THE KINKI SHARYO CO., LTD.
AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTS
AND INDEPENDENT AUDITOR'S REPORT
Years Ended March 31, 2021 and 2020

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED BALANCE SHEETSMarch 31, 2021 and 2020
Millions of yen
2021
2020
LIABILITIES AND NET ASSETSASSETS
Current Assets
Cash and time deposits (Notes 7 and 8)
Receivables
Notes and accounts - trade (Notes 8 and 16)
Other accounts
Allowance for doubtful receivables (Note 8)\Inventories
Work-in-process (Note 11)
Raw materials and supplies

Other current assets
Total current assets

Property, Plant and Equipment
Land (Notes 10 and 19)
Buildings and structures (Notes 10 and 19)
Machinery and equipment
Leased assets
Construction in progress
Accumulated depreciation

Investments and Other Assets
Stocks of subsidiaries and affiliates（Note 8）
Investment securities（Notes 8 and 9）
Intangible assets
Other assets
Allowance for doubtful receivables
Total assets

\

4,353

\

5,224

27,75519(35)
27,73926,882989(37)
27,834

15,623523
16,146

20,638586
21,224653
48,891

3,403
57,685

2,582
14,59912,676908
830,773(19,532)
11,241

2,582
14,671
12,377912
204
30,746(18,992)
11,754

36
5,411
215
239
(10)
5,889
66,021

\

36
5,797
213
438
(10)
6,474
75,913Current Liabilities
Short-term loans payable (Notes 8, 10 and 12)
Current portion of long-term loans payable (Notes 8 and 12)
Lease obligations (Notes 8 and 12)
PayablesTrade accounts (Note 8)
Construction
Advances received
Income and enterprise taxes payable
Accrued expenses
Provision for bonuses
Allowance for losses on contracts (Note 11)
Provision for product warranties
Other current liabilities
Total current liabilities

Millions of yen
2021
2020

\

Noncurrent Liabilities
Long-term loans payable (Notes 8 and 12)
Lease obligations (Notes 8 and 12)
Deferred income tax liabilities (Note 14)
Net defined benefit liability (Note 13)
Other noncurrent liabilities (Note 10)
Total liabilities
Net Assets (Note 15)
Shareholders' equity
Common stock
Authorized - 12,000,000 shares
Issued - 6,908,359 shares
Capital surplus
Retained earnings
Treasury stock, at cost
26,761 shares in March 2021
26,310 shares in March 2020
Total shareholders' equity
Accumulated other comprehensive income
Net unrealized holding gains on securities
Net unrealized holding gains on derivatives
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Total net assets
Total liabilities and net assets

See accompanying Notes.

\

15,170
6,234
435

\

15,561
1,062
120

7,976
723
938
535
1,016
368
4,087
567
1,790
39,8397,325
389
11,577
76
1,214
328
3,464
650
355
42,121

578
16
730
2,879
660
4,863
44,702

6,244
453
1,042
2,845
757
11,34153,462

5,253

5,253

3,125
12,152(105)

3,125
11,491(105)

20,425

19,764

1,396
4
(419)
(87)
894
21,31966,021

2,136
(6)
691
(134)
2,687
22,45175,913\

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 2021 and 2020

Net sales (Note 16)
Cost of sales (Note 17)
Gross profit
Selling, general and administrative expenses
Operating profit (loss)

Millions of yen
2021
2020
\
49,419\41,05446,01538,342
3,404
2,712
3,084
3,008
320
(296)

Other income (expenses)
Interest and dividend income
Interest expense
Foreign exchange gain (loss)
Commission fees
Insurance Income (Note 23)
Gain on sale of investment securities (Note 9)
Other, net
Income before income taxes
Income taxes (Note 14)
Current
RefundDeferred
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

Amounts per share (Note 22)
Net income
Cash dividends applicable to the year
See accompanying Notes.

\

113
(196)
86
41
705
(43)
706

168
(372)
(376)
(74)
1,012
1,013
(47)
1,324

1,026

1,028

(475)
106
4
661
―
661

\

(33)
(290)
705
―
705

\
\

102.41
―

Yen
\
\

96.22
30.00

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended March 31, 2021 and 2020
Millions of yen
2021
2020
\
661
\
705

Net income
Other comprehensive income
Net unrealized holding gains (losses) on securities
Net unrealized holding gains (losses) on derivatives
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total other comprehensive income (Note 6)
Comprehensive income
Comprehensive income attributable toowners of the parent
Comprehensive income attributable tonon-controlling interests
See accompanying Notes.

\

(740)
10
(1,110)47(1,793)(1,132)\(1,798)
(6)
(91)
(8)
(1,903)(1,198)(1,132)(1,198)--

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years Ended March 31, 2021 and 2020
Millions of yen

Shareholders' equity
Number ofshares ofcommonstock
Balance at April 1, 2020

6,908,359

Commonstock\

Capitalsurplus

5,253\

Retainedearnings

3,125\

Treasurystock

11,491\(105)

Accumulated other comprehensive income
Net
Net
RemeasureForeign
unrealized
unrealized
ments ofcurrency
holding
holdingdefinedtranslation
gains
gains
adjustments benefit plansonon securities
derivatives
\

2,136

\

(6)

\

691

\

(134)

Total

\

22,451

Net income

-

-

-

661

-

-

-

-

-

661

Purchase of treasury stock

-

-

-

-

(0)

-

-

-

-

(0)

-

-

-

-

(740)

10

(1,110)47(1,793)

Net changes during the year
Balance at March 31, 2021

6,908,359

Number ofshares ofcommonstock
Balance at April 1, 2019

6,908,359

\

5,253

Common
stock

\

\

3,125

Capitalsurplus

5,253

\

\

12,152Retainedearnings

3,125

\

\

(105)

\

1,396

Net
unrealized
holding
gains
on securities

Treasurystock

10,786

\

(104)

\

3,934

\

4

Net
unrealized
holding
gains
onderivatives
\

-

\

(419)

Foreigncurrencytranslation
adjustments
\

782

\

(87)

\

Remeasurements ofdefinedbenefit plans
\

(126)

21,319Total\

23,650Net income

-

-

-

705

-

-

-

-

-

705

Purchase of treasury stock

-

-

-

-

(1)

-

-

-

-

(1)

Net changes during the year

-

-

-

-

-

(1,798)

(6)

(91)

(8)

(1,903)

Balance at March 31, 2020

6,908,359

\

5,253

\

3,125

\

11,491\

See accompanying Notes.

(105)

\

2,136

\

(6)

\

691

\

(134)

\

22,451

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 2021 and 2020
Millions of yen
2021
2020
Cash flows from operating activities
Income before income taxes
Adjustments to reconcile income (loss) before income taxes
to net cash provided by (used in) operating activities
Depreciation and amortization
Increase (decrease) in net defined benefit liability
Increase (decrease) in provision for product warranties
Increase (decrease) in allowance for losses on contracts
Interest and dividend income
Insurance income
Interest expense
Commission fees
Decrease (increase) in trade notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in trade accounts payable
Increase (decrease) in accounts payable and accrued expenses
Other, net
Subtotal
Payments for loss on disaster
Interest and dividends received
Insurance income received
Interest paid
Income taxes paid
Income taxes refund
Net cash provided by (used in) operating activities

\

1,026

\

1,028

1,182
81
(83)
640
(113)
(41)
197
(12,574)
5,045
3,386
(51)
1,472
167
(31)
113
41
(254)
(12)
24

1,349
158
(44)
(1,727)(168)(1,012)372
74
21,273(4,405)160(459)(2,430)14,169
(680)
168
1,012
(406)
(47)
158
14,374

(9)
9

(9)
9

(433)

(557)

1
(631)
935
(128)

4
1,327
774

Cash flows from financing activities
Net increase in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Repayments of lease obligations
Cash dividends paid
Purchases of treasury stock
Net cash provided by (used in) financing activities

(128)
575
(1,023)
(120)
(0)
(696)

(9,587)
4,926(7,057)
(111)
(1)
(0)
(11,830)

Effect of exchange rate changes on cash and cash equivalents

(70)

(17)

(870)
5,215

3,301
1,914

Cash flows from investing activities
Payments into time deposits
Proceeds from withdrawal of time deposits
Acquisitions of property, plant and equipment
and intangible assets
Proceeds from sales of property, plant and equipment
and intangible assets
Purchases of investment securities
Proceeds from sales of investment securities
Net cash provided by (used in) investing activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 7)

See accompanying Notes.

\

4,345

\

5,215

THE KINKI SHARYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of THE KINKI SHARYO CO., LTD. (the“Company”) and its consolidated subsidiaries have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Law and its related
accounting regulations and in conformity with accounting principles generally accepted inJapan (“Japanese GAAP”) which are different in certain respects as to application and disclosure
requirements from International Financial Reporting Standards.
The accounts of the Company’s overseas subsidiary are based on their accounting records
maintained in conformity with generally accepted accounting principles in the United States ofAmerica (“US GAAP”) and partially reflect the adjustments which are necessary to conformwith Japanese GAAP. The accompanying consolidated financial statements have been
restructured and translated into English from the consolidated financial statements of theCompany prepared in accordance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the Japanese Financial Instruments
and Exchange Law. Certain supplementary information included in the statutory Japanese
language consolidated financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
2. Significant accounting policies(a) Consolidation - The consolidated financial statements include the accounts of the Company
and two significant companies over which the Company has power of control through majority
voting rights or the existence of certain other conditions evidencing control. There are no equity
method affiliates. Intercompany transactions and accounts have been eliminated.
(b) Consolidated subsidiaries’ fiscal year-ends - The consolidated overseas subsidiary has fiscal
years ending on December 31. Significant transactions between December 31 and March 31, thefiscal year-end of the Company, are reflected in the consolidated financial statements.
(c) Cash flow statements - In preparing the consolidated statements of cash flows, cash on hand,readily available deposits and short-term highly liquid investments with maturities notexceeding three months at the time of purchase are considered to be cash and cash equivalents.

2. Significant accounting policies (cont’d.)(d) Allowance for doubtful receivables - The Company and its consolidated subsidiaries (the“Companies”) provide for doubtful accounts principally at an amount based on management’s
estimate of the bad debt ratio plus the estimated uncollectible amount of certain individual
receivables.
(e) Securities - Available-for-sale securities with available fair market values are stated at fairmarket value. Unrealized gains and unrealized losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets. Realized gains and losses on thesale of such securities are computed using moving average cost. Securities with no available fairmarket values, including equity securities issued by subsidiaries and affiliates which are notconsolidated or accounted for using the equity method, are stated at moving average cost.
(f) Derivatives and hedge accounting - The Companies state derivative financial instruments atfair value and recognize a change in the fair value as gain or loss unless the derivative financial
instrument is accounted for with hedge accounting. If derivative financial instruments are usedas hedges and meet certain hedging criteria, the Companies defer recognition of gain or loss
resulting from a change in the fair value of the derivative financial instrument until the related
loss or gain on the hedged item is recognized. However, in cases in which forward foreignexchange contracts are used as hedges and meet certain hedging criteria, the contracts and thehedged items are accounted for in the following manner:① If a forward foreign exchange contract is executed to hedge an existing foreign currency
receivable or payable,(i) the difference, if any, between the Japanese yen amount of the hedged foreign currency
receivable or payable translated using the spot rate at the inception date of the contract andthe book value of the receivable or payable is recognized in the statement of income in the
period which includes the inception date, and(ii) the discount or premium on the contract (the difference between the Japanese yen amountof the contract translated using the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognized over the term of the contract.
② If a forward foreign exchange contract is executed to hedge a future transaction denominatedin a foreign currency, the future transaction is recorded using the contracted forward rate,
and no gain or loss on the forward foreign exchange contract is recognized.

2. Significant accounting policies (cont’d.)(g) Inventories - Work-in-process is stated mainly at identified cost. Raw materials and supplies
are stated at cost determined by the moving average method. For balance sheet valuation, in theevent that an impairment in the value of inventory is determined, the inventory is written down
to the lower of cost or market using net realizable value.
(h) Property, plant and equipment (except for capitalized leases) - Property, plant andequipment are carried at cost. Depreciation is calculated by the straight-line method over theestimated useful life of the asset.
(i) Intangible assets (except for capitalized leases) - Intangible assets are amortized by thestraight-line method over the estimated useful life of the asset.
(j) Software costs - The Companies include software used for internal purposes in intangible
assets and amortize it using the straight-line method over the estimated useful life of five years.
(k) Capitalized leases - Property, plant and equipment capitalized under finance leases are
depreciated over the term of the lease.
(l) Research and development expenses - The Companies charge research and development
expenses to selling, general and administrative expenses as incurred. Research anddevelopment expenses amounted to ¥205 million and ¥179 million for the years ended March
31, 2021 and 2020, respectively.
(m) Retirement and severance benefits for employees - Under the terms of the Company’s andits consolidated domestic subsidiary’s unfunded lump-sum retirement plans, substantially all
employees are entitled to a lump-sum payment at the time of retirement. The amount of theretirement benefit is, in general, based on the length of service, base salary at the time ofretirement and the reason for retirement. The Company also has a funded noncontributory
pension plan which covers a portion of total retirement benefits.
In order to provide for the employees’ retirement benefits, the Company and its consolidated
domestic subsidiary accrue the liability as of the end of the fiscal year in an amount based on
the estimated projected benefit obligation. Actuarial gains and losses are recognized in expenses
using the straight-line method over 10 years, which is within the average of the estimatedremaining service years of employees, commencing from the following period.
(n) Provision for bonuses - Provision for bonuses at the balance sheet date are based on theestimated amounts to be paid to employees in the future.

2. Significant accounting policies (cont’d.)(o) Provision for product warranties - A provision for product warranties is provided at thebalance sheet date when future losses for product warranties can be reasonably estimated andat an amount based on management's estimate of the past expense ratio for sales.
(p) Allowance for losses on contracts - An allowance for losses on contracts is provided at thebalance sheet date when future losses on particular contracts can be reasonably estimated.
(q) Income taxes - Income taxes comprise corporate tax, prefectural and municipal inhabitants
taxes and enterprise tax. The asset-liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes.
(r) Translation of foreign currencies - Monetary assets and liabilities denominated in foreign
currencies are translated into Japanese yen at exchange rates prevailing at the balance sheet date.
Financial statements of the consolidated overseas subsidiary are translated at the rates in effectat the balance sheet date, except for net assets accounts, which are translated at historical rates,
and revenue and expense accounts, which are translated at the average exchange rates in effectduring the year. The resulting translation adjustments are reflected in the consolidated financial
statements as “foreign currency translation adjustments.”(s) Net income and cash dividends per share - Basic net income per share is computed by
dividing income available to common shareholders by the weighted average number of sharesof common stock outstanding during the respective year. Diluted net income per share for theyears ended March 31, 2021 and 2020 is not applicable because the Company has no dilutive
common shares. Cash dividends per share presented in the accompanying consolidated
statements of income are dividends applicable to the respective years, including dividends tobe paid after the end of the year.
(t) Revenue and related cost recognition – The Company generally records the revenues andrelated costs on construction contracts by the percentage-of-completion method if the progressof the construction activity can be reliably measured, otherwise, the completed contract method
is applied. The progress, or percent of the contract completed, as of the end of the reporting
period is measured by the proportion of the cost incurred as of the end of the period to theestimated total cost.
Consolidated US subsidiary applies ASU 2014-09 “Revenue from Contracts with Customers.”
The amount expected to be received in exchange for promised goods or services is recognized
as revenue at the time control of those goods or services is transferred to the customer.
(u) Reclassifications - Certain prior year amounts have been reclassified to conform to the 2021
presentation.

3. Significant accounting estimates
1. Allowance for losses on contracts(a) Carrying amounts in the current year’s financial statements
In the consolidated balance sheet of the company and its consolidated subsidiaries as of March
31, 2021, an allowance for losses on contracts of ¥4,087 million was recognized. Included
therein was ¥3,909 million of an allowance for losses on contracts recognized by the Company.
(b) Information on the nature of significant accounting estimates for identified items
As described in Note2, “Significant accounting policies, (p) Allowance for losses on contracts”,
an allowance for losses on contracts was provided for estimated future losses on particular
contracts. In recognizing the allowance, total costs including direct selling expenses
corresponding to total revenue need to be reasonably estimated. The total costs were
estimated for each contract. Raw material prices might change and work hours for a contract
could increase due to unexpected design or process amendments. Accordingly, estimating thetotal costs involved a high degree of uncertainty, and management’s judgment on raw
material prices and work hours for a contract had a significant effect on the estimate of total
costs.
2. Impairment loss of long-lived assets in the factory of the Company’s overseas subsidiary(a) Carrying amounts in the current year’s financial statements
The Palmdale factory of the Company’s overseas subsidiary manufactures trains for the Los
Angeles County Metropolitan Transportation Authority (LACMTA). The timing of
construction completion was extended, which caused a decline in profitability, indicating
impairment. Accordingly, the Company performed a recoverability test for the asset groupduring the current fiscal year; however, it determined that the recognition of an impairment
loss was not necessary as the estimated undiscounted cash flows exceeded the carrying
amount of the asset group amounted to ¥700 million.
(b) Information on the nature of significant accounting estimates for identified items
The Company’s overseas subsidiary prepares its financial statements in accordance withgenerally accepted accounting principles in the United States of America (US GAAP). Whenthe carrying amount of an asset group is deemed not recoverable and less than its fair value,
the difference between them is recognized as an impairment loss. A recoverability test isrequired whenever there is an impairment indicator for an asset group. When the carrying
amount of the asset group exceeds the total amount of the undiscounted cash flows expectedfrom the use or final disposal of the asset group, the carrying amount is deemed notrecoverable. In the recoverability test, future cash flows were estimated based on the threeyear business plan of the Palmdale factory of the Company’s overseas subsidiary prepared bymanagement, which reflected orders expected to be received for new projects and a certain
level of profits to be recognized attributable to LACMTA. Accordingly, estimating thepotential effects of such orders and acquired profits involved a high degree of uncertainty, andmanagement’s judgment thereon had a significant effect on the estimated future cash flows.

4. Accounting standards issued but not yet adopted

The Company and its consolidated domestic subsidiary
The following standard and guidance have been issued but not yet adopted.
- “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, issued on March
31, 2020)- “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ
Guidance No. 30, issued on March 26, 2021)(a) Overview
The above standard and guidance provide comprehensive principles for revenue recognition.
Under the standard and guidance, revenue is recognized by applying the following 5 steps:
Step1: Identify contract(s) with customers.
Step2: Identify the performance obligations in the contract.
Step3: Determine the transaction price.
Step4: Allocate the transaction price to the performance obligation in the contract.
Step5: Recognize revenue when (or as) the entity satisfies a performance obligation.
(b) Effective date
Effective from the beginning of the fiscal year ending March 31, 2022.
(c) Effects of application
The Company and its consolidated domestic subsidiary are currently in the process ofdetermining the effects of these new standards on the consolidated financial statements.

4. Accounting standard issued but not yet adopted (cont’d.)- “Accounting Standard for Fair Value Measurement” (ASBJ Statement No.30, issued on July4, 2019)- “Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ
Guidance No.31, issued on July 4, 2019)- “Accounting Standard for Measurement of Inventories” (ASBJ Statement No. 9, issued on
July 4, 2019)- “Accounting Standard for Financial Instruments” (ASBJ Statement No.10, issued on July 4,
2019)- “Implementation Guidance on Disclosure about Fair Value of Financial Instruments” (ASBJ
Guidance No.19, issued on March 31, 2020)(a) Overview
In order to enhance comparability with internationally recognized accounting standards,“Accounting Standard for Fair Value Measurement” and “Implementation Guidance on
Accounting Standard for Fair Value Measurement” (together, hereinafter referred to as “Fair
Value Accounting Standards”) were developed and issued. The Fair Value AccountingStandards are applicable to financial instruments in “Accounting Standard for Financial
Instruments” and inventories held for trading purposes in “Accounting Standard for
Measurement of Inventories”.
Depending on inputs, the fair value of Financial instruments is classified either Level 1, 2 and3 which determines the extent of disclosure.
(b) Effective dateThis standard and guidance is effective from the beginning of the fiscal year ending March
31, 2022.
(c) Effects of application
The Company and its consolidated domestic subsidiary are currently in the process ofdetermining the effects of these new standards on the consolidated financial statements.
5. Changes in presentation method(Adoption of Accounting Standard for Disclosure of Accounting Estimates)
The Company and its subsidiaries adopted ASBJ Statement No. 31 “Accounting Standard forDisclosure of Accounting Estimates” (March 31, 2020) to the consolidated financial statements
for the current consolidated fiscal year, and therefore significant accounting estimates aredisclosed in the Notes to Consolidated Financial Statements.
The note does not include information for the prior consolidated fiscal year in accordance withthe transitional provision set out in paragraph 11 of the Accounting Standard.

6. Comprehensive income information
Amounts reclassified to net income (loss) in the current period that are recognized in othercomprehensive income in the current or previous periods and the tax effects for each componentof other comprehensive income are as follows:
Millions of yen
2021
2020
Net unrealized holding gains (losses) on
securities
Increase (decrease) during the year
¥
(362)
¥
(1,578)
Reclassification adjustments(705)(1,013)
Subtotal, before tax(1,067)(2,591)Tax (expense) or benefit
327
793
Subtotal, net of tax(740)(1,798)Net unrealized holding gains on derivatives
Increase (decrease) during the year
20
(6)
Reclassification adjustments
Subtotal, before tax
20(6)Tax (expense) or benefit(11)
Subtotal, net of tax
9(6)
Foreign currency translation adjustments
Increase (decrease) during the year
(1,109)(91)
Reclassification adjustments
Subtotal, before tax(1,109)(91)
Tax (expense) or benefit
Subtotal, net of tax(1,109)(91)
Remeasurements of defined benefit plans
Increase (decrease) during the year
10(39)
Reclassification adjustments
37
31
Subtotal, before tax
47(8)Tax (expense) or benefit
Subtotal, net of tax
47(8)
Total other comprehensive income¥(1,793)¥(1,903)

7. Cash flow information
The reconciliation of cash and time deposits in the consolidated balance sheets and cash andcash equivalents in the consolidated statements of cash flows at March 31, 2021 and 2020 are as
follows:
Millions of yen
2021
2020
Cash and time deposits (in balance sheets)¥

Time deposits maturing after three months
Cash and cash equivalents (in statements of cash flows)

4,353

¥

(8)
¥

4,345

5,224
(9)

¥

5,215

8. Financial instruments: disclosure(a) Qualitative information on financial instruments
Short-term deposits - The Companies use short-term deposits to manage excess funds.
Trade notes and accounts receivable - Because of the nature of the business, the credit risk
associated with trade notes and accounts receivable is concentrated with a limited numberof major customers with high creditworthiness. At March 31, 2021, 99.4% of the operatingreceivables are due from specific major customers. The Companies decrease the risk bymanaging the notes and receivables according to internal credit control rules.
Foreign currency forward exchange contracts - The Company uses foreign currency
forward exchange contracts only to hedge foreign currency exchange risk associated withtrade accounts receivables and payables, not for speculative purposes, and enters into suchcontracts according to the Company’s internal rules.
Investment securities - Investment securities comprise mostly stocks and are evaluated forfair value or prices provided by the financial condition of corporations on a quarterly basis.
Trade accounts payable - Payment terms of payable are less than one year.
Loans payable - Short-term loans payable are used mainly for financing operating capitaland long-term loans payable are used primarily for financing capital investments.
Lease obligations - Lease obligations are used primarily for financing capital investments.

8. Financial instruments: disclosure (cont’d.)(b) Fair values of financial instruments
The book values of the financial instruments included in the consolidated balance sheets
and their fair values at March 31, 2021 and 2020 are as follows:
Millions of yen
2021
Cash and time deposits

Book value

Fair value

Difference

¥

¥

¥

4,353

4,353

-

Notes and accounts receivable - trade ＊1

27,72027,720-Investment securities

5,371

5,371

-

Trade accounts payable(7,976)(7,976)-

Short-term loans payable(15,170)(15,170)-

Long-term loans payable(6,812)(6,815)

3

(451)

(451)

(0)

Not applying hedge accounting

(55)

(55)

-

Applying hedge accounting

15

15

-

Lease obligations
Derivatives

Millions of yen
2020
Cash and time deposits

Book value

Fair value

Difference

¥

¥

¥

5,224

5,224

-

Notes and accounts receivable - trade ＊1

26,845

26,845-Investment securities

5,758

5,758

-

Trade accounts payable(7,325)(7,325)-

Short-term loans payable(15,561)(15,561)-Long-term loans payable(7,306)(7,300)

(6)

(573)

(573)

(0)

-

-

-

(6)

(6)

-

Lease obligations
Derivatives
Not applying hedge accounting
Applying hedge accounting
Notes＊1 Allowance for doubtful receivables associated with notes and accounts receivablehas been deducted.
＊2 The figures in parentheses indicate liabilities.

8. Financial instruments: disclosure (cont’d.)
The fair value of the financial instruments in the table above approximates the book value
in case in which the maturities are short. The value of derivatives is determined using therate of the foreign currency forward exchange contract, and long-term loans payable andlease obligations are calculated by discounting the principal and interest payments by theassumed discount rates for similar new loans or lease transactions.
Financial instruments for which the fair value is difficult to determine are as follows:
Millions of yen
2021
2020
Unlisted stocks
¥
40
¥
40
Stocks of subsidiaries and affiliates (unlisted stocks)
36
36
Unlisted stocks and stocks of subsidiaries and affiliates (unlisted stocks) are not included ininvestment securities above because they have no estimated fair value.
Maturity value after closing dateMillions of yen
2021
Within one year
Cash and time deposits¥

Trade notes and trade accounts

Over one year

4,353

¥

-

27,755-

Millions of yen
2020
Within one year
Cash and time deposits
Trade notes and trade accounts

¥

5,224
26,882

Over one year¥-

9. Securities
At March 31, 2021 and 2020, information on securities is as follows:(a)

Trading securities: None(b) Bonds intended to be held to maturity with readily determinable fair values: None(c) Available-for-sale securities with readily determinable fair value as of March 31, 2021
and 2020 are as follows:
Securities with book value (fair value) that exceed acquisition cost

Equity securities
Total

Equity securities
Total

Acquisition cost
¥
3,261
¥
3,261

Millions of yen
2021
Book value
¥
5,302
¥
5,302

¥
¥

Difference
2,041
2,041

Acquisition cost
2,502
2,502

Millions of yen
2020
Book value
¥
5,629
¥
5,629

¥
¥

Difference
3,127
3,127

¥
¥

Securities with book value (fair value) that don’t exceed acquisition cost

Equity securities
Total

Equity securities
Total

Acquisition cost
¥
98
¥
98

Millions of yen
2021
Book value
¥
69
¥
69

Acquisition cost
¥
176
¥
176

Millions of yen
2020
Book value
¥
129
¥
129

Difference
¥
(29)
¥
(29)

¥
¥

Difference
(47)
(47)

9. Securities (cont’d.)(d)

For the years ended March 31, 2021 and 2020, total sales of available-for-sale securities(equity securities) are ¥935 million and ¥1,327 million respectively, and the gain on thesales are ¥705 million and ¥1,013 million respectively.

10. Pledged assets
At March 31, 2021 and 2020, the following assets are pledged as collateral for short-term loans
payable of ¥2,000 million:
Millions of yen
2021
2020
Land
¥
179
¥
179
At March 31, 2021 and 2020, the following assets are pledged as collateral for deposits oncontracts of ¥87 million and ¥167 million, respectively, and deposits from tenants of ¥70 million(included in other noncurrent liabilities):
Millions of yen
2021
2020
Buildings, net book value
¥
351
¥
371

11. Allowance for losses on contracts
Inventories for contracts with anticipated losses and allowance for losses on contracts are notoffset. For the years ended March 31, 2021 and 2020, the inventories associated with theallowance for losses on contracts are ¥3,452 million and ¥1,078 million, respectively.
These amounts are included in "Work-in-process."

12. Short-term loans payable, long-term loans payable and lease obligations
Short-term loans payable substantially represent short-term loans from banks at a weighted
average annual rate of 0.8% and 1.3% at March 31, 2021 and 2020, respectively.
Long-term loans payable as of March 31, 2021 are as follows:

Loans from banks, due through 2023 at an weighted
average rate of 0.6% in 2021
Less current portion

Millions of yen
2021
¥

6,812

¥

6,234
578

The aggregate annual maturities of long-term loans payable outstanding at March 31, 2021 are
as follows:
Millions of yen
2021
Years ending March 31,
2023
2024 and after

¥
¥

578
578

The aggregate annual maturities of finance lease obligations subsequent to March 31, 2021 are
as follows:
Millions of yen
2021
Years ending March 31,
2022
2023
2024
2025
2026 and after¥¥Long-term loans payable as of March 31, 2020 are as follows:

Loans from banks, due through 2022 at an weighted
average rate of 0.8% in 2020
Less current portion

435
10
5
1
451

Millions of yen
2020
¥

7,306

¥

1,062
6,244

12. Short-term loans payable, long-term loans payable and lease obligations (cont’d.)
The aggregate annual maturities of long-term loans payable outstanding at March 31, 2020 are
as follows:
Years ending March 31,
Millions of yen
2020
2022
2023
2024 and after

¥

¥

6,241
3
6,244

The aggregate annual maturities of finance lease obligations subsequent to March 31, 2020 are
as follows:
Years ending March 31,
Millions of yen
2020
2021
2022
2023
2024
2025
2026 and after

¥

¥

120
436
11
5
1
573

13. Retirement and severance benefits
The Company provides for employee’ retirement and severance benefits under two plans, adefined contribution pension plan and unfunded lump-sum benefits plan. The Company’s
consolidated domestic subsidiary provides an unfunded lump-sum benefits plan, and its
consolidated overseas subsidiary provides a defined contribution pension plan.
Defined benefit plans(a) Movement in retirement benefit obligations, except for plans that applied the simplified
methodMillions of yen
2021
2020
Balance at April 1, 2020 and 2019
¥
2,845
¥
2,678
Service cost
280
229
Interest cost
22
21
Actuarial loss (gain)(10)40
Benefits paid
(258)
(123)
Balance at March 31, 2021 and 2020
¥
2,879
¥
2,845
(b) Reconciliation from retirement benefit obligations to liability for retirement benefits
Millions of yen
2021
2020
Unfunded retirement benefit obligations
¥
¥
2,879
2,845
Total net liability for retirement benefits at March ¥
¥
2,879
2,845
31, 2021 and 2020
Net defined benefit liability
Total net liability for retirement benefits at March ¥31, 2021 and 2020(c) Retirement benefit costs

Service cost
Interest cost
Net actuarial loss amortization

¥
¥

2,879
2,879

2,845
¥

2,845

Millions of yen
2021
2020
280
¥
229
22
21
37
31
339
¥
281

13. Retirement and severance benefits (cont’d.)(d) Remeasurements of defined benefit plans

Actuarial gain(loss)¥¥

Millions of yen
2021
2020
47
¥
(9)
47
¥
(9)

¥
¥

Millions of yen
2021
2020
(87)
¥
(134)
(87)
¥
(134)

(e) Accumulated remeasurements of defined benefit plans

Unrecognized actuarial loss(f) Actuarial assumptions
The principal actuarial assumptions at March 31, 2021 and 2020 (expressed as weighted
averages) are as follows:
2021
2020
Discount rate
0.8%
0.8%
Expected salary increase rate
1.7%
1.8%
Defined contribution plans
Contributions to the defined contribution plans in 2021 and 2020 are ¥280 million and ¥335
million, respectively.

14. Income taxes(a) Significant components of the Companies’ deferred tax assets and liabilities as of March 31,
2021 and 2020 are as follows:

Deferred income tax assets:
Net operating loss carryforwards ＊2
Allowance for losses on contracts
Net defined benefit liability
Valuation loss on inventories
Research and development expenses
Provision for product warranties
Provision for bonuses
Excess depreciation
Loss on disaster
Other

Millions of yen
2021
2020
¥

Valuation reserve for net operating loss
carryforwards ＊2
Valuation reserve for deductible
temporary differences
Valuation reserve - total ＊1
Total deferred income tax assets
Deferred income tax liabilities:
Net unrealized holding gains on securities
Net unrealized holding gains on derivatives
Other
Total deferred income tax liabilities
Net deferred income tax liabilities
¥

2,748
1,246
882
588
263
174
112
68
500
6,581

¥

3,368
1,050
870
199
117
199
101
116
49
464
6,533

(2,748)(3,368)(3,833)(3,165)(6,581)-(6,533)
-

(616)
(18)
(96)
(730)
(730)

(943)
(99)
(1,042)(1,042)¥

Notes ＊1 The valuation reserve increased by ¥48 million. The main reason for this increase isa ¥389 million increase in the valuation reserve for valuation loss on inventories.

14. Income taxes (cont’d.)＊2 Net operating loss carryforwards and deferred income tax assets by expiration periods
are as follows:
Current Fiscal year ended March 31, 2021
Year ending March
31,
Net operating loss
carryforwards ＊3
Valuation reserve
Net deferred income
tax assets

Millions of yen
2022

2026

2027 and
after

Total

－

¥ 233

¥ 1,120¥ 2,748

(949)

－

(233)

(1,120)(2,748)

－

－

－

－

－

2023

2024

2025

¥ 9

¥ 437

¥ 949

(9)

(437)

－

－

＊3 Net operating loss carryforwards shown in the above table are after multiplying thestatutory tax rate.
Previous Fiscal year ended March 31, 2020
Year ending March
31,
Net operating loss
carryforwards ＊3
Valuation reserve
Net deferred income
tax assets

Millions of yen
2021

2026 and
after

Total

－

¥ 1,530¥ 3,368(949)－(1,530)(3,368)

－

－

－

－

2022

2023

2024

－

－

¥ 889

¥ 949

－

－

(889)

－

－

－

2025

＊3 Net operating loss carryforwards shown in the above table are after multiplying thestatutory tax rate.
(b) The following table summarizes the significant differences between the statutory tax rate and theeffective tax rate for the years ended March 31, 2021 and 2020 after tax effect accounting is applied.

Statutory tax rate
Permanently nondeductible expenses
Permanently nontaxable expenses
Taxation on per capita basis
Change in valuation reserve
Other
Effective tax rate

2021
30.6 %
0.8
(0.4)
0.8
4.4
(0.7)
35.5 %

2020-%-%

The significant differences between the statutory tax rate and effective tax rates for the year
ended March 31, 2020 has been omitted as the total difference was less than 5% of thestatutory tax rate.

15. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be
designated as common stock. However, a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one half of the price of the new shares as additional paid-in capital,
which is included in capital surplus.
Under the Japanese Corporate Law (the “Law”), in cases in which a dividend distribution of surplus
is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal earnings reserve must be set aside asadditional paid-in capital or legal earnings reserve. Legal earnings reserve is included in retained
earnings in the accompanying consolidated balance sheets.
Under the Law, both of these appropriations generally require a resolution of the shareholders’meeting.
Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred toother capital surplus and retained earnings, respectively, which are potentially available fordividends.
The maximum amount that the Company can distribute as dividends is calculated based on thenonconsolidated financial statements of the Company in accordance with Japanese laws andregulations.
(a) Number and type of shares issued and number and type of shares of treasury stock

Common stock
Treasury stock

April 1, 2020
6,908,359
26,3102021
Number of shares
Increase
Decrease
451-

March 31, 2021
6,908,359
26,761

The increase in treasury stock of 451 shares is due to the acquisition of fractional shares.
2020
Number of shares
April 1, 2019
Increase
Decrease March 31, 2020
Common stock
6,908,359
6,908,359
Treasury stock
26,097
213
26,310The increase in treasury stock of 213 shares is due to the acquisition of fractional shares.

15. Net assets (cont’d)(b) Dividends
For the year ended March 31, 2021 and 2020, there are no dividends paid.
Dividends whose recorded date is during the year ended March 31, 2021, but whose effective date is
the following fiscal year are as follows.

Resolution adopted
Board of Directors’Meeting
on May 13, 2021

Type ofsharesMillions ofyen
Aggregate
amountAppropriationfrom

Common
stock

¥ 206

Retainedearnings

Yen
Amount per
share¥ 30.00

Record date

March 31,2021

Effective
date
June 11, 2021

16. Related party transactions
At March 31, 2021 and 2020, Kintetsu Railway Co., Ltd. (“Kintetsu”) directly own 30.4% of theCompany’s outstanding common stock. The Company’s sales to Kintetsu for the year ended March
31, 2021 and 2020, amounted to ¥6,998 million and ¥2,790 million, respectively. Receivables from
Kintetsu at March 31, 2021 and 2020 were ¥20 million and ¥16 million, respectively.

17. Cost of Sales
For the year ended March 31, 2021, provisions for the allowance for losses on contracts added to thecost of sales is ¥623 million.
For the year ended March 31, 2020, reversals of the allowance for losses on contracts deducted fromthe cost of sales is ¥1,727 million.

18. Derivative transactions
At March 31, 2020, there are no derivatives for which hedge accounting have not been applied.
Information on derivatives for which hedge accounting had not been applied at March 31, 2021 is asfollows:
Millions of yen
2021
Contract amount
Total

Realized

Fair value

Due after

gain (loss)

one year

Foreign currency forward exchange
contracts:
Selling
US dollar

¥

4,905

¥

-

¥

(55)

¥

(55)

Total

¥

4,905

¥

-

¥

(55)

¥

(55)

Fair values in the above table were calculated based on future exchange rates.
Information on derivatives for which hedge accounting is applied at March 31, 2021 is as follows:
Millions of yen
2021
Contract amount
Fair value

Due after

Total

one year

Foreign currency forward exchange
contracts:
Selling
US dollar（forecasted transactions）¥

US dollar（receivables - trade）＊1
Total

1,635

¥

3,650
¥

5,285

US dollar（forecasted transactions）

¥

961

Total

¥

961

-

¥

¥

(20)
-

-

¥

(20)

-

¥

35

-

¥

35

Buying¥Fair values in the above table are calculated based on future exchange rates.
Note ＊1 Foreign currency forward exchange contracts for which the designation method is applied
are accounted for together with the receivables - trade that are the hedged items. As a result,the fair values of those contracts are included in the fair values of the receivables - trade.

18. Derivative transactions (cont’d)Information on derivatives for which hedge accounting is applied at March 31, 2020 is as follows:
Millions of yen
2020
Contract amount
Fair value

Due after

Total

one year

Foreign currency forward exchange
contracts:
BuyingEuro（forecasted transactions）¥

Euro（payables - trade）＊1
Total

562

¥

46
¥

608

-

¥

¥

-

(6)
-

¥

(6)

Fair values in the above table are calculated based on future exchange rates.
Note ＊1 Foreign currency forward exchange contracts for which the designation method is applied
are accounted for together with the payables - trade that are the hedged items. As a result,the fair values of those contracts are included in the fair values of the receivables - trade.

19. Fair value of investment and rental property
The Company owns real estate for lease in Osaka and other prefectures. The income from the realestate for lease is ¥622 million and ¥692 million for the years ended March 31, 2021 and 2020,
respectively. The book value (balance), net changes during the year and fair value of the real estate
for lease are as follows:
Millions of yen
2021
Balance at April 1, 2020

¥

1,568

Net changes during the year

7

Balance at March 31, 2021

¥

1,575

Fair value at March 31, 2021

10,080Millions of yen
2020
Balance at April 1, 2019

¥

1,591

Net changes during the year

(23)

Balance at March 31, 2020

¥

1,568

Fair value at March 31, 2020

10,012

20. Leases(a) Finance leases(As lessee)
Non-ownership-transfer Finance lease transactions
Leased assets consist mainly of machinery and equipment of factory, tools, furniture and fixturesat the head office and software for server at the head office.
(b) Operating leases(As lessee)
Obligations under non-cancellable operating leases at March 31, 2021 and 2020 are as follows:
Millions of yen
2021
Payments due within one year¥

Payments due after one year
Total payments remaining

2020
113

¥

361
¥

474

118
502

¥

620

21. Segment information(a) General information about reportable segments
Reportable segment information of the Company is the obtainable financial information which ismade available to and used by the Officers Committee and Board of Directors to determine theallocation of management resources and to evaluate business performance. The Company has a RailTransit Division that focuses on manufacturing rolling stock. It formulates strategy and deals withbusiness concerning trains and the related parts and maintenance for the JR group, public and private
railways and subways in Japan and foreign countries. In addition, the Company deals with the leaseof real estate. Therefore, the reportable segments of the Company are that of “Rolling Stock” and“Lease of Real Estate.”(b) Basis of measurement for reportable segment profit or loss, segment assets, segment liabilities andother material items
The accounting policies for reportable segment information are basically the same as in Note 2,“Significant accounting policies.”21. Segment information (cont’d)(c) Information about reportable segment profit or loss, segment assets, segment liabilities and othermaterial items
Current Fiscal year ended March 31, 2021 :Millions of yen
Reportable segments
Rolling Stock
Net sales¥

48,618

Lease of Real Estate¥

801

Adjustment¥

Consolidated(0)¥49,419Segment
Profit760

622(1,062)320

Segment assets

59,861

1,592

4,568

66,021

Segment liabilities

16,920714

27,06844,702

1,097

25

60

1,182

688

32

47

767

Depreciation andamortization
Increase in tangible
and intangible assets

1. Adjustments are as follows:(a) Adjustment of segment profit of ¥(1,062) million is corporate expenses of ¥(1,062) million that are
not attributable to reportable segments and represents administrative expenses of the Company.
(b) Adjustment of segment assets of ¥4,568 million is for surplus funds and assets that are not allocable
to any reportable segments.
(c) Adjustment of segment liabilities of ¥27,068 million is for liabilities that are not allocable to any
reportable segments.
(d) Depreciation and amortization of ¥60 million is depreciation and amortization that are notallocable to any reportable segments.
(e) Increase in tangible and intangible assets of ¥47 million is equipment investment that is notallocable to any reportable segments.
2. Segment profit is adjusted to operating profit in the consolidated statements of income.

21. Segment information (cont’d)Previous Fiscal year ended March 31, 2020 :Millions of yen
Reportable segments
Rolling Stock
Net sales¥

40,261

Lease of Real Estate¥

Adjustment

793¥

Consolidated(0)¥41,054

Segment
Profit(loss)

(45)

692

(943)

(296)

Segment assets

69,539

1,586

4,788

75,913

Segment liabilities

29,991808

22,66353,462

1,274

23

52

1,349

462

-

92

554

Depreciation andamortization
Increase in tangible
and intangible assets

1. Adjustments are as follows:(a) Adjustment of segment loss of ¥(943) million is corporate expenses of ¥(943) million that are not
attributable to reportable segments and represents administrative expenses of the Company.
(b) Adjustment of segment assets of ¥4,788 million is for surplus funds and assets that are not allocable
to any reportable segments.
(c) Adjustment of segment liabilities of ¥22,663 million is for liabilities that are not allocable to any
reportable segments.
(d) Depreciation and amortization of ¥52 million is depreciation and amortization that are notallocable to any reportable segments.
(e) Increase in tangible and intangible assets of ¥92 million is equipment investment that is notallocable to any reportable segments.
2. Segment profit (loss) is adjusted to operating loss in the consolidated statements of income.

21. Segment information (cont’d)Related information
Information for each country and area for the year ended March 31, 2021 is as follows:(a) Net sales
Millions of yen
Japan¥

20,040

United States

State ofof America

Qatar

¥

10,724¥

16,934¥

Other

Consolidated

1,721

¥

49,419The principal countries and areas in each segment are as follows:
China (Hong Kong), United Arab Emirates,
Arab Republic of Egypt

Other(b) Property, plant and equipment
Millions of yen
Japan
¥

9,995

United Statesof America
¥

1,246

Consolidated¥

11,241

Information for major customers for the year ended March 31, 2021 is as follows:
Customer

Net sales (millions of yen)

Mitsubishi Corporation¥

Segment

18,231

Rolling stock

Kintetsu Railway Co., Ltd.

6,998

Rolling stockWest Japan Railway Company

6,819

Rolling stock

Information for each country and area for the year ended March 31, 2020 is as follows:(a) Net sales
Millions of yenJapan¥

19,413

United States

State ofof America

Qatar

¥

17,450

¥

2,338

¥

Other

Consolidated

1,853

¥

The principal countries and areas in each segment are as follows:
Other

China (Hong Kong), United Arab Emirates,
Arab Republic of Egypt

41,054

21. Segment information (cont’d)(b) Property, plant and equipment
Millions of yen
Japan¥

10,128

United Statesof America
¥

1,626

Consolidated¥

11,754

Information for major customers for the year ended March 31, 2020 is as follows:
CustomerLos Angeles County Metropolitan

Net sales (millions of yen)¥Segment

12,736

Rolling stock

Tokyo Metro Co., Ltd.

4,289

Rolling stockWest Japan Railway Company

4,149

Rolling stock

Transit Authority

22. Per share information
Per share information for the years ended March 31, 2021 and 2020 is as follows:
Yen
2021
2020
Net assets per share¥
3,097.96¥ 3,262.20
Net income per share
96.22
102.41
Notes : (1) Diluted net income per share is not disclosed because there are no dilutive shares.
(2) Net income per share is calculated on the following basis.

Net income (millions of yen)Amounts not attributable to ordinary shares(millions of yen)
Net income attributable to ordinary shares(millions of yen)
Average number of shares outstanding during eachyear (shares)

2021
661

2020
705

-

-

661

705

6,882,851

6,882,190

23. Insurance income
For the fiscal year ended March 31, 2020, Insurance income is the insurance claim of ¥1,012 million
received for damage caused by Typhoon No. 21 on September 4, 2018 and damage caused by heavy
snowfall at the consolidated US subsidiary on March 9, 2018.

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

Reasonableness of the Company’s estimate of total costs related to the recognition of anallowance for losses on contracts
The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheet of THE KINKISHARYO CO., LTD. (the “Company”) and its
consolidated subsidiaries as of March 31, 2021,
as described in Note3, “Significant accounting
estimates”, an allowance for losses on contractsof \4,087 million was recognized. Included
therein was \3,909 million of an allowance forlosses on contracts recognized by the Company.

The primary procedures we performed to assess
whether the estimate of the total costs related to therecognition of an allowance for losses on contractsof the Company was reasonable, included thefollowing:

As described in Note2, “Significant accounting
policies, (p) Allowance for losses on contracts”,
an allowance for losses on contracts wasprovided for estimated future losses on particular
contracts. In recognizing the allowance, total
costs including direct selling expenses
corresponding to total revenue need to bereasonably estimated.

(1) Internal control testing
We tested the design and operating effectiveness ofcertain of the Company’s internal controls relevantto the recognition process for an allowance forlosses on contracts, with a particular focus on theapproval process of the results of the calculation of
the allowance.
(2) Assessment of the reasonableness of theestimate of the total costs
In order to assess the reasonableness of theestimate of the total costs for each contract, we
performed the following procedures among others:

The total costs were estimated for each contract.
Raw material prices might change and work
hours for a contract could increase due to
unexpected design or process amendments.
Accordingly, estimating the total costs involved
a high degree of uncertainty, and management’s
judgment on raw material prices and work hours
for a contract had a significant effect on theestimate of total costs.

agreed the estimated costs for each contract
with the supporting worksheet that calculated
the accumulated costs and compared themwith actual costs of similar contracts in the
past;



We, therefore, determined that thereasonableness of the estimate of total costs
related to the recognition of an allowance forlosses on contracts of the Company was one of
the most significant in our audit of theconsolidated financial statements for the current
fiscal year, and accordingly, a key audit matter.

evaluated the accuracy of the estimated costs
by comparing the actual costs with theirestimated costs and examining variances
between the two, and assessed whether thosevariances were reflected in the updated
estimated costs at the end of the current fiscal
year, as necessary; andinquired of management and the head ofBusiness Planning Center regarding their
judgments on any changes in circumstancesthat occurred after the start of a project andupdates of the estimated costs, as well as
assessed the consistency of their responses
with the estimated costs at the end of thecurrent fiscal year.

Appropriateness of the Company’s judgment as to whether an impairment loss should berecognized on long-lived assets held by the Palmdale factory of KILLC
The key audit matter

How the matter was addressed in our audit

In the consolidated balance sheet of THE KINKISHARYO CO., LTD. (the “Company”) and its
consolidated subsidiaries as of March 31, 2021,
as described in Note3, “Significant accounting
estimates”, property, plant and equipment of\700 million related to the Palmdale factory of
KINKISHARYO International, LLC. (KILLC)
were recognized.

In order to assess the appropriateness of thejudgment as to whether an impairment loss should
be recognized on the long-lived assets held by the
Palmdale factory of KILLC, we requested thecomponent auditors of KILLC to perform an audit.
Then we evaluated the results of the following
audit procedures reported from the component
auditors to assess and conclude whether sufficientand appropriate audit evidence was obtained.

KILLC prepares its financial statements inaccordance with generally accepted accounting
principles in the United States of America (USGAAP). When the carrying amount of an asset
group is deemed not recoverable and less than its
fair value, the difference between them isrecognized as an impairment loss. A
recoverability test is required whenever there is
an impairment indicator for an asset group.
When the carrying amount of the asset groupexceeds the total amount of the undiscounted
cash flows expected from the use or final
disposal of the asset group, the carrying amountis deemed not recoverable.
The Palmdale factory of KILLC manufactures
trains for the Los Angeles County Metropolitan
Transportation Authority (LACMTA). The
timing of construction completion was extended,
which caused a decline in profitability,
indicating impairment. Accordingly, theCompany performed a recoverability test for theasset group during the current fiscal year;
however, it determined that the recognition of an
impairment loss was not necessary as theestimated undiscounted cash flows exceeded thecarrying amount of the asset group.
In the recoverability test, future cash flows were
estimated based on the three-year business planof the Palmdale factory of KILLC prepared bymanagement, which reflected orders expected tobe received for new projects and a certain levelof profits to be recognized attributable to
LACMTA. Accordingly, estimating the potential
effects of such orders and acquired profits
involved a high degree of uncertainty, andmanagement’s judgment thereon had asignificant effect on the estimated future cash(1) Internal control testing
Test of the design and operating effectiveness ofcertain of the KILLC’s internal controls relevant todetermining whether impairment losses to berecognized on the long-lived assets, with aparticular focus on the approval process for future
cash flows.
(2) Assessment of the reasonableness of theestimate of future cash flows
Assessment of the reasonableness of key
assumptions used to estimate future cash flows
mainly by performing the following procedures:assessment of the probability of obtaining
orders and the amount of the orders for eachnew project from LACMTA which were
included in future cash flows on the basis of
the bidding status and the actual orders
received for the past projects; and

comparison of an expected profit margin foreach new project from LACMTA included in
the future cash flows with the actual profit
margin of the similar contracts in the past.

flows.
We, therefore, determined that theappropriateness of the judgment as to whether an
impairment loss should be recognized on thelong-lived assets held by the Palmdale factory of
KILLC was one of the most significant in our
audit of the consolidated financial statements forthe current fiscal year, and accordingly, a key
audit matter.

Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors
for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan.
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’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

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

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

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

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

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

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

We communicate with corporate auditors and the board of corporate auditors regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.
From the matters communicated with corporate auditors and the board of corporate auditors, we
determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

Yasuhiro Wada
Designated Engagement Partner
Certified Public Accountant

Seiko Ohashi
Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Osaka Office, Japan
September 3, 2021
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.