December 16, 2020
To All Concerned Parties
Company name
Mitsubishi Materials Corporation
Representative
Naoki Ono, Chief Executive Officer(Securities code: 5711, First Section, Tokyo Stock Exchange)
Contact for inquiries
Yuji Omura, General Manager, Corporate
Communications Dept.
(Tel: +81-3-5252-5206)
Notice Regarding Submission ofthe Second Quarterly Securities Report for the Fiscal Year Ending March 31, 2021
Mitsubishi Materials Corporation (the “Company”) received approval on the extension of thesubmission of the second quarterly securities report for the fiscal year ending March 31, 2021 with
December 16, 2020, being the deadline as stated in the “Notice Regarding the Approval of Extensionof Deadline for Submission of the Second Quarterly Securities Report for the Fiscal Year Ending
March 31, 2021” announced on November 13, 2020. The Company hereby announces thesubmission of the above quarterly securities report to the Kanto Local Finance Bureau.
It is announced as follows regarding the results of investigations on the cases at Robertson’s Ready
Mix (“RRM”), and others which became a reason to extend the deadline, and impacts on consolidated
financial statements.
The Company extends its sincere apology for causing inconvenience and anxiety to its shareholders,investors and all relevant parties.
1.

OutlineRegarding the transactions between (a) RRM in which the Company holds the equity interest through
MCC Development Corporation (a consolidated subsidiary in which the Company holds 70% shareslocated in the US; hereinafter referred to as “MCCD”), RRM Properties, Ltd. and Robertson’s
Transport, Ltd. (all of which are consolidated subsidiaries of the Company located in the US;
hereinafter collectively referred to as “RRMs”) and (b) the companies in which some senior executivesof RRMs have jointly invested (the “Case”), the Company and MCCD cooperated to engage
independent outside experts who have no interest in MCCD and RRMs to undertake investigations
into the facts of the Case, including interviews with the parties related to the Case, digital forensic
investigations and detailed examinations of the relevant documents such as accounting data, andinvestigated the existence of inappropriate transactions other than the Case. The Company also
conducted investigations on the existence of similar cases in the Company group. The details and anoutline of the results of these investigations are as follows.
(1)

Investigation of the Case(i)

Details of the investigation

The Company conducted investigations into the facts of the Case, such as the persons involvedin the Case and details of the transactions, by interviews with RRMs’ employees including
RRM’s senior executives who were involved in the Case; investigation into past transaction
records; and digital forensic investigations.

(ii)Results of the investigation

It was clarified that since 2014, conflict-of-interest acts have been conducted between RRMs
and 12 companies (the “12 Related Parties”) all or part of whose capital has been directly orindirectly invested by seven senior executives and one ex- senior executive of RRM(hereinafter collectively referred to as the “Investigation Subjects”). Transactions in whichconflict-of-interest acts are confirmed to have been conducted can roughly be classified asfollows:a.
b.
c.

Transactions regarding fixed assets such as trucks, trailers, and other heavymachinery;Transactions regarding inventory (including parts such as aggregates (materials forready-mixed concrete) and tires); andTransactions regarding services such as aggregate transportation, temporary worker
dispatch, road cleaning, and waste concrete fracturing.

The total amount of consideration paid by RRMs to the 12 Related Parties under theseconflict-of-interest transactions is approximately USD 122 million. Under these transactions, it
has been revealed that the 12 Related Parties overcharged RRMs for the purchased
products/services as compared with their market prices or as compared with purchase prices ofsimilar products/services. The amount of their financial impact on RRM is USD 19.68
million; and their impact on the Company’s consolidated financial statements is minor, as
detailed in 2. below.
(2)

Verification of whether there were any inappropriate transactions other than the Case within
RRMs
(i)

Details of the investigation

From among RRMs’ customers other than the 12 Related Parties, the Company extracted
suppliers and so on with a sharp increase in the amount of transactions during certain periods
based on past transaction records. Then the Company investigated whether there were any
inappropriate transactions by investigating past transaction records and by digital forensic
investigations; further, the Company investigated whether there were any other inappropriate
acts, by digital forensic investigations.
(ii)

Results of the investigation

Twenty companies were extracted as suppliers with a sharp increase in the amount oftransactions during certain periods. However, it was found that there were no suspicioustransactions that could be financially material. Furthermore, no other inappropriate acts wereidentified.
(3)

Verification of whether there were any similar cases within the Company group(i)

Details of the investigation

From among all of the Company’s consolidated subsidiaries, the Company selected 53
companies such as companies that rank high in sales and account for 95% of the Company’sconsolidated sales, by deeming them as highly important companies in terms of theCompany’s consolidated accounting. Then the Company extracted and investigated thesubject companies based on the following criteria (the number in parentheses is the number ofextracted companies):

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a.

The Company individually conducted a written investigation of all the full-time
directors and company auditors (collectively “Officers”) of subsidiaries within which
the number of full-time Officers dispatched by the Company, or by companies thathave been the Company’s subsidiaries for a sufficient period of time (15 years), is lessthan 1/4 of all full-time Officers (nine companies).

b.

From among the nine companies described in a. above, the Company conducted aninvestigation of its subsidiary (one company) regarding which the Company has notbeen able to conduct an on-site audit since FY 2018. Specifically, the Company
investigated the data regarding the subsidiary’s transactions with companies such as
those with which the subsidiary has large amounts of accounts receivable or accountspayable; further, the Company checked whether any of the Officers of the subsidiary
have assumed the office of Officer of the customer of the subsidiary.
※(ii)

Although the on-site audit of the one company described in b. above wasscheduled to be conducted in the previous fiscal year, it was postponed due tothe spread of the COVID-19 infection.

Results of the investigation

No transaction that is suspected to be a conflict-of-interest act has been identified in any of thecompanies investigated as described in a. and b. above; further, no fact has been verified thatany of the Officers of the subsidiary described in b. above have assumed the office of Officerof any of its important customers.
2.

Financial Impact and Amendment to Summary of Financial Results for Previous Fiscal Year

The total amount of financial impact on RRM due to the Case is USD 19.68 million (impact related tofixed assets: USD 7.85 million; impact related to inventory: USD 5.84 million; and impact related toservices: USD 5.98 million) being the prices paid by RRMs to 12 Related Parties that were found tohave been overcharged. The overcharged amount was calculated by multiplying the amounts paid by
RRMs to the 12 Related Parties by a certain rate (which was calculated by comparison of the purchaseprices so paid with the market prices or the purchase prices of similar products).
MCCD will report the overcharged amount of fixed assets that were purchased by RRMs throughtransactions with the 12 Related Parties and recorded as assets at the end of its second quarter(including those purchased during the previous fiscal year) as expenses for the second quarter andamend the overcharged amount reported as manufacturing cost for the current fiscal year to be nonoperating expenses. The amount of impact on MCCD’s financial statements due to this amendment
will be as follows (“△” refers to negative impact):
Tangible fixed assets:
Operating income:
Income before tax:
Net income:△USD 5.4 million+USD 2.7 million△USD 5.4 million(of which, that for the past fiscal year: △USD 4.3 million)△USD 3.9 million(of which, that for the past fiscal year: △USD 3.1 million)

The amount of impact on the Company’s financial statements due to these amendments is as follows:
total assets will decrease by 576 million yen; operating income will increase by 298 million yen;ordinary income will decrease by 582 million yen; and net income for the period attributable toshareholders of the parent company will decrease by 293 million yen.
Since the amount of impact by amendments in the settlement of accounts for the previous and current
fiscal years is minor and less important, we will not amend the summary of financial results, securities- 3 -report and quarterly report for the previous fiscal years, and the summary of financial results andquarterly report for the first quarter of the year ending March 2021.
3.

Cause and Recurrence Prevention Measures(1)

Cause of incidence of the Case
The Company considers the cause of incidence of the Case as follows:

(2)

(i)

RRM was originally a so-called owner-managed company, and a company that grewby concentration of authority in the president and top-down management. Thus,
since RRM became a wholly-owned subsidiary of MCCD in 2012, MCCD and RRM
Development (MCCD’s subsidiary incorporated for management of RRMs, amongothers, and the Company’s consolidated subsidiary, “RRMD”) minimized involvement
in RRMs to maintain a climate that supported RRM’s success up to that period.
Thus, even though RRMs were authorized to sanction capital investments, and certain
amount limitations were imposed, comparative liberty was granted to daily businessexecution. As a result, the roles to check RRMs’ senior executives could not beperformed.

(ii)

Even though there were opportunities to receive periodic reports on management
conditions from RRMs, the Company did not fully ascertain the realities within
RRMs.

(iii)

Within RRMs, there was a climate of concentration of authority in senior executives
and following the top person’s instructions.

(iv)

There were no clear internal rules prohibiting a conflict-of-interest transaction, and thewhistle-blowing system was not sufficient, either.

RRMs recurrence prevention measures
In consideration of 3. (1) above, RRMs, MCCD and RRMD shall implement recurrence
prevention measures below. The Company shall provide necessary support to that end.

‧Enhancement of compliance system at RRMs
Establish a management team at RRMs and have it conduct an advance review of materialmatters sanctioned by senior executives, and this has already been implemented. The
management team comprises members dispatched from MCCD Shareholders and MCCD.
Also, in order to prevent unfair transactions, RRMs shall have a compliance officer (“CO”)
and necessary staff. CO shall be authorized to enhance processes including confirmation ofHolding Concurrent Position and Transactions with Related Parties, and confirmation of statusof new business partners and existing business partners, enhancement of internal control andpreparation of necessary internal rules, implementation of compliance education, andinvestigation of whistle-blowing cases, and conduct a fraud audit, etc.

‧Establishment of external contact window for reporting
Establish external contact window for reporting with attorneys-at-law being the contact
window at RRMs.

‧Renovation and enhancement of management system at RRMs

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MCCD dispatched the CEO and CFO to RRMs.
RRMs’ management control shall be enhanced by MCCD Shareholders dispatching senior
executives to RRMD and RRMs in the future.
‧Enhancement of MCCD and RRMD board of directors’ effectiveness
MCCD and RRMD board of directors shall engage in revision of the frequency of holding aboard of directors meeting, the matters for deliberation, and enhancement of conversations
with executives at subsidiaries to better ascertain the management realities of theirsubsidiaries.

(3)

Internal control enhancement measures
Cases similar to the Case are not recognized in subsidiaries other than RRMs. However,internal control enhancement measures shall be implemented so that prevention and early
discovery of wrongdoings by senior executives may be discovered early.

‧Enhancement of internal control
Dispatch of several full-time Officers from the parent company or enhancement of supervisory
functions of part-time officers dispatched from the parent company, obligating advance
notification to the company regarding Holding Concurrent Position and the Related Parties
Transaction to the Officers of the Company and subsidiaries, confirmation of the status ofHolding Concurrent Position and the Related Parties Transactions thereof, introduction of awhistle-blowing system at overseas subsidiaries, and preparation of internal rules, etc. shall beimplemented.

‧Enrichment of measures for enhancement of Officers’ awareness‧Enhancement of communications between management divisions of the parent company andsubsidiaries‧Expansion of internal audit

4.

Future Responses

The Company group will steadily implement formulated recurrence prevention measures and internal
control enhancement measures, and engage in further enhancement of group governance.
The Company also announced today, the consolidated financial results for the six months ended
September 30, 2020, whose announcement was postponed.
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