on expanding the business domain to include sales ofdata, in addition to existing sales of hardware.

2

HORIBA, Ltd. (Consolidated)economic conditions or product supply and demand, sudden
Financial Positionchanges in retail prices due to competition, changes in laws,

As of December 31, 2018, total consolidated assets wereregulations and tax systems and social disruptions such as¥278,136 million, up ¥12,216 million from December 31, 2017.

terrorism and war. These risks could affect HORIBA’s financial

While the amount of assets was compressed in yen terms due toposition and business results.

the appreciation of the yen, an increase in inventories driven by

To protect against fluctuations in foreign currency exchange

higher backlog and other factors resulted in the increase in total

rates, HORIBA promotes local production and supply. HORIBA

assets.

also employs foreign exchange forward contracts within the limitsof its transaction amounts of foreign currency denominatedTotal consolidated liabilities increased by ¥1,063 million from thereceivables and payables to import and export transactions toprevious year to ¥116,117 million.

minimize foreign exchange risks. However, fluctuations in foreignexchange rates could still have an impact when financial

Total consolidated net assets amounted to ¥162,018 million, up

statements prepared in local currencies are translated into

¥11,152 million from December 31, 2017, due mainly to an

Japanese yen for the consolidated financial statements, and a

increase in retained earnings despite a decrease in foreign

major change in foreign exchange rates beyond our estimatescurrency translation adjustments resulting mainly from the

could affect our financial condition and business performance.

appreciation of the yen.
(2) Changes in Performance or Financial Position AssociatedCash Flows

with Acquisitions and Alliances(Cash Flow from Operating Activities)

HORIBA has actively promoted corporate acquisitions andNet cash provided by operating activities amounted to \19,536

alliances to enhance the efficiency and effectiveness of its

million, compared with \28,287 million provided in the previous

business operations. HORIBA conducts complete and diligent

year. Posting of income before income tax and other factors

investigations when making acquisitions and forming alliances incontributed to this amount.

order to avoid any negative impact on earnings and cash flows.
However, it is possible that HORIBA’s financial condition and(Cash Flow from Investing Activities)business performance could be affected if an acquisition or

Net cash used in investing activities amounted to ¥11,029 million,

alliance did not proceed in accordance with initial plans.

compared with ¥13,167 million used in the previous year, due
mainly to payments for purchases of property, plant, and(3) Repair of Facilities Following Natural Disasters andequipment in Japan, Europe and the Americas.

Associated Delays in Delivery, etc.
The HORIBA Group's manufacturing bases are located in diverse(Cash Flow from Financing Activities)

areas, including Japan (Kyoto, Shiga and Kumamoto Prefectures),

Net cash used in financing activities amounted to ¥3,240 million,

Europe (France, Germany and the Czech Republic), the Americas

compared with ¥9,044 million used in the previous year. This was（the U.S. and Brazil） and Asia (China, South Korea and India).

mainly attributable to cash dividends paid.

However, it is possible that HORIBA’s financial condition andbusiness performance could be affected in the case of a major

As a result, there was a net increase of \4,503 million in cash andearthquake

cash equivalents to \62,837 million as of December 31, 2018.

manufacturing facilities could be damaged and require expensive

or

other

naturaldisasters,as

HORIBA’s

repairs or an interruption to HORIBA’s supply chain could affect
Major Risks

HORIBA’s production and/or distribution.

1. Business Risks(1) Risks Associated with International Business Activities(4) Risks Associated with Contracts and Transactions

HORIBA conducts business activities in many countries around

HORIBA enters into various contracts with customers, suppliers

the world, including countries in the Americas, Europe, and Asia.

and other stakeholders and conducts its business activities in

Major risks associated with the entry into these overseas

accordance with on these contracts. Nevertheless, there is amarkets and conducting business there include sudden shifts inpossibility of claims for damages arising from different views of3

HORIBA, Ltd. (Consolidated)between parties. It is possible that such circumstances could

manage this risk when it is deemed necessary. However, it may

result in HORIBA facing a claim for compensation.

require some time for an increase in purchasing prices to bepassed on and reflected in selling prices. Such circumstances(5) Other Business Risks

could significantly affect HORIBA’s financial condition and

In addition to the above-mentioned risks, other risks include abusiness performance.

risk of breakdown or malfunction of information systems, threats
related to information security and risks associated with laws and3. Financial Risks

regulations imposed on businesses. HORIBA is taking preventive(1) Impairment Loss on Securities

measures against these risks, but they could affect HORIBA’s

Based on an overall consideration of business strategy,

financial position and business results.

enhancementofrelationswithbusiness

partnersandmaintenance of good relationship with communities, HORIBA
2. Risks Associated with Development and Production

holds securities in order to raise its medium- to long-term(1) Compensation for Product Liability

corporate value. Each year, HORIBA’s Board of Directors

HORIBA conducts optimum quality control for its products andreviews and evaluates its investments by comprehensively taking

services and strives to maintain the highest standards ofinto account the investment amount, potential gains associatedreliability. Nevertheless, there is always the possibility of recallswith the holding of securities and other factors. If the market

or litigation arising from unforeseen defects. HORIBA carries

value of securities held by HORIBA declines, there is a possibility

insurance for product liability, but there can be no guarantee thatthat an impairment loss on the relevant securities will bethis insurance would cover the full amount of any unforeseenrecorded and that HORIBA’s financial condition and businessdamages. Such circumstances could affect HORIBA’s financial

performance will be negatively affected.

condition and business performance.
(2) Impairment Loss on Fixed Assets(2) Delays in Development of New Products

If the market value of land, buildings, or other assets held by

The measuring instruments business in which HORIBA operates

HORIBA declined significantly or segment losses were generated

is extremely specialized and requires high levels of technicalfor two consecutive fiscal years in the future, there would be acapability. HORIBA, therefore, invests large sums in productpossibility that an impairment loss would be recorded and thatdevelopment. However, it is possible that expected returns on

HORIBA’s financial condition and business performance would

this investment will not be realized due to unforeseenbe negatively affected.

circumstances.
(3) Recoverability of Deferred Tax Assets and International Tax(3) Risks Concerning Intellectual Property Rights

Risk

HORIBA possesses a wide range of intellectual property rights

HORIBA records deferred tax assets against temporary

related to the products it manufactures, including patents,

differences due to future losses and loss carryforwards for tax

trademarks and expertise, which give it superiority in terms of

purposes based on rational forecasts of future income taxes andcompetitiveness.

cautionits judgments of their recoverability. HORIBA reviews its

regarding the management and protection of these intellectual

HORIBA

exercisesallpossibleassumptions on future income taxes based on such factors as

property rights. However, in the case of infringement by a thirdchanges in the management environment. A resulting decision

party, it is possible that HORIBA will be unable to attain its

that some or all of these deferred tax assets were unrecoverable

expected earnings. There is also a possibility of disputes overand that the writing down of deferred tax assets was necessary

intellectual property rights with other companies.

Such

could have a material impact on the HORIBA’s financial

disputes could significantly affect HORIBA’s financial condition

condition and business performance. Although HORIBA pays

and business performance.

close attention to applicable international tax risks, such astransfer pricing taxation in each country, there is a possibility of(4) Risks Associated with Fluctuations in Raw Material Prices

additional taxation due to a discrepancy in opinion with a tax

HORIBA takes into account the risk of fluctuations in purchasing

authority.

prices and makes arrangements such as advance purchasing to4

HORIBA, Ltd. (Consolidated)

Consolidated Balance Sheets
HORIBA, Ltd. and Consolidated Subsidiaries
For the years ended December 31, 2017 and December 31, 2018

Millions of yen
12/2017
12/2018ASSETS
Current assets:
Cash and cash equivalents...................................................................................................................................
Trade notes and accounts receivable (Note 4)
Affiliated companies..................................................................................................................................
Other................................................................................................................................................................
Allowance for doubtful receivables...................................................................................................................
Marketable securities (Note 4 and 5)...............................................................................................................
Inventories (Note 6)................................................................................................................................................
Deferred tax assets (Note 14)............................................................................................................................
Other current assets..............................................................................................................................................
Total current assets..................................................................................................................................
Property, plant and equipment (Note 17):
Land (Note 7).............................................................................................................................................................
Buildings and structures........................................................................................................................................
Machinery, equipment and vehicles (Note 7)................................................................................................
Construction in progress.......................................................................................................................................
Other property, plant and equipment...............................................................................................................
Total.................................................................................................................................................................
Accumulated depreciation....................................................................................................................................
Net property, plant and equipment.....................................................................................................
Investments and other noncurrent assets:
Investment securities (Note 4 and 5)..............................................................................................................
Investments in nonconsolidated subsidiaries and affiliates....................................................................
Deferred tax assets (Note 14)............................................................................................................................
Allowance for doubtful accounts.......................................................................................................................
Other investments and other assets...............................................................................................................
Total investments and other noncurrent assets:..........................................................................
Intangibles:
Goodwill (Note 17)....................................................................................................................................................
Software.......................................................................................................................................................................
Other intangibles.......................................................................................................................................................
Total intangibles..........................................................................................................................................
Total assets.............................................................................................................................................................................

Thousands of
U.S. dollars(Note 1)
12/2018¥58,333¥62,837$566,09912
60,140(788)
1,400
45,573
4,331
8,485
177,48724
59,087(682)
1,899
55,1394,312
9,586
192,203

216
532,315(6,144)
17,108496,747
38,84686,3601,731,558

13,73654,52824,166
3,468
16,208112,109(43,408)
68,701

13,69255,89424,784
3,018
17,729115,118(46,379)
68,739123,351
503,549
223,279
27,189159,720
1,037,099(417,828)
619,270

10,955
45
1,549
(77)
2,861
15,334

8,314
44
1,092
(76)
2,917
12,29274,900
396
9,837
(684)
26,279110,738

194
3,298
904
4,397
¥265,920

901
2,907
1,092
4,901
¥278,136

8,117
26,1899,837
44,153$2,505,729¥7,773718¥10,458
1,735$94,216
15,63091
23,18014,8886,277
13,519
61
1,464
63
1,932
49
4,357
74,378101
21,832
15,9203,514
17,475
1
1,265
2,012
3,681
77,999909
196,684
143,423
31,657
157,432
9
11,39618,12633,162
702,693

34,005
2,036
2,145
640
1,848
40,675
115,054

32,322
950
1,946
640
2,258
38,118116,117

291,189
8,558
17,531
5,765
20,342
343,405
1,046,099

12,011

12,011

108,20718,717
115,345(1,488)144,585

18,717
132,329(1,428)
161,630

168,621
1,192,153(12,864)
1,456,126

4,636
1,151
(90)
5,697
492
90
150,866¥265,920

2,788(2)(2,829)
(224)
(267)
549
106
162,018¥278,136

25,117(18)(25,486)(2,018)(2,405)
4,945
954
1,459,621$2,505,729

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term loans (Note 4 and 7).......................................................................................................................
Current portion of long-term debt (Note 4 and 7).....................................................................................
Trade notes and accounts payable (Note 4)
Affiliated companies..................................................................................................................................
Other................................................................................................................................................................
Accounts payable - other (Note 4)..................................................................................................................
Accrued income taxes (Note 4).........................................................................................................................
Advances received...................................................................................................................................................
Deferred tax liabilities (Note 14)........................................................................................................................
Accrued bonuses to employees.........................................................................................................................
Accrued bonuses to directors and corporate auditors............................................................................
Reserve for product warranty.............................................................................................................................
Provision for loss on disaster ............................................................................................................................
Other current liabilities..........................................................................................................................................
Total current liabilities..............................................................................................................................
Long-term liabilities:
Long-term debt (Note 4 and 7) ........................................................................................................................
Deferred tax liabilities (Note 14)........................................................................................................................
Net defined benefit liability (Note 8)................................................................................................................
Provision for loss on dissolution of the employees’pension fund (Note 8).....................................
Other noncurrent liabilities...................................................................................................................................
Total long-term liabilities........................................................................................................................
Total liabilities..............................................................................................................................................
Contingent liabilities (Note 12)
Net assets (Note 9):
Shareholders' equity:
Common stock...........................................................................................................................................................
Authorized - 100,000,000 shares
Issued and outstanding - 42,155,029 shares (excluding treasury stock) at 12/2017
Issued and outstanding - 42,170,448 shares (excluding treasury stock) at 12/2018
Capital surplus...........................................................................................................................................................
Retained earnings.....................................................................................................................................................
Treasury stock - 377,723 shares at 12/2017 and 362,304 shares at 12/2018...........................
Total shareholders' equity......................................................................................................................
Accumulated other comprehensive income:Net unrealized gains or losses on available-for-sale securities...........................................................
Deferred gains or losses on hedges.................................................................................................................
Foreign currency translation adjustments.....................................................................................................
Remeasurements of defined benefit plans (Note 8)..................................................................................
Total accumulated other comprehensive income.........................................................................
Subscription rights to shares (Note 10)......................................................................................................................
Non-controlling interests..................................................................................................................................................
Total net assets..........................................................................................................................................
Total liabilities and net assets.........................................................................................................................................
See the notes to the consolidated financial statements.

5

HORIBA, Ltd. (Consolidated)

Consolidated Statements of Income
HORIBA, Ltd. and Consolidated Subsidiaries
For the years ended December 31, 2017 and December 31, 2018

Millions of yen
12/2017
12/2018

Thousands of
U.S. dollars(Note 1)
12/2018

Net sales (Note 17).......................................................................................................................................................................

¥195,399¥210,570$1,897,027

Operating costs and expenses (Note 17):
Cost of sales........................................................................................................................................................................
Selling, general and administrative expenses.........................................................................................................
Total operating costs and expenses............................................................................................................

112,10756,457
168,565

120,630
61,100181,731

1,086,756
550,450
1,637,216

Operating income (Note 17).......................................................................................................................................................

26,834

28,838259,801

Other income (expenses):
Interest and dividend income........................................................................................................................................
Interest expense.................................................................................................................................................................
Foreign exchange gains (losses), net.........................................................................................................................
Gain on sales of property, plant and equipment...................................................................................................
Loss on sales of property, plant and equipment...................................................................................................
Loss on disposal of property, plant and equipment.............................................................................................
Subsidy income...................................................................................................................................................................
Gain on sales of investment securities (Note 5)..................................................................................................
Gain on transfer of business.........................................................................................................................................
Gain on bargain purchase...............................................................................................................................................
Impairment loss (Note 15 and 17)...............................................................................................................................
Loss on valuation of investment securities (Note 5)..........................................................................................
Reversal of provision for loss on dissolution of the employees' pension fund........................................
Other, net..............................................................................................................................................................................
Total other income (expenses), net.............................................................................................................

280
(428)
(296)
58
(2)
(199)
81
0
(2,526)(9)455
138(2,448)

323
(440)
(473)
537
(22)
(76)
11
0
115
48
56
79

2,909
(3,963)(4,261)
4,837
(198)
(684)
99
0
1,036
432
504
711

Income before income taxes.....................................................................................................................................................

24,38528,917

260,513

Income taxes (Note 14):
Current...................................................................................................................................................................................
Deferred.................................................................................................................................................................................
Total income taxes..............................................................................................................................................

7,647
439
8,086

6,375
203
6,579

57,432
1,828
59,270Net income........................................................................................................................................................................................

16,29822,338201,243

Profit attributable to non-controlling interests.................................................................................................................

16

24

216

Net income attributable to owners of parent.....................................................................................................................

¥16,281¥22,313$201,018

Yen
12/2017
Per share information:
Net income - basic...........................................................................................................................................................
Net income - diluted........................................................................................................................................................
Cash dividends....................................................................................................................................................................

¥386.30
384.67116.0012/2018

U.S. dollars(Note 1)
12/2018¥529.24526.98145.00

$4.76
4.74
1.30

Millions of yen
12/2017
12/2018¥16,298¥22,338

Thousands of
U.S. dollars(Note 1)
12/2018$201,243

Consolidated Statements of Comprehensive Income
HORIBA, Ltd. and Consolidated Subsidiaries
For the years ended December 31, 2017 and December 31, 2018

Net income........................................................................................................................................................................................
Other comprehensive income (Note 16)
Net unrealized gains or losses on available-for-sale securities....................................................................
Deferred gains or losses on hedges...........................................................................................................................
Foreign currency translation adjustments...............................................................................................................
Remeasurements of defined benefit plans..............................................................................................................
Total other comprehensive income............................................................................................................................
Comprehensive income................................................................................................................................................................
(Breakdown of comprehensive income)Comprehensive income attributable to owners of parent................................................................................
Comprehensive income attributable to non-controlling interests................................................................

1,708
3,452
130
5,291
¥21,589(1,848)(2)(3,989)(133)(5,973)¥16,364(16,648)(18)(35,936)(1,198)(53,810)$147,423¥21,570
19¥16,348
16$147,279
144

See the notes to the consolidated financial statements.

6

HORIBA, Ltd. (Consolidated)

Consolidated Statements of Changes in Net Assets
HORIBA, Ltd. and Consolidated Subsidiaries
For the years ended December 31, 2017 and December 31, 2018
Millions of yen
Shareholders' equity

Balance at the beginning of fiscal 2017.........

Common stock

Capital surplus¥12,011¥18,717

Cash dividends....................................................
Net income attributable toowners of parents.............................................
Purchase of treasury stock..........................
Disposal of treasury stock............................
Net changes in items other thanshareholders’ equity.......................................
Balance at the end of fiscal 2017....................

¥12,011

Balance at the beginning of fiscal 2018.......

¥12,011¥12,011¥103,104

Treasury stock

Net unrealized
gains or losses
on availablefor-salesecurities

Deferred gains
or losses onhedges(¥1,588)¥2,928-Foreigncurrencytranslation
adjustments(¥2,297)

RemeasureSubscription
Non-controllingments ofinterests
defined benefit rights to shares
plans(¥221)¥466¥71

Net assets,
total¥133,191(4,003)(4,003)

16,281

16,281
(0)

(0)

(37)

99

62
1,708

-

3,449

130

26

19

5,334

¥18,717¥115,345(¥1,488)¥4,636-¥1,151

(¥90)

¥492

¥90

¥150,866¥18,717¥115,345(¥1,488)¥4,636-¥1,151

(¥90)

¥492

¥90

¥150,866

Cash dividends....................................................
Net income attributable toowners of parents.............................................
Purchase of treasury stock..........................
Disposal of treasury stock............................
Net changes in items other thanshareholders’ equity.......................................
Balance at the end of fiscal 2018..................

Retainedearnings

Accumulated other comprehensive income¥18,717(5,311)(5,311)

22,31322,313
(0)

(0)

(17)

61

43

¥132,329(¥1,428)(1,848)(2)(3,980)

(133)

56

16

(5,892)¥2,788(¥2)(¥2,829)(¥224)¥549¥106¥162,018

RemeasureSubscription
Non-controllingments ofinterests
defined benefit rights to sharesplans

Net assets,
total

Thousands of U.S. dollars (Note 1)
Shareholders' equity

Balance at the beginning of fiscal 2018.......

Common stock

Capital surplus

Retainedearnings

Treasury stock$108,207$168,621$1,039,144($13,405)$41,765

Cash dividends....................................................
Net income attributable toowners of parents.............................................
Purchase of treasury stock..........................
Disposal of treasury stock............................
Net changes in items other thanshareholders’ equity.......................................
Balance at the end of fiscal 2018..................

Accumulated other comprehensive income
Net unrealized
gains or losses
on availablefor-salesecurities$108,207$168,621

Deferred gains
or losses onhedgesForeigncurrencytranslation
adjustments-$10,369($810)$4,432$810 $1,359,153(47,846)(47,846)

201,018

201,018
(0)

(0)

(153)

549

387

$1,192,153($12,864)(16,648)(18)(35,855)(1,198)504$25,117($18)($25,486)($2,018)$4,945

144(53,081)$954 $1,459,621

See the notes to the consolidated financial statements.

7

HORIBA, Ltd. (Consolidated)

Consolidated Statements of Cash Flows
HORIBA, Ltd. and Consolidated Subsidiaries
For the years ended December 31, 2017 and December 31, 2018

Millions of yen
2017.122018.12

Thousands of
U.S. dollars(Note 1)
12/2018

Cash flows from operating activities:
Income before income taxes.......................................................................................................................................................................................
Depreciation and amortization....................................................................................................................................................................................
Impairment loss.................................................................................................................................................................................................................
Increase (decrease) in allowance for doubtful receivables............................................................................................................................
Increase (decrease) in net defined benefit liability............................................................................................................................................
Increase (decrease) in provision for loss on dissolution of the employees' pension fund................................................................
Interest and dividend income......................................................................................................................................................................................
Interest expense...............................................................................................................................................................................................................
Foreign exchange losses (gains)................................................................................................................................................................................
Loss (gain) on sales of property, plant and equipment....................................................................................................................................
Loss on disposal of property, plant and equipment...........................................................................................................................................
Loss on valuation of investment securities..........................................................................................................................................................
Decrease (increase) in trade notes and accounts receivable.......................................................................................................................
Decrease (increase) in inventories...........................................................................................................................................................................
Increase (decrease) in trade notes and accounts payable............................................................................................................................
Other, net............................................................................................................................................................................................................................
Subtotal.....................................................................................................................................................................................................................
Interest and dividends received.................................................................................................................................................................................
Interest paid.......................................................................................................................................................................................................................
Income taxes (paid) refund..........................................................................................................................................................................................
Net cash provided by (used in) operating activities...............................................................................................................................

¥24,385
7,534
2,526
(75)
(190)
(607)
(280)
428
79
(56)
199
9
(4,514)(3,633)2,588
3,601
31,996279(466)(3,521)28,287¥28,917
7,240
(69)
(83)
(323)
440
167
(514)
76
(862)
(10,368)
(596)
4,976
29,001305(439)(9,331)
19,536$260,513
65,225(621)(747)(2,909)3,963
1,504(4,630)684(7,765)(93,405)(5,369)44,828261,270
2,747(3,954)(84,063)
176,000

Cash flows from investing activities:
Increase in time deposits..............................................................................................................................................................................................
Decrease in time deposits............................................................................................................................................................................................
Decrease in time deposits restricted for use......................................................................................................................................................
Payments for purchase of marketable securities...............................................................................................................................................
Proceeds from sales or redemption of marketable securities......................................................................................................................
Payments for purchase of property, plant and equipment.............................................................................................................................
Proceeds from sales of property, plant and equipment...................................................................................................................................
Payments for purchase of intangibles...................................................................................................................................................................
Payments for purchase of investment securities..............................................................................................................................................
Proceeds from sales or redemption of investment securities......................................................................................................................
Other, net............................................................................................................................................................................................................................
Net cash provided by (used in) investing activities................................................................................................................................

(1,197)1,395
32(1,901)
701(11,664)
266
(354)
(22)
3
(427)
(13,167)(1,403)1,202
32(2,200)1,701(9,667)
1,420
(611)
(24)
0
(1,481)(11,029)(12,639)
10,828288(19,819)
15,324(87,090)
12,792(5,504)(216)
0(13,342)(99,360)

Cash flows from financing activities:
Net increase (decrease) in short-term borrowings...........................................................................................................................................
Repayments of long-term debt..................................................................................................................................................................................
Repayments on finance lease obligations..............................................................................................................................................................
Net decrease (increase) of treasury stock...........................................................................................................................................................
Cash dividends paid........................................................................................................................................................................................................
Net cash provided by (used in) financing activities................................................................................................................................

(3,839)(1,039)(163)(0)(4,002)(9,044)

2,792
(541)
(181)
(0)
(5,309)(3,240)25,153(4,873)(1,630)(0)(47,828)(29,189)

Effect of exchange rate changes on cash and cash equivalents........................................................................................................................................
Net increase (decrease) in cash and cash equivalents..........................................................................................................................................................
Cash and cash equivalents at beginning of year.......................................................................................................................................................................
Cash and cash equivalents at end of year...................................................................................................................................................................................

317
6,393
51,940¥58,333

(762)
4,503
58,333¥62,837(6,864)40,567525,522$566,099

See the notes to the consolidated financial statements.

8

HORIBA, Ltd. (Consolidated)1. Basis of presenting consolidated financial statements

Company has control through majority voting rights or certain other

The accompanying consolidated financial statements of HORIBA, Ltd.

conditions evidencing control by the Company. Significant intercompany(“the Company”) have been prepared in accordance with the provisions

transactions and accounts have been eliminated in consolidation. In theset forth in the Japanese Financial Instruments and Exchange Law andelimination of investments in subsidiaries, the assets and liabilities of theits related accounting regulations and in conformity with accounting

subsidiaries, including the portions attributable to non-controlling

principles generally accepted in Japan (“Japanese GAAP”), which areshareholders, are evaluated using the fair value at the time the Company

different in certain respects as to application and disclosureacquired control of the respective subsidiary. Acquisition costs that are

requirements from International Financial Reporting Standards. The

in excess of the net assets of acquired subsidiaries and affiliates andaccounts of the consolidated overseas subsidiaries have been preparedcannot be assigned to specific individual accounts are amortized on ain accordance with either International Financial Reporting Standards

straight-line basis over five years.

(“IFRS”) or U.S. generally accepted accounting principles (“USGAAP”),

December 31 is the year-end of the consolidated subsidiaries and that ofwith adjustments for the four specified items as applicable. The

the consolidated financial statements for fiscal 2017 and fiscal 2018.

accompanying consolidated financial statements have been restructured

Two of the Company’s subsidiaries are not included in the consolidated

and translated into English, with some expanded descriptions, from theaccounts as the effect of its inclusion on total assets, sales, income andconsolidated financial statements of the Company prepared inretained earnings would have been immaterial.

accordance with Japanese GAAP and filed with the appropriate Local

The Company had one affiliated company in fiscal 2018 (one in fiscal

Finance Bureau of the Ministry of Finance as required by the Japanese2017). For the one affiliated company, the equity method was applied.

Financial Instruments and Exchange Law. Some supplementary(b) Cash and cash equivalents

information included in the statutory Japanese language consolidated

Cash and cash equivalents include cash on hand, readily available bankfinancial statements, but not required for fair presentation, is notdeposits and short-term highly liquid investments that are readilypresented in the accompanying consolidated financial statements.

convertible into cash, have insignificant risk of change in value and have

Yen amounts are rounded down to the nearest million. Therefore, total or

original maturities of three months or less from date of purchase.

subtotal amounts do not necessarily correspond with the aggregate of(c) Securities

the account balances.

Available-for-sale securities with available fair market values are stated

The translation of the Japanese yen amounts into U.S. dollar amounts is

at fair market value. Unrealized gains and losses on these securities areincluded solely for the convenience of readers outside Japan, using thereported, net of applicable income taxes, as a separate component of net

prevailing exchange rate at December 31, 2018, which was \111.00 to

assets. Realized gains and losses on the sale of such securities are

U.S. $1.00. The translations should not be construed as representations

computed using moving average cost. Available-for-sale securities withthat the Japanese yen amounts have been, could have been or could in

no available fair market value are stated mainly at moving average cost.

the future be converted into U.S. dollars at this or any other rate of(d) Inventories

exchange. The U.S. dollars amounts are then rounded down to theInventories are stated at the lower of average cost or net realizable value.

nearest thousand.

Cost is determined principally by the weighted average method for

Certain prior year amounts have been reclassified to conform to themerchandise, finished goods and work-in-process and by the moving

current year's presentation.

average method for raw materials and supplies.

2. Summary of significant accounting policies

Property, plant and equipment are stated at cost. Depreciation is(a) Principles of consolidation

computed by the straight-line method over the estimated useful life of

The consolidated financial statements include the accounts of thethe asset. The estimated useful lives of buildings and structures range

Company and 48 (47 in fiscal 2017) of its subsidiaries (“HORIBA” as afrom 3 to 60 years and those of machinery, equipment and vehicles fromconsolidated group). From fiscal 2018, stock purchased HORIBA

2 to 20 years.

FuelCon GmbH (Germany) and newly established HORIBA Technology(f) Goodwill（Suzhou） CO., LTD. (China) have been included in the scope ofGoodwill, which represents the excess of the purchase price over the fairconsolidation. In addition, HORIBA Europe Automation Division GmbHvalue of the net assets acquired, is amortized on a straight-line basis(Germany) was merged into HORIBA Europe GmbH (Germany).

over a period of five years.

The accompanying consolidated financial statements include the(g) Intangibles

accounts of the Company and significant companies over which theAmortization of intangibles is computed by the straight-line method.

(e) Property, plant and equipment and depreciation (except for leases)

9

HORIBA, Ltd. (Consolidated)Computer software used by HORIBA is amortized over the estimatedpercentage of completion method when the progress of the construction

useful life of 3 to 10 years.

up to the end of the year was deemed to be certain (estimates of the(h) Leases

ratio of completion of construction work are based on the cost-to-cost

With regard to leased assets under finance leases other than those thatmethod). In the case of other construction, sales and costs wereare deemed to transfer ownership of the leased property to the lessee,

recorded using the completed contract method.

the lease term is deemed to be the useful life, and depreciation is(o) Foreign currency translation

computed by the straight-line method over the lease term with zero

Short-term and long-term receivables and payables in foreign currencies

residual value.

are translated into Japanese yen based on exchange rates at the(i) Allowance for doubtful receivables

balance sheet date.

The Company and its domestic subsidiaries provide for doubtful

Balance sheet accounts of consolidated foreign subsidiaries areaccounts principally at an amount computed based on the actual ratio oftranslated into Japanese yen at the balance sheet date, except forbad debts in the past plus the estimated uncollectible amounts of certain

shareholders’ equity accounts, which are translated at historical rates.

individual receivables. The overseas subsidiaries provide for doubtful

Revenue and expense accounts of consolidated foreign subsidiaries areaccounts based on estimates made by management.

translated into Japanese yen at average annual exchange rates.

(j) Accrued bonuses to employees

Differences arising from the application of this process are presented

Accrued bonuses to employees are provided for the expected payment

separately in the consolidated financial statements in “Foreign currencyof employee bonuses to those employees employed at the end of thetranslation adjustments” and “Non-controlling interests” in net assets.

fiscal year.

(p) Derivatives(ｋ) Reserve for product warranty

Derivative financial instruments are stated at fair value, and changes in

The reserve for product warranty is provided for accrued warranty

the fair value are recognized as gains or losses, unless the derivative

expenses for products of the Company and certain subsidiaries. The

financial instruments are used for hedging purposes. HORIBA uses

provision is based on estimates made from actual past experience andforeign currency exchange contracts to manage risk related to its

product warranty records and takes into account individual cases.

importing and exporting activities. Regarding derivative transactions, in(ｌ) Provision for loss on dissolution of the employees’ pension fundaddition to conducting exchange agreement transactions within the limit

As it was resolved to adopt the Japanese government policy to carry outof the balance of foreign currency-denominated receivables anda special dissolution of the employees’ local pension fund (general type)payables, HORIBA conducts forward exchange agreement transactions

in which the Company and a domestic consolidated subsidiary arefor the expected foreign currency-denominated receivables andmembers, HORIBA posted an estimated loss that will arise in relation topayables which would be generated with certainty by scheduled export

the dissolution.

or import trading. HORIBA uses derivative financial instruments, such as(ｍ) Accounting methods associated with retirement benefits

interest rate swap contracts and interest rate and currency swapⅰ) Period-based method for estimated amount of retirement benefits

contracts, to avoid risks of fluctuations in interest rates and foreign

In calculating projected benefit obligations, the method used to attributeexchange rates. Contracts are entered into and controlled by the financethe estimated amount of retirement benefits to the period up to the end

department, which reports results to the director. Transactions involvingof the current fiscal year is the benefit formula method.

derivative contracts are limited to highly rated banking institutions, andⅱ) Recording of expenses for actuarial differences and prior service

HORIBA considers that there are no material credit risks associated with

costs

them.

Actuarial differences are recognized in expenses from the subsequent(q) Hedge accounting

fiscal year using the straight-line method over a fixed term of years (5 toⅰ) Hedge accounting method

8 years), which is within the average of the estimated remaining service

Deferred hedge accounting is applied. However, exceptional accounting

years of employees.

treatment is applied to certain interest rate and currency swap contracts

Prior service costs are recognized in expenses using the straight-line

which conform to the requirements of integral accounting rules.

method over a fixed term of years (10 years), which is within the averageⅱ) Hedging instruments and hedged itemsof the estimated remaining service years of employees, commencing in

Hedging instruments: Forward foreign exchange contracts, etc., andthe period they arise.

interest rate and currency swap contracts(ｎ) Sales and costs of completed construction

Hedged items: Foreign currency-denominated forecast transactions andSales and costs of completed construction were recorded using theforeign currency-denominated loans payable

10

HORIBA, Ltd. (Consolidated)ⅲ) Hedging policy

3. Accounting standards issued but not yet effective

Forward foreign exchange transactions are used to avoid foreign

Not applicablecurrency risks and interest rate and currency swaps are used to avoid
the risk of rising interest rates and foreign currency risks based on the
Company’s Administrative Rules.
ⅳ) Assessment of hedge effectivenessThe effectiveness of hedges is assessed by comparing the cumulativechanges in the fair values of both hedging instruments and corresponding
hedged items. However, an assessment of effectiveness is notconducted when the significant conditions of both hedging instruments
and corresponding hedged items are the same.
(r) Research and development expenses
Research and development expenses are charged to income whenincurred. Research and development expenses charged to income forfiscal 2017 and fiscal 2018 were \13,911 million and \15,183 million($136,783 thousand), respectively.
(s) Income taxes
Income taxes comprise corporate tax, enterprise tax and prefectural andmunicipal inhabitant taxes. HORIBA recognizes the tax effects of loss
carryforwards and the temporary differences between the carrying
amounts of assets and liabilities for tax and financial reporting. The
provision for current income tax is computed based on the pretax
income included in the consolidated statements of income.
The asset-liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts used for income tax
purposes.
The Company and its some consolidated subsidiaries have adopted aconsolidated taxation system.
(t) Per share information
The computations of net income per share are based on the weighted
average number of shares of common stock outstanding during eachperiod. The weighted average number of shares of common stock usedin the computation for fiscal 2017 and fiscal 2018 was 42,149 thousand
and 42,162 thousand, respectively. Diluted net income per share ofcommon stock assumes full conversion of dilutive convertible bonds atthe beginning of the year or at the later date of issuance, with anapplicable adjustment for related interest expense net of tax and dilutive
stock option plans. The weighted average number of shares used in thecomputation for fiscal 2017 and fiscal 2018 was 42,327 thousand and42,342 thousand, respectively.
Cash dividends per share shown in the consolidated statements ofincome represent actual amounts applicable to earnings in the respective
fiscal year, including dividends to be paid after the end of the period.

11

HORIBA, Ltd. (Consolidated)4． Financial instruments(1) Overview of financial instruments
Management policy
HORIBA carries out fund management with an emphasis on security and procures funds mainly through bank borrowings and bond issuances.
Derivatives are used to manage foreign exchange fluctuation risk and interest rate fluctuation risk, and it is HORIBA's policy not to engage in speculativetransactions.
Financial instruments, risks and risk management
Trade notes and accounts receivable, which are operating receivables, are exposed to the credit risk of customers. HORIBA endeavors to reduce thisrisk by conducting due date control and balance control and by attempting to promptly recognize collection concerns stemming from factors such as adeterioration in the financial condition of a customer. Most trade notes and accounts payable, which are operating payables, have payment due dates
within one year.
Some operating receivables and payables are denominated in foreign currencies and are exposed to foreign exchange fluctuation risk. However, HORIBA
endeavors to reduce this risk by offsetting foreign currency denominated operating receivables and payables and by using forward exchange contracts,
etc.
Marketable securities are mainly short-term investments with high liquidity such as negotiable deposits. Investment securities are mainly shares ofcompanies that have a business relationships with HORIBA and are exposed to market value fluctuation risk. However, when acquiring or selling sharesof a certain value, the Board of Directors considers the details of the transactions, and HORIBA endeavors to reduce any risk by ensuring that themarket value information regarding the shares is reported to the management team in a timely manner. Short-term loans are mainly for financing related
to operating transactions, while long-term loans and corporate bonds are mainly for financing related to plant and equipment and working capital. Tradeliabilities and loans are exposed to liquidity risk, but HORIBA endeavors to reduce this risk by using methods such as the preparation of cash flow plans.
Regarding derivative transactions, in addition to conducting exchange agreement transactions within the limit of the balance of foreign
currency-denominated receivables and payables, HORIBA conducts forward exchange agreement transactions for the expected foreign
currency-denominated receivables and payables which would be generated with certainty by scheduled export or import trading. HORIBA uses
derivative financial instruments, such as interest rate swap contracts and interest rate and currency swap contracts, to avoid risks of fluctuations ininterest rates and foreign exchange rates within the outstanding amount of borrowings. HORIBA's policy is not to engage in speculative transactions.
Supplementary explanation of the estimated fair value of financial instruments
The market value of financial instruments includes values based on market prices and amounts rationally calculated when there are no market prices
available. As HORIBA incorporates variable factors when making these calculations, the amounts may change due to the adoption of different
assumptions. With regard to contract amounts related to derivative transactions in the Notes to Consolidated Financial Statements item "Derivativetransactions," the amounts do not indicate the market risk associated with derivative transactions themselves.

(2) Fair value of financial instruments
The book value and fair value of financial instruments and any difference between the two as of December 31, 2017 and December 31, 2018 are set
forth in the table below. Financial instruments whose fair value was extremely difficult to estimate are not included (See Note 2). Cash and cash
equivalents of \502 million and \500 million ($4,504 thousand) for the fiscal years ended December 31, 2017 and December 31, 2018, respectively, areincluded in (3) Marketable securities and investment securities.

12

HORIBA, Ltd. (Consolidated)

Millions of yen
12/2017

Millions of yen
12/2018

Book value

Fair value

DifferenceBook value

Fair value

Difference

Assets:(1) Cash and time deposits.............................................................................
(2) Trade notes and accounts receivable...........................................
(3) Marketable securities and investment securities
Available-for-sale securities....................................................
Total............................................................................................................................

¥58,995
60,152¥58,995
60,152-¥63,632
59,111¥63,632
59,111-

12,662¥131,810

12,662¥131,810-

10,525¥133,269

10,525¥133,269-

Liabilities:(1) Trade notes and accounts payable.................................................
(2) Short-term loans..............................................................................................
(3) Accounts payable - other........................................................................
(4) Accrued income taxes................................................................................
(5) Bonds.........................................................................................................................
(6) Long-term loans, including current portion..............................
Total............................................................................................................................

¥23,272
7,773
14,8886,277
15,00019,283¥86,496¥23,272
7,773
14,8886,277
15,15819,423¥86,794

¥158
139
¥297

¥21,933
10,45815,9203,514
15,00018,614¥85,442¥21,933
10,45815,9203,514
15,122
18,736¥85,687

¥122
121
¥244

Derivative transactions(1) Hedge accounting not applied..............................................................
(2) Hedge accounting applied........................................................................
Total............................................................................................................................

(¥48)
(¥48)

(¥48)
(¥48)

-

¥28
(3)
¥24

¥28
(3)
¥24

-

Thousands of U.S. dollars
12/2018
Book value
Assets:(1) Cash and time deposits................................................................................................................................................................................
$573,261(2) Trade notes and accounts receivable..............................................................................................................................................
532,531(3) Marketable securities and investment securities
Available-for-sale securities....................................................................................................................................................
94,819Total........................................................................................................................................................................................................................... $1,200,621

Fair value

Difference$573,261
532,531-

94,819$1,200,621-

Liabilities:(1) Trade notes and accounts payable.....................................................................................................................................................
(2) Short-term loans.................................................................................................................................................................................................
(3) Accounts payable - other...........................................................................................................................................................................
(4) Accrued income taxes....................................................................................................................................................................................
(5) Bonds.............................................................................................................................................................................................................................
(6) Long-term loans, including current portion..................................................................................................................................
Total...........................................................................................................................................................................................................................

$197,594
94,216
143,423
31,657135,135
167,693$769,747$197,594
94,216
143,423
31,657
136,234
168,792$771,954$1,0991,090$2,198Derivative transactions(1) Hedge accounting not applied.................................................................................................................................................................
(2) Hedge accounting applied...........................................................................................................................................................................
Total...........................................................................................................................................................................................................................

$252
( 27)
$216

$252
( 27)
$216

-

Note 1. Method for calculating the fair value of financial instruments and notes regarding securities and derivative transactions.
Assets（1）Cash and time deposits and (2) Trade notes and accounts receivable
As these are settled in the short term, market value approximates book value and is, therefore, based on the applicable book value.
（3）Marketable securities and investment securities
Market value for these is based on prices on securities exchanges in the case of shares, etc. For bonds, market value is based on prices on
securities exchanges or prices indicated by corresponding financial institutions. For marketable securities classified by the purpose for which they
are held, see Note 5.
Liabilities（1）Trade notes and accounts payable, (2) Short-term loans, (3) Accounts payable - other and (4) Accrued income taxes
As these are settled in the short term, market value approximates book value and is, therefore, based on the applicable book value.

13

HORIBA, Ltd. (Consolidated)

(5) Bonds
Market value for bonds issued by HORIBA is calculated based on market prices.
(6) Long-term loans, including current portion
Borrowings based on variable interest rates reflect market interest rates, and as the creditworthiness of HORIBA has not changed significantly since
execution, market value is considered to be approximate to book value and is, therefore, based on the applicable book value. The value of borrowings
with fixed interest rates is based on the total amount of principal and interest discounted at the interest rate of a similar new loan.
Derivative transactions
See Note 13 for derivative transactions.
Net receivables (payables) derived from derivative transactions are displayed in the table above. Total net payables are shown in parenthesis.
Note 2. The following table summarizes financial instruments whose fair value was extremely difficult to estimate.

Non-listed equity securities......................................................................................................................................................
Investments in nonconsolidated subsidiaries and affiliates.........................................................................

Millions of yen
12/2017
12/2018
¥194
¥188
45
44

Thousands of
U.S. dollars
12/2018$1,693396

The above financial instruments were not included in "(3) Marketable securities and investment securities" because they did not have market values
and the fair value was extremely difficult to estimate.

14

HORIBA, Ltd. (Consolidated)

Note 3. Repayment schedule of monetary claims, available-for-sale securities with maturities and bonds held to maturity

Millions of yen
12/2017
Over one year
Over five years
Within one year but within five
but within ten Over ten years
years
years
Cash and time deposits.....................................................................................................
¥58,995
60,152
Trade notes and accounts receivable...................................................................
Marketable securities and investment securities
Available-for-sale securities with maturities(1) Governmental/municipal bonds...............................................................
(2) Corporate bonds....................................................................................................
300(3) Other bonds...............................................................................................................
500(4) Other................................................................................................................................
1,101
¥21
Total....................................................................................................................................................
¥121,049¥21
Millions of yen
12/2018
Over five years
Over one year
but within ten Over ten years
Within one year but within five
years
years
¥63,632
Cash and time deposits.....................................................................................................
59,111
Trade notes and accounts receivable...................................................................
Marketable securities and investment securities
Available-for-sale securities with maturities(1) Governmental/municipal bonds...............................................................
(2) Corporate bonds....................................................................................................
(3) Other bonds...............................................................................................................
1,600(4) Other................................................................................................................................
800¥19
Total....................................................................................................................................................
¥125,144¥19
Thousands of U.S. dollars
12/2018
Over one year
Over five years
Within one year but within five
but within ten Over ten years
years
years
$573,261
Cash and time deposits.....................................................................................................
532,531
Trade notes and accounts receivable...................................................................
Marketable securities and investment securities
Available-for-sale securities with maturities(1) Governmental/municipal bonds...............................................................
(2) Corporate bonds....................................................................................................
(3) Other bonds...............................................................................................................
14,414(4) Other................................................................................................................................
7,207
$171
Total.................................................................................................................................................... $1,127,423$171-

Note 4. Repayment schedule for short-term loans, bonds and long-term debt
See Note 7 for short-term loans and long-term debt.

15

HORIBA, Ltd. (Consolidated)5. Securities
The following table summarizes acquisition costs and book values (fair values) of available-for-sale securities as of December 31, 2017 and December
31, 2018.

Millions of yen
12/2017
Acquisition
Book value
Difference
costMillions of yen
12/2018
Acquisition
Book value
Difference
cost

Securities with book values exceedingacquisition costs:
Equity securities...............................................
Governmental/municipal bonds.................
Corporate bonds...............................................
Other bonds........................................................
Other......................................................................
Subtotal.................................................................

¥10,723
1,100
11,823¥4,121
1,099
5,221¥6,602
0
6,602¥8,076500
8,576¥4,126500
4,626¥3,9490
3,949

Securities with book values not exceedingacquisition costs:
Equity securities...............................................
Governmental/municipal bonds.................
Corporate bonds...............................................
Other bonds........................................................
Other......................................................................
Subtotal.................................................................

31
300
499
7
839

34
300
500
7
842

(2)
(0)
(0)
(0)
(2)

43
1,599
306
1,949

52
1,600
307
1,959

(9)
(0)
(0)
(10)

Total....................................................................................

¥12,662¥6,063¥6,599¥10,525¥6,586¥3,938

Thousands of U.S. dollars
12/2018
Acquisition
Book value
Difference
cost
Securities with book values exceedingacquisition costs:
Equity securities....................................................................................................................................
Governmental/municipal bonds......................................................................................................
Corporate bonds....................................................................................................................................
Other bonds.............................................................................................................................................
Other...........................................................................................................................................................
Subtotal.....................................................................................................................................................

$72,756
4,504
77,261$37,171
4,504
41,675$35,576
035,576

Securities with book values not exceedingacquisition costs:
Equity securities....................................................................................................................................
Governmental/municipal bonds......................................................................................................
Corporate bonds....................................................................................................................................
Other bonds.............................................................................................................................................
Other...........................................................................................................................................................
Subtotal.....................................................................................................................................................

387
14,4052,756
17,558468
14,414
2,765
17,648

(81)
(0)
(0)
(90)

Total.........................................................................................................................................................................

$94,819$59,333$35,477

Note. Non-listed equity securities, etc., of \194 million and \188 million ($1,693 thousand) for the fiscal years ended December 31, 2017 and December
31, 2018, respectively, are not included in the above table because they did not have market values and the fair value was extremely difficult to estimate.

16

HORIBA, Ltd. (Consolidated)

The following table summarizes available-for-sale securities sold for the fiscal year ended December 31, 2017 and December 31, 2018.

Thousands ofMillions of yen
U.S. dollars
12/2017
12/2018
12/2018
Total sales of available-for-sale securities..........................................................................................
¥3¥1$9
Related gains.......................................................................................................................................................
00
0

Impairment loss on securities
HORIBA recognized an impairment loss of \9 million in fiscal 2017 on non-listed equity securities categorized as available-for-sale securities. In fiscal
2018, impairment loss on securities was not recognized. When applying impairment accounting, if the market value at the end of the term has fallen bymore than 50% from the acquisition price, an impairment loss is applied to the entire amount. If the market value has fallen by approximately 30% to 50%,
an impairment loss is applied to the amount recognized as necessary after considering the possibility of recovery, etc.

17

HORIBA, Ltd. (Consolidated)6. Inventories
Inventories at December 31, 2017 and December 31, 2018 consisted of the following:

Millions of yen
12/2017
12/2018
Merchandise and finished goods......................................................................................
¥16,512¥20,018
Work-in-process.....................................................................................................................
16,396
19,843
Raw materials and supplies................................................................................................
12,665
15,276
Total.................................................................................................................................
¥45,573¥55,139

Thousands of
U.S. dollars
12/2018$180,342
178,765
137,621$496,747

7. Short-term loans and long-term debt
Short-term loans are generally represented by bank notes with annual interest rates ranging from 0.57% to 8.25% and 0.20% to 8.75% at December 31,
2017 and December 31, 2018, respectively.
Long-term debt at December 31, 2017 and December 31, 2018 consisted of the following:

0.609% unsecured bonds due in 2020...........................................................................................................
Loans from banks due serially from 2019 to 2026
at rates from 0.15% to 9.40% per annum....................................................................................
Lease obligations maturing serially through 2023...........................................................................
Total..........................................................................................................................................................................

Millions of yen
12/2017
12/2018¥15,000¥15,000

Thousands of
U.S. dollars
12/2018$135,135

19,283439
34,723

18,614443
34,058167,693
3,990
306,828(718)¥34,005( 1,735)¥32,322( 15,630)$291,189

Year ending December 31
Millions of yen
2019.............................................................................................................................................................................................................
¥1,7352020.............................................................................................................................................................................................................
15,5702021.............................................................................................................................................................................................................
462
2022.............................................................................................................................................................................................................
15,5322023.............................................................................................................................................................................................................
197
559
Thereafter...............................................................................................................................................................................................
Total.............................................................................................................................................................................................. ¥34,058

Thousands of
U.S. dollars$15,630
140,270
4,162
139,927
1,774
5,036$306,828

Current portion.................................................................................................................................................................
Long-term debt, less current portion...........................................................................................................

The aggregate annual maturities of long-term debt outstanding at December 31, 2018 were as follows:

As of December 31, 2018, assets were pledged as collateral for short-term loans and the current portion of long-term debt of \16 million ($144
thousand) and long-term debt of \38 million ($342 thousand) as follows:
Thousands ofMillions of yen
U.S. dollars
Land..............................................................................................................................................................................................................................
¥95$855
Machinery, equipment and vehicles.................................................................................................................................................
340
3,063
Total.............................................................................................................................................................................................................................
¥436$3,927

18

HORIBA, Ltd. (Consolidated)

8. Employees' severance and pension benefits(1) Outline of adopted retirement pension fund
The Company and the domestic consolidated subsidiaries have adopted a funded defined benefit pension plan (cash balance plan) and a defined
contribution pension plan. Certain overseas consolidated subsidiaries have adopted funded and unfunded defined benefit plans and a defined
contribution plan.
The Company and a domestic consolidated subsidiary have been members of the Kyoto Machinery and Metal Employees' Pension Fund (general type).
As it is not possible to reasonably calculate the amount of pension assets corresponding to the company's own contributions, accounting procedures
are the same as for defined contribution plans. The Fund received approval for dissolution from the Minister of Health, Labour and Welfare as of
September 20, 2017. HORIBA posted an estimated loss that will arise in relation to the dissolution and posted a provision for loss on dissolution of theemployees’ pension fund of \640 million and \640 million ($5,765 thousand) under long-term liabilities in the consolidated balance sheets for the years
ended December 31, 2017 and December 31, 2018, respectively.
(2) Defined benefits plan(a) The changes in projected benefit obligation for the years ended December 31, 2017 and December 31, 2018 were as follows:
Millions of yen
12/2017
12/2018¥9,612¥10,314
Balance at the beginning of year................................................................................................................................
Service cost....................................................................................................................................................................
668
684
113
120
Interest expense on projected benefit obligation...........................................................................................
Actuarial differences...................................................................................................................................................
6(397)
Benefits paid...................................................................................................................................................................
(262)
(228)
177
(208)
Other...................................................................................................................................................................................
Balance at the end of year...........................................................................................................................................
¥10,314¥10,285

Thousands of
U.S. dollars
12/2018$92,918
6,162
1,081(3,576)(2,054)(1,873)$92,657(b) The changes in pension assets for the years ended December 31, 2017 and December 31, 2018 were as follows:
Millions of yen
12/2017
12/2018¥7,420¥8,169Balance at the beginning of year................................................................................................................................
197
216
Expected return on pension assets......................................................................................................................
Actuarial differences...................................................................................................................................................
79
(585)
630
788
Contributions from the employer...........................................................................................................................
Benefits paid...................................................................................................................................................................
(184)
(182)
27
(67)
Other...................................................................................................................................................................................
Balance at the end of year...........................................................................................................................................
¥8,169¥8,339Thousands of
U.S. dollars
12/2018$73,594
1,945(5,270)7,099(1,639)(603)$75,126(c) Reconciliation between the net defined benefit liability and the net defined benefit asset posted in the consolidated balance sheets and the balancesof projected benefit obligation and pension assets for the years ended December 31, 2017 and December 31, 2018 were as follows:
Millions of yen
12/2017
12/2018
Funded projected benefit obligation..........................................................................................................................
¥8,781¥8,843Pension assets....................................................................................................................................................................
(8,169)(8,339)611
503
Unfunded projected benefit obligation.....................................................................................................................
1,533
1,442
Net liability for retirement benefits in the consolidated balance sheets.................................................
2,145
1,946
Net defined benefit liability...........................................................................................................................................
Net liability for retirement benefits in the consolidated balance sheets.................................................

19

2,145
¥2,145

1,946¥1,946

Thousands of
U.S. dollars
12/2018$79,666(75,126)
4,531
12,99017,531
17,531$17,531HORIBA, Ltd. (Consolidated)

(d) The components of retirement benefits expense for the years ended December 31, 2017 and December 31, 2018 were as follows:

Service cost.........................................................................................................................................................................
Interest expense on projected benefit obligation...............................................................................................
Expected return on pension assets..........................................................................................................................
Amortization of actuarial differences.......................................................................................................................
Retirement benefits expense.......................................................................................................................................

Millions of yen
12/2017
12/2018
¥668
¥684
113
120
(197)
(216)
74
(13)
¥658
¥574

Thousands of
U.S. dollars
12/2018$6,162
1,081(1,945)(117)$5,171(e) The components of remeasurements of defined benefit plans (before tax effect) in the consolidated statements of comprehensive income for theyears ended December 31, 2017 and December 31, 2018 were as follows:

Actuarial differences........................................................................................................................................................
Total.........................................................................................................................................................................................

Millions of yen
12/2017
12/2018¥156(¥197)¥156(¥197)

Thousands of
U.S. dollars
12/2018($1,774)($1,774)(f) The components of remeasurements of defined benefit plans (before tax effect) in the consolidated balance sheets as of December 31, 2017 andDecember 31, 2018 were as follows:

Unrecognized actuarial differences...........................................................................................................................
Total.........................................................................................................................................................................................

Millions of yen
12/2017
12/2018(¥160)(¥357)(¥160)(¥357)

Thousands of
U.S. dollars
12/2018($3,216)($3,216)(g) Pension assetsⅰ) The pension assets by major category as a percentage of total pension assets as of December 31, 2017 and December 31, 2018 were as follows:
Debt investments..............................................................................................................................................................
Equity investments...........................................................................................................................................................
Mutual funds (Note)..........................................................................................................................................................
Other.......................................................................................................................................................................................
Total.........................................................................................................................................................................................

12/2017
44.3%
23.7
15.9
16.1
100.0%

12/2018
50.6%
19.5
15.1
14.8
100.0%

Note. Mutual funds primarily invest in debt investments.
ⅱ) Method of determining the expected rate of return on pension assets
The expected rate of return on pension assets is determined considering the current and anticipated future portfolio of pension assets and thelong-term rates of return which are expected currently and in the future from the various components of the pension assets.
(h) Assumptions used for the years ended December 31, 2017 and December 31, 2018 were as follows:
Discount rate (mainly).....................................................................................................................................................
Expected rate of return on pension assets (mainly).........................................................................................
Expected rate of salary raises (mainly)...................................................................................................................

12/2017
0.6-0.8%
2.5%
3.6-4.1%

12/2018
0.6-0.7%
2.5%
3.6-4.1%

Note. A point system is used as the basis for the calculation of expected rates of salary raises.
(3) Defined contribution plan
Benefits expense for the defined contribution plan for the years ended December 31, 2017 and December 31, 2018 was \1,121 million and \1,252 million($11,279 thousand), respectively.

20

HORIBA, Ltd. (Consolidated)

(4) Multi-employer pension plan
The Multi-employer pension plan has been in the process of liquidation following the approval for dissolution. Concerning (a) Funded status of pension
plans, (b) Ratio of HORIBA's contribution to the multi-employer plans relative to the contributions to the overall retirement benefit plans and its notes,
information is described as of March 31, 2016.
Benefits expense for the multi-employer pension plan, for which accounting procedures were the same as for defined contribution plans for the year
ended December 31, 2017 was \299 million.
(a) Funded status of pension plans (available information as of March 31, 2016)
Millions of yen
12/2016¥53,199
Fair value of plan assets...............................................................................................................................................................................................
71,070Total of actuarial obligation and minimum actuarial reserve........................................................................................................
Net balance................................................................................................................................................................................................................................
(¥17,871)(b) Ratio of HORIBA's contribution to the multi-employer plans relative to the contributions to the overall retirement benefit plans from March 1, 2016 to
March 31, 2016 the ratio was 17.03%.
Note 1. Net balance mainly resulted from the prior service cost of \18,531 million and the general reserve for plan assets of \659 million for the year
ended December 31, 2016.
Note 2. Prior service cost is amortized over 20 years.
Note 3. The percentage of HORIBA's contribution to the multi-employer pension plan described above in (4)(b) should not be construed as thepercentage of HORIBA's actual obligation.
9. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However, a company may,by a resolution of the Board of Directors, designate an amount not exceeding one half of the price of the new shares as additional paid-in capital, whichis included in capital surplus.
Under the Japanese Corporate Law ("the Law"), in cases in which dividend distribution of surplus is made, the smaller of an amount equal to 10% of
the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings reserve must be set aside asadditional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance
sheets.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital and all legal
earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. Both ofthese appropriations generally require a resolution of the shareholder's meeting.
The maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of the Company
in accordance with Japanese laws and regulations.
At the Board of Directors' meeting held on February 12, 2019, the Board of Directors approved cash dividends in the amount of \4,006 million($36,090 thousand). The appropriation had not been accrued in the consolidated financial statements as of December 31, 2018. Such appropriations arerecognized in the period in which they are approved by the Board of Directors.

21

HORIBA, Ltd. (Consolidated)10. Stock options(1) Expenses and items related to stock options

Selling, general and administrative expenses...............................................................................................

Millions of yen
12/2017
12/2018¥88¥99

Thousands of
U.S. dollars
12/2018$891(2) Scale and movement (fluctuation) of stock options
Information regarding stock options outstanding. The number of stock options is stated after conversion into an equal number of shares.
(a) Details of stock options
Persons granted options

Number of sharesby type of stock(Note 1)

Date of grantVesting conditions

Service period

Exercise period

No 1 Stock-based
Compensation Type
Stock Option

4 directors and
13 corporate officersof the Company

Common stock
54,200 shares

April 16, 2009

(Note 2)

(Note 3)

April 17, 2009
toApril 16, 2039

No 2 Stock-based
Compensation Type
Stock Option

4 directors and
14 corporate officersof the Company

Common stock
26,400 shares

April 23, 2010

(Note 2)

(Note 3)

April 24, 2010
toApril 23, 2040

No 3 Stock-based
Compensation Type
Stock Option

4 directors and
16 corporate officersof the Company
4 directors and
16 corporate officersof the Company

Common stock
31,000 shares

April 21, 2011

(Note 2)

(Note 3)

April 22, 2011
toApril 21, 2041

Common stock
28,200 shares

April 24, 2012

(Note 2)

(Note 3)

April 25, 2012
toApril 24, 2042

4 directors andNo 5 Stock-based
14 corporate officers ofCompensation Type the Company, 2 directors
Stock Option
and 3 corporate officersof subsidiaries

Common stock
33,200 shares

May 8, 2013

(Note 2)

(Note 3)

May 9, 2013
toMay 8, 2043

5 directors andNo 6 Stock-based
12 corporate officers ofCompensation Type the Company, 3 directors
Stock Option
and 6 corporate officersof subsidiaries

Common stock
27,500 shares

April 24, 2014

(Note 2)

(Note 3)

April 24, 2014
toApril 23, 2044

5 directors andNo 7 Stock-based
13 corporate officers ofCompensation Type the Company, 3 directors
Stock Option
and 8 corporate officersof subsidiaries

Common stock
22,100 shares

May 8, 2015

(Note 2)

(Note 3)

May 9, 2015
toMay 8, 2045

5 directors andNo 8 Stock-based
14 corporate officers ofCompensation Type the Company, 4 directors
Stock Option
and 9 corporate officersof subsidiaries

Common stock
25,900 shares

May 10, 2016

(Note 2)

(Note 3)

May 11, 2016
toMay 10, 2046

4 directors andNo 9 Stock-based
16 corporate officers ofCompensation Type the Company, 4 directors
Stock Option
and 8 corporate officersof subsidiaries

Common stock
15,300 shares

May 9, 2017

(Note 2)

(Note 3)

May 10, 2017
toMay 9, 2047

5 directors andNo 10 Stock-based 19 corporate officers ofCompensation Type the Company, 3 directors
Stock Option
and 8 corporate officersof subsidiaries

Common stock
15,800 shares

May 8, 2018

(Note 2)

(Note 3)

May 9, 2018
toMay 8, 2048

No 4 Stock-based
Compensation Type
Stock Option

Note 1. Stock options are convertible into an equal number of shares.
Note 2. Vesting conditions are not stipulated.
Note 3. The service period is not stipulated.

22

HORIBA, Ltd. (Consolidated)

(b) Number, movement and price of stock options
Stock options are convertible into an equal number of shares.
(ⅰ) Number of shares
Options before vesting(number of shares)
Balance at
December 31, 2017
No. 1 Stock-based
Compensation Type
Stock Option
No. 2 Stock-based
Compensation Type
Stock Option
No. 3 Stock-based
Compensation Type
Stock Option
No. 4 Stock-based
Compensation Type
Stock Option
No. 5 Stock-based
Compensation Type
Stock Option
No. 6 Stock-based
Compensation Type
Stock Option
No. 7 Stock-based
Compensation Type
Stock Option
No. 8 Stock-based
Compensation Type
Stock Option
No. 9 Stock-based
Compensation Type
Stock Option
No. 10 Stock-based
Compensation Type
Stock Option

GrantedForfeited

Options after vesting(number of shares)
Balance atBalance at
December 31, 2018 December 31, 2017

VestedVestedExercised

Balance at
December 31, 2018

Forfeited

－

－

－

－

－

29,200

－

2,100

－

27,100

－

－

－

－

－

15,500

－

1,600

－

13,900

－

－

－

－

－

19,000

－

1,800

－

17,200

－

－

－

－

－

17,600

－

1,600

－

16,000

－

－

－

－

－

22,600

－

2,100

－

20,500

－

－

－

－

－

19,300

－

1,700

－

17,600

－

－

－

－

－

15,900

－

1,400

－

14,500

－

－

－

－

－

23,300

－

2,000

－

21,300

－

－

－

－

－

15,300

－

1,200

－

14,100－15,800－15,800－－15,800－300

15,500(ⅱ) Price per share
Option price (yen)Weighted average stock price(yen)

Fair value at grant date (yen)Option price (yen)Weighted average stock price(yen)

Fair value at grant date (yen)No 1 Stock-based
Compensation Type
Stock Option

1

7,434

1,091

No 6 Stock-based
Compensation Type
Stock Option

1

7,434

2,739

No 2 Stock-based
Compensation Type
Stock Option

1

7,434

2,628

No 7 Stock-based
Compensation Type
Stock Option

1

7,434

3,598

No 3 Stock-based
Compensation Type
Stock Option

1

7,434

2,208

No 8 Stock-based
Compensation Type
Stock Option

1

7,434

3,116

No 4 Stock-based
Compensation Type
Stock Option

1

7,434

2,245

No 9 Stock-based
Compensation Type
Stock Option

1

7,434

5,795

No 5 Stock-based
Compensation Type
Stock Option

1

7,434

2,988

No 10 Stock-based
Compensation Type
Stock Option

1

－

6,435

(3) Method to estimate the fair unit value of stock options
The grant date fair value of No. 10 Stock-based Compensation Type Stock Option in the year ended December 31, 2018 was estimated using theBlack-Scholes option pricing model as follows:
No. 10 Stock-based
Compensation Type
Stock Option
Stock price volatility (Note 1)

35.7%

Expected remaining period (Note 2)

15 Years

Expected dividend (Note 3)\116/share

Risk free interest rate (Note 4)
0.288%
Note 1. Stock price volatility was calculated based on actual weekly stock prices over 15 years (from the week of May 5, 2003 to the week of April 30,2018).
Note 2. As it was difficult to estimate the expected remaining period without sufficient relevant data, it was determined to be exercised at the mid-pointof the exercise period.
Note 3. Expected dividend was calculated by using the actual dividend paid for the year ended December 31, 2017.
Note 4. Risk free interest rate represents the comparable compound interest rate of strip government bonds whose remaining period corresponds tothe expected remaining period of the stock options.

23

HORIBA, Ltd. (Consolidated)

(4) Condition regarding the estimate of the fair unit value of stock options
Retirement from the office of director is condition necessary to exercise stock options, but continuous employment is not. Accordingly, the initial
number of stock options granted is used as an estimate of the number of vested shares.
11. Leases
Finance leases which do not transfer ownership of the lease assets at December 31, 2017 and December 31, 2018 consisted of leases for officeequipment and software. The method of depreciation and amortization of lease assets is described in Note 2(h), "Summary of significant accounting
policies - Leases."
Payments remaining under operating leases at December 31, 2017 and December 31, 2018 were as follows:

Payments remaining:
Payments due within 1 year....................................................................................................
Payments due after 1 year.......................................................................................................
Total..............................................................................................................................................................

Millions of yen
12/2017
12/2018
¥830
¥785
1,454
1,053
¥2,284¥1,839Thousands of
U.S. dollars
12/2018$7,072
9,486$16,567

12. Contingent liabilities
Not applicable.

24

HORIBA, Ltd. (Consolidated)13. Derivative transactions
Derivative transactions for which hedge accounting was not applied at December 31, 2017 and December 31, 2018 were as follows:
Currency related:

Contract
amountMillions of yen
12/2017
Amount ofFair
principal due
value
over 1 year

Forwards
Selling
US dollar¥4,772Euro
1,248
British pound
696
¥280
Other
536
BuyingUS dollar
206
Euro
40
British pound
90
Other
174
Currency swaps
Receiving in US dollar
and paying in Brazilian real
13
Total
¥7,779¥280
Note. Fair value is determined by banking institutions.

Gain(loss)

Contract
amountMillions of yen
12/2018
Amount ofFair
principal due
value
over 1 year

Gain(loss)

(¥11)
(16)
(21)
(7)

(¥11)
(16)
(21)
(7)

¥3,030
1,403
565
282

-

¥33
5
3
(4)

¥33
5
3
(4)

0
(0)
0
1

0
(0)
0
1

59
319
44

-

0
(0)
(7)
(0)

0
(0)
(7)
(0)

6
(¥48)

6
(¥48)

¥5,705

-

¥28

¥28

Contract
amountForwards
Selling
US dollar
Euro
British pound
Other
BuyingUS dollar
Euro
British pound
Other
Currency swaps
Receiving in US dollar
and paying in Brazilian real
Total

25

Thousands of U.S. dollars
12/2018
Amount ofFair
principal due
value
over 1 year

Gain(loss)$27,297
12,639
5,090
2,540

-

$297
45
27
(36)

$297
45
27
(36)

531
2,873
396

-

0
(0)
(63)
(0)

0
(0)
(63)
(0)

$51,396

-

$252

$252

HORIBA, Ltd. (Consolidated)Derivative transactions for which hedge accounting was applied at December 31, 2017 and December 31, 2018 were as follows:
Currency related:

Hedgeditems

Millions of yen
12/2017
Amount ofContractprincipal due
amountover 1 year

Forwards
BuyingEuro
Accounts
British pound
payableTotal
Note. Fair value is determined by banking institutions.

Fair
value

-

Hedgeditems-

Accounts
payableHedgeditems
Forwards
BuyingEuro
British pound
Total

Accounts
payableMillions of yen
12/2018
Amount ofContractprincipal due
amountover 1 year

¥492
33
¥525

Fair
value

-

Thousands of U.S. dollars
12/2018
Amount ofContractprincipal due
amountover 1 year

$4,432297$4,729

(¥2)
(0)
(¥3)

Fair
value

-

($18)
(0)
($27)

Interest rate currency related:
Millions of yen
12/2017
Amount ofHedgedContractprincipal due
items
amountover 1 year
Exceptional accounting for interest rate and currency swaps
Interest rate and currency
swap contracts
Fixed rate payments andvariable rate receipts
Receiving in US dollar and Long-termpaying in Japanese yen
loans¥15,120¥15,120

Fair
value

Hedgeditems

NoteLong-term
loans

Hedgeditems
Exceptional accounting for interest rate and currency swaps
Interest rate and currency
swap contracts
Fixed rate payments andvariable rate receipts
Receiving in US dollar andpaying in Japanese yen

Long-termloansMillions of yen
12/2018
Amount ofContractprincipal due
amountover 1 year

¥15,120¥15,120

Thousands of U.S. dollars
12/2018
Amount ofContractprincipal due
amountover 1 year

$136,216$136,216

Fair
value

Note

Fair
value

Note

Note. Interest rate and currency swap contracts subject to exceptional accounting treatment (special treatment and allocation treatment) areaccounted for together with long-term loans as hedged items. Accordingly, their fair values are included in the fair values of long-term loans.

26

HORIBA, Ltd. (Consolidated)14. Income taxes
The Company is subject to a number of taxes based on income, which, in the aggregate, indicate a statutory income tax rate in Japan of approximately
30.8% and 30.8% for the years ended December 31, 2017 and December 31, 2018, respectively.
The following table summarizes the significant differences between the statutory tax rate and HORIBA's effective tax rate for financial statement
purposes for the years ended December 31, 2017 and December 31, 2018.

Statutory tax rate........................................................................................................................................................
Expenses not qualifying for permanent deduction,e.g. entertainment expenses...........................................................................................................
Nontaxable dividend income......................................................................................................................
Per capita inhabitants tax...........................................................................................................................
Increase/decrease in valuation allowance for deferred tax assets........................................
Differences in tax rates between
foreign subsidiaries and the Company.......................................................................................
Tax credits.........................................................................................................................................................
Reduction in deferred tax assets by the changes in tax rates.................................................
Other.....................................................................................................................................................................
Effective tax rate.........................................................................................................................................................

12/201730.8%

12/2018
30.8%

0.5
(0.6)
0.2
1.9

0.4
(0.0)
0.2
(0.5)

2.5
(5.7)
2.4
1.2
33.2%

(1.5)
(5.0)
0.1
(1.7)
22.8%

Significant components of HORIBA's deferred tax assets and liabilities at December 31, 2017 and December 31, 2018 were as follows:

Millions of yen
12/2017
12/2018

Thousands of
U.S. dollars
12/2018

Deferred tax assets
Accrued enterprise tax................................................................................................................................
Loss on write-down of inventory............................................................................................................
Allowance for doubtful receivables.........................................................................................................
Accrued bonuses............................................................................................................................................
Loss carryforwards........................................................................................................................................
Unrealized gains...............................................................................................................................................
Net defined benefit liability.........................................................................................................................
Depreciation......................................................................................................................................................
Loss on valuation of investment securities........................................................................................
Loss on impairment of fixed assets.......................................................................................................
Provision for loss on dissolution of the employees’ pension fund..........................................
Effects of changes in accounting policies...........................................................................................
Other.....................................................................................................................................................................
Total deferred tax assets........................................................................................................................................
Valuation allowance....................................................................................................................................................
Net deferred tax assets............................................................................................................................................

¥282
816
62
270
1,070
1,926
404
369
119
370
195
242
2,896
9,026
(1,814)
7,211

¥209
967
124
232
767
2,016
456
448
111
136
195
94
2,915
8,678
(1,378)7,300$1,882
8,711
1,117
2,090
6,909
18,162
4,108
4,036
1,000
1,225
1,756
846
26,261
78,180(12,414)65,765

Deferred tax liabilities
Unrealized losses............................................................................................................................................
Unrealized gains (losses) on available-for-sale securities..........................................................
Effects of changes in accounting policies...........................................................................................
Other.....................................................................................................................................................................
Total deferred tax liabilities....................................................................................................................................

(390)(1,962)(189)(886)(3,428)(390)(1,149)(95)(1,213)(2,848)(3,513)(10,351)(855)(10,927)(25,657)

Net deferred tax assets............................................................................................................................................

¥3,783¥4,451$40,099

Millions of yen
12/2017
12/2018¥4,331¥4,312
1,549
1,092
(61)
(1)
(2,036)(950)¥3,783¥4,451Thousands of
U.S. dollars
12/2018$38,8469,837(9)(8,558)$40,099

Net deferred tax assets are included in the consolidated balance sheets as follows:

Current assets.................................................................................................................................................
Investments and other noncurrent assets..........................................................................................
Current liabilities.............................................................................................................................................
Long-term liabilities.......................................................................................................................................
Net deferred tax assets............................................................................................................................................

27

HORIBA, Ltd. (Consolidated)15. Impairment loss
HORIBA reviewed its long-lived assets for impairment, and, as a result, impairment losses were recognized by HORIBA for the following asset groups asother expenses for the year ended December 31, 2017.
Location

Use

U.K.

Business assets and otherFranceOther

Type
Other intangibles
Goodwill
Goodwill

Millions of yen\2,32993
103

In connection with the use of impairment accounting, business assets are grouped on a reporting segment basis. Idle assets, etc., are grouped on aproperty-by-property basis.
As HORIBA MIRA Ltd. (“HORIBA MIRA”), a consolidated subsidiary in the U.K., is unlikely to record a profit as initially planned, the book value of
goodwill and other intangibles attributable to HORIBA MIRA have been reduced to their respective recoverable amounts and a loss on impairment wasrecognized in the consolidated statement of income. The recoverable amount was measured at the value in use based on estimated future cash flows
discounted at rate of 10.4%.
As HORIBA FRANCE SAS, a consolidated subsidiary in France, is unlikely to record a profit as initially planned, the entire amount of its unamortized
goodwill balance was reduced to zero and a loss on impairment was recognized in the consolidated statement of income. The recoverable amount wasmeasured at the value in use, which was zero, as future cash flow was not expected.
16. Consolidated statement of comprehensive income
Components of other comprehensive income for the years ended December 31, 2017 and December 31 2018 consisted of the following:

Net unrealized gains or losses on available-for-sale securities:
Increase (decrease) during the year........................................................................................................
Reclassification adjustment..........................................................................................................................
Subtotal, before tax..........................................................................................................................................
Tax (expense) or benefit................................................................................................................................
Subtotal, net tax................................................................................................................................................
Deferred gains or losses on hedges
Increase (decrease) during the year........................................................................................................
Reclassification adjustment..........................................................................................................................
Subtotal, before tax..........................................................................................................................................
Tax (expense) or benefit................................................................................................................................
Subtotal, net tax................................................................................................................................................
Foreign currency translation adjustments
Increase (decrease) during the year........................................................................................................
Reclassification adjustment..........................................................................................................................
Subtotal, before tax..........................................................................................................................................
Tax (expense) or benefit................................................................................................................................
Subtotal, net tax................................................................................................................................................
Remeasurements of defined benefit plans
Increase (decrease) during the year........................................................................................................
Reclassification adjustment..........................................................................................................................
Subtotal, before tax..........................................................................................................................................
Tax (expense) or benefit................................................................................................................................
Subtotal, net tax................................................................................................................................................
Total other comprehensive income.......................................................................................

28

Millions of yen
12/2017
12/2018¥2,458(¥2,659)
(0)
(0)
2,458
(2,659)
(750)
811
1,708
(1,848)

Thousands of
U.S. dollars
12/2018($23,954)(0)(23,954)7,306(16,648)

1
(1)
-

(6)
2
(3)
1
(2)

(54)
18
(27)
9
(18)

3,452
3,452
3,452

(3,989)(3,989)(3,989)(35,936)(35,936)(35,936)

82
74
156
(25)
130
¥5,291

(183)
(13)
(197)
63
(133)
(¥5,973)(1,648)(117)(1,774)567(1,198)($53,810)

HORIBA, Ltd. (Consolidated)17. Segment information
General information regarding reportable segments(1) Calculation method for reportable segments
HORIBA's reportable segments are components of the Company about which separate financial information is available and that are evaluated regularly
by the management in deciding how to allocate resources and in assessing performance. The Company has established the segment strategy office foreach product and service at its headquarters. The office constructs a comprehensive plan for Japan and overseas markets for business development.
The Company thus is composed of business segments by product and service that are determined at the head office. The Automotive Test Systems,
Process & Environmental Instruments & Systems, Medical-Diagnostic Instruments & Systems, Semiconductor Instruments & Systems and Scientific
Instruments & Systems comprise the Company’s five reportable segments.
Major products and services of each segment are described below.
(a) Automotive Test Systems
Emission Measurement Systems, In-Use Automotive Emissions Analyzers, On-Board Emission Measurement, Driveline Test Systems, Engine Test
Systems, Brake Test Systems, Fuel Cell Test System, Battery Test System, Intelligent Transport System, Engineering Consultancy, Test Services &Consultancy, Leasing of R&D Facility(b) Process & Environmental Instruments & Systems
Stack Gas Analyzers, Water Quality Analysis and Examination Systems, Air Pollution Analyzers, Environmental Radiation Monitors, Process
Measurement Equipment(c) Medical-Diagnostic Instruments & Systems
Hematology Analyzers, Equipment for Measuring Immunological Responses, Clinical Chemistry Analyzers, Blood Sugar Measurement Systems(d) Semiconductor Instruments & Systems
Mass Flow Controllers, Chemical Concentration Monitors, Reticle/Mask Particle Detection Systems, Residual Gas Analyzers(e) Scientific Instruments & Systems
pH Meters, Particle-Size Distribution Analyzers, X-Ray Fluorescence Analyzers, Metal Analyzers, Raman, Fluorescence Spectroscopy Systems,
Spectrophotometers, Gratings(2) Method of measurement regarding income (loss), assets and other material items by reportable segment
The accounting methods applied for reportable segments are identical with those stated in Note 2, "Summary of significant accounting policies."
Income for each reportable segment is the amount based on operating income.

29

HORIBA, Ltd. (Consolidated)

(3) Information regarding income (loss), assets and other material items by reportable segment
Millions of yen
12/2017
Automotive
Sales
Sales to outside customers.................................
Intersegment sales and transfers..................
Total..........................................................................................
Segment income (loss)........................................................
Segment assets.........................................................................
Other items:
Depreciation.......................................................................
Amortization of goodwill.........................................
Increase in tangible and intangible
fixed assets......................................................................

Process &Environmental

MedicalDiagnostic

Semiconductor

Scientific

Adjustment

Consolidated¥73,360
73,360¥7,680¥77,203¥17,433
17,433¥1,094¥16,954¥25,187
25,187¥1,918¥23,582¥53,300
53,300¥15,642¥52,162¥26,117
26,117¥498¥24,135¥71,881¥195,399
195,399¥26,834¥265,920

3,260
65

547
-

1,250
-

1,575
-

753
80

-

7,387
146

4,068

684

1,082

4,475

1,328

-

11,639Millions of yen
12/2018
Automotive
Sales
Sales to outside customers.................................
Intersegment sales and transfers..................
Total..........................................................................................
Segment income (loss)........................................................
Segment assets.........................................................................
Other items:
Depreciation.......................................................................
Amortization of goodwill.........................................
Increase in tangible and intangible
fixed assets......................................................................

MedicalDiagnostic

Semiconductor

Scientific

Adjustment

Consolidated¥79,656
79,656¥7,702¥83,546¥19,361
19,361¥2,027¥16,663¥26,01226,012¥1,823¥23,073¥57,785
57,785¥17,063¥54,082¥27,754
27,754¥221¥22,836¥77,932¥210,570
210,570¥28,838¥278,136

3,059
51

484
-

1,166
-

1,659
-

750
68

-

7,120
120

4,072

888

1,138

2,395

1,745

-

10,239Automotive
Sales
Sales to outside customers.................................
Intersegment sales and transfers..................
Total..........................................................................................
Segment income (loss)........................................................
Segment assets.........................................................................
Other items:
Depreciation.......................................................................
Amortization of goodwill.........................................
Increase in tangible and intangible
fixed assets......................................................................

Process &Environmental

Process &Environmental

Thousands of U.S. dollars
12/2018
MedicalSemiconductor
Scientific
Diagnostic

Adjustment

Consolidated$717,621
717,621$69,387$752,666$174,423
174,423$18,261$150,117$234,342
234,342$16,423$207,864$520,585
520,585$153,720$487,225$250,036
250,036$1,990$205,729$702,090$1,897,027
1,897,027$259,801$2,505,729

27,558
459

4,360
-

10,504-

14,945
-

6,756
612

-

64,144
1,081

36,6848,000

10,252

21,576

15,720-92,243Note 1. Details of adjustment amounts are as follows:(1) Unallocated amounts to be included in the adjustment amount of segment income were not generated.
(2) The adjustment amounts of \71,881 million and \77,932 million ($702,090 thousand) of segment assets for the years ended December 31,
2017 and December 31, 2018, respectively, represent corporate assets that were not allocated to any business segment. They included
cash and cash equivalents, short-term investments, investment securities, idle land, etc.
Note 2. Depreciation and increase in tangible and intangible fixed assets include long-term prepaid expenses and the amount of amortization associatedwith the expenses.

30

HORIBA, Ltd. (Consolidated)<Related Information>
1. Information regarding geographic areas(1) Net sales

Japan............................................................................................................................................................................................
U.S.................................................................................................................................................................................................
China............................................................................................................................................................................................
Europe.........................................................................................................................................................................................
Asia................................................................................................................................................................................................
Others.........................................................................................................................................................................................
Total...................................................................................................................................................................................

Millions of yen
12/2017
12/2018¥65,075¥6 5 ,9 8 6
27,461
2 8 ,6 7 3
23,6882 7 ,8 3 241,1874 5 ,0 0 633,304
3 8 ,4 6 1
4,681
4 ,6 1 0¥195,399¥2 1 0 ,5 7 0

Thousands of
U.S. dollars
12/2018$ 5 9 4 ,4 6 8
2 5 8 ,3 1 5
2 5 0 ,7 3 8
4 0 5 ,4 5 9
3 4 6 ,4 9 5
4 1 ,5 3 1$ 1 ,8 9 7 ,0 2 7

Note 1. Net sales are categorized by country or geographic area based on the location of the customer.
Note 2. The "Asia" amount is that of the Asian region other than China.
(2) Property, plant and equipment

Japan............................................................................................................................................................................................
U.S.................................................................................................................................................................................................
U.K.................................................................................................................................................................................................
Others.........................................................................................................................................................................................
Total...................................................................................................................................................................................

Millions of yen
12/2017
12/2018¥31,045¥3 1 ,3 2 9
6,667
8 ,1 0 3
13,211
1 2 ,5 7 517,777
1 6 ,7 3 0¥68,701¥6 8 ,7 3 9Thousands of
U.S. dollars
12/2018$ 2 8 2 ,2 4 3
7 3 ,0 0 0
1 1 3 ,2 8 8
1 5 0 ,7 2 0$ 6 1 9 ,2 7 0

Millions of yen
12/2017
12/2018¥2,423103¥2,526-

Thousands of
U.S. dollars
12/2018-

2. Information regarding major customers
There were no customers who represented more than 10% of the consolidated sales.
3. Information regarding impairment loss on fixed assets by reporting segment

Automotive Test Systems.............................................................................................................................................
Scientific Instruments & Systems...........................................................................................................................
Total...................................................................................................................................................................................

4. Information regarding the amortized amount and unamortized balance of goodwill by reporting segment

Automotive Test Systems.............................................................................................................................................
Scientific Instruments & Systems...........................................................................................................................
Total...................................................................................................................................................................................

Millions of yen
12/2017
12/2018¥14¥8 0 7179
93¥194¥9 0 1Thousands of
U.S. dollars
12/2018$ 7 ,2 7 0837$ 8 ,1 1 7

Note. Information regarding the "Amortized amount of goodwill" is omitted as similar information is disclosed in "Segment Information."
5. Information regarding gain on bargain purchase by reporting segment
Information regarding the "gain on bargain purchase by reporting segment" is omitted because of its immateriality in 2018.

31

HORIBA, Ltd. (Consolidated)18. Related party transactions
Not applicable.
19. Subsequent events
Not applicable.

32

HORIBA, Ltd. (Consolidated)

33

HORIBA, Ltd. (Consolidated)