Consolidated Financial Statements
MITSUI E&S Co., Ltd.
and Consolidated Subsidiaries
For the Years ended March 31,
2023 and 2022
Together with Independent
Auditor’s ReportContents
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets ······························································································· 1
Consolidated Statements of Operations ··················································································· 3
Consolidated Statements of Comprehensive Income ··································································· 4Consolidated Statements of Changes in Net Assets ····································································· 5Consolidated Statements of Cash Flows ·················································································· 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS··································································································································· 8

INDEPENDENT AUDITOR’S REPORT··································································································································· 55

Definition of Abbreviations
Abbreviations

Definition

the Group

MITSUI E&S Co., Ltd. and its consolidated subsidiaries(MITSUI E&S Group)

the Company

MITSUI E&S Co., Ltd. on a standalone basis

2022

Fiscal year ended March 31, 2022

2023

Fiscal year ended March 31, 2023

Exchange Rate During the Period
Currency

2023

U.S. Dollar

133.53 yen

Consolidated Financial Statements
Consolidated Balance Sheets
As of March 31, 2023 and 2022

ASSETS
Japanese Yen(millions)

Current Assets
Cash and time deposits (Notes 1(q) , 2(f) and 6)

2023¥

U.S.Dollars(thousands)(Note 1(a))

2022
45,804¥2023
51,762$

343,024

Receivables
Trade, and contract assets (Note 2(b))

81,851

78,564

612,978

Others

6,586

5,900

49,322

Allowance for doubtful accounts

(354)

(214)

(2,651)

6,096

5,762

45,653Merchandise and finished goods
Raw materials and supplies

6,137

4,183

45,960Work in progress

46,79936,562

350,476

OthersTotal current assets

19,71019,303

147,607

212,629

201,822

1,592,369

Property, Plant and Equipment
Land (Notes 2(e) and 2(f))

68,54470,078513,323

Buildings and structures (Note 2(c) and 2(f))

115,911130,455

868,052

Machinery, equipment and vehicles (Note 2(c))

82,462

87,110617,554

Lease assets (Note 2(c))

12,747

12,061

95,462

Construction in progress

3,166

2,160

23,710282,830

301,864

2,118,101(167,063)(183,525)(1,251,127)

115,767

118,339866,974

15,503

16,042

116,101

515,255

Less accumulated depreciation
Net property, plant and equipment (Note 2(g))

Intangible Assets
Intangible assets

Investments and Other Assets
Investment securities (Notes 2(a) , 2(f) and 9)

68,80243,280Long-term loans (Note 2(f))

2,126

2,130

15,921

Net defined benefit assets (Note 11)

9,957

10,91774,567

Deferred tax assets (Note 13)

2,984

2,670

22,347

Others (Note 2(a))

12,477

14,24993,440

(285)

(299)

(2,134)96,061

72,947719,396

Allowance for doubtful accounts
Total investments and other assets
Total assets¥

439,960

The accompanying notes to the consolidated financial statements are integral parts of these statements.

- 1 -

¥

409,150$

3,294,840

LIABILITIES AND NET ASSETS
Japanese Yen(millions)

Current Liabilities
Short-term borrowings (Notes 2(h), 2(i) and 21)

2023¥

U.S.Dollars(thousands)(Note 1(a))

2022

115,246¥

2023
94,615$

863,072

Current portion of long-term indebtedness (Notes 2(f) , 2(i) and 21)

14,375

23,101

Lease obligations

1,863

1,808

13,952

Trade payables

54,93948,706

411,435

Contract liabilities

25,30030,901

189,470

Accrued expenses

39,312

4,120

294,406

797

1,381

5,969

14,02659,608105,040
17,996

Accrued income taxes (Note 13)
Provision for losses on construction contracts (Note 1(l))

107,654

Provision for construction warranties (Note 1(k))

2,403

2,780

Provision for bonuses (Note 1(m))

4,059

4,479

30,398Others

14,66017,012

109,788286,980

288,5112,149,180

Long-term indebtedness (Notes 2(f), 2(i) and 21)

11,92824,65889,328

Lease obligations

7,061

6,497

52,880

853

1,357

6,388

5,049

5,866

37,812On revaluation reserve for land (Notes 2(e) and 13)

12,242

12,242

91,680

Others (Note 13)

1,846

3,177

13,825

Asset retirement obligations

1,729

2,219

12,948Others

1,586

1,674

11,877

Total long-term liabilities

42,29457,690316,738

Total liabilities

329,274

346,201

2,465,918

Share capital

3,830

44,38528,683

Capital surplus

10,553

18,132

79,031Retained earnings

42,292(33,278)

316,723

Treasury stock(34,696)

Total current liabilities

Long-term Liabilities

Provision for business restructuring (Note 1(n))
Net defined benefit liabilities (Note 11)
Deferred tax liabilities

Net Assets (Note 19)(4,633)(4,664)

Net unrealized holding gains on securities (Note 9)

48

615

359

Unrealized gains (losses) on hedging derivatives

8,310(5,960)62,233

Revaluation reserve for land (Note 2(e))

27,601

27,603

206,702

Foreign currency translation adjustments

10,692

2,120

80,072Remeasurements of defined benefit plans (Note 11)

7,711

8,138

57,747

Subscription rights to shares

133

124

996

Non-controlling interests

4,149

5,734

31,072

Total net assets

110,686

62,949828,922

Total liabilities and net assets

¥

- 2 -

439,960¥

409,150$

3,294,840

Consolidated Statements of Operations
For the Years Ended March 31, 2023 and 2022
Japanese Yen(millions)2023
Net Sales (Note 3(a))¥

Cost of Sales (Note 3(c),(g) and (h))
Gross Profit
Selling, general and administrative expenses (Note 3(b),(c))
Operating income (loss)

U.S.Dollars(thousands)(Note 1(a))

2022

262,301¥

2023

579,364$

1,964,360

225,376

550,611

1,687,830

36,92528,753

276,530

27,54938,783

206,314

9,376(10,030)

70,216

Other Income (Expenses)
Interest and dividend income

597

3,906

4,471

Interest expenses(2,882)(2,713)(21,583)

Commission expenses(2,420)(3,821)(18,123)

Share of profit (loss) of entities accounted for using equity method

3,811(14,646)

28,540Foreign currency exchange gains

4,610

1,212

34,525Gain on disposal of non-current assets (Note 3(d))

185

2,356

1,385

Gain on sales of investment securities (Note 9)

686

41

5,137

Gain on sales of subsidiaries and affiliates’ stocks

2,836

6,583

21,239Insurance income

1,337

-

10,013

Recovery of extraordinary repair expenses (Note 3(i))

-

1,316

-

Gain on return of assets from retirement benefit trust

-

1,224

-

Loss on disposal of non-current assets (Note 3(e))

(173)

(381)

(1,296)

Loss on impairment of non-current assets (Note 3(f))

-

(83)

-

Loss on sales of investment securities (Note 9)

-

(137)

-

Loss on sales of subsidiaries and affiliates’ stocks(274)(2,421)(2,052)(1,041)-(7,796)

Loss on liquidation of business

(108)

-

(809)

Others, net

(560)

350

(4,194)

Loss due to transportation accidents

Total

6,604

(7,214)49,457

Profit (loss) before income taxes

15,980(17,244)

119,673

Current

1,371

3,374

10,267

Deferred(1,011)

4,501(7,571)

360

7,875

2,696

15,620(25,119)

116,977

Income Taxes (Note 13)

Profit (loss)
Profit (loss) attributable to non-controlling interests
Profit (loss) attributable to owners of parent

66
¥

- 3 -

15,554(3,294)¥(21,825)494$

116,483

Consolidated Statements of Comprehensive Income
For the Years Ended March 31, 2023 and 2022
Japanese Yen(millions)

2023
Profit (loss)¥

U.S.Dollars(thousands)(Note 1(a))

2022
15,620¥2023(25,119)$

116,977

Other comprehensive income (Note 4)
Net unrealized holding gains (losses) on securities

(572)

422

Unrealized losses on hedging derivatives(848)(1,302)(6,351)

Foreign currency translation adjustments

2,463

5,671

18,445Remeasurements of defined benefit plans(1,111)

2,684(8,320)21,921

8,863

164,166

21,853

16,338

163,656

Share of other comprehensive income ofaffiliates accounted for using equity method
Total
Comprehensive income(4,284)¥37,473¥(8,781)$

280,633

Owners of parent¥

37,400¥(6,832)$280,086

Non-controlling interests

¥

73

¥

(1,949)$547

Comprehensive income attributable to- 4 -Consolidated Statements of Changes in Net Assets
For the Years ended March 31, 2023 and 2022

Balance as of April 1, 2021
Loss attributable to owners of parent
Change of scope of consolidation
Purchases of treasury stock
Disposal of treasury stock
Transfer from revaluation reserve for land
Change in ownership interest of parent due
to transactions with non-controllinginterests
Net changes of items other than those in
Shareholders’ equity
Total changes during the year
Balance as of April 1, 2022

Japanese Yen (millions)Net
Unrealized
Remeasureunrealized
Foreign
gains
Revaluation
ments
Subscription
NonShareCapitalRetained Treasury
holding
currency
Total(losses)
reserveof definedrightscontrolling
capitalsurplusearnings
stock
gains
translation
net assets
on hedging for land
benefitto shares
interests(losses) on
adjustments
derivatives
plans
securities¥ 44,385 ¥ 18,396 ¥ (11,458) ¥ (4,696) ¥193 ¥ (9,767) ¥ 27,609 ¥ (5,828) ¥5,322 ¥
152 ¥ 24,173 ¥ 88,481(21,825)(21,825)
(1)
(1)
(2)
(2)
(6)
34
28
6
6
(258)

(264)
¥

44,385 ¥(258)(21,820)

18,132 ¥ (33,278) ¥Issuance of new shares
6,330
4,957
Capital reduction(46,885)
46,885
Deficit disposition(60,015)
Profit attributable to owners of parent
Purchases of treasury stock
Disposal of treasury stock(7)
Transfer from revaluation reserve for land
Change in ownership interest of parent due
to transactions with non-controlling601
interests
Net changes of items other than those in
Shareholders’ equity
Total changes during the year
(40,555)(7,579)Balance as of March 31, 2023¥
3,830 ¥ 10,553 ¥

422

3,807

(6)

7,948

2,816

(28)

(18,439)(3,480)

32

422

3,807

(6)

7,948

2,816

(28)

(18,439)(25,532)(4,664) ¥615 ¥(5,960) ¥27,603 ¥2,120 ¥

8,138 ¥

124 ¥

5,734 ¥

62,94911,287
15,554(1)25
160,015
15,554
(1)
32
1

601

75,57042,292 ¥31(4,633) ¥(567)

14,270

(2)

8,572

(427)

9

(567)
48 ¥

14,2708,310 ¥

(2)
27,601 ¥

8,572
10,692 ¥(427)
7,711 ¥

9133 ¥

(1,585)

20,270(1,585)47,737
4,149 ¥ 110,686

U.S.Dollars (thousands) (Note 1(a))
Net
Unrealized
Remeasureunrealized
Foreign
gains
Revaluation
ments
Subscription
NonShareCapitalRetained Treasury
holding
currency
Total(losses)
reserveof definedrightscontrolling
capitalsurplusearnings
stock
gains
translation
net assets
on hedging for land
benefitto shares
interests(losses) on
adjustments
derivatives
plans
securities
Balance as of April 1, 2022
$ 332,397 $ 135,790 $ (249,217) $ (34,928) $4,606 $ (44,634) $ 206,718 $ 15,878 $ 60,945 $929 $42,942 $ 471,426
Issuance of new shares
47,40537,12384,528
Capital reduction(351,119) 351,119
Deficit disposition(449,450) 449,450
Profit attributable to owners of parent
116,483
116,483
Purchases of treasury stock(7)(7)
Disposal of treasury stock
(52)
239
187
Transfer from revaluation reserve for land
7
7
Change in ownership interest of parent due
to transactions with non-controlling
4,501
4,501
interests
Net changes of items other than those in(4,247) 106,867(16)
64,194(3,198)67(11,870)
151,797
Shareholders’ equity
Total changes during the year
Balance as of March 31, 2023$

(303,714)(56,759) 565,940
232
28,683 $ 79,031 $ 316,723 $ (34,696) $(4,247) 106,867(16)
359 $ 62,233 $ 206,702 $- 5 -64,19480,072 $(3,198)57,747 $67
996 $(11,870)
31,072 $357,496
828,922

Consolidated Statements of Cash Flows
For the Years Ended March 31, 2023 and 2022

Japanese Yen(millions)

Cash Flows from Operating Activities :Profit (loss) before income taxes

2023¥

U.S.Dollars(thousands)(Note 1(a))

2022
15,980¥2023(17,244)$

119,673

Adjustments to reconcile Profit (loss) before income taxes to net cash
provided by (used in) operating activities
Depreciation and amortization
Loss on impairment of non-current assets
Amortization of goodwill
Increase of allowance for doubtful accounts

7,044

10,649-83

52,752
-

901

1,048

6,748
1,153

154

161

Increase in net defined benefit liabilities

1,108

3,183

8,298

Decrease in net defined benefit assets

1,220

438

9,136
(340,920)

Decrease in provision for losses on construction contracts(45,523)(12,063)

Increase in provision for repairs

-

417

-

Interest and dividend income(597)(3,906)(4,471)

Interest expenses

2,882

2,713

21,583

Share of (profit) loss of entities accounted for using equity method(3,811)

14,646(28,540)

Foreign currency exchange losses, net

30

3,854

225

Loss (gain) on sales of investment securities, net

(686)

96

(5,137)

Gain on sales of subsidiaries and affiliates’ stocks(2,562)(4,162)(19,187)(12)(1,975)(89)(1,337)-(10,013)

Trade receivables and contract assets(6,500)(49,246)(48,678)

Inventories(13,055)

16,862(97,768)

Other assets(1,916)(4,048)(14,349)

Trade payables

44,101

23,998330,270

Contract liabilities(3,552)43,495(26,601)

Other liabilities(3,138)(51,128)(23,500)

Others, net(2,431)(2,635)(18,206)

Sub-total(11,700)(24,764)(87,621)

Interest and dividend received

1,143

10,1728,560

Interest paid

(2,982)(2,864)(22,332)

Gain on disposal of non-current assets, net
Insurance income
Changes in assets and liabilities :Decrease (increase) in

Increase (decrease) in

Proceeds from insurance income

1,337

-

10,013

Income taxes paid

(2,842)(2,810)(21,284)

Net cash provided by (used in) operating activities

¥

- 6 -

(15,044)¥(20,266)$(112,664)

Japanese Yen(millions)

Cash Flows from Investing Activities :2023

U.S.Dollars(thousands)(Note 1(a))

2022

2023

Net increase in time deposits(1,265)(80)(9,474)

Capital expenditure(7,393)(8,981)(55,366)

Proceeds from sales of non-current assets

843

10,134

6,313

Proceeds from sales of investment securities

1,061

262

7,946

3,062

5,941

22,931(637)(60,092)(4,770)-(1,711)

-

543

2,172

4,066

Proceeds from sales of shares of subsidiaries

resulting in change in scope of consolidation
Payments for sales of shares of subsidiaries

resulting in change in scope of consolidation
Purchases of shares of subsidiaries and affiliates
Proceeds from sales of shares of subsidiaries and affiliates
Payments for investments in capital of subsidiaries and affiliates

-

(800)

-

Disbursements of loans receivable(17)(13,043)(127)

Collection of loans receivable

617

367

4,621

Payments for transfer of business-(4,596)

-

186

(497)

1,393

Others, net
Net cash provided by (used in) investing activities¥(3,000)¥(70,924)$(22,467)

Cash Flows from Financing Activities :Net increase in short-term borrowings

20,63028,053

Proceeds from long-term borrowings

1,700

15,51012,731

Repayments of long-term borrowings(8,165)(25,464)(61,147)

154,497

Repayments of lease obligations(1,654)(2,556)(12,387)

Repayments on bonds(15,000)(15,000)(112,334)

9,000

-

67,401

52

-

389

2,270

-

17,000(95)(1,143)

(711)

-

(291)

-

747

1,352

5,594

Proceeds from issuance of preferred shares
Proceeds from issuance of subscription rights to shares
Proceeds from issuance of shares resulting from exercise of subscription
rights to shares
Dividends paid to non-controlling interests
Purchases of shares of subsidiaries not resulting

in change in scope of consolidation
Proceeds from sales of shares of subsidiaries

not resulting in change in scope of consolidation
Others, net
Net cash provided by (used in) financing activities

31
¥

9,516

346
¥

807

232
$

71,265

Effect of Exchange Rate Changes on Cash and Cash Equivalents

1,178

5,659

8,822

Net decrease in Cash and Cash Equivalents(7,350)(84,724)(55,044)

Increase due to changes in scope of consolidation

-

60

-

Cash and Cash Equivalents at Beginning of Year50,818135,482

380,574

Cash and Cash Equivalents at End of Year (Notes 1(q) and 6)

¥

- 7 -

43,468¥50,818$

325,530

Notes to Consolidated Financial Statements
1. Significant Accounting and Reporting Policies·············································································································································································································································

The following is a summary of the significant accounting and reporting policies adopted by the Mitsui E&S Group (the “Group”), which consists of Mitsui
E&S Holdings Co., Ltd. (name changed to MITSUI E&S Co., Ltd. on April 1, 2023) (the “Company”) and its consolidated subsidiaries (the “Subsidiaries”) in
the preparation of the accompanying consolidated financial statements.

(a) Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of the Group have been prepared in accordance with the provisions set forth in the “Japanese Financial
Instruments and Exchange Act” and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese
GAAP”), which are different in certain respects as to application and disclosure requirements from International Financial Reporting Standards.
The accounts of the overseas Subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles
prevailing in the respective countries of domicile (“Local GAAP”) and significant differences between Japanese GAAP and Local GAAP are adjusted inconsolidation. The accompanying consolidated financial statements have been restructured and translated into English from the consolidated financial
statements of the Group prepared in accordance with Japanese GAAP and filed with the appropriate Finance Bureau of the Ministry of Finance as required by
the “Financial Instruments and Exchange Act.” Certain supplementary information included in the statutory Japanese language consolidated financial
statements, but not required for fair presentation, is not presented in the accompanying consolidated financial statements.
The translation of Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at
March 31, 2023, which was ¥133.53 to U.S. $1. The convenience translations should not be construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

(b) Translation of Foreign Currency Accounts
Under Japanese accounting standard for foreign currency translation, monetary assets and liabilities denominated in foreign currencies are translated into
Japanese yen at the exchange rates prevailing at each balance sheet date with the resulting gain or loss included in the current statements of income.
Assets and liabilities of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rates in effect at each balance sheet date, except forshare capital and capital surplus, which are translated at historical rates. Revenue and expense accounts are also translated at the exchange rates in effect ateach balance sheet date.

(c) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Group, over which the Company has power of control through majority
voting rights or existence of certain conditions requiring control by the Company.
Material inter-company balances, transactions and profits have been eliminated in consolidation.
The assets and liabilities of the Subsidiaries, including the portion attributable to non-controlling shareholders, were evaluated using the fair value at the time
the Company acquired control of the respective subsidiaries.
Investments in all significant unconsolidated subsidiaries and affiliates are accounted for using equity method.
Goodwill is generally amortized over certain periods on the straight-line method.
st

Fiscal years of some of the Subsidiaries end on the 31 of December. The Company consolidates these subsidiaries’ financial statements as of eachsubsidiary’s latest fiscal year and significant transactions occurred between each subsidiary’s fiscal year-end and the Company’s fiscal year-end are adjusted
on consolidation.

(d) Securities
The Company and the domestic Subsidiaries examined the intent of holding each security and classified those securities as securities held for trading purposes(“trading securities”), debt securities intended to be held to maturity (“held-to-maturity debt securities”), equity securities issued by subsidiaries and affiliatedcompanies, and all other securities that are not classified in any of the above categories (“available-for-sale securities”). The Company and the domestic
Subsidiaries did not have trading securities or held-to-maturity debt securities.
Equity securities issued by the Subsidiaries and affiliated companies, which are not accounted for using equity method, are stated at moving-average cost.
Available-for-sale securities other than shares without available fair market values are mainly stated at fair market value (valuation difference is recognizeddirectly in a separate component of net assets, and costs of securities sold are calculated using moving average cost). The fair market value is calculated using
mainly market prices on the consolidated balance sheet date. Unrealized gains and losses on these securities are reported, net of applicable income taxes, as aseparate component of net assets. Realized gains and losses on sale of such securities are computed using moving-average cost. Available-for-sale securities
without fair market value available are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliated companies which are notaccounted for using equity method, and available-for-sale securities decline significantly, such securities are stated at fair market value and the difference
between fair market value and the carrying amount is recognized as loss in the period of the decline. If the fair market values of these securities are not readily
available, they should be written down to net asset value with a corresponding charge in the statements of income in the event net asset value declines
significantly. In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.

- 8 -(e) Derivative Transaction and Hedge Accounting
Japanese accounting standard for financial instruments requires the Company and the domestic Subsidiaries to measure derivative financial instruments at fairvalue and to recognize changes in the fair value as gains or losses unless derivative financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges and meet certain hedging criteria, the Group defers recognition of gains or losses resulting from changes
in fair value of derivative financial instruments until the instruments are applied to hedged items.
In cases where forward foreign exchange contracts are used as hedges and meet certain hedging criteria, the forward foreign exchange contracts and hedging
items are accounted for in the following manner.
1) If forward foreign exchange contracts are entered into to hedge existing foreign currency receivables or payables,i. the difference, if any, between the Japanese yen amount of the hedged foreign currency receivables or payables converted by the contracted forward
foreign exchange rate and the book value of the receivables or payables is recognized in the statement of income of the fiscal year in which suchcontracts are entered into, andii. the difference between the Japanese yen amount converted by the contracted forward foreign exchange rate and the Japanese yen amount by spot rate at
the trade date of the contract is allocated to every fiscal period over the term of the contract.
2) If forward foreign exchange contracts are entered into to hedge a future transaction (be contracted but not stated in financial statements) denominated inforeign currency, recognition of gains and losses resulting from fair value of the forward foreign exchange contracts are deferred until the contracts areapplied to the hedged item.
Also, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid or received under the interest rate swap
contract is added to or deducted from the interest on the assets or liabilities for which the swap contract was allocated.

(f) Inventories
Merchandise, finished goods, raw materials and supplies are stated at cost determined mainly by the moving-average method (Balance sheet value reflects
downturn in profitability). Work in progress is stated using identified cost method (Balance sheet value reflects downturn in profitability). Construction costs,
which are accumulated in inventory, consist of direct materials, labor, other items directly attributable to each contract and an allocable portion of generalmanufacturing and construction overheads.

(g) Property, Plant and Equipment and Depreciation
Depreciation of plant and equipment is mainly computed using the straight-line method over their estimated useful lives. Ordinary maintenance and repairs
are charged to the profit and loss account as incurred.

(h) Intangible Assets
Intangible assets primarily consist of software, customer-related assets and goodwill. Software for own use is depreciated using the straight-line method overthe estimated useful life (five years). Customer-related assets is also amortized using the straight-line method based on effected period (mainly eighteen
years). Goodwill is generally amortized using the straight-line method over a reasonable period in which the economic benefits are expected to be realized.

(i) Finance Lease Transactions without Transfer of Ownership
Lessee:The method of amortization of the lease assets related to finance lease transactions without transfer of ownership is by the straight-line method corresponding

to lease period. The residual value is the guaranteed residual value in case such value is set forth in the lease contract but otherwise is zero value.
The method of amortization of the lease assets related to finance lease transactions that transfer ownership is based on the same standard as the depreciation
method that is applied for self-owned non-current assets.
Lessor:Revenues and costs of sales on finance lease transactions, other than those that transfer ownership of the leased property to the lessee, are recognized whenlease payments are received.

(j) Allowance for Doubtful Accounts
In order to provide for credit losses, non-recoverable amount is recorded based on write-off ratio for general accounts. For doubtful accounts, collectability is
examined and recoverable amount is estimated individually.

(k) Provision for Construction Warranties
Provision for construction warranties is provided based on the estimated amounts calculated by using mainly the average proportion of construction
warranties against amounts of construction revenue for past two years.

(l) Provision for Losses on Construction Contracts
Provision for losses on construction contracts, etc., is provided based on an estimate of the total losses which can probably occur for the next fiscal year andbeyond with respect to construction projects, etc., on which eventual losses are deemed inevitable and amounts thereof can reasonably be estimated.

- 9 -(m) Provision for Bonuses
Of the estimated amount of bonuses to be paid, the amount estimated to cover the bonus payment for services rendered in the current fiscal year is recorded inorder to prepare for payment of bonuses to employees.

(n) Provision for Business Restructuring
Provision for business restructuring is provided based on an estimate of the total costs or losses which are expected to be incurred with the businessrestructuring.

(o) Employees’ Severance and Retirement Benefits
In calculating retirement benefit obligations, the benefit formula basis is used to allocate projected retirement benefits over the period to the end of thisconsolidated fiscal year. Actuarial gains and losses are recognized in the Consolidated Statements of Operations commencing with the following year using
the straight-line method mainly for five or ten years. Prior service costs are recognized in the Consolidated Statements of Operations using the straight-line
method mainly for one or five years.
After being adjusted for tax effect, unrecognized actuarial gains and losses, unrecognized prior service costs are added to “Remeasurements of defined benefit
plans”, an item within “Accumulated other comprehensive income (net assets).”(p) Revenue Recognition
The Group recognizes revenue based on the following five-step approach.
Step 1: Identify the contract with the customer
Step 2: Identify performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the separate performance obligations
Step 5: Recognize revenue when (or as) each performance obligation is satisfied
Details of major performance obligations in principal businesses related to revenue from contracts with customers of the Company and its consolidated
subsidiaries, and normal timing of satisfying these performance obligations (normal timing of recognizing revenue) are as follows:
1) Sales of products
The Group is engaged in sales and provision of after-sales services of marine propulsion engines etc. in the Machinery business, and assumes performanceobligations to deliver goods or services on its own under contracts with customers. As for these performance obligations, revenue is mainly recognizedwhen goods or services are delivered to customers because the Group determines that the control is transferred to the customers when the goods or services
are delivered. As for sales of parts related to after-sales services in the Machinery business, the alternative treatment stipulated in paragraph 98 of the“Implementation Guidance on Accounting Standard for Revenue Recognition” is applied, and revenue is recognized when the parts are shipped if theperiod from the shipment to the transfer of the control of the parts to the customer is a standard period. In many cases, consideration for transactions isreceived within three months from the time when the performance obligation is satisfied, and does not contain any significant financial component.
2) Construction contracts and provision of services
The Group has entered into various long-term construction contracts, such as contracts to build cranes in the Machinery business, and agreements toprovide services, etc. For these construction contracts and the provision of services, because the Group has determined that the actual costs incurred areproportional to the work progress in satisfying the performance obligations, the Group principally estimates the work progress towards satisfaction of theperformance obligations and recognizes revenue over a certain period of time based on this work progress. The work progress is measured for each contract
based on the proportion of construction cost incurred by the balance sheet date to the estimated total construction cost. Consideration for these performanceobligations is received in stages during the contract period based on payment terms under the contract with the customer, separately from satisfaction of theperformance obligations in normal cases, and the remaining amount is received after a certain period of time from the time when all the performanceobligations are satisfied. The consideration does not contain any significant financial component.

(q) Cash and Cash Equivalents
In preparing the Consolidated Statements of Cash Flows, Cash and Cash Equivalents consists of cash on hand, readily available deposits including short-termloans and short-term highly liquid investments with maturities not exceeding three months at the time of purchase which involve only an insignificant risk intheir movements of value.

(r) Income Taxes
Deferred income tax is recognized from temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting.
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences.

- 10 -

(s) Significant Accounting Estimates
1) Estimating total construction cost for provision for losses on construction contracts
As stated in “1. Significant Accounting and Reporting Policies, (l) Provision for Losses on Construction Contracts” in the notes to consolidated financial

statements, in order to provide for losses on construction contracts, the Group records an estimated amount of loss for the following and subsequent fiscal
years as Provision for Losses on Construction Contracts when a loss is expected to be recognized for undelivered construction, etc. in the fiscal year underreview and such amounts can be reasonably estimated.
The total amount of provision for losses on construction contracts recorded as of March 31, 2022 and 2023, and major components were as follows.
Japanese Yen (millions)

2023
Provision for losses on construction contracts

U.S.Dollars (thousands)

2022

¥

14,026¥2023
59,608$105,040

Of the above, provision for losses on construction contracts

related to the civil engineering construction project for a

12,78158,43095,716

thermal power plant in the Republic of Indonesia

The estimate for the total construction cost for the aforementioned construction work was calculated by specifying the content of all the operations required
for the completion of the construction contract, and including the estimated cost of executing that content in the budget. With respect to this particularconstruction, however, the power plants has already commenced commercial operation, and the remaining work is limited to parts of the plants that will notaffect its operation. Meanwhile, financial uncertainty has decreased compared to the previous fiscal year, as a result of the settlement of costs with relatedcompanies and the conclusion of forward foreign exchange contracts.
2) Valuation of goodwill
The total amount of goodwill recorded as of March 31, 2022 and 2023, and major components were as follows.
Japanese Yen (millions)2023
Goodwill

U.S.Dollars (thousands)

2022

¥

7,626

¥

2023
7,996

$

57,111Of the above, goodwill allocated to the ship engineeringbusiness which arose when MES Germany Beteiligungs

GmbH, a consolidated subsidiary in the ship segment of the

7,608

7,977

56,976

Group located in Germany, acquired control of TGE
Marine AG

MES Germany Beteiligungs GmbH applies International Financial Reporting Standards (IFRS), and for the cash generating unit to which goodwill is
included, impairment tests are required to be carried out on an annual basis in addition to when indicators of impairment have been identified.
The value in use is used for the recoverable amount for impairment tests on goodwill, and the future cash flows that are used to measure this value in use
are estimated on the basis of the medium-term business plan for the ship engineering business, including the growth forecast for the LNG tanker market,
etc. and the medium-term plan for orders.
Although the Group deems that the possibility of a significant impairment loss arising is low based on the result of the most recent impairment test, if therecoverable amount falls below the carrying amount, the carrying amount will be reduced to the recoverable amount, and the amount of that decrease incarrying amount will be recognized as impairment loss, and it is possible that such impairment loss could have a significant effect on the Group’s financial
position, business results and cash flow position.
3) Revenue recognition based on the work progress towards satisfaction of performance obligations

As stated in “1. Significant Accounting and Reporting Policies, (p) Revenue Recognition, 2) Construction contracts and provision of services” in the notes
to consolidated financial statements, when the control of goods or services is transferred to the customer over a certain period of time, the work progress
towards satisfaction of performance obligations is estimated and revenue is recognized based on this work progress.
In applying the method where the work progress towards satisfaction of performance obligations is estimated and revenue is recognized based on this work
progress, the Group recognizes revenue based on the work progress calculated at the proportion of construction cost incurred according to the progress ofconstruction as at the end of the current fiscal year to the estimated total construction cost. The amount recorded in the consolidated financial statements forthe year ended March 31, 2023, was as follows:
Japanese Yen (millions)

2023
Revenue based on the work progress towards satisfaction of
performance obligations¥

U.S.Dollars (thousands)

2022
82,211¥

2023
338,173$615,674

If there is a change in the estimate for the total cost of construction arising from a need to revise the assumptions upon which such estimate was based, theeffect of such change shall be recognized for the fiscal year in which such effect can be reliably estimated. It is possible that there will be changes from theinitial estimate of the total construction cost due to changes in the incurred costs arising from assumptions, the progress of construction, etc., and that might
have a significant effect on the Group’s financial position, business results and cash flow position.

- 11 -

(t) Accounting Standards and Guidance Issued but not yet Applied- “Accounting Standard for Current Income Taxes, etc.” (ASBJ Statement No. 27, October 28, 2022)- “Accounting Standard for Presentation of Comprehensive Income” (ASBJ Statement No. 25, October 28, 2022)- “Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28, October 28, 2022)
1) Outline:
In February 2018, ASBJ Statement No. 28 “Partial Amendments to Accounting Standard for Tax Effect Accounting, etc.” (“ASBJ Statement No. 28, etc.”)
was issued, thereby completing the transfer of jurisdiction concerning the practical guidelines on tax effect accounting from The Japanese Institute ofCertified Public Accountants to the Accounting Standards Board of Japan. The above statement was issued based on a debate regarding the following two
points, which had, in the course of deliberations for the aforementioned transfer of jurisdiction, been scheduled to be reviewed after the issuance of ASBJ
Statement No. 28, etc.
- Accounting classification for tax expenses (taxation of other comprehensive income)- Tax effects concerning sales of the shares of subsidiaries, etc. (shares of subsidiaries or shares of affiliates) under the group taxation regime2) Planned date of application:
To be applied from the beginning of the fiscal year ending March 31, 2025.
3) Impact of application of the accounting standards:
The impacts of the application of the “Accounting Standard for Current Income Taxes, etc.” and others on the Group’s consolidated financial statements
are currently being evaluated.

(u) Changes in Presentation
Consolidated Balance Sheets“Short-term loans,” which was presented individually in “Current assets” in the year ended March 31, 2022, has been included in “Others” from the year
ended March 31, 2023, since its materiality in amount has decreased. Consolidated financial statements for the year ended March 31, 2022, have been
reclassified in order to reflect this change in presentation.
As a result, in the consolidated balance sheets as of March 31, 2022, ¥18 million previously presented in “Short-term loans” under “Current assets” has been
reclassified as “Others.”“Advances from customers”, which was presented individually in “Current liabilities” in the year ended March 31, 2022, has been included in “Others” fromthe year ended March 31, 2023, since its materiality in amount has decreased. Consolidated financial statements for the year ended March 31, 2022, have been
reclassified in order to reflect this change in presentation.
As a result, in the consolidated balance sheets as of March 31, 2022, ¥329 million previously presented in “Advances from customers” under “Current
liabilities” has been reclassified as “Others.”

Consolidated Statements of Operations“Gain on valuation of derivatives,” which was presented individually in “Other income” in the year ended March 31, 2022, did not arise in the year ended
March 31, 2023. Consolidated financial statements for the year ended March 31, 2022, have been reclassified in order to reflect this change in presentation.
As a result, in the consolidated statements of operations for the year ended March 31, 2022, ¥20 million previously presented in “Gain on valuation ofderivatives” under “Other income” has been reclassified as “Others, net.”

Consolidated Statements of Cash Flows
A part of “Decrease (increase) in trade receivables” which was presented individually in “Cash Flows from Operating Activities” in the year ended March 31,
2022, has been split and included in “Increase (decrease) in contract liabilities” and “Increase (decrease) in other liabilities” from the year ended March 31,
2023, for the purpose of providing a clarified presentation that better reflects the actual situation, taking the recent withdrawal from the ship business as anopportunity. “Decrease (increase) in trade receivables,” which was presented individually in “Cash Flows from Operating Activities” in the year ended March
31, 2022, has been renamed as “Decrease (increase) in trade receivables and contract assets” from the year ended March 31, 2023. Consolidated financial
statements for the year ended March 31, 2022, have been reclassified in order to reflect these changes in presentation.
As a result, in the consolidated statements of cash flows for the year ended March 31, 2022, (¥67,372) million previously presented in “Decrease (increase) intrade receivables” under “Cash Flows from Operating Activities” and ¥10,493 million previously presented in “Increase (decrease) in other liabilities” havebeen reclassified as (¥49,246) million in “Decrease (increase) in trade receivables and contract assets,” ¥43,495 million in “Increase (decrease) in contract
liabilities”, and (¥51,128) million in “Increase (decrease) in other liabilities.”“Purchases of investment securities,” which was presented individually in “Cash Flows from Investing Activities” in the year ended March 31, 2022, has been
included in “Others, net” from the year ended March 31, 2023, since its materiality in amount has decreased. Consolidated financial statements for the year
ended March 31, 2022, have been reclassified in order to reflect this change in presentation.
As a result, in the consolidated statements of cash flows for the year ended March 31, 2022, ¥(1) million previously presented in “Purchases of investment
securities” under “Cash Flows from Investing Activities” has been reclassified as “Others, net.”- 12 -

2. Consolidated Balance Sheets·············································································································································································································································(a) Investments in Unconsolidated Subsidiaries and Affiliates
Investments in unconsolidated subsidiaries and affiliates included in investment securities as of March 31, 2023 and 2022 were ¥65,929 million ($493,739
thousand) and ¥39,199 million, respectively. Investments in unconsolidated subsidiaries and affiliates included in other assets as of March 31, 2023 and 2022
were ¥9,775 million ($73,205 thousand) and ¥11,345 million, respectively.

(b) Trade Receivables from Contracts with Customers and Contract Assets
The notes receivable, accounts receivable and contract assets (arising from contracts with customers and contract assets) as of March 31, 2023 and 2022 wereas follows:
Japanese Yen (millions)2023
Notes receivable¥

U.S. Dollars (thousands)

2022
4,928

¥

2023
4,689

$

36,906

Accounts receivable

50,58446,074

378,821

Contract assets

26,33027,788

197,184(c) Accumulated Impairment Losses Included in Accumulated Depreciation
Accumulated impairment losses included in accumulated depreciation as of March 31, 2023 and 2022 were ¥13,404 million ($100,382 thousand) and ¥14,638
million, respectively.

(d) Contingent Liabilities
1) Contingent liabilities of the Group as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023
Guarantees of bank loans and other indebtedness¥

U.S. Dollars (thousands)

2022
1,314

¥

2023
1,446

$

9,840

2) Others
Two companies, namely, Burmeister & Wain Scandinavian Contractor A/S and BWSC (Mauritius) Ltd., consolidated subsidiaries of Mesco Denmark A/S,
received a document giving notice of additional levies in August 2020, as a result of tax examinations for the years from 2016 to 2019 by the Mauritius
Revenue Authority. However, the Group believes that the two companies that received the indication have appropriately filed tax returns in accordance withthe local tax law, and has submitted a written counterargument against the additional levies to the authorities. Therefore, the impacts of this indication havenot been recorded as liabilities in the consolidated financial statements for the year ended March 31, 2023, and the Company recognizes that this will have nomajor impact on its operating results in the future.

(e) Revaluation Reserve for Land
The land used for business operations is revaluated based on real estate tax value on March 31, 2000, in accordance with Enforcement Ordinance for the Law
Concerning Revaluation Reserve for Land (the “Law”) effective March 31, 1998. The related unrealized gain, net of income taxes was recorded as“Revaluation reserve for land” in Net assets and the deferred income tax effects were recorded as Deferred tax liabilities on “Revaluation reserve for land” inLong-term liabilities.
According to the Law, revaluation of the land is not permitted at any time after the above revaluation even in cases where the fair value of the land declines.
Such unrecorded revaluation losses are ¥31,032 million ($232,397 thousand) and ¥30,862 million as of March 31, 2023 and 2022, respectively. That amounts
related to rental properties are ¥10,523 million ($78,806 thousand) and ¥9,407 million as of March 31, 2023 and 2022, respectively.

(f) Pledged Assets
Assets pledged as collateral for long-term indebtedness as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023
Land

¥

U.S. Dollars (thousands)

2022
2,692

¥

2023
3,240

$

20,160

Buildings and structures

1,273

1,387

9,533

Investment securities

638

638

4,778

Cash and time deposits

26

24

195

2,095

2,095

15,689Long-term loans
Total

¥

6,724

¥

7,385

$

50,355Long-term indebtedness secured by the above pledged assets as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)2023
Long-term indebtedness

¥

1,699

(note) Long-term indebtedness include the current portion.

- 13 -

U.S. Dollars (thousands)

2022
¥

2023
1,981

$

12,724

(g) Tax Purpose Reduction Entry
The amounts of tax purpose reduction entries deducted from the acquisition cost of property, plant and equipment acquired through national subsidies, etc. asof March 31, 2023 and 2022 were ¥898 million ($6,725 thousand) and ¥898 million, respectively.

(h) Unexecuted Balance of Overdraft Facilities and Lending Commitments
The unexecuted balance of overdraft facilities and lending commitments at the Group as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)2023
Total overdraft facilities and lending commitments¥

Unexecuted balance

2022
135,351

Less amounts currently executed¥

44,6002023
119,401

90,751¥

U.S. Dollars (thousands)$

1,013,637

73,501¥45,900679,630$

334,007(i) Financial CovenantsLong-term borrowings include those based on syndicated loan contracts and commitment line contracts entered into between the Company and financial
institutions, which are subject to financial covenants. Main covenants are as follows:
Syndicated loans (Long-term borrowings, current portion of long-term borrowings):•At the end of each fiscal year, total shareholders’ equity in the consolidated balance sheets must be maintained above a defined level.
•Ratings by rating agencies must be maintained above a defined level.
Commitment line contracts (short-term borrowings):•At the end of each fiscal period (including quarter period), total shareholders’ equity in the consolidated balance sheets must be maintained above a definedlevel.
The balance of short-term borrowings and long-term borrowings based on such contracts as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)2023
Short-term borrowings

¥

Total

2022
90,741Long-term borrowings¥¥

90,741(note) Long-term borrowings include the current portion.

- 14 -U. S. Dollars (thousands)

2023
72,491$

679,555$

679,555

1,500¥

73,991-

3. Consolidated Statements of Operations·············································································································································································································································(a) Revenue from Contracts with Customers
For net sales, revenue from contracts with customers and other revenues are not stated separately. Revenue from contracts with customers is stated in Note 16“Revenue Recognition (a) Disaggregation of Revenue."(b) Main Expense Items and Amounts under Selling, General and Administrative Expenses are as Follows:
Japanese Yen (millions)2023
Remuneration, salaries and allowances for directors (andother officers)¥

U.S.Dollars (thousands)

2022
11,942¥2023
17,286$89,433(c) Costs Relating to Research and Development Activities Included in the Profit and Loss Account as Incurred are as Follows:
Japanese Yen (millions)2023
Costs relating to research and development activities¥

U.S.Dollars (thousands)

2022
1,762

¥

2023
2,101

$

13,196(d) Details of Gain on Disposal of Non-current Assets are as Follows:
Japanese Yen (millions)

2023
Buildings and structures¥

U.S.Dollars (thousands)

2022
68

Machinery, equipment and vehicles

6

¥

2023
22

$

509

2,516

45

Land

98

2

734

Others13

18

97

Removal cost

-

(202)

Total

¥

185

¥

2,356

$

1,385

(e) Details of Loss on Disposal of Non-current Assets are as Follows:
Japanese Yen (millions)

2023
Buildings and structures¥

6

Machinery, equipment and vehicles

U.S.Dollars (thousands)

2022
¥

54

2023
77

$

45

21

404
67

Land

9

-

Others

13

151

98

Removal cost

91

132

682

Total

¥

173

- 15 -

¥

381

$

1,296

(f) Loss on Impairment of Non-current Assets
The Group adopted the accounting standard for impairment of non-current assets. The non-current assets are grouped by each segment. Idle non-current assets
are grouped individually. The book value of the non-current assets is reduced to the collectable amount.
The loss on impairment of non-current assets for the years ended March 31, 2023 and 2022 were comprised of the following.

2023
Not applicable

2022
Location: Chuo-ku, Tokyo and Ichihara City, Chiba Prefecture

Major use

: Business assets

Asset category: Construction in progress, etc.

Amount: ¥55 million

Reason: Deterioration of business environment

Location: Chiba City, Chiba Prefecture and Fukuoka City, Fukuoka Prefecture

Major use

: Assets to be disposed

Asset category: Facilities attached to buildings, etc.

Amount: ¥28 million

Reason: Determination of disposal(g) Ending Inventory is Presented at an Amount after Reduction of Book Value due to Declining Profitability, and Cost of Sales
Includes Loss on Valuation of Inventories, as Follows (Deduction of Reversal of the Provision from Cost of Sales is Shown inBrackets):
Japanese Yen (millions)

2023
Loss on valuation of inventories

U.S.Dollars (thousands)

2022

¥

(60)

¥

2023
(88)

$

(449)

(h) Provision for Loss on Construction Contracts Included in the Cost of Sales is as Follows (Deduction of Reversal of theProvision from Cost of Sales is Shown in Brackets):
Japanese Yen (millions)

2023
Provision for loss on construction contracts¥

U.S.Dollars (thousands)

2022(45,582)¥2023(17,436)$(341,361)(i) Details of Recovery of Extraordinary Repair Expenses are as Follows:
In the year ended March 31, 2020, the estimated amount of repair expenses and related expenses paid for FPSO Cidade do Rio de Janeiro MV14, of whichcharter services were provided by MODEC, Inc. that was a consolidated subsidiary of the Company (currently, affiliate accounted for using equity method)and its consolidated subsidiaries (whose fiscal year ends in December) off the coast of Brazil, were recorded as extraordinary repair expenses. However, in theyear ended March 31, 2022, because the extraordinary repair expenses could be partially recovered from affiliates, the recovered amount was fully recorded inrecovery of extraordinary repair expenses.

- 16 -

4. Comprehensive Income·············································································································································································································································

Each component of other comprehensive income for the years ended of March 31, 2023 and 2022 were the following:
Japanese Yen (millions)

2023

U.S.Dollars (thousands)

2022

2023

Net unrealized holding gains (losses) on securities:
Amount of generation at this fiscal term

¥

119

¥

156

$

891

Amount of rearrangement adjustment

(917)

340

(6,867)

Before adjusting the tax effect

(798)

496

(5,976)

Tax effect

226

(74)

1,692

Net unrealized holding gains (losses) on securities

(572)

422

(4,284)(1,430)(2,029)(10,709)

-

592

-

(1,430)(1,437)(10,709)

Unrealized losses on hedging derivatives:
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effect

582

135

4,358

Unrealized losses on hedging derivatives(848)(1,302)(6,351)

2,463

5,787

18,445

-

(116)

-

2,463

5,671

18,445

Foreign currency translation adjustments:
Amount of generation at this fiscal term
Amount of rearrangement adjustment
Before adjusting the tax effectTax effectForeign currency translation adjustments

-

-

-

2,463

5,671

18,445Remeasurements of defined benefit plans:
Amount of generation at this fiscal term

1,788

6,953

13,390

Amount of rearrangement adjustment(3,244)(3,294)(24,294)

Before adjusting the tax effect(1,456)

3,659(10,904)

345

(975)

2,584

(1,111)

2,684(8,320)21,954

8,861

164,413

(33)

2

(247)

21,921

8,863

164,166

Tax effectRemeasurements of defined benefit plans
Share of other comprehensive income of affiliates accounted for using
equity method:Amount of generation at this fiscal term
Amount of rearrangement adjustment
Share of other comprehensive income of affiliates accounted forusing equity method
Total

¥

- 17 -

21,853¥

16,338$

163,656

5. Consolidated Statements of Changes in Net Assets·············································································································································································································································(a) Class and number of issued shares
2023

Number of shares (Thousands of shares)
At the beginning of theperiodCommon stock
Class-A preferred shares
Total

At the end of theperiodIncrease in the period

Decrease in the period

83,099

6,638

-

-

18,000-18,00083,09924,638-

107,737

89,737(note 1) The increase of 6,638 thousand shares in the number of Common stock issued is due to the exercise of subscription rights to shares.
(note 2) The increase of 18,000 thousand shares in the number of Class-A preferred shares issued is due to the issuance of new shares by third-party allotment.

2022

Number of shares (Thousands of shares)
At the beginning of theperiodIncrease in the period

Decrease in the period

83,099--Common stock

At the end of theperiod83,099(b) Class and number of treasury stock2023

Number of shares (Thousands of shares)

Common stock

At the beginning of theperiodIncrease in the period

Decrease in the period

2,239

4

16

At the end of theperiod2,227(note 1) Reason for the increase in the number of shares is as follows:
Increase due to requests for the purchase of shares less than one share unit: 4 thousand shares(note 2) Reason for the decrease in the number of shares is as follows:
Decrease due to requests for the additional purchase of shares less than one share unit: 0 thousand shares
Decrease due to the exercise of subscription rights to shares (stock options): 16 thousand shares

2022

Common stock

Number of shares (Thousands of shares)
At the beginning of theperiodIncrease in the period

Decrease in the period

2,250

5

16

(note 1) Reason for the increase in the number of shares is as follows:
Increase due to requests for the purchase of shares less than one share unit: 5 thousand shares(note 2) Reason for the decrease in the number of shares is as follows:
Decrease due to requests for the additional purchase of shares less than one share unit: 0 thousand shares
Decrease due to the exercise of subscription rights to shares (stock options): 16 thousand shares- 18 -At the end of theperiod2,239

(c) Subscription rights to shares and treasury stock subscription rights
2023
Category

Description of subscription
rights to shares
Subscription rights to sharesas stock options

Class of theshares underlying
the subscription
rights to shares

Number of shares underlying the subscription rights
to shares (thousands of shares)
At theAt the end
beginning Increase in Decrease inof theof thethe period
the period
periodperiodJapanese Yen(millions)

U.S. Dollars(thousands)

Balance at theend of theperiodBalance at theend of theperiod

-

-

-

-

-

¥

98

$

734

Common stock-

20,0006,638

13,362

¥

35

$

262

-

20,0006,638

13,362

¥

133

$

996

Subscription rights to shares
Parentcompany

through the third-party
allotment(the first subscription rights
to shares with exercise priceamendment clause)

Total(note 1) The reason for the increase in the subscription rights to shares through the third-party allotment in the period is the issuance of the first subscription
rights to shares with exercise price amendment clause.
(note 2) The reason for the decrease in the subscription rights to shares through the third-party allotment in the period is the exercise of the first subscription
rights to shares with exercise price amendment clause.

2022
Category

Parentcompany

Description of subscription
rights to shares
Subscription rights to sharesas stock options

Class of theshares underlying
the subscription
rights to shares

Number of shares underlying the subscription rights
to shares (thousands of shares)
At theAt the end
beginning Increase in Decrease inof theof thethe period
the period
periodperiod

-

-

-

-

-

Japanese Yen(millions)
Balance at theend of theperiod¥124(d) Dividends
1) Amount of dividends paid
2023
Not applicable2022
Not applicable2) Dividends with a record date belonging to the fiscal year under review, but an effective date belonging to the next fiscal year
2023
Resolution

Class of shares

Source of dividends

Ordinary General
Meeting ofCommon stock

Retained earnings

Shareholders

Class-A(June 28, 2023)

preferred shares

Retained earnings

Total amount ofdividends

Dividend pershare¥ 263 million¥ 3.00($ 1,970 thousand)($ 0.022)¥ 529 million¥ 29.38($ 3,962 thousand)($ 0.220)

2022
Not applicable- 19 -

Record date

Effective date

March 31, 2023

June 29, 2023

March 31, 2023

June 29, 2023

6. Cash Flow Statement·············································································································································································································································

Reconciliation of cash and time deposits shown in the Consolidated Balance Sheets and cash and cash equivalents in the Consolidated Statements of Cash
Flows as of March 31, 2023 and 2022 were as follows.
Japanese Yen (millions)2023
Cash and time deposits¥

Cash and cash equivalents

2022
45,804

Time deposits with maturities exceeding 3 months¥

43,4682023
51,762(2,336)¥

U.S.Dollars (thousands)$

343,024$

325,530(944)¥

50,818(17,494)

The following tables summarize breakdown of assets and liabilities of subsidiaries excluded from the scope of consolidation due to the sale of its shares.
2023:

Breakdown of assets and liabilities of MES Facilities Co., Ltd. (name changed to NH Facilities Co., Ltd. on April 1, 2022), that were excluded from the scopeof consolidation due to the sale of its shares and the relationship between the sale price of the shares and net payments for the sale of shares were as follows.
Current assets

Japanese Yen (millions)

U.S.Dollars (thousands)

¥

$

1,647

12,334Non-current assets

1,317

9,863

Current liabilities(1,090)(8,163)

Non-current liabilities(336)(2,516)

Others(193)(1,446)108

809

Gain on sales of subsidiaries and affiliates' stocks

Expenses for sales of shares

2,407

18,026

Sales prices of shares

3,860

28,907

Expenses for sales of shares

(108)

(809)

Cash and cash equivalents(690)(5,167)

Net: Payments for sales of shares of subsidiaries resulting in change in scope of consolidation

¥

3,062

$

22,931

Breakdown of assets and liabilities of Mitsui E&S Shipbuilding Co., Ltd. (“MES-S”) and its subsidiaries Niigata Shipbuilding & Repair, Inc. and MES
YURA DOCKYARD Co., Ltd. (name changed to YURA DOCKYARD Co., Ltd. on January 1, 2023), that were excluded from the scope of consolidation
due to the sale of its shares were as follows.
The sale price of shares of MES-S is not disclosed from the perspective of confidentiality obligation in accordance with the agreement with the transferee.
Current assets

Japanese Yen (millions)

U.S.Dollars (thousands)¥$

Non-current assets

7,098
5,765

53,15643,174

Total assets¥

12,863$

96,330Current liabilities¥(7,723)$(57,837)¥(8,089)$(60,578)

Non-current liabilities(366)

Total liabilities(2,741)

2022:
Breakdown of assets and liabilities of Mitsui E&S Environment Engineering Co., Ltd. (name changed to JFE Environment Technology Co., Ltd. on April 1,
2021; “MKE”) and other 6 companies, that were excluded from the scope of consolidation due to the sale of its shares were as follows.
The sale price of shares of MKE is not disclosed from the perspective of confidentiality obligation in accordance with the agreement with the transferee.
Japanese Yen (millions)
Current assets¥

12,138

Total assets¥

12,639Current liabilities¥(8,841)¥(9,490)Non-current assets

501

Non-current liabilities(649)

Total liabilities- 20 -

Breakdown of assets and liabilities of MODEC Inc. and its 23 subsidiaries, that were excluded from the scope of consolidation due to the sale of its shares andthe relationship between the sale price of the shares and net payments for the sale of shares were as follows.
Japanese Yen (millions)
Current assets¥

235,416

Non-current assets

77,338Current liabilities(246,249)

Non-current liabilities(29,317)

Non-controlling interests(18,873)

Others10,019Investment accounts after the sales of shares(27,786)

Expenses for sales of shares

81

Gain on sales of subsidiaries and affiliates' stocks

227

Sales prices of shares

856

Expenses for sales of shares(81)

Cash and cash equivalents(59,861)

Net: Payments for sales of shares of subsidiaries resulting in change in scope of consolidation¥(59,086)

Breakdown of assets and liabilities of Shikoku Dockyard Co., Ltd. (“Shikoku D”) , that were excluded from the scope of consolidation due to the sale of its
shares were as follows.
The sale price of shares of Shikoku D is not disclosed from the perspective of confidentiality obligation in accordance with the agreement with the transferee.
Japanese Yen (millions)
Current assets¥

Non-current assets

5,613
2,310

Total assets

¥

7,923

Current liabilities¥(1,902)¥(2,221)

Non-current liabilities(319)

Total liabilities

The following table summarizes breakdown of assets and liabilities related to transfer of business in exchange for cash and cash equivalents.
2023:
Not applicable2022:
In relation to the succession of the naval ship business, etc. of Mitsui E&S Shipbuilding Co., Ltd., a consolidated subsidiary of the Company, by a stockcompany that the Company newly established (“New Company”) by conducting an absorption-type company split and the subsequent transfer of all of theshares of the New Company, the breakdown of assets and liabilities at the time of the transfer were as follows.
The sale price of shares of New Company is not disclosed from the perspective of confidentiality obligation in accordance with the agreement with thetransferee.
Japanese Yen (millions)
Current assets¥

16,530Total assets¥

17,862Current liabilities¥(12,582)¥(15,287)

Non-current assets

1,332

Non-current liabilities(2,705)

Total liabilities

Amounts for assets and liabilities related to other transfer of businesses in exchange for cash and cash equivalents are not significant, and have therefore been
omitted.

- 21 -

7. Leases·············································································································································································································································(a) Lesseei) Unexpired lease payments of operating lease transactions as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)2023
Due within one year

¥

Total

2022
2,037

Due after one year¥

13,6432023
2,211

11,606¥

U.S.Dollars (thousands)$

15,255$102,172

13,580¥15,791

86,917(b) Lessori) Unexpired lease receivables of operating lease transactions as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)2023
Due within one year

¥

Total

2022
16

Due after one year

¥

92
¥

108

- 22 -

U.S.Dollars (thousands)

2023
15

$

108
¥

123

120
689

$

809

8. Financial Instruments·············································································································································································································································(a) Articles concerning status of financial instruments
1) Policies for financial instruments
The Group restricts the fund management to short-term financial instruments. The Group transfers funds to each other through an inter-company cash
management systems (CMS). Regarding the funding, the Group raises the short-term working capital through bank loans and the issuance of commercial
paper (CP), and raises the long term capital investment through bank loans and the issuance of bonds. Derivative financial instruments are utilized to hedge
the risks described hereinafter and not for speculative transactions as a matter of policy.
2) Substances and risks of financial instruments
Trade receivables are exposed to credit risks of customers. Trade receivables in foreign currency, which the Company and certain Subsidiaries receive fromforeign operations, are exposed to currency fluctuation risks. Forward foreign exchange contracts are applied to these hedged items in principle. Investment
securities, mainly of companies with business relationships, are exposed to market fluctuation risks. Short-term and long-term loans for operating funds andcapital expenditures of SPC’s, which are established for generating electricity, are exposed to credit risks of customers.
Almost all of the trade payables are due within one year. Foreign currency trade payables for overseas procurement are exposed to currency fluctuation
risks, but those trade payables are controlled not to exceed the balance of trade receivables in the same foreign currencies. Short-term borrowings aremainly for the purpose of funding commercial transactions. Long-term borrowings and bonds are mainly for the purpose of funding capital investments.
Although the portions of those debts with floating interest rates are exposed to interest rate fluctuation risks, interest rate swap contracts are applied tohedge the risks.
Derivative transactions are the above mentioned forward foreign exchange contracts, interest rate swap contracts, as well as interest rate and currency swap
contracts. They are for the purpose of hedging currency fluctuation risks and rising interest rate risks.
As to details on hedging instruments, hedged items, hedging policy and hedge effectiveness testing, please refer to “1. Significant Accounting andReporting Policies (e) Derivative Transaction and Hedge Accounting.”
3) Risk management in financial instrumentsi) Management of credit risks (Risks for breach of contracts)
The Group monitors due dates and balances of trade receivables and regularly investigates the credit standings of main customers for early detection
and reduction of default risks according to internal regulation.
As to derivative transactions, credit risks are minimized by dealing solely with top-ranked financial institutions.
ii) Management of market risks (Exchange rate or interest rate fluctuation risks)
The Company and certain Subsidiaries utilize forward foreign exchange contracts, interest rate swap contracts, and interest rate and currency swap
contracts. Forward foreign exchange contracts are for the purpose of hedging currency fluctuation risks arising from foreign currency receivables andpayables in principle, and the others are utilized for the purpose of hedging interest rate fluctuation risks arising from short-term and long-termborrowings and bonds.
Holding position of investment securities are continuously reviewed by researching fair market value and financial status of important customers
regularly and taking into account of market condition and relationship with customers.

Execution and management of derivative transactions are based on each company’s internal regulation restricting scope of authority. As to derivativetransactions, the Group utilizes them to offset risks within the range of trade demand.
iii) Management of liquidity risks of raising funds (Default risks)
The Finance department of the Group makes and updates finance plans, and maintains a certain level of liquidity on hand to minimize liquidity risks.
4) Supplementary explanation about fair value of financial instruments
Fair value of financial instruments includes not only fair market value based on market price but also reasonably estimated value if market price is notavailable. Reasonably estimated fair value may fluctuate because it depends on an estimation process which is based on certain preconditions.
The contract amounts for derivatives stated in the following “(b) Articles concerning fair value of financial instruments,” do not indicate the market risks ofderivatives.

- 23 -

(b) Articles concerning fair value of financial instruments
Consolidated balance sheet amounts, fair value of financial instruments and the differences between them for the fiscal years ended March 31,
2023 and 2022 were as follows. Information on “Cash and time deposits,” “Trade receivables,” “Short-term loans,” “Trade payables,” “Short-termborrowings” and “Accrued income taxes” is omitted because these items are cash, and time deposits, trade receivables, short-term loans, trade payables, shortterm borrowings and accrued income taxes which are settled in the short term, so they are considered to be close to the book value.
Japanese Yen (millions)

2023

Book value(1) Investment securities

Fair value

Difference*1

Available-for-sale securities¥

Stocks of subsidiaries and affiliates

586¥

54,858(2) Long-term loans

586¥

38,720(16,138)

2,126

Less allowance for doubtful accounts

*2

(152)
1,974

1,850

(124)

Total assets¥

57,418¥41,156¥(16,262)(1) Current portion of long-term borrowings

¥

9,375

¥

9,143

¥

(232)

(2) Current portion of bonds

5,000

5,033

33

(3) Long-term borrowings

11,928

11,141(787)(4) Lease obligations

8,924

Total liabilities
Derivative transactions

¥

9,276

35,227

¥

(75)

¥

352

34,593

¥

(634)

(75)

¥

-

*3

i. Derivative transactions for which hedge accounting has not been applied¥ii. Derivative transactions for which hedge accounting has been applied
Total derivative transactions

858
¥

783

858
¥

783

¥

-

Japanese Yen (millions)

2022

Book value(1) Investment securities

Fair value

Difference*1

Available-for-sale securities¥

Stocks of subsidiaries and affiliates

1,774

¥

31,826(2) Long-term loans

1,774

¥

35,314

3,488

2,130

Less allowance for doubtful accounts

*2

(152)
1,978

Total assets¥(1) Current portion of long-term borrowings

¥

1,930

35,578

¥

8,101

¥

(48)

39,018

¥

3,440

8,044

¥

(57)

(2) Current portion of bonds

15,00014,987(3) Bonds

5,000

5,042

42

(4) Long-term borrowings

19,65819,342(316)(5) Lease obligations

8,305

Total liabilities
Derivative transactions

¥

(13)

8,505

56,064

¥

(122)

¥

200

55,920

¥

(144)

(122)

¥

-

*3

i. Derivative transactions for which hedge accounting has not been applied¥ii. Derivative transactions for which hedge accounting has been applied
Total derivative transactions

1,964
¥

- 24 -

1,842

1,964
¥

1,842

¥

-

U.S. Dollars (thousands)

2023

Book value(1) Investment securities

Fair value

Difference*1

Available-for-sale securities

$

4,389

Stocks of subsidiaries and affiliates$

410,829(2) Long-term loans

4,389

$

289,972(120,857)

15,921Less allowance for doubtful accounts*2(1,138)14,783

13,854(929)

Total assets$

430,001$

308,215$(121,786)(1) Current portion of long-term borrowings$

70,209$68,472$(1,737)(2) Current portion of bonds

37,44537,692247(3) Long-term borrowings

89,32883,434(5,894)(4) Lease obligations

66,832

Total liabilities
Derivative transactions

$

$

(562)

$

2,636

259,066$(4,748)

(562)

$

-

$

-

*3

i. Derivative transactions for which hedge accounting has not been applied$ii. Derivative transactions for which hedge accounting has been applied

6,426

Total derivative transactions*1

69,468263,814

$

5,864

6,426
$

-

5,864

As to the following financial instruments, there is no available fair market value and it is considered to cost a great deal to estimate future cash flows. So
these financial instruments are not included in “(1) Investment securities” because it is considered to be extremely difficult to determine fair value.
Consolidated balance sheet amounts of these financial instruments are as follows.
Japanese Yen (millions)

U.S. Dollars (thousands)

Book value

Book value

2023
Unlisted equity securities
*2
*3

¥

2022
13,358

¥

2023
9,681

$

100,037

Allowance for doubtful accounts is deducted from Long-term loans.
Net credit or debt arising from derivative transactions is indicated by the offset amount and which is indicated as ( ) in case of the offset amount is debt.

- 25 -

(note 1) The expected redemption amount of monetary credit and securities with maturity after the fiscal years ended March 31, 2023 and 2022 were as
follows.
Japanese Yen (millions)

2023

Over one year but
within five years

Within one year

Cash and time deposits¥

45,792¥

Over five years but
within ten years-¥

Over ten years

-

¥

-

Trade receivables

54,910611-

Short-term loans

16

-

-

-

Long-term loans

-

20

11

2,095

Total

¥

100,718

¥

631

¥

-

11

¥

2,095

Japanese Yen (millions)2022

Over one year but
within five years

Within one year

Cash and time deposits¥

51,723¥

Over five years but
within ten years-¥

Over ten years

-

¥

-

Trade receivables

50,761

15-

Short-term loans

18

-

-

-

Long-term loans

-

20

12

2,098

Total

¥

102,502

¥

35

¥

-

12

¥

2,098

U.S. Dollars (thousands)

2023

Over one year but
within five years

Within one year

Cash and time deposits$

342,934$

Over five years but
within ten years-$

Over ten years

-

$

-

Trade receivables

411,218

4,576-

Short-term loans

120

-

-

-

Long-term loans

-

150

82

15,689Total$

754,272

$

4,726

$

-

82

$

15,689(note 2) The expected redemption amount of bonds, long-term borrowings and lease obligations after the fiscal years ended March 31, 2023 and 2022 were as
follows.
Japanese Yen (millions)2023
Short-term borrowings

Within one year¥

115,246

Over one year but
within two years

Over two years but Over three years but Over four years but
within three years
within four years
within five years

¥

¥

-

-

¥

-

¥

-

Over five years
¥

-

Bonds

5,000

-

-

-

-

-

Long-term borrowings

9,375

1,377

1,444

1,255

1,144

6,708

Lease obligations
Total

1,863
¥

131,484

1,680
¥

3,057

1,580
¥

3,024

1,442
¥

2,697

970
¥

2,114

1,389
¥

8,097

Japanese Yen (millions)2022
Short-term borrowings

Within one year¥

94,615

Over one year but
within two years

Over two years but Over three years but Over four years but
within three years
within four years
within five years

¥

¥

-

-

¥

-

¥

-

Over five years
¥

-

Bonds

15,000

5,000

-

-

-

-

Long-term borrowings

8,101

9,342

1,254

1,321

1,132

6,609

Lease obligations
Total

1,808
¥

119,524

1,453¥

15,795

1,378
¥

2,632

1,249
¥

2,570

1,083
¥

2,215

1,334
¥

7,943

U.S. Dollars (thousands)

2023
Short-term borrowings

Within one year$

863,072

Over one year but
within two years

Over two years but Over three years but Over four years but
within three years
within four years
within five years

$

$

-

-

$

-

$

-

Over five years
$

-

Bonds

37,445

-

-

-

-

-

Long-term borrowings

70,20910,312

10,814

9,399

8,567

50,236

Lease obligations
Total

13,952$

984,678

12,581$

22,893

11,833$- 26 -

22,647

10,799$20,198

7,264$

15,831

10,403$60,639(c) Matters regarding the breakdown by level of fair values of financial instruments, etc.
Fair values of financial instruments are classified into the following three levels in accordance with the observability and significance of inputs for fair value
measurement.
Level 1 fair value: Fair value measured by using quoted prices for assets or liabilities that are subject to the fair value measurement concerned which areformed in active markets, of observable inputs for fair value measurement
Level 2 fair value: Fair value measured by using inputs for fair value measurement other than Level 1 inputs, of observable inputs for fair value measurement
Level 3 fair value: Fair value measured by using unobservable inputs for fair value measurement
If multiple inputs that have a significant impact on fair value measurement are used, the fair value is classified into the lowest priority level in fair value
measurement, of the levels in which each input belongs.
(1) Financial instruments recorded at fair value in the consolidated balance sheet
Japanese Yen (millions)2023

Level 1

Level 2

Level 3

Total

Investments securities
Available-for-sale securities
Shares

¥

586

¥

586

¥

-

¥

-

¥

586

¥

1,369

Derivative transactions
Currency related
Total assets

-

783
¥

783

¥

-

783

Japanese Yen (millions)2022

Level 1

Level 2

Level 3

Total

Investments securities
Available-for-sale securities
Shares

¥

1,774

¥

-

¥

-

¥

1,774

¥

1,774

¥

1,849

¥

-

¥

3,623

¥

-

¥

7

¥

-

¥

7

¥

-

¥

7

¥

-

¥

7

Derivative transactions
Currency related
Total assets

-

1,849

-

1,849

Derivative transactions
Interest rate related
Total liabilities

U.S. Dollars (thousands)

2023

Level 1

Level 2

Level 3

Total

Investments securities
Available-for-sale securities
Shares

$

4,389

$

4,389

$

-

$

-

$

4,389

$

10,253

Derivative transactions
Currency related
Total assets

-

5,864
$

5,864

$

-

5,864

(2) Financial instruments other than financial instruments recorded at fair value in the consolidated balance sheets
Japanese Yen (millions)2023

Level 1

Level 2

Level 3

Total

Investments securities
Stocks of subsidiaries and affiliates
Shares¥Long-term loans

38,720

¥

-

-

¥

1,850

-

¥

38,720-¥40,570

-

¥

9,143

-

Total assets¥

38,720

¥

1,850

¥

Current portion of long-term borrowings

¥

-

¥

9,143

¥

1,850

Current portion of bonds

-

5,033

-

5,033

Long-term borrowings-

11,141-

11,141

Lease obligations
Total liabilities¥-- 27 -

9,276¥

34,593

¥

-

9,276
¥

34,593

Japanese Yen (millions)2022

Level 1

Level 2

Level 3

Total

Investments securities
Stocks of subsidiaries and affiliates
Shares¥35,314Long-term loans¥-

Total assets¥

35,314¥Current portion of long-term borrowings

¥

-

¥

Current portion of bonds

-

Bonds
Long-term borrowings
Lease obligations
Total liabilities

¥

-

¥

35,314-¥37,244

-

¥

-

1,930

¥

8,044

¥

1,930

8,044

14,987

-

-

5,042

-

5,042

-

19,342-

19,342

¥

1,930

-

8,505
¥

55,92014,987

¥

-

8,505
¥

55,920U.S. Dollars (thousands)

2023

Level 1

Level 2

Level 3

Total

Investments securities
Stocks of subsidiaries and affiliates
Shares$289,972

Long-term loans

$

-

-

$

13,854-$289,972-

13,854

Total assets$

289,972$

13,854$-$

303,826

Current portion of long-term borrowings

$

-

$

68,472$-$

68,472Current portion of bonds-

37,692-

37,692Long-term borrowings-

83,434-

83,434

Lease obligations-

69,468-

Total liabilities

$

-

$

259,066$-

69,468$259,066(note) Explanation of valuation techniques used to measure fair value and inputs for fair value measurement
Investment securities
Listed shares are valued using quoted prices. Since listed shares are traded in active markets, their fair values are classified as Level 1 fair value.

Derivative transactions
Fair values of interest rate swaps and forward contracts are measured by the discounted cash flow method using observable inputs such as interest
rates and exchange rates, and are classified as Level 2 fair value.
Long-term loans
Fair values of long-term loans are measured by the discounted cash flow method based on their future cash flows and interest rates that take into
account credit spreads in addition to appropriate indicators such as government bond yield by credit risk category for credit management for the longterm loans which are categorized according to certain periods, and are classified as Level 2 fair value.
Current portion of long-term borrowings, long-term borrowings, and lease obligations
Their fair values are measured by the discounted cash flow method based on the sum of principal and interest, and interest rates that take into accountthe remaining period and credit risk of these obligations, and are classified as Level 2 fair value.
Current portion of bonds, and bonds
Fair values of bonds issued by the Company are measured by the discounted cash flow method based on the sum of principal and interest, and interest
rates that take into account the remaining period and credit risk of these bonds, and are classified as Level 2 fair value.

- 28 -

9. Investment Securities·············································································································································································································································(a) The following tables summarize acquisition costs, book values and fair values of securities with available fair values as ofMarch 31, 2023 and 2022:
Japanese Yen (millions)2023

Acquisition cost

Book value

Difference

Available-for-sale securities:
Securities with book values exceeding acquisition costs:¥

Equity securities

61

Sub Total

¥

¥

245

184

61

245

184

Equity securities

349

341

(8)

Sub Total

349

341

Securities with book values not exceeding acquisition costs:

Total

¥

410

¥

(8)

586

¥

176

Japanese Yen (millions)2022

Acquisition cost

Book value

Difference

Available-for-sale securities:
Securities with book values exceeding acquisition costs:¥

Equity securities

439

Sub Total

¥

¥

1,453

1,014

439

1,453

1,014

Equity securities

348

321

(27)

Sub Total

348

321

Securities with book values not exceeding acquisition costs:

Total

¥

787

¥

(27)

1,774

¥

987

U. S. Dollars (thousands)

2023

Acquisition cost

Book value

Difference

Available-for-sale securities:
Securities with book values exceeding acquisition costs:$

Equity securities

457

Sub Total

$

$

1,835

1,378

457

1,835

1,378

Equity securities

2,614

2,554

(60)

Sub Total

2,614

2,554

Securities with book values not exceeding acquisition costs:

Total

$

3,071

$

(60)

4,389

$

1,318

(b) Proceeds from sales of available-for-sale securities and realized gains and losses on sales of available-for-sale securities for theyears ended March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023

U.S. Dollars (thousands)

2022

2023

Proceeds from sales of available-for-sale securities
Securities

¥

1,061

¥

262

$

7,946

¥

686

¥

41

$

5,137

¥

-

¥

137

$

-

Realized gains on sales of available-for-sale securities
Securities
Realized losses on sales of available-for-sale securities
Securities(c) Securities for which impairment loss was recognized
For the year ended March 31, 2022, loss on impairment of ¥35 million for available-for-sale securities was recognized.
When the fair value of a security at the fiscal year-end declines by more than 50% compared to the acquisition cost, the full amount is recognized as loss on
impairment. When the decline is around 30% to 50%, loss on impairment is recognized for the amount deemed necessary, taking into consideration therecoverability etc.

- 29 -

10. Derivative Transactions·············································································································································································································································

Derivative transactions of the Group for market value information as of March 31, 2023 and 2022 were as follows:(a) Derivative transactions for which hedge accounting has not been applied
Japanese Yen (millions)2023

Contract amountTotal
Due after one year

Unrealized gain (loss)

Fair value

Currency related derivatives
Off-market trades
Forward contracts
To buy U.S. Dollars

¥

73

¥

-

¥

(6)

¥

(6)

Swiss Franc

401

-

(4)

(4)

Chinese Yuan

3,121

1,246

35

35

To sell U.S. Dollars

1,409
¥

5,004

¥

1,246

(100)
¥

(75)

(100)
¥

(75)

Japanese Yen (millions)2022

Contract amountTotal
Due after one year

Unrealized gain (loss)

Fair value

Currency related derivatives
Off-market trades
Forward contracts
To buy U.S. Dollars

¥

308

¥

-

¥

11

¥

11

Swiss Franc

75

-

4

Chinese Yuan

159

-

7

7

To sell U.S. Dollars

2,068

1,031

(144)

(144)

¥

2,610

¥

1,031

¥

(122)

4

¥

(122)

U. S. Dollars (thousands)

2023

Contract amountTotal
Due after one year

Fair value

Unrealized gain (loss)

Currency related derivatives
Off-market trades
Forward contracts
To buy U.S. Dollars

$

547

$

-

$

(45)

$

(45)

Swiss Franc

3,003

-

(30)

(30)

Chinese Yuan

23,373

9,331

262

262

To sell U.S. Dollars

10,552$37,475- 30 -

$

9,331

(749)
$

(562)

(749)
$

(562)

(b) Derivative transactions for which hedge accounting has been applied
Japanese Yen (millions)2023

Contract amountTotal
Due after one year

Hedged items

Fair value

Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S. Dollars

Trade payables¥

34,322

¥

1,626

¥

652

Euro

2,146

-

95

STG Pounds

11,564-(343)

10,344

-

135

6,420

-

(117)

19,036678

335

Indonesian Rupiah
To sell U.S. Dollars

Trade receivables

STG Pounds
Alternative method
Currency related derivatives
Forward contracts
To sell U.S. Dollars

Trade receivables

1,960

-

101

¥

85,792

¥

2,304

¥

858

¥

10,304

¥

3,880

¥

-

¥

10,304

¥

3,880

¥

-

Interest swap
*1

Exceptional treatment :To receive float, pay fix

Long-term borrowings

Japanese Yen (millions)2022

Contract amountTotal
Due after one year

Hedged items

Fair value

Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S. Dollars

Trade payables

¥

2,681

¥

1,679

¥

640

Euro

1,493

-

STG Pounds

1,593

1,043

46

Indonesian Rupiah

15,540-2,429

To sell U.S. Dollars

Trade receivables

137

11,019617(675)

STG Pounds

8,090

6,136

(444)

Euro

2,596

-

(144)

Alternative method
Currency related derivatives
Forward contracts
To sell U.S. Dollars

Trade receivables

483

-

(18)

¥

43,495

¥

9,475

¥

1,971

¥

119

¥

119

¥

(7)

Interest swap
Basic treatment:
To receive float, pay fix

Long-term borrowings*1

Exceptional treatment :To receive float, pay fix

Long-term borrowings

12,010¥- 31 -

12,12910,304¥

10,423¥(7)

U.S. Dollars (thousands)

2023

Contract amountTotal
Due after one year

Hedged items

Fair value

Deferral hedge accounting
Currency related derivatives
Forward contracts
To buy U.S. Dollars

Trade payables$

257,036$

12,177

$

4,883

Euro

16,071-711

STG Pounds

86,602-(2,569)77,466-

1,011

48,079-(876)

142,560

5,078

2,509

Indonesian Rupiah
To sell U.S. Dollars

Trade receivables

STG Pounds
Alternative method
Currency related derivatives
Forward contracts
To sell U.S. Dollars

Trade receivables

14,678-756$

642,492$

17,255

$

6,426

$

77,166$

29,057$-$

77,166$

29,057$-

Interest swap
*1

Exceptional treatment :To receive float, pay fix*1Long-term borrowings

As interest swap subject to exceptional treatment of interest swap and batch treatment of interest swap are accounted for as a single item with underlying
long-term borrowings, which are hedged items, their fair value is included in that of long-term borrowings.

- 32 -

11. Liability for Severance and Retirement Benefits·············································································································································································································································(a) Overview of adopting severance and retirement benefits plans
The Group has system of funded and unfunded severance and retirement benefits, defined benefit pension plans, and defined contribution pension plans.
Severance and retirement benefits (all funded) pay out lump-sum payment or annual pension based on salary and length of service.
Lump-sum payment (part of which becomes funded as a result of benefit trust although the system is unfunded) is paid out based on salary and length ofservice as retirement benefits.
Some domestic Subsidiaries have adopted a “simplified method” to calculate liability for severance and retirement benefits for employees.

(b) Breakdown of information concerning severance and retirement benefits
Japanese Yen (millions)ⅰ) Movements of severance and retirement benefit
obligation:
Balance at beginning of year

2023
¥

2022
31,822Current service costs

U.S.Dollars (thousands)¥

2023
38,231$

238,314

1,585

1,975

205

184

1,535

Actuarial differences on pension plan obligation(1,063)(613)(7,961)

Benefits paid

(2,594)(2,315)(19,426)(401)-(3,003)(2,513)(5,564)(18,820)

Interest costs

Prior service costs
Changes in the scope of consolidation
OthersBalance at end of year45¥

27,086

(76)
¥

2023
Balance at beginning of year

31,822

Japanese Yen (millions)ⅱ) Movements of pension assets:¥

11,870337$

U.S.Dollars (thousands)

2022
36,873¥202,846

2023
38,505$276,140

Expected return on pension assets

11

11

82

Actuarial differences on pension assets

803

4,874

6,014

Contribution to pension plans

408

75

3,055

Benefits paid

(1,872)(1,608)(14,019)

Changes in the scope of consolidation(2,778)(1,280)(20,804)

Return of retirement benefit trust(1,400)(3,800)(10,485)(51)

96

OthersBalance at end of year¥ⅲ) Reconciliation of projected retirement benefit
obligation and net defined benefit assets / liabilities
recorded in the consolidated balance sheets:
Retirement benefit obligation (funded non-contributory)

31,9942023¥

Retirement benefit obligation (Unfunded termination and

¥

(382)
$

¥

239,601

U.S.Dollars (thousands)

2022
26,509retirement allowance plan)
Net defined benefit assets / liabilities recorded in the

36,873

Japanese Yen (millions)Less fair value of pension assets

consolidated balance sheets¥

2023
31,283$

198,525(31,994)(36,873)(239,601)

577

539

4,321

(4,908)¥(5,051)$(36,755)

Defined benefit liabilities

5,049

5,866

37,812

Defined benefit assets(9,957)(10,917)(74,567)

Net defined benefit assets / liabilities recorded in the
consolidated balance sheets¥(4,908)¥Japanese Yen (millions)ⅳ) Severance and retirement benefit expenses:

2023
Current service costs(5,051)¥$

U.S.Dollars (thousands)

2022
1,585

¥

(36,755)

2023
1,975

$

11,870Interest costs

205

185

Expected return on pension assets

(11)

(11)

1,535
(82)

Amortization of actuarial differences(1,747)(853)(13,083)

Amortization of prior service costs

(364)

36

(2,726)

Gain on return of assets from retirement benefit trust-(1,224)-

Others-(27)

Severance and retirement benefit expenses

¥

(332)

- 33 -¥

81$(2,486)

Japanese Yen (millions)ⅴ) Remeasurements of defined benefit plans(before deducted tax effects):
Prior service costs

2023
¥

37

Actuarial differences(1,456)36

3,659Japanese Yen (millions)¥(3,108)
$

¥

2023
37

$

-

(12,277)

65(11,245)(10,904)

U.S.Dollars (thousands)(11,310)¥277(8,073)2022-

Others

$

303
¥

2023

Unrecognized actuarial differences
Total

2023
3,320

(415)
¥

ⅵ) Unrecognized actuarial differences (before deducted
tax effects):
Unrecognized prior service costs¥(1,078)OthersTotal

U.S.Dollars (thousands)

2022(84,700)

96¥(12,144)487$(84,213)

Percentage of compositionⅶ) The major categories of pension assets:

2023

2022

Bonds

3%

3%

Securities

36%

32%
61%

Cash and deposits

55%

Others

6%

4%

Total

100%

100%

ⅷ) The principal actuarial assumptions at reporting
date are summarized below:

2023

Discount rate
Expected rate of return on pension plan assets
Expected rate of pay raises

2022

0.1% - 1.9%

0.1% - 1.2%

Not applicableNot applicablePrimarily 0.0% - 2.2%

Primarily 0.4% - 2.5%

To determine the expected rate of return on pension plan assets, allocation of pension assets expected in present and future, and long-term rate of return on

portfolio assets expected in present and future are considered.

(c) Defined contribution pension plan
The contribution paid to the defined contribution pension plan is summarized below:
Japanese Yen (millions)2023
Contribution paid to the defined contribution pension plan

¥

2022
266

- 34 -

U.S.Dollars (thousands)

¥

2023
239

$

1,992

12. Stock options·············································································································································································································································(a) The stock options outstanding at March 31, 2023 are as follows:
FY2015 Stock option

FY2014 Stock option

Directors of the Company: 9(including executive officers additional post)
Persons granted

Directors of the Company: 14

Executive officers of the Company: 13

Deputy directors of the Company: 21(excluding directors additional post)
Deputy directors of the Company: 17
Class and number of shares

Common stock 49,700 shares

Grant dateAugust 21, 2015

August 22, 2014

The grantee shall maintain his or her position as

The grantee shall maintain his or her position as

Director, Executive officer or Deputy director

Director, Executive officer or Deputy director

from the grant date (August 21, 2015) to thevesting date (June 30, 2016 or March 31, 2016).

from the grant date (August 22, 2014) to thevesting date (June 30, 2015 or March 31, 2015).

Vesting conditions

Common stock 36,600 shares(Directors of the Company)

Service period

Exercise period(Directors of the Company)

From July 1, 2014 to June 30, 2015

From July 1, 2015 to June 30, 2016
(Executive officers of the Company)(Deputy directors of the Company)(continuously - appointed)

From April 1, 2015 to March 31, 2016

From July 1, 2014 to March 31, 2015

(Deputy directors of the Company)
From April 1, 2015 to March 31, 2016

(Deputy directors of the Company)(newly - appointed)
From April 1, 2014 to March 31, 2015

From August 22, 2015 to August 21, 2045

From August 23, 2014 to August 22, 2044

FY2013 Stock option
Persons granted

Directors of the Company: 14

Deputy directors of the Company: 19

Class and number of shares

Common stock 62,400 shares

Grant dateAugust 23, 2013
The grantee shall maintain his or her position as

Vesting conditions

Director, Executive officer or Deputy director
from the grant date (August 23, 2013) to thevesting date (June 30, 2014).

Service period

From July 1, 2013 to June 30, 2014

Exercise period

From August 24, 2013 to August 23, 2043

(note) Effective October 1, 2017, the Company consolidated every 10 shares of its common stock into 1 share. The number of shares has been converted into
those after the share consolidation.

(b) The numbers of and changes in stock options during the year ended March 31, 2023 are as follows:
FY2015 Stock option

FY2014 Stock option

FY2013 Stock option

Non-vested:
Outstanding at March 31, 2022

-

-

-

Granted---Forfeited---

Vested---Outstanding of non-vested at March 31, 2023

-

-

-

33,50019,20021,100

-

-

-

8,100

3,000

4,500

Vested:Outstanding at March 31, 2022
VestedExercised
Forfeited
Outstanding of non-vested at March 31, 2023

-

-

-

25,40016,20016,600

Average share price at exercise - Yen (U.S. Dollars)¥¥383 ($2.868)¥¥

377 ($2.823)¥¥

378 ($2.831)

Fair value price at grant date - Yen (U.S. Dollars)¥

1,690 ($12.656)¥

1,910 ($14.304)¥

1,440 ($10.784)

Exercise price - Yen (U.S. Dollars)

1 ($0.007)

1 ($0.007)

1 ($0.007)(note) Effective October 1, 2017, the Company consolidated every 10 shares of its common stock into 1 share. The number of shares has been converted into
those after the share consolidation.

- 35 -

(c) Initial capitalized amount and account title related to stock options for the Company’s shares
Japanese Yen (millions)2023
Cash and time deposits¥

U.S. Dollars (thousands)

2022
52

2023
-

¥

$

389

(d) The stock options for the Company’s shares outstanding at March 31, 2023 are as follows:
Persons granted
Class and number of stock options for theCompany’s shares

1st series of share acquisition rights with an
exercise price amendment clause
SMBC Nikko Securities Inc.
Common stock 20,000,000 shares

Grant date

April 18, 2022

Vesting conditions

No vesting conditions are set.

Service period

No service period are set.

Exercise period

From April 19, 2022 to April 30, 2025(e) The numbers of and changes in stock options for the Company’s shares during the year ended March 31, 2023 are as follows:
1st series of share acquisition rights withan exercise price amendment clauseNon-vested:
Outstanding at March 31, 2022-

Granted

20,000,000

Forfeited-

Vested20,000,000

Outstanding of non-vested at March 31, 2023-

Vested:Outstanding at March 31, 2022-

Vested20,000,000

Exercised

6,638,400

Forfeited-

Outstanding of non-vested at March 31, 2023

13,361,600¥¥

403 ($3.018)

Average share price at exercise - Yen (U.S. Dollars)
Fair value price at grant date - Yen (U.S. Dollars)¥

2.6 ($0.019)

Exercise price - Yen (U.S. Dollars)345 ($2.584)(note) The initial exercise price is stated for the exercise price.
On the effective date of each exercise request of the Stock Acquisition Rights by the Stock Acquisition Rights Holder (“Determination Date”), theExercise Price is revised to an amount (“Exercise Price After Revision”; calculated in yen to two decimal places and then rounded up to one decimal
place) equivalent to 92% of the volume weighted average price (“VWAP”) of the Company's common stock in regular trading on the Tokyo Stock
Exchange, Inc. on the trading day preceding the Determination Date (however, if there is no closing VWAP of the Company’s common stock in regular
trading on the trading day preceding the Determination Date, the VWAP on the immediately preceding trading day), and the Exercise Price After
Revision shall apply from the Determination Date. However, in the calculation of the Exercise Price After Revision, if the figure obtained from thecalculation is less than the minimum exercise price, the Exercise Price After Revision shall be the minimum exercise price.

(f) Calculation method for the number of rights vested
Only actual forfeited number of the vested is used for calculation for the number of rights vested, since it is difficult to reasonably estimate the number of
options that will forfeited in the future.

- 36 -

13. Income Taxes·············································································································································································································································(a) Significant components of deferred tax assets and liabilities as of March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023

U.S.Dollars (thousands)

2022

2023

Deferred tax assets:
Net defined benefit liabilities

¥

3,951

Elimination of intercompany profit of non-current assets
Tax loss carryforwards
Loss on revaluation of inventories

¥

2,391

$

29,589

205

838

1,535

50,83041,711

380,664

255

315

1,910

1,618

1,858

12,117

Provision for construction warranties

441

488

3,303

Allowance for doubtful accounts

426

326

3,190

Provision for losses on construction contracts

4,791

20,56735,879Loss on impairment of non-current assets

4,599

4,970

34,442

241

240

1,805

4,422

5,925

33,116

684

2,492

5,122

Investments in subsidiaries and affiliates

8,029

8,609

60,129Others

1,204

1,207

9,017

81,696

91,937

611,818(48,224)(39,454)(361,148)(24,446)(44,550)(183,075)

Accrued expenses

Loss on valuation of marketable and investment securities
Difference arising from trust for employees' retirement benefit
Difference on application of percentage-of-completion
methodGross deferred tax assets
Valuation allowance for tax loss carryforwards
Valuation allowance for the total of deductible temporary
differences, etc.
Less valuation allowance(72,670)

Total deferred tax assets

¥

9,026

(84,005)¥

7,932(544,223)$

67,595

Deferred tax liabilities:
Net unrealized holding gains on securities

(56)

(282)

(420)

Reserve for advanced depreciation of non-current assets

(430)

(541)

(3,220)Gain on contribution of securities to trust
for employees’ retirement benefit

(471)

(471)

(3,527)

Difference arising on percentage-of-completion

(816)

(769)

(6,111)(1,945)(1,997)(14,566)

Unrealized gain on assets and liabilities of consolidated
subsidiaries
Others(4,170)(4,379)(31,229)

Total deferred tax liabilities¥(7,888)¥(8,439)$(59,073)

Net deferred tax assets

¥

1,138

¥

(507)

$

8,522

(note 1) Decrease in valuation allowance of ¥11,334 million ($84,880 thousand) is mainly attributable to the decrease in valuation allowance that resulted
from deconsolidation of subsidiaries.
(note 2) For the year ended March 31, 2023 and 2022, tax loss carryforwards and corresponding deferred tax assets by expiration date were the following:
Japanese Yen (millions)2023
Tax loss carryforwards(note)

Within 1 year

Over 1 year ~within 2 years

Over 2 years ~within 3 years

Over 3 years ~within 4 years

Over 4 years~
within 5 years

¥

0

¥

5

¥

3

¥

3

¥

Over 5 years

Total

3

¥

50,816¥50,830Less valuation allowance

¥

-

¥

-

¥

-

¥

-

¥

-

¥

(48,224)¥(48,224)Deferred tax assets

¥

0

¥

5

¥

3

¥

3

¥

3

¥

2,592

¥

2,606

Japanese Yen (millions)2022
Tax loss carryforwards(note)

Within 1 year

Over 1 year ~within 2 years

Over 2 years ~within 3 years

Over 3 years ~within 4 years

Over 4 years~
within 5 years

¥

5

¥

63

¥

62

¥

5

¥

-

¥

41,576¥

41,711

Over 5 years

Total

Less valuation allowance

¥

-

¥

-

¥

-

¥

-

¥

-

¥

(39,454)¥(39,454)

Deferred tax assets

¥

5

¥

63

¥

62

¥

5

¥

-

¥

2,122

¥

2,257

- 37 -

U.S.Dollars (thousands)
Within 1 year

Over 1 year ~within 2 years

Over 2 years ~within 3 years

Over 3 years ~within 4 years

Over 4 years~
within 5 years

Tax loss carryforwards(note)

$

0

$

38

$

22

$

22

$

Less valuation allowance

$

-

$

-

$

-

$

-

Deferred tax assets

$

0

$

38

$

22

$

22

2023

Over 5 years

Total

22

$

380,560$

380,664$-$(361,148)$(361,148)

$

22

$

19,412$

19,516(note) Tax loss carryforwards are calculated by multiplying the statutory tax rate.

(b) Significant differences between the statutory tax rate and the Group’s effective tax rate for financial statement purposes for theyear ended March 31, 2023 were as follows:
2023
Statutory tax rate

30.6 %

Expenses not deductible permanently, such as entertainment expenses

0.3

Non-taxable income permanently, such as dividend income(8.2)

Amortization of goodwill

1.7

Equity in earnings of unconsolidated subsidiaries and affiliates(7.3)

Consolidation adjustment for gain on sales of subsidiaries and affiliates’ stocks
Valuation allowance

8.4(30.7)

Taxation on per capita basis

0.5

Income of foreign subsidiaries taxed at lower than Japanese normal rate

(0.1)

Controlled foreign subsidiary and affiliate rules

1.2

Increase of deferred tax assets, net of liabilities at fiscal year-end by the change of tax rate

1.1

Corporate income taxes, etc. paid in past fiscal years

0.4

Others4.4

Effective tax rate

2.3 %(note 1) Information for the year ended March 31, 2022 is not presented, because a loss before income taxes was recorded.

(c) Accounting treatment for corporate income tax and local corporate income tax as well as the related tax effect accounting
The Company and certain consolidated subsidiaries in Japan have applied the group tax sharing system from the year ended March 31, 2023. In addition, theaccounting treatment and disclosure for corporate income tax and local corporate income tax as well as the related tax effect accounting are in accordancewith the “Practical Solution on the Accounting and Disclosure Under the Group Tax Sharing System” (ASBJ Practical Issues Task Force No. 42, August 12,2021).

- 38 -

14. Business Combination·············································································································································································································································

Business divestiture(Transfer of shares of consolidated subsidiary)
On April 1, 2022, the Company had MES Facilities Co., Ltd. (“MESF”), a consolidated subsidiary, succeed to rights and obligations related to the driving
school operation business that the Company had by means of a company split (absorption-type split), and transferred all the shares in MESF owned by theCompany to Nihon Housing Co., Ltd.
1. Overview of business divestiture
1) Names of the succeeding company and the transferee of shares in the company splitⅰ) Name of the succeeding company in the company split

MES Facilities Co., Ltd.
ⅱ) Name of the transferee of shares
Nihon Housing Co., Ltd.

2) Description of divested businesses
Temporary staffing business, driving schools, construction business, dispensing pharmacies, insurance agency business, etc.
3) Main reason for business divestiture

The Company has, in the areas of the facilities business operated by MESF, been exploring possibilities for collaboration and alliance with partners withwhich synergies can be expected, as part of the Business Revival Plan (announced in 2019). Under this situation, the Company decided to enter into theshare transfer agreement, judging that having track records, experience and know-how held by Nihon Housing Co., Ltd. based on its operational
infrastructure and customer base utilized for the business operation of MESF leads to growth and strengthened competitiveness of both companies, andconsequently contributes to increase in each company’s corporate value.
4) Date of business divestiture
April 1, 2022
5) Other matters regarding the overview of the transaction including legal formⅰ) Company split

A company split in which the Company is the company undergoing the company split, and MESF became the succeeding company of the company
splitⅱ) Share transfer

Share transfer in which consideration received is only property including cash
2. Overview of accounting treatment performed
1) Amount of transfer profit or loss
Gain on sales of subsidiaries and affiliates’ stocks: ¥ 2,407 million ($18,026 thousand)2) Appropriate book values of assets and liabilities related to transferred businesses, and their breakdown
Current assets

Japanese Yen (millions)

U.S.Dollars (thousands)¥$

12,334Non-current assets

1,647
1,317

9,863

Total assets

¥

2,964

$

22,197

Current liabilities

¥

1,090

$

8,163

$

10,679Long-term liabilities

336

Total liabilities

¥

1,426

2,516

3) Accounting treatment

Difference between the consolidated book value of the transferred shares and the amount of sale was recorded as gain on sales of subsidiaries andaffiliates’ stocks in other income.
3. Name of the reportable segment in which the divested businesses were included
Others
4. Approximate amounts of profits and losses related to the divested businesses recorded in the consolidated statements of operations for this fiscal year
As the transfer was implemented at the beginning of the current fiscal year, the profit or loss from the divestiture is not recorded in the consolidated
statements of operations for the current fiscal year.

(Partial transfer of shares of consolidated subsidiary)
The Company transferred, on October 3, 2022, 17% of the issued shares of Mitsui E&S Shipbuilding Co., Ltd. (“MES-S”), a consolidated subsidiary of theCompany, to TSUNEISHI SHIPBUILDING Co., Ltd. (“Tsuneishi Shipbuilding”) (hereinafter, the “Transaction”).
Following the Transaction, the Company’s ownership in MES-S was reduced to 34%, whereby MES-S was no longer a specific subsidiary of the Company,
as of the aforementioned date. Accordingly, MES-S and its subsidiaries, Niigata Shipbuilding & Repair, Inc. and MES YURA DOCKYARD CO., LTD.
(name changed to YURA DOCKYARD CO., LTD. on January 1, 2023) became affiliates accounted for using equity method, and were excluded from thescope of consolidation.
1. Overview of business divestiture
1) Name of the successor entity
TSUNEISHI SHIPBUILDING Co., Ltd.
2) Description of divested businesses
Design engineering services, marine equipment, ship maneuvering systems, DX monitoring, provision of technical support, etc.

- 39 -

3) Main reason for business divestiture

The Company had continued to be the parent company of MES-S after having arranged for a partial transfer of shares of MES-S that owns thecommercial vessel business, excluding the naval ship business, and a part of subsidiaries to Tsuneishi Shipbuilding, on October 1, 2021. However, on
October 3, 2022, the Company transferred 17% of the MES-S issued shares that it held to Tsuneishi Shipbuilding, with a view toward creating bettersynergies through collaboration between the two companies.
4) Date of business divestiture
October 3, 2022
5) Other matters regarding the overview of the transaction including legal form
Share transfer in which consideration received is only property including cash
2. Overview of accounting treatment performed
1) Amount of transfer profit or loss
The sale price is not disclosed from perspective of confidentiality obligation in accordance with the agreement with the transferee.
2) Appropriate book values of assets and liabilities related to transferred businesses, and their breakdown
Current assets

Japanese Yen (millions)

U.S.Dollars (thousands)¥$

Non-current assets

7,098
5,765

53,15643,174

Total assets¥

12,863$

96,330Current liabilities

¥

7,723

$

57,837

¥

8,089

$

60,578Long-term liabilities

366

Total liabilities

2,741

3) Accounting treatment
Difference between the consolidated book value of the transferred shares and the amount of sale was recorded as gain on sales of subsidiaries andaffiliates’ stocks in other income.
3. Name of the reportable segment in which the divested businesses were included
Ship
4. Approximate amounts of profits and losses related to the divested businesses recorded in the consolidated statements of operations for this fiscal year
Net sales: ¥ 6,598 million ($ 49,412 thousand)Operating profit: ¥ 86 million ($ 644 thousand)

15. Investment and Rental Property·············································································································································································································································(a) Articles concerning situation of investment and rental property
The Company and certain Subsidiaries own rental office building, commercial facilities, and houses (including land) in Oita, Okayama and other areas. Idle
land is also owned in Oita, Chiba and other areas.

(b) Articles concerning fair value of investment and rental property
The book value of investment and rental properties stated in the consolidated balance sheets, the increase or decrease in this fiscal year, and fair value areshown below.
Japanese Yen (millions)

2023

Book value
Beginning balance as ofApril 1, 2022

Usage
Facilities for lease¥

Idle assets (Land)
Total

21,048

¥

3,516

1,766
¥

22,814

Fair value
Ending balance as ofMarch 31, 2023

Increase (Decrease)¥

24,564

(0)
¥

3,516

As of March 31, 2023¥

16,260¥18,306

1,766¥

26,3302,046

U.S. Dollars (thousands)
Book value
Beginning balance as ofApril 1, 2022

Usage
Facilities for lease$

Idle assets (Land)
Total

157,627

Increase (Decrease)$

26,331

13,225$

170,852

Fair value
Ending balance as ofMarch 31, 2023
$

(0)
$

26,331

183,958

As of March 31, 2023$

121,770$

137,092

13,225$

197,183

15,322(note 1) Book value stated in the consolidated balance sheets is net of accumulated depreciation and accumulated impairment losses.
(note 2) The increase in rental properties in this fiscal year is mainly due to the change in scope of consolidation of certain subsidiary (¥3,184 million/$23,845 thousand) and contract modification (¥488 million/ $3,655 thousand) and new acquisitions (¥251 million / $1,880 thousand).
(note 3) Fair value at the end of this fiscal year is mainly estimated based on the “Real estate appraising standard” with an adjustment using a certain
indicator.

- 40 -

The profit and loss from investment and rental properties in this fiscal year are shown below.
Japanese Yen (millions)

2023

Usage

Rental income

Facilities for lease

¥

1,066

Idle assets (Land)
Total

Rental expenses¥

Difference

273

¥

1066

¥

793

¥

793

¥

Others(Profit or Loss on sales ofassets, etc.)
¥
86

-

273

(82)
¥

4

U.S. Dollars (thousands)
Usage

Rental income

Facilities for lease

$

7,983

Idle assets (Land)
Total

Rental expenses$

Difference

2,044

$

7,983

$

5,939

$

5,939

$

2044

Others(Profit or Loss on sales ofassets, etc.)
$
644

-

(614)
$

30

(note 1) Rental expenses include depreciation, repair, insurance and taxes-and-dues. Rental income is recognized as revenue from operations, and rental
expenses are recognized as operating expenses.
(note 2) Others include gain on disposal of non-current assets and taxes-and-dues, which are recognized as other income (expenses).

2022

Japanese Yen (millions)Book value
Beginning balance as ofApril 1, 2021

Usage
Facilities for lease¥

Idle assets (Land)
Total

14,993

Fair value

Increase (Decrease)
¥

6,055

1,024
¥

16,017

Ending balance as ofMarch 31, 2022¥

21,048

742
¥

6,797

As of March 31, 2022¥

15,291¥

17,352

1,766¥

22,814

2,061(note 1) Book value stated in the consolidated balance sheets is net of accumulated depreciation and accumulated impairment losses.
(note 2) The increase in rental properties in this fiscal year is mainly due to contract modification (¥4,568 million) and new acquisitions (¥2,229 million), andthe decrease in rental properties is mainly due to deconsolidation of certain subsidiaries (¥311 million).
(note 3) Fair value at the end of this fiscal year is mainly estimated based on the “Real estate appraising standard” with an adjustment using a certain
indicator.

The profit and loss from investment and rental properties in this fiscal year are shown below.
Japanese Yen (millions)
2022
Usage
Facilities for lease

Rental income¥

Idle assets (Land)
Total

Rental expenses

1,070

¥

297

¥

1,070

Difference
¥

773

¥

773

¥

297

Others(Profit or Loss on sales ofassets, etc.)
¥
-

-

(66)
¥

(note 1) Rental expenses include depreciation, repair, insurance and taxes-and-dues. Rental income is recognized as revenue from operations, and rental
expenses are recognized as operating expenses.
(note 2) Others include loss on impairment of non-current assets and taxes-and-dues, which are recognized as other income (expenses).

- 41 -(66)

16. Revenue Recognition·············································································································································································································································(a) Disaggregation of Revenue
The information on disaggregation of revenue from contracts with customers for the years ended March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023

Ocean
Development

Ship

MachineryEngineering

Sub total

Others *1

Total

Breakdown by geographical regions
Japan

¥

5,833

¥

-

¥

134,960¥75¥

140,868¥

32,305¥

173,173

Asia

264

-

25,46422,30048,0285,249

53,277

Europe

502

-

2,357

-

2,859

12,027

14,886

North America

-

-

8,369

-

8,369

2,092

10,461

Central and South America

0

-

439

-

439

2,675

3,114

Other regions

-

-

2,585

-

2,585

3,728

6,313

Revenue from contracts withcustomers

¥

6,599

Other revenue *2
Net sales to outside customers

¥

¥

6,599

-

¥

174,174

¥

-

¥

37
¥

174,211

22,375¥203,148

32¥

22,407¥69¥

203,217

58,076¥261,224

1,008¥

59,084

1,077¥

262,301

Japanese Yen (millions)

2022

Ocean
Development

Ship

MachineryEngineering

Sub total

Others *1

Total

Breakdown by geographical regions
Japan

¥

25,636¥

137¥

119,480

Asia

1,324

1,549

18,029Europe

433

58

-

16

Central and South America

645

256,696

Other regions

50

64,867

North America

Revenue from contracts withcustomers¥

28,088¥28,088Other revenue *2
Net sales to outside customers¥

323,323¥

323,323

-

¥

89

¥

145,342¥

30,576¥

175,918

7,563

28,465

4,753

33,218

3,412

-

3,903

13,45917,362

1,342

(53)

1,305

1,060

2,365

3,155

-

260,496

5,310

265,806

8,287-

73,204

10,03083,234¥

153,705¥

153,736

-

¥

7,599

¥

7,630

31

¥

512,715¥

512,77731¥

65,188¥66,587

62¥577,903¥579,364

1,399

1,461

U.S. Dollars (thousands)

2023

Ocean
Development

Ship

MachineryEngineering

Sub total

Others *1

Total

Breakdown by geographical regions
Japan

$

43,683$-$

1,010,709

$

562

$

1,054,954$

241,931$

1,296,885

Asia

1,977

-

190,699

167,003359,679

39,310398,989

Europe3,759-

17,651-

21,41090,070111,480

North America--

62,675-62,675

15,66778,342Central and South America

0

-

3,288

-

3,288

20,03323,321Other regions--

19,359-19,35927,91947,278

Revenue from contracts withcustomers$

49,419$49,419Other revenue *2
Net sales to outside customers

$

-

$

-

-

$

1,304,381$

1,304,658-$

167,565$

167,805277$

1,521,365$

1,521,882

240$

434,930$

442,478517$

1,956,295$

1,964,360

7,548

8,065

(note 1) “Others” is the segment which is not included in Reportable Segment and includes Stationary diesel power generation plants, Telecommunicationequipment related business, Systems development, Gas carriers engineering, Special facilities for naval ships and aircraft related business and others.
(note 2) “Other revenue” is rental income based on “Accounting Standard for Lease Transactions.”- 42 -

Changes in Presentation
Revenues from contracts with customers in “Europe” and “North America,” which were included in “Others” in the year ended March 31, 2022, has beenpresented individually from the year ended March 31, 2023, since its materiality has increased.
Revenue from contracts with customers in “Africa,” which was presented individually in the year ended March 31, 2022, has been included in “Others” fromthe year ended March 31, 2023, since its materiality has decreased. Disaggregated revenue from contracts with customers for the year ended March 31, 2022,
has been reclassified in order to reflect this change in presentation.
As a result, for the year ended March 31, 2022, ¥70,666 million previously presented in “Africa” and ¥32,295 million previously presented in “Others” havebeen reclassified as ¥17,362 million in “Europe,” ¥2,365 million in “North America,” and ¥83,234 million in “Others.”(b) Basic Information to Understand Revenue from Contracts with Customers
Basic information of our performance obligations is as described in Note 1 “Significant Accounting and Reporting Policies, (p) Revenue Recognition.”(c) Contract Balances
The opening and closing balances of receivables from contracts with customers, contract assets, and contract liabilities were as follows:
Japanese Yen (millions)Japanese Yen (millions)

2023
Opening balance of receivables from contracts¥

U.S. Dollars (thousands)

2022
50,762¥

2023
123,985$

380,154

Closing balance of receivables from contracts¥

55,512¥50,762$415,727

Opening balance of contract assets¥

27,788¥109,971$

208,103

Closing balance of contract assets¥

26,330¥27,788$

197,184

Opening balance of contract liabilities¥

30,901¥

106,317$

231,416

Closing balance of contract liabilities¥

25,300¥30,901$

189,470

Contract assets are primarily about performance obligations under contracts satisfied over time and revenue has been recognized, but have not yet been billed.
In the Group, it primarily relates to the Group’s rights to unbilled portion of the construction and installation works of the equipment that had been finished asof the end of reporting period. Contract assets become receivables once the rights to the receive consideration become unconditional. This is usually when theinvoices are issued to customers. The consideration for the construction and installation works of equipment are mainly received within approximately 90
days after issued date for domestic and within 30 days after issued date for international.
Contract liabilities primarily relate to the consideration received before transferring goods or construction services to customers as a credit risk management.
Contract liabilities will be reversed and recognized as revenue once the performance obligations are satisfied.
The amount of revenue recognized in the year ended March 31, 2022, from the beginning contract liability balance was ¥82,443 million. The balances ofreceivables from contracts, contract assets, and contract liabilities had been decreased by ¥73,223 million, ¥82,183 million, and ¥75,416 million, respectively.
These were primarily due to the change of scope of consolidation as sales (including partial sale) of subsidiaries’ stocks, and the impacts on the decrease inreceivables from contracts, contract assets, and contract liabilities come to ¥60,851 million, ¥80,994 million, and ¥51,061 million, respectively.
Amount of revenue recognized in the year ended March 31, 2022 from performance obligations satisfied in previous years was not significant.
The amount of revenue recognized in the year ended March 31, 2023, from the beginning contract liability balance was ¥22,044 million ($165,086 thousand).
The main reason behind the ¥1,458 million ($10,919 thousand) decrease in contract assets in the year ended March 31, 2023 was that a decrease resulting
from offsetting the transfer to receivables from contracts with customers and contract liabilities surpassed an increase due to revenue recognition. The main
reason behind the ¥5,601 million ($41,946 thousand) decrease in contract liabilities was that a decrease resulting from offsetting revenue recognition andcontract assets surpassed an increase due to receipt of advances from customers.
Amount of revenue recognized in the year ended March 31, 2023, from performance obligations satisfied in previous years was not significant.

(d) Transaction Price Allocated to Remaining Performance Obligations
Aggregate amount of the transaction price allocated to the remaining performance obligations as of March 31, 2023 and 2022, and the expected timing whenrevenue will be recognized were as follows:
Japanese Yen (millions)Japanese Yen (millions)2023
Due within one year¥

U.S. Dollars (thousands)

2022
163,463¥2023
118,086$

1,224,167

Due after one year through two years

36,50549,617273,384

Due after two years through three years

16,396

15,620122,789

Due after three years
Total

95,453¥311,81765,311¥- 43 -

248,634

714,843$

2,335,183

17. Segment Information·············································································································································································································································(a) Overview of Reportable Segment
Reportable Segment is composed of the segment by products and services belonging to the operating companies and subject to be reviewed periodically by
the Board of Directors to decide the allocation of management resources and to evaluate the performance.
Under the Company (a pure holding company), the Group develops the operation with each operating company making strategies of its products and services
in both Japan and abroad comprehensively.

Reportable Segment is classified into 4 segments: Ship, Ocean Development, Machinery and Engineering. Main products and services of each Reportable
Segment are as follows.
Ship: commercial ships, high speed passenger/vehicle ferries, offshore structures, underwater TV vehicles, design engineering services, ship related

equipments, steel structures
Ocean Development: FPSOs (floating production storage offloading vessels)
Machinery: marine and stationary diesel engines, marine equipments, gas engines, steam turbines, blowers, process compressors, gas turbines, cogeneration

system, process equipment, container cranes, industrial cranes, container terminal management systems, HWM manipulators, equipment of radar sensing forunderground and construction, induction heaters, wave generators
Engineering: power generation business, overseas civil/architectural works(b) Calculation Method used for Sales, Segment Income and Loss, Assets, Liabilities and Other Items for each Reportable Segment
The accounting method used for Reportable Segment is the same in material aspects as the method used for “Significant Accounting and Reporting Policies.”
Segment income and loss is based on Operating income (loss) in Consolidated Statements of Operations.
Inter segment profit and transfer are based on the market price.

Change in Calculation Method used for Segment Income and Loss for Reportable Segment
Segment income (loss) used to represent “Operating income (loss)” in Consolidated Statements of Operations. Regarding “Ocean Development,” however,segment income (loss) has changed to represent “Share of profit (loss) of entities accounted for using equity method” since the year ended March 31, 2023,
instead of “Operating income (loss).” This is because the management indicator has been changed after MODEC, Inc., which consists of “Ocean
Development,” had been excluded from the scope of consolidation and become affiliates accounted for using equity method since the year ended March 31,
2022.
Segment loss for the prior year reflecting the said change is shown in (note 1) for the year ended March 31, 2022, in “(c) Information about Sales, Segment
Income and Loss, Assets, Liabilities and Other Items for each Reportable Segment.”- 44 -

(c) Information about Sales, Segment Income and Loss, Assets, Liabilities and Other Items for each Reportable Segment
Reportable Segment information for the years ended March 31, 2023 and 2022 were as follows:
Japanese Yen (millions)

2023

Ship

Ocean
Development

MachineryEngineering

¥

¥

¥

Sub total

Others

Total

Adjustments Consolidated

262,301¥

Net Sales:
Outside customers ¥Inter segment

6,599
32

-

174,211491

22,407¥-203,217¥523

59,084¥

11,57012,093-¥

262,301(12,093)

-

Total

¥

6,631

¥

-

¥

174,702¥22,407¥

203,740¥

70,654¥274,394¥(12,093) ¥262,301

Segment income

¥

84

¥

2,312

¥

8,374

¥

547

¥

11,317¥371¥

11,688¥(2,312) ¥9,376

Assets¥-¥54,858¥

209,799¥

24,952¥289,609¥83,619¥373,228¥

66,732¥439,960

¥

158

¥

-

¥

4,695

¥

7

¥

4,860

¥

1,706

¥

6,566

¥

478

¥

7,044

¥

-

¥

-

¥

-

¥

-

¥

-

¥

901

¥

901

¥

-

¥

901

¥

-

¥

-

¥

-

¥

-

¥

-

¥

7,626

¥

7,626

¥

-

¥

7,626

of entities accounted¥
for using equity

119

¥

2,312

¥

295

¥

(160) ¥

2,566

¥

1,245

¥

3,811

¥

-

¥

3,811

224

¥

-

¥

8,212

¥

8

8,444

¥

973

¥

9,417

¥

364

¥

9,781

Depreciation andamortization
Amortization of
goodwill
Year-end balance of
goodwill
Share of profit (loss)

methodIncrease in property,

plant and equipment ¥and intangible assets¥(note 1) Segment income (loss) in “Ship,” “Machinery,” “Engineering” and “Others” represents “Operating income (loss),” and in “Ocean Development”
represents “Share of profit (loss) of entities accounted for using equity method.”(note 2) Mitsui E&S Shipbuilding Co., Ltd. and its two subsidiaries, which compose “Ship,” were excluded from the scope of consolidation since 3rd quarterof the year ended March 31, 2023. Due to this deconsolidation, net sales, segment income, and other items (depreciation and amortization, share of
profit (loss) of entities accounted for using equity method, increase in property, plant and equipment and intangible assets) for "Ship" are presented
through the 2nd quarter of the year ended March 31, 2023.
(note 3) “Others” is the segment which is not included in Reportable Segment and includes Stationary diesel power generation plants, Telecommunicationequipment related business, Systems development, Gas carriers engineering, Special facilities for naval ships and aircraft related business and others.
(note 4) Adjustments are as follows:(1) Adjustments of ¥66,732 million recorded for assets primarily include surplus funds (cash and time deposits), long-term investment (investment
securities) and assets related to the administration divisions of the Company of ¥70,704 million that are not allocated to any Reportable Segment.
(2) Adjustments of ¥478 million recorded for depreciation and amortization are depreciation for property, plant and equipment and amortization for
intangible assets related to the administration divisions.
(3) Adjustments of ¥364 million recorded for increase in property, plant and equipment and intangible assets are increase in assets related to theadministration divisions.
(note 5) Segment income is adjusted with operating income in Consolidated Statements of Operations.

- 45 -

Japanese Yen (millions)

2022

Ship

Ocean
Development

MachineryEngineering

28,088¥¥¥Sub total

Others

Total

Adjustments Consolidated

579,364¥

Net Sales:
Outside customers ¥Inter segment
Total

869
¥

Segment income(loss)
Assets¥28,957323,323-¥(439) ¥

323,323

153,736
1,196

7,630

¥

43

¥

154,932¥

7,673(8,086) ¥

8,156

¥

512,777

¥

2,108
¥

514,885

66,587¥

12,91415,022-¥

579,364(15,022) ¥579,364-¥(10,030)(15,022)¥

79,501¥

594,386¥(10,810) ¥(11,179) ¥

1,149

¥

(10,030) ¥-¥15,072¥

31,825¥

181,901¥

28,141¥

256,939¥

78,209¥335,148¥

74,002¥

409,150

¥

916

¥

2,870

¥

4,419

¥

1

¥

8,206

¥

1,923

¥

10,129¥520¥

10,649

¥

-

¥

194

¥

-

¥

-

¥

194

¥

854

¥

1,048

¥

-

¥

1,048

¥

-

¥

-

¥

-

¥

-

¥

-

¥

7,996

¥

7,996

¥

-

¥

7,996

of entities accounted¥
for using equity

1,166

¥

(16,686) ¥

308

¥

12

¥

(15,200) ¥554 ¥(14,646) ¥-¥(14,646)

¥

54

¥

-

¥

-

¥

1

¥

55

¥

-

¥

55

¥

28

¥

83

¥

824

¥

3,940

¥

7,912

¥

12

¥

12,688

¥

1,221

¥

13,909¥164¥

14,073

Depreciation andamortization
Amortization of
goodwill
Year-end balance of
goodwill
Share of profit (loss)

methodLoss on impairment

of non-current assets
Increase in property,
plant and equipment

and intangible assets(note 1) “Ocean Development” is composed of MODEC, Inc. Because of the partial sale of MODEC shares, they were deemed to be excluded from the scopeof consolidation on the end of 3rd quarter of the year ended March 31, 2022. Due to this deconsolidation, "Ocean Development" hereafter consists ofaffiliates accounted for using equity method.

Segment loss reflecting the change in calculation method used for segment income and loss for Reportable Segment would become ¥20,586 million.
(note 2) “Others” is the segment which is not included in Reportable Segment and includes Stationary diesel power generation plants, Telecommunicationequipment related business, Systems development, Gas carriers engineering, Special facilities for naval ships and aircraft related business and others.
(note 3) Adjustments are as follows:(1) Adjustments of ¥74,002 million recorded for assets primarily include surplus funds (cash and time deposits), long-term investment (investment
securities) and assets related to the administration divisions of the Company of ¥76,337 million that are not allocated to any Reportable Segment.
(2) Adjustments of ¥520 million recorded for depreciation and amortization are depreciation for property, plant and equipment and amortization for
intangible assets related to the administration divisions.
(3) Adjustments of ¥28 million recorded for loss on impairment of non-current assets are the impairment loss for Corporate.
(4) Adjustments of ¥164 million recorded for increase in property, plant and equipment and intangible assets are increase in assets related to theadministration divisions.
(note 4) Segment income (loss) is adjusted with operating loss in Consolidated Statements of Operations.

- 46 -

U.S. Dollars (thousands)

2023

Ship

Ocean
Development

MachineryEngineering

49,419$-$ 1,304,658

$

-

3,677

-

$ 1,308,335$

Sub total

Others

Total

Adjustments Consolidated

442,478$ 1,964,360

86,64790,564

529,125$ 2,054,924$$

Net Sales:
Outside customers $Inter segment

240

167,805$ 1,521,882

-

3,917

167,805$ 1,525,799

$

$

Total

$

49,659$Segment income

$

629

$

17,314$62,713$

4,096

Assets$-$410,829$ 1,571,175$

186,864

$

1,183

$

-

$

35,161

$

$

-

$

-

$

-

$

-

$

-

$

$

891

$

17,314

plant and equipment $and intangible assets

1,678

$

-

Depreciation andamortization
Amortization of
goodwill
Year-end balance of
goodwill$$-$ 1,964,360(90,564)-(90,564) $ 1,964,360

84,752$

2,778

87,530$(17,314) $$ 2,168,868$

626,219$ 2,795,087$

499,753

70,21652$

36,396$

12,776$49,172

$

3,580

$

52,752

$

-

$

-

$

6,748

$

6,748

$

-

$

6,748

-

$

-

$

-

$

57,111$

57,111$-$

57,111

$

2,209

$

(1,198) $19,216

$

9,324

$

28,540$-$28,540$61,499$60

63,237

$

7,286

$

70,523

$

2,726

$

73,249$ 3,294,840

Share of profit (loss)of entities accounted

for using equity
methodIncrease in property,$(note 1) Segment income (loss) in “Ship,” “Machinery,” “Engineering” and “Others” represents “Operating income (loss),” and in “Ocean Development”
represents “Share of profit (loss) of entities accounted for using equity method.”(note 2) Mitsui E&S Shipbuilding Co., Ltd. and its two subsidiaries, which compose “Ship,” were excluded from the scope of consolidation since 3rd quarterof the year ended March 31, 2023. Due to this deconsolidation, net sales, segment income, and other items (depreciation and amortization, share of
profit (loss) of entities accounted for using equity method, increase in property, plant and equipment and intangible assets) for "Ship" are presented
through the 2nd quarter of the year ended March 31, 2023.
(note 3) “Others” is the segment which is not included in Reportable Segment and includes Stationary diesel power generation plants, Telecommunicationequipment related business, Systems development, Gas carriers engineering, Special facilities for naval ships and aircraft related business and others.
(note 4) Adjustments are as follows:(1) Adjustments of $499,753 thousand recorded for assets primarily include surplus funds (cash and time deposits), long-term investment (investment
securities) and assets related to the administration divisions of the Company of $529,499 thousand that are not allocated to any Reportable
Segment.
(2) Adjustments of $3,580 thousand recorded for depreciation and amortization are depreciation for property, plant and equipment and amortization
for intangible assets related to the administration divisions.
(3) Adjustments of $2,726 thousand recorded for increase in property, plant and equipment and intangible assets are increase in assets related to theadministration divisions.
(note 5) Segment income is adjusted with operating income in Consolidated Statements of Operations.

- 47 -

[Related information](d) Information by products and services
Information by products and services is the same as Reportable Segment and the description is omitted.

(e) Information by geographical area
1) SalesJapanese Yen (millions)2023
Net sales

Japan
¥

Asia

174,250¥

Central andSouth America

Africa53,277

¥

3,904

¥

3,114

Others¥27,756

Total¥

262,301

Japanese Yen (millions)2022
Net sales

Japan
¥

Asia

177,379¥

Central andSouth America

Africa33,218¥70,666

265,806

Others¥32,295

Total¥

579,364

U.S. Dollars (thousands)

2023
Net sales

Asia

Japan
$

1,304,950$

Central andSouth America

Africa398,989$

29,237$23,321Others$207,863

Total$

1,964,360*Sales amount is based on the place of customer and classified by country or geographical area.

Changes in Presentation
Net sales in “Asia” which was included in “Others” in the year ended March 31, 2022, has been presented individually from the year ended March 31, 2023,
since its materiality has increased. Net sales in “Brazil” which was presented individually in the year ended March 31, 2022, has been included in “Central
and South America” from the year ended March 31, 2023, since its materiality has decreased, while net sales in “Central and South America” is presented
individually from the year ended March 31, 2023. In order to reflect these changes in presentation, “(e) Information by geographical area, 1) Sales” in the year
ended March 31, 2022, has been reclassified.
As a result, for the year ended March 31, 2022, ¥242,947 million previously presented in “Brazil” and ¥88,372 million previously presented in “Others” havebeen reclassified as ¥33,218 million in “Asia,” ¥265,806 million in “Central and South America,” and ¥32,295 million in “Others.”
2) Property, plant and equipment
Japanese Yen (millions)2023
Property, plant and equipment

Japan
¥

Others114,982

¥

Total

785

¥

115,767

Japanese Yen (millions)2022
Property, plant and equipment

Japan
¥

Others116,850

¥

Total

1,489

¥

118,339

U.S. Dollars (thousands)

2023
Property, plant and equipment

Japan
$

861,095

Others
$

Total

5,879

$

866,974(f) Information by major customer
2023
Information by major customer is not described because there is no customer with the sales amount exceeds 10% of the sales amount in Consolidated
Statements of Operations.

2022
Equinor Brasil Energia Ltda.

¥

Japanese Yen(millions)

Reportable Segment

86,234

Ocean Development[Information about gain on bargain purchase for each Reportable Segment]2023
Not applicable.

2022
Not applicable.

- 48 -

18. Related Party Transactions·············································································································································································································································(a) Related Party Transactions
Transactions between the Company and related parties for the fiscal years ended March 31, 2023 and 2022 were as follows:

2023:
Not applicable2022:
Not applicable

Transactions between the Subsidiaries and related parties for the fiscal years ended March 31, 2023 and 2022 were as follows:

2023:
Not applicable2022:
Affiliate of the Company

Contents of transactions

Japanese Yen (millions)

SEPIA MV30 B.V.

The equipment capital lending

SEPIA MV30 B.V.

The equipment capital collection

8,946

BUZIOS5 MV32 B.V.

Construction of FPSO

63,007¥

15,4401. The transaction amount does not include foreign currency exchange gains and losses, while outstanding balance at the year-end includes foreign currency
exchange gains and losses.
2. Policies for determining terms and conditions are as follows:(1) FPSO/FSO construction and operation trade are comprehensively determined in consideration by each project plan.
(2) The equipment capital lending is deliberately determined in consideration by each project plan.
The interest is reasonably determined by taking into account market interest rates.

(b) Condensed financial information on important affiliates
In the fiscal year ended March 31, 2023, an important affiliate was MODEC, Inc., and its condensed financial information is as follows.
Japanese Yen (millions)
U.S.Dollars (thousands)
2023
Total current assets

2022

2023

186,728

237,026

Total non-current assets

229,447

156,980

1,718,318

Total current liabilities

234,142

306,500

1,753,479

Total non-current liabilities

70,417

23,697527,350

Total net assets

111,61763,808835,895

Operating revenue

¥

¥

$

$

1,398,397

363,567

448,549

Profit (loss) before income taxes

7,277(39,601)

2,722,736
54,497

Profit (loss)

4,960(41,864)

37,145The above condensed financial information represents financial statements prepared by MODEC, Inc. in accordance with International Financial
Reporting Standards (IFRS) with adjustments required under accounting principles generally accepted in Japan being added to the financial
statements.

- 49 -

19. Per Share Data·············································································································································································································································

Japanese Yen (millions)2023
Net assets per share¥

U.S.Dollars (thousands)

2022

1,107.02¥

2023
706.06$

8.290

Earnings per share

177.47(269.94)

1.329

Diluted earnings per share

174.92-

1.310(note 1) Diluted earnings per share for the previous fiscal year is omitted, since a per share loss arose in the period despite the presence of diluted shares.
(note 2) Basis for calculating earnings per share or loss per share and diluted earnings per share is as follows:
Japanese Yen (millions)

2023

U.S.Dollars (thousands)

2022

2023

Earnings per share
Profit (loss) attributable to owners of parent¥

15,554

Value not attributable to shareholders of common stock[Of the above, amount of preferred dividends]
Profit (loss) attributable to owners of parent inaccordance with the common stock
Average number of common stock during the period(Thousands of shares)¥(21,825)$

116,483

529

-

3,962

[529]

[-]

[3,962]

15,025(21,825)

112,52284,66180,853

Japanese Yen (millions)

2023

U.S.Dollars (thousands)

2022

2023

Diluted earnings per share
Adjustments to profit attributable to owners of parent¥-

Increase in the number of common stock(Thousands of shares)[Of the above, subscription rights to shares(Thousands of shares)]

¥

-

1,235

-

[1,235]

[-]

-

-

$

-

Overview of potential shares not included in the calculationof the diluted earnings per share because of the lack ofdilution effects(note 3) Basis for calculating net assets per share is as follows:
U.S.Dollars (thousands)

Japanese Yen (millions)2023
Total net assets¥

2022
110,686

Amount deducted from total net assets[Of the above, amount paid for preferred shares][Of the above, amount of cumulative unpaid preferred
dividends]¥

2023
62,949$828,922

13,8105,857

103,422[9,000][-][67,401]

[529]

[-]

[3,962][Of the above, subscription rights to shares]

[133]

[124]

[996]

[Of the above, non-controlling interests][4,149][5,734][31,072]

96,87657,092

725,500

87,51080,860Net assets related to common stock at the end of the period
Number of shares of common stock at the end of the periodused to calculate net assets per share (Thousands of shares)- 50 -

20. Bonds·············································································································································································································································

Bonds as of March 31, 2023 and 2022 were summarized below:
Japanese Yen (millions)

2023

U.S. Dollars (thousands)

2022

2023

Unsecured or non-guaranteed1.01% bonds, due September 14, 2022

¥

-

¥

5,000

$

-

0.62% bonds, due December 15, 2022-

10,000-0.70% bonds, due September 15, 2023

5,000

5,000

37,445

Total

¥

5,000

¥

20,000$37,445The amounts that were scheduled to be redeemed for the five-year period after the consolidated closing date were as follows:
Japanese Yen (millions)

U.S. Dollars (thousands)

Within one year

¥

5,000

$

37,445

Over one year but within two years

¥

-

$

-

Over two years but within three years

¥

-

$

-

Over three years but within four years

¥

-

$

-

Over four years but within five years

¥

-

$

-

21. Borrowings and Indebtedness·············································································································································································································································

Borrowings and Indebtedness as of March 31, 2023 and 2022 were summarized below:
U.S. Dollars(thousands)

Japanese Yen (millions)Averageinterest rate

Due dates

Short-term borrowings

2.56%

-

Current portion of long-term borrowings

0.89%

-

9,375

8,101

70,209

-

-

1,863

1,808

13,952

0.94%2024 to 2042

11,92819,65889,328

Lease obligations-

2024 to 2032

7,061

6,497

52,880

Other interest-bearing liabilities

-

-

-

-

Current portion of lease obligations
Long-term borrowings

2023
¥

2022

115,246¥

145,473

¥

¥

2023

94,615

130,679$

863,072$

1,089,441(note 1) The average interest rates applicable to borrowings, etc. are computed as the weighted average interest rate, based on interest rates and endingbalances.

The average interest rate applicable to lease obligations is omitted, as lease obligations are recorded on the consolidated balance sheet primarily at an amount
before deducting the portion of lease payments equivalent to interest which is included in the total amount of the lease payments.
(note 2) The scheduled amounts of repayment of long-term borrowings and lease obligations (excluding current portion) for the five-year period after the
consolidated closing date were as follows:
Japanese Yen (millions)Over one year but
within two years

Over two years but
within three years

Over three years but
within four years

Over four years but
within five years

Long-term borrowings

¥

1,377

¥

1,444

¥

1,255

¥

1,144

Lease obligations

¥

1,680

¥

1,580

¥

1,442

¥

970

U.S. Dollars (thousands)
Over one year but
within two years

Over two years but
within three years

Over three years but
within four years

Over four years but
within five years

Long-term borrowings$

10,312$

10,814

$

9,399

$

8,567

Lease obligations$

12,581$

11,833$

10,799$7,264- 51 -

22. Subsequent events·············································································································································································································································

Transition to an operating holding company structure through an absorption-type merger of consolidated subsidiaries
Effective April 1, 2023, the Company merged with the two wholly-owned subsidiaries by absorption-type merger, with the Company as the surviving
company and the two wholly-owned subsidiaries as the dissolving companies, and shifted to an operating holding company structure.
As of the same date, the Company changed the corporate name to "MITSUI E&S Co., Ltd."
1. Transaction summary1) Names and businesses of the parties to the merger
Surviving company inabsorption-type merger
Name

Dissolving companies in absorption-type merger
Mitsui E&S Machinery Co., Ltd.

Mitsui E&S Holdings Co., Ltd.

Business description

Mitsui E&S Business Service Co., Ltd.

Ownership of stocks of companies

Marine and stationary diesel engines,

Shared service business for corporate

engaged in design, manufacture,marine equipments, gas engines, steam

engineering, construction, installation,

turbines, blowers, process compressors,operations among the Mitsui E&S Group,
including finance and accounting, humanrepair, and maintenance of ships, various
machinery, plants, etc., management andadministration of such companies, andrelated operations

gas turbines, cogeneration system,
process equipment, container cranes,
industrial cranes, container terminal
management systems, HWM

resources and general affairs, etc.

manipulators, equipment of radar sensing
for underground and construction,induction heaters, and wave generators

2) Legal form of the business merger
An absorption-type merger, with the Company as the surviving company and its wholly-owned subsidiaries, Mitsui E&S Machinery Co., Ltd. (hereinafter,"MES-M") and Mitsui E&S Business Service Co., Ltd. (hereinafter, "MES-B") as the dissolving companies.
3) Date of business merger
April 1, 2023
4) Name of company after merger
MITSUI E&S Co., Ltd.

5) Other matters concerning the outline of the transactioni) Purpose of the merger
Since April 2018, the Group has been working to strengthen its competitiveness and promote growth under a pure holding company. Based on the "Mitsui
E&S Group Business Revival Plan" started in FY 2019, we have implemented various measures such as "execution of the sale of assets and businesses"
and "business restructuring and promotion of collaboration with other companies regarding cooperative businesses." As a result, we have reached asituation where we are on track to achieve the Business Revival Plan to a certain extent, including the bold implementation of various measures andpromotion of selection and concentration under the current structure.
In order to achieve future growth and improve profitability, we have decided on the optimal measures to shift to a new organizational structure. We aim toshorten the distance between MES-M, the Group's mainstay business, and management as well as speed up strategic planning and execution by unifying
them. Also, going forward, we aim to change the Group's organizational structure to emphasize growth areas.
Specifically, we will shift from the current pure holding company structure to an operating holding company structure, and merge MES-M, which will be
the center of future growth strategies, and MES-B, which will be responsible for corporate operations, into our company to create a unified management
structure. This will accelerate the implementation of our growth strategies and improve management efficiency.
ii) Financial position and operating results of the main merged company (MES-M) for the most recent fiscal year (fiscal year ended March 31, 2023)
AssetsLiabilities¥136,621 million ($1,023,148 thousand)¥92,412 million ($692,069 thousand)Net assets
Net sales¥44,209 million ($331,079 thousand)¥141,341 million ($1,080,963 thousand)Profit¥4,941 million ($37,003 thousand)

2. Summary of accounting procedures implemented
This business merger was treated as a transaction under common control, in accordance with the "Accounting Standards for Business
Combinations" (ASBJ Statement No. 21, January 16, 2019) and the "Guidance on Accounting Standards for Business Combinations and AccountingStandards for Business Divestitures" (ASBJ Guidance No. 10, January 16, 2019).
Business merger through acquisition
On September 27, 2022, the Company concluded a share transfer agreement with IHI Corporation and IHI Power Systems Co., Ltd. (hereinafter, "IPS") for
the transfer of IPS's business related to marine large bore engines and its associated products (hereinafter, the "Business"), and as of April 1, 2023, theCompany acquired all shares of the new company "IPS Aioi Co., Ltd." which took over the Business. As of the same date, the company changed its
corporate name to "Mitsui E&S DU Co., Ltd."
1. Outline of the business merger
1) Name of the acquired company and its business
Name of acquired company: IPS Aioi Co., Ltd.

Business description: Business related to marine large bore engines and its associated products- 52 -

2) Reason for business merger

Mitsui E&S DU Co., Ltd. is a company with strength in the manufacture and after-sales service of 2-stroke engines licensed through Winterthur Gas &Diesel (hereinafter, "WinGD") and 4-stroke engines licensed through S.E.M.T Pielstick, which has earned the trust of its customers. As Mitsui E&S DU
Co., Ltd. newly became a member of our Group, we expect to further strengthen our resources in development, production, and after-sales service under the
double license system of MAN Energy Solutions and WinGD in our core marine engine business, and through the commercialization of new fuelcompatible engines, we are committed to meeting our customers' needs and creating a carbon-free society.
3) Date of business merger
April 1, 2023

4) Legal form of the business merger
Acquisition of shares in exchange for cash5) Name of company after merger
Mitsui E&S DU Co., Ltd.
6) Percentage of voting rights acquired
100%7) Main basis for determining the acquiring company
The Company acquired the shares in exchange for cash.

2. Amount of gain on bargain purchase and reason for accrual1) Amount of gain on bargain purchase: ¥1,944 million ($14,559 thousand)
The amount of gain on bargain purchase is calculated provisionally because allocation of purchase price is not completed.
2) Reason for accrual
Since the net amount of assets received and liabilities assumed from the acquired company exceeded the acquisition cost of the acquired company, theexcess amount is recognized as gain on bargain purchase.
3. Value of assets acquired and liabilities assumed on the date of business merger and their main breakdown
Not yet determined at this time.
Changes in Reportable Segment
In accordance with the policy in "Mid-Term Business Plan 2023" announced on May 13, 2022, we have decided to change our Reportable Segment from
"Ship," "Ocean Development," "Machinery" and "Engineering" to "New Business Development," "Marine Propulsion Systems," "Logistics Systems,""Peripheral Businesses" and "Ocean Development" from FY2023. Objectives of this decision are to clarify the positioning of each business and to expand
sales and profits.
Main products and services of each Reportable Segment are as follows.
Reportable Segment

Main Products and Services
Industrial machinery (process compressors, gas turbines, blowers, process equipment), advanced machinery

New Business Development(manipulators, ground-penetrating radar systems), and their after-sales services
Marine engines, fuel supply system and auxiliary machineries for dual fuel engines, and their after-sales

Marine Propulsion Systems

services

Logistics Systems

Container cranes, industrial cranes, container terminal management systems, and their aftersales services

Peripheral Businesses

Gas carriers engineering, stationary power generation plants, systems development/system related
equipment, steel structures, hull blocks, mechanical and electrical equipment maintenance

Ocean Development

FPSOs (floating production storage offloading vessels)

Information on sales and segment income for the year ended March 31, 2023 based on reportable segments after the changes was as follows:
Japanese Yen (millions)
2023

MarinePropulsion
Systems

New Business
Development

Logistics
Systems

Peripheral
Businesses

Ocean
Development

Sub total

Others

Total

Adjustments

Consolidated

262,301¥¥

262,301

Net Sales:
Outside customers¥

Inter segment

34,865¥

1,117

97,694¥427

41,653¥

175

57,356¥

11,570-¥-231,568¥

13,28930,733¥42

13,331(13,331)

-

Total

¥

35,982¥

98,121¥

41,828¥68,926¥-¥244,857¥

30,775¥

275,632¥(13,331)¥

262,301

Segment income

¥

4,258

¥

2,639

¥

1,355

¥

722

¥

2,312

¥

11,286¥402¥

11,688¥(2,312)¥

9,376- 53 -

U.S. Dollars (thousands)
MarinePropulsion
Systems

New Business
Development

2023

Logistics
Systems

Peripheral
Businesses

Ocean
Development

Sub total

Others

Total

Adjustments

Consolidated$$ 1,964,360

Net Sales:
Outside customers$

Inter segment261,103$8,365

731,626$

3,198

311,937$

1,311

429,537$

86,647-$ 1,734,203-

99,521$ 1,833,724
$

Total

$

269,468$

734,824$

313,248$

516,184$-

Segment income$

31,887$

19,763$

10,148

$

5,407

$

17,31484,519$230,157$ 1,964,360

315

99,836$

230,472$ 2,064,196

$

3,011

$

87,530(99,836)-$(99,836)$ 1,964,360$(17,314)$70,216(note 1) Segment income (loss) in “New Business Development,” “Marine Propulsion Systems,” “Logistics Systems,” “Peripheral Businesses,” and“Others” represents “Operating income (loss),” and in “Ocean Development” represents “Share of profit (loss) of entities accounted for using
equity method.”(note 2) “Others” is the segment which is not included in Reportable Segment and includes engineering, the ship related service business and others.
(note 3) Segment income is adjusted with operating income in Consolidated Statements of Operations.

(note 4) The amounts for segment assets and other items (depreciation and amortization, amortization of goodwill, year-end balance of goodwill, share of
profit (loss) of entities accounted for using equity method, and increase in property, plant and equipment and intangible assets) are currently being
calculated and will be disclosed in the year ending March 31, 2024.
In addition, information on disaggregation of revenue from contracts with customers in the year ended March 31, 2023 based on the reportable segments
after the changes is currently being calculated and will be disclosed in the year ending March 31, 2024.

- 54 -

To the Board of Directors of Mitsui E&S Co., Ltd.:
OpinionWe have audited the accompanying consolidated financial statements of Mitsui E&S Co., Ltd. (former Mitsui
E&S Holdings Co., Ltd.) (“the Company”) and its consolidated subsidiaries (collectively referred to as “theGroup”), which comprise the consolidated balance sheets as at March 31, 2023 and 2022, the consolidated
statements of income and comprehensive income, changes in net assets and cash flows for the years then ended,and notes, comprising a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, theconsolidated financial position of the Group as at March 31, 2023 and 2022, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with accounting principles
generally accepted in Japan.
Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the ethicalrequirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the consolidated financial statements of the current period. These matters were addressed in the context of ouraudit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.
Assessment of the reasonableness of the estimated future cash flows used in the impairment
testing on goodwill at MES Germany Beteiligungs GmbHHow the matter was addressedin our audit

The key audit matter
As described in the note 1. "Significant Accounting andReporting Policies, (s)Significant Accounting
Estimates, 2)Valuation of goodwill" to theconsolidated financial statements, Mitsui E&S Co., Ltd.
and its consolidated subsidiaries (hereinafter, referred
to as the "Group") recognized goodwill of ¥7,626
million in the consolidated statement of financial
position, including goodwill of ¥7,608 million allocatedto the engineering business within the ship segment
which arose when MES Germany Beteiligungs GmbH(hereinafter, referred to as “MES Germany”), a
consolidated subsidiary in the ship segment of theGroup located in Germany, acquired control of TGE
Marine AG.

In order to assess the reasonableness of the estimatedfuture cash flows related to the measurement of therecoverable amount used in the impairment testing on
the CGU that included goodwill allocated to theengineering business within the ship segment operated
by MES Germany, we requested the auditors of MES
Germany, a consolidated subsidiary, to perform anaudit. Then we evaluated the report of the auditors toconclude on whether sufficient and appropriate audit
evidence was obtained from the following procedures,among others:- 55 -MES Germany prepares its financial statements inaccordance with International Financial ReportingStandards (IFRS) and performs an impairment test on a
cash-generating unit (CGU) or a group of CGUs towhich goodwill is allocated at least annually, in
addition to when there is an impairment indicator.
When the recoverable amount of a CGU is less than the
carrying amount, the carrying amount is reduced to therecoverable amount and the resulting decrease in the
carrying amount is recognized as an impairment loss.
The recoverable amount is the higher of either thevalue in use or fair value less cost of disposal.

(1) Internal control testing

In the current fiscal year, MES Germany used the value
in use as the recoverable amount in the impairment
testing. The future cash flows used to measure thevalue in use were estimated based on the mid-termbusiness plan of the engineering business within theship segment prepared by management of MES
Germany (hereinafter, referred to as "the mid-termbusiness plan"). Key assumptions underlying the midterm business plan, such as the prospects for future
growth rate of the gas-carrier market in which its
engineering business operates as well as mid-term sales
forecasts, involved management judgment.
Accordingly, management’s judgment thereon had asignificant effect on the estimated future cash flows.
We, therefore, determined that our assessment of thereasonableness of the estimated future cash flows
related to the measurement of the recoverable amountused in the impairment testing on the CGU that
included goodwill allocated to the engineering businesswithin the ship segment operated by MES Germany
was the most significant matters in our audit of theconsolidated financial statements for the current fiscal
year, and accordingly, a key audit matter.

Inquiring of management and the general manager of
MES Germany regarding key assumptions underlying
its mid-term business plan which formed the basis for
estimating the future cash flows, as well as assessmentof the reasonableness of key assumptions byperforming the following procedures:

Evaluation of the effectiveness of the design andoperation of internal controls at MES Germany inrelation to the measurement of value in use inimpairment tests of CGU, including goodwill, with afocus on the internal approval process for future cash
flows created reflecting uncertainties as risks based on
the mid-term business plan.
(2) Assessment of the reasonableness of theestimated future cash flows● comparison of the growth rate of the gas-carrier
market with relevant market data published byexternal organizations;● assessment of the mid-term business plan bycomparing it with the latest planned orders andactual orders;● comparison of the future cash flows estimated bymanagement of MES Germany with thoseindependently estimated by incorporating the effectof specific uncertainties into the mid-term businessplan, after considering the results of the evaluation of
the reasonableness of key assumptions as well as theassessment of the past business plan including thecauses of variances with actual results;

Other Information
The other information comprises the information included in the Consolidated Financial Statements 2023, butdoes not include the consolidated financial statements and our auditor’s reports thereon. Management is
responsible for the preparation and presentation of the other information. Corporate auditors and the board ofcorporate auditors are responsible for overseeing the directors’ performance of their duties with regard to thedesign, implementation and maintenance of the reporting process for the other information.

Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent with theconsolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this otherinformation, we are required to report that fact.
We have nothing to report in this regard.

- 56 -

Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors for theConsolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern in accordance withaccounting principles generally accepted in Japan and using the going concern basis of accounting unlessmanagement either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’ performance of
their duties with regard to the design, implementation and maintenance of the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted inaccordance with auditing standards generally accepted in Japan will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:●

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

●

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, while the objective of the audit is not to express an opinion on theeffectiveness of the Group’s internal control.

●

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

●

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

●

Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordancewith accounting standards generally accepted in Japan, the overall presentation, structure and content of theconsolidated financial statements, including the disclosures, and whether the consolidated financial statements
represent the underlying transactions and events in a manner that achieves fair presentation.

●

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
- 57 -

We communicate with corporate auditors and the board of corporate auditors regarding, among other matters, theplanned scope and timing of the audit, significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.

We also provide corporate auditors and the board of corporate auditors with a statement that we have compliedwith relevant ethical requirements regarding independence, and communicate with them all relationships and othermatters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with corporate auditors and the board of corporate auditors, we determine thosematters that were of most significance in the audit of the consolidated financial statements of the current period
and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulationprecludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a mattershould not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Convenience Translation

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2023 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1(a) to theconsolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan

We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of theCertified Public Accountants Act of Japan.

Makoto Yamada

Designated Engagement Partner
Certified Public Accountant

Fumitaka Otani
Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Tokyo Office, Japan
August 10, 2023

Notes to the Reader of Independent Auditor’s Report:

This is a copy of the Independent Auditor’s Report and the original copies are kept separately by the Company
and KPMG AZSA LLC.

- 58 -