TMD Friction Holdings GmbH

Leverkusen

Befreiender Konzernabschluss zum Geschäftsjahr vom 01.01.2022 bis zum 31.12.2022

Nisshinbo Holdings Inc.

Tokyo, Japan

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of Nisshinbo Holdings Inc.:

Opinion

We have audited the consolidated financial statements of Nisshinbo Holdings Inc. and its consolidated subsidiaries (the "Group"), which comprise the consolidated balance sheet as of December 31, 2022, and the consolidated statement of profit or loss, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, all expressed in Japanese yen.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Convenience Translation

Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside 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 provisions of the Code of Professional Ethics in Japan, and we have fulfilled our other ethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements of the current period. The matter was addressed in the context 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 the matter.

Recoverability of deferred tax assets

Key Audit Matter Description	How the Key Audit Matter Was Addressed in the Audit
In the Group's consolidated balance sheet as of December 31, 2022, deferred tax assets of ¥13,170 million and deferred tax liabilities of ¥9,990 million were recorded. As stated in Note 12, INCOME TAXES, to the consolidated financial statements, the amount of deferred tax assets before offsetting with deferred tax liabilities was ¥26,103 million, which included ¥9,739 million of deferred tax assets (before offsetting deferred tax liabilities) recorded by the consolidated tax parent company, Nisshinbo Holdings Inc., of which deferred tax assets of ¥7,700 million related to tax loss carryforwards.	Our audit procedures related to the appropriateness of the assessment of the recoverability of deferred tax assets of Domestic Consolidated Tax Companies included the following, among others:
Deferred tax assets are considered to be recoverable only to the extent that deductible temporary differences, tax loss carryforwards, and other tax credits have the effect of reducing the future tax burden, and more careful consideration is required in cases where significant tax loss carryforwards exist.	• We evaluated the design and operating effectiveness of controls over the assessment of the recoverability of deferred tax assets, including the process for developing and approving the business plan.
	• We evaluated the appropriateness of management's judgment regarding the company classification in accordance with Accounting Standards Board of Japan Guidance No. 26, Implementation Guidance on Recoverability of Deferred Tax Assets, based on the future business plan, taxable income in both the past years and the current year, and other factors.
The future taxable income used to assess the recoverability of deferred tax assets of Nisshinbo Holdings Inc. and some of its domestic consolidated subsidiaries that apply the Consolidated Taxation System (hereinafter, "Domestic Consolidated Tax Companies") is based on the profits in the future business plan approved by the Board of Directors of Nisshinbo Holdings Inc. The business plan is developed for each of the Group's business and is greatly affected by market trends and other factors relevant to the respective business. Especially, the Wireless and Communications business and Microdevices business operated by certain Domestic Consolidated Tax Companies are subject to rapid changes in the business environment and are large in scale. Therefore, management's judgment on the uncertainty in feasibility of the business plan is significant.	• We tested the accuracy of and assumptions used in the business plan, which was the basis of estimation of the future taxable income in determining the recoverability of deferred tax assets, by analyzing the deviation between the business plan and actual results for past years, examining supporting documents, inquiring of management, and comparing the business plan with relevant external statistical data and market forecasts for each of the major Domestic Consolidated Tax Companies, specifically focusing on the business plans of the Wireless and Communications business and Micro Devices business.
As a result of the above, we concluded that the appropriateness of the management's judgment regarding the recoverability of the deferred tax assets of the Domestic Consolidated Tax Companies was particularly significant in our audit of the consolidated financial statements for the current year and was a key audit matter.	• We identified and tested the reasonableness of adjustments, which were made to the business plan, in estimating the future taxable income.
	• We tested the appropriateness of the scheduling of expected reversal of temporary differences and tax loss carryforwards based on the estimate of future taxable income.

Other Information

Other information comprises the information included in the Group's disclosure documents accompanying the audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.

We determined that no such information existed, and therefore, we did not perform any work thereon.

Responsibilities of Management and Audit & Supervisory Board Members and the Audit & Supervisory Board 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 in accordance with accounting principles generally accepted in Japan and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for overseeing the Directors' execution of duties relating to the design and operating effectiveness of the controls over 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 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 to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an 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. The procedures selected depend on the auditor's judgment. In addition, we 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, when performing risk assessment procedures, an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing 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 or conditions 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'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 overall presentation and disclosures of the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, as well as the overall presentation, structure and content of the consolidated 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 business 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 remain solely responsible for our audit opinion.

We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statement that we have complied 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 where applicable, related safeguards.

From the matters communicated with Audit & Supervisory Board members and the Audit & Supervisory Board, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because 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

Our firm and its designated engagement partners 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.

July 28, 2023

•

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business 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 remain solely responsible for our audit opinion.

We communicate with Audit & Supervisory Board members and the Audit & Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide Audit & Supervisory Board members and the Audit & Supervisory Board with a statement that we have complied 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 where applicable, related safeguards.

From the matters communicated with Audit & Supervisory Board members and the Audit & Supervisory Board, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because 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

Our firm and its designated engagement partners 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.

July 28, 2023

Taiji Suzuki, Designated Engagement Partner, Certified Public Accountant

Yoshihiro Ishida, Designated Engagement Partner, Certified Public Accountant

Yukio Katayama, Designated Engagement Partner, Certified Public Accountant

Consolidated Balance Sheet December 31, 2022

	Millions of Yen		Thousands of U.S. Dollars (Note 1)
ASSETS	2022	2021	2022
CURRENT ASSETS:
Cash and cash equivalents (Note 14)	¥ 45,092	¥ 42,596	$ 334,015
Time deposits (Note 14)	80	2,344	593
Receivables (Notes 8 and 14):
Trade notes	18,007	17,556	133,385
Trade accounts	92,557	104,277	685,607
Unconsolidated subsidiaries and affiliates	1,846	675	13,674
Other	3,208	7,357	23,763
Allowance for doubtful receivables	(780)	(720)	(5,778)
Inventories (Notes 5 and 8)	149,402	122,841	1,106,681
Other current assets	15,624	7,227	115,733
Total current assets	325,036	304,153	2,407,673
PROPERTY, PLANT, AND EQUIPMENT (Notes 6, 7 and 8):
Land	33,818	34,364	250,504
Buildings and structures	166,533	162,797	1,233,578
Machinery, equipment, and tools	379,800	359,175	2,813,333
Construction in progress	6,629	6,708	49,104
Other	17,935	13,989	132,852
Total	604,715	577,033	4,479,371
Accumulated depreciation	(426,611)	(404,284)	(3,160,081)
Net property, plant, and equipment	178,104	172,749	1,319,290
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4, 8 and 14)	37,780	52,631	279,852
Investments in and advances to unconsolidated subsidiaries and affiliates (Note 14)	33,996	31,709	251,822
Deferred tax assets (Note 12)	13,170	9,984	97,556
Goodwill	1,258	3,304	9,319
Other (Notes 9 and 14)	26,930	30,269	199,481
Total investments and other assets	113,134	127,897	838,030
TOTAL	¥616,274	¥604,799	$4,564,993

	Millions of Yen		Thousands of U.S. Dollars (Note 1)
LIABILITIES AND EQUITY	2022	2021	2022
CURRENT LIABILITIES:
Short-term bank loans (Note 8)	¥ 59,345	¥ 41,054	$ 439,593
Commercial paper (Note 8)	30,000	30,000	222,222
Current portion of long-term debt (Notes 8 and 14)	46,180	6,356	342,074
Payables (Note 8):
Trade notes	25,004	23,255	185,215
Trade accounts	44,948	42,631	332,948
Unconsolidated subsidiaries and affiliates	83	13	615
Other	12,443	11,926	92,170
Accrued expenses	18,041	17,491	133,637
Accrued income taxes (Note 12)	3,320	3,432	24,593
Other current liabilities	20,190	24,233	149,555
Total current liabilities	259,554	200,391	1,922,622
LONG-TERM LIABILITIES:
Long-term debt (Notes 8 and 14)	10,854	53,972	80,400
Liability for retirement benefits (Note 9)	42,381	51,984	313,933
Deferred tax liabilities (Note 12)	9,990	11,001	74,000
Other long-term liabilities (Note 8)	14,997	14,819	111,089
Total long-term liabilities	78,222	131,776	579,422
Total liabilities	337,776	332,167	2,502,044
EQUITY (Notes 10 and 11):
Shareholders' equity:
Common stock-authorized, 371,755,000 shares;
issued, 169,120,014 shares in 2022 and 179,042,894 shares in 2021	27,738	27,699	205,467
Capital surplus	18,878	19,882	139,837
Retained earnings	196,754	193,921	1,457,437
Treasury stock-at cost, 12,081,848 shares in 2022 and 12,552,280 shares in 2021	(13,240)	(15,953)	(98,074)
Total shareholders' equity	230,130	225,549	1,704,667
Accumulated other comprehensive income:
Net unrealized gain (loss) on available-for-sale securities	16,702	25,813	123,719
Deferred gain (loss) on derivatives under hedge accounting	(62)	5	(459)
Foreign currency translation adjustments	13,529	6,014	100,214
Postretirement liability adjustments	3,451	1,680	25,563
Total	33,620	33,512	249,037
Stock acquisition rights	70	125	519
Noncontrolling interests	14,678	13,446	108,726
Total equity	278,498	272,632	2,062,949
TOTAL	¥616,274	¥604,799	$4,564,993

See notes to consolidated financial statements.

Consolidated Statement of Profit or Loss Year Ended December 31, 2022

	Millions of Yen		Thousands of U.S. Dollars (Note 1)
	2022	2021	2022
NET SALES	¥516,085	¥510,643	$3,822,852
COST OF SALES (Note 13)	400,737	395,161	2,968,422
Gross profit	115,348	115,482	854,430
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Note 13)	99,913	93,693	740,097
Operating income	15,435	21,789	114,333
OTHER INCOME (EXPENSES):
Interest and dividend income	2,164	1,649	16,029
Interest expense	(1,680)	(1,144)	(12,444)
Gain on sales of property, plant, and equipment	813	1,105	6,022
Equity in earnings of an unconsolidated subsidiaries and affiliates	3,657	2,674	27,089
Loss on impairment of long-lived assets (Note 6)	(1,385)	(1,619)	(10,259)
Gain on sales of securities	7,278	2.418	53.911
Business structure improvement expenses	(931)	(4,617)	(6,896)
Other-net	407	641	3,015
Other income (expenses)-net	10,323	1,107	76,467
INCOME BEFORE INCOME TAXES	25,758	22,896	190,800
INCOME TAXES (Note 12):
Current	5,067	4,273	37,533
Deferred	777	(7,565)	5,756
Total income taxes	5,844	(3,292)	43,289
NET INCOME	19,914	26,188	147,511
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS	174	1.371	1,289
NET INCOME ATTRIBUTABLE TO OWNERS OF THE COMPANY	¥ 19,740	¥ 24,817	$ 146,222

	Yen		U.S. Dollars
PER SHARE OF COMMON STOCK (Notes 2.u and 17):
Net income	¥121.06	¥149.08	$0.90
Cash dividends	34	30	0.25

See notes to consolidated financial statements.

Consolidated Statement of Comprehensive Income Year Ended December 31, 2022

	Millions of Yen		Thousands of U.S. Dollars (Note 1)
	2022	2021	2022
NET INCOME	¥19,914	¥26,188	$ 147,511
OTHER COMPREHENSIVE INCOME (Note 16):
Net unrealized (loss) gain on available-for-sale securities	(9,115)	31	(67,519)
Deferred (loss) gain on derivatives under hedge accounting	(68)	7	(504)
Foreign currency translation adjustments	7,875	6,893	58,333
Postretirement liability adjustments	1,855	3,772	13,741
Equity in earnings of unconsolidated subsidiaries and affiliates	682	1,224	5,052
Total other comprehensive income	1,229	11,927	9,103
COMPREHENSIVE INCOME	¥21,143	¥38,115	$156,614
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the Company	¥19,848	¥35,723	$147,022
Noncontrolling interests	1,295	2,392	9,592

See notes to consolidated financial statements.

Consolidated Statement of Changes in Equity Year Ended December 31, 2022

	Thousands	Millions of Yen

	Number of Shares of Common Stock Outstanding	Common Stock	Capital Surplus	Retained Earnings	Treasury Stock	Total Shareholders' Equity
BALANCE, JANUARY 1, 2021	166,429	¥27,669	¥20,450	¥ 174,098	¥(15,950)	¥206,267
Cash dividends, ¥30.00 per share	-	-	-	(4,994)	-	(4,994)
Net income attributable to owners of the Company	-	-	-	24,817	-	24,817
Purchase of treasury stock	(3)	-	-	-	(3)	(3)
Disposal of treasury stock	0	-	0	-	0	0
Change in scope of consolidation	-	-	(597)	-	-	(597)
Issuance of new shares	65	30	29	-	-	59
Net change in the year	-	-	-	-	-	-
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	166,491	27,669	19,882	193,921	(15,953)	225,549
Cumulative effects of changes in accounting policies	-	-	-	39	-	39
BALANCE, JANUARY 1, 2022 (as restated)	166,491	27,669	19,882	193,960	(15,953)	225,588
Cash dividends, ¥34.00 per share	-	-	-	(5,291)	-	(5,291)
Net income attributable to owners of the Company	-	-	-	19,740	-	19,740
Purchase of treasury stock	(9,535)	-	-	-	(10,002)	(10,002)
Disposal of treasury stock	5	-	(1,043)	(11,665)	12,715	7
Increase in consolidated subsidiaries- noncontrolling interests	-	-	-	-	-	-
Issuance of new shares	77	39	39	-	-	78
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	-	10	-	10
Net change in the year	-	-	-	-	-	-
BALANCE, DECEMBER 31, 2022	157,038	¥27,738	¥18,878	¥196,754	¥(13,240)	¥230,130

	Millions of Yen
	Accumulated Other Comprehensive Income
	Net Unrealized Gain (Loss) on Available-for-Sale Securities	Deferred Gain (Loss) on Derivatives under Hedge Accounting	Foreign Currency Translation Adjustments	Postretirement Liability Adjustments	Total
BALANCE, JANUARY 1, 2021	¥25,782	¥ (2)	¥ (1,158)	¥(2,017)	¥22,605
Cash dividends, ¥30.00 per share	-	-	-	-	-
Net income attributable to owners of the Company	-	-	-	-	-
Purchase of treasury stock	-	-	-	-	-
Disposal of treasury stock	-	-	-	-	-
Change in scope of consolidation	-	-	-	-	-
Issuance of new shares	-	-	-	-	-
Net change in the year	31	7	7,172	3,697	10,907
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	25,813	5	6,014	1,680	33,512
Cumulative effects of changes in accounting policies	-	-	-	-	-
BALANCE, JANUARY 1, 2022 (as restated)	25,813	5	6,014	1,680	33,512
Cash dividends, ¥34.00 per share	-	-	-	-	-
Net income attributable to owners of the Company	-	-	-	-	-
Purchase of treasury stock	-	-	-	-	-
Disposal of treasury stock	-	-	-	-	-
Increase in consolidated subsidiaries- noncontrolling interests	-	-	-	-	-
Issuance of new shares	-	-	-	-	-
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	-	-	-
Net change in the year	(9,111)	(67)	7,515	1,771	108
BALANCE, DECEMBER 31, 2022	¥16,702	¥(62)	¥13,529	¥ 3,451	¥33,620

	Millions of Yen

	Stock Acquisition Rights	Noncontrolling Interests	Total Equity
BALANCE, JANUARY 1, 2021	¥151	¥ 13,045	¥242,068
Cash dividends, ¥30.00 per share	-	-	(4,994)
Net income attributable to owners of the Company	-	-	24,817
Purchase of treasury stock	-	-	(3)
Disposal of treasury stock	-	-	0
Change in scope of consolidation	-	(1,925)	(2,522)
Issuance of new shares	-	-	59
Net change in the year	(26)	2,326	13,207
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	125	13,446	272,632
Cumulative effects of changes in accounting policies	-	-	39
BALANCE, JANUARY 1, 2022 (as restated)	125	13,446	272,671
Cash dividends, ¥34.00 per share	-	-	(5,291)
Net income attributable to owners of the Company	-	-	19,740
Purchase of treasury stock	-	-	(10,002)
Disposal of treasury stock	-	-	7
Increase in consolidated subsidiaries- noncontrolling interests	-	543	543
Issuance of new shares	-	-	78
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	10
Net change in the year	(55)	689	742
BALANCE, DECEMBER 31, 2022	¥ 70	¥14,678	¥278,498

	Thousands of U.S. Dollars (Note 1)

	Common Stock	Capital Surplus	Retained Earnings	Treasury Stock	Total Shareholders' Equity
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	$205,178	$147,274	$ 1,436,452	$ (118,170)	$1,670,734
Cumulative effects of changes in accounting policies	-	-	289	-	289
BALANCE, JANUARY 1,2022 (as restated)	205,178	147,274	1,436,741	(118,170)	1,671,023
Cash dividends, $0.25 per share	-	-	(39,193)	-	(39,193)
Net income attributable to owners of the Company	-	-	146,222	-	146,222
Purchase of treasury stock	-	-	-	(74,089)	(74,089)
Disposal of treasury stock	-	(7,726)	(86,407)	94,185	52
Increase in consolidated subsidiaries- noncontrolling interests	-	-	-	-	-
Issuance of new shares	289	289	-	-	578
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	74	-	74
Net change in the year	-	-	-	-	-
BALANCE, DECEMBER 31, 2022	$205,467	$139,837	$1,457,437	$ (98,074)	$1,704,667

	Thousands of U.S. Dollars (Note 1)
	Accumulated Other Comprehensive Income
	Net Unrealized Gain (Loss) on Available- for-Sale Securities	Deferred Gain (Loss) on Derivatives under Hedge Accounting	Foreign Currency Translation Adjustments	Postretirement Liability Adjustments	Total
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	$ 191,207	$ 38	$ 44,548	$12,444	$ 248,237
Cumulative effects of changes in accounting policies	-	-	-	-	-
BALANCE, JANUARY 1,2022 (as restated)	191,207	38	44,548	12,444	248,237
Cash dividends, $0.25 per share	-	-	-	-	-
Net income attributable to owners of the Company	-	-	-	-	-
Purchase of treasury stock	-	-	-	-	-
Disposal of treasury stock	-	-	-	-	-
Increase in consolidated subsidiaries- noncontrolling interests	-	-	-	-	-
Issuance of new shares	-	-	-	-	-
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	-	-	-
Net change in the year	(67,488)	(497)	55,666	13,119	800
BALANCE, DECEMBER 31, 2022	$123,719	$ (459)	$100,214	$25,563	$249,037

	Thousands of U.S. Dollars (Note 1)

	Stock Acquisition Rights	Noncontrolling Interests	Total Equity
BALANCE, DECEMBER 31, 2021 (JANUARY 1, 2022, as previously reported)	$926	$ 99,600	$2,019,497
Cumulative effects of changes in accounting policies	-	-	289
BALANCE, JANUARY 1,2022 (as restated)	926	99,600	2,019,786
Cash dividends, $0.25 per share	-	-	(39,193)
Net income attributable to owners of the Company	-	-	146,222
Purchase of treasury stock	-	-	(74,089)
Disposal of treasury stock	-	-	52
Increase in consolidated subsidiaries- noncontrolling interests	-	4,023	4,023
Issuance of new shares	-	-	578
Change due to merger of consolidated and unconsolidated subsidiaries	-	-	74
Net change in the year	(407)	5,103	5,496
BALANCE, DECEMBER 31, 2022	$519	$ 108,726	$2,062,949

See notes to consolidated financial statements.

Consolidated Statement of Cash Flows Year Ended December 31, 2022

	Millions	5 of Yen	Thousands of U.S. Dollars (Note 1)
	2022	2021	2022
OPERATING ACTIVITIES:
Income before income taxes	¥ 25,758	¥22,896	$190,800
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income taxes-paid	(1,601)	(10,998)	(11,859)
Depreciation and amortization	25,088	23,165	185,837
Amortization of goodwill	2.122	1.334	15.719
Equity in losses (earnings) of unconsolidated subsidiaries and affiliates	(3,657)	(2,674)	(27,089)
Provision for (reversal of) doubtful receivables	(648)	178	(4,800)
Interest and dividend income	2,009	3,725	14,881
Provision for business structure improvement	138	2,922	1,022
Increase (decrease) in liabilities for retirement benefits	(4,608)	(1,189)	(34,133)
Loss (agin) on sale of property. plant. and equipment. net	(299)	(775)	(2.215)
Loss on impairment of long-lived assets	1,385	1,619	10,259
Loss (gain) on sale of investment securities and investments in and advances to unconsolidated subsidiaries and affiliates, net	(7,278)	(2,418)	(53,911)
Loss on write-down of investment securities and investments in and advances to unconsolidated subsidiaries and affiliates	63	36	467
Changes in operating assets and liabilities:
Decrease (increase) in receivables	9,892	(9,536)	73,274
Decrease (increase) in inventories	(23,024)	(5,432)	(170,548)
Increase (decrease) in payables	1,836	7,387	13,600
Other-net	(7,590)	9,588	(56,223)
Total adjustments	(6,172)	16,932	(45,719)
Net cash provided by (used in) operating activities	19,586	39,828	145,081
INVESTING ACTIVITIES:
Proceeds from sale of property, plant, and equipment	2,096	1,852	15,526
Proceeds from sale of investment securities and investments in and advances to unconsolidated subsidiaries and affiliates	9,242	5,596	68,459
Purchase of property, plant, and equipment	(22,399)	(20,112)	(165,919)
Purchase of investment securities and investments in and advances to unconsolidated subsidiaries and affiliates	(222)	(118)	(1,644)
Decrease (increase) in time deposits-net	2,462	(284)	18,237
Other-net	(2,872)	(3,701)	(21,274)
Net cash provided by (used in) investing activities	(11,693)	(16,767)	(86,615)
FORWARD	¥ 7,893	¥23,061	$ 58,466
FINANCING ACTIVITIES:
Proceeds from long-term debt	625	2,698	4,630
Repayment of long-term debt	(7,020)	(28,149)	(52,000)
Increase (decrease) in short-term bank loans-net	16,602	5,280	122,978
Cash dividends paid	(5,291)	(4,994)	(39,193)
Purchase of treasury stock	(10,003)	(3)	(74,096)
Increase (decrease) in other long-term liabilities	(927)	(730)	(6,867)
Other-net	(2,874)	(4,921)	(21,289)
Net cash provided by (used in) financing activities	(8,888)	(30,819)	(65,837)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	3,487	1,655	25,830
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	2,492	(6,103)	18,459
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR (Note 2.e)	42,596	48,699	315,526
INCREASE IN CASH AND CASH EQUIVALENTS RESULTING FROM MERGER WITH UNCONSOLIDATED SUBSIDIARIES	4	-	30
CASH AND CASH EQUIVALENTS, END OF YEAR (Note 2.e)	¥45,092	¥42,596	$334,015

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements Year Ended December 31, 2022

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements 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 accordance with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards ("IFRS").

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form, which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the December 31, 2021, consolidated financial statements to conform to the classifications used in December 31, 2022.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which Nisshinbo Holdings Inc. (the "Company") is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥135 to $1, the approximate rate of exchange at December 31, 2022. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Consolidation- The consolidated financial statements as of December 31, 2022, include the accounts of the Company and its 99 significant subsidiaries (together, the "Group").

Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.

Investments in two unconsolidated subsidiaries and eight associated companies are accounted for by the equity method.

Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.

The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition is amortized over a period of seven to eight years.

All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated.

b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements-Under Accounting Standards Board of Japan ("ASBJ") Practical Issues Task Force No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements," the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should, in principle, be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either IFRS or accounting principles generally accepted in the United States of America ("U.S. GAAP") (Financial Accounting Standards Board Accounting Standards Codification) tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of research and development ("R&D"); and (d) cancellation of the fair value model of accounting for property, plant, and equipment and investment properties and incorporation of the cost model of accounting.

c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method-ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments," requires adjustments to be made to conform an associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method, unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either IFRS or U.S. GAAP tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss on pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant, and equipment and investment properties and incorporation of the cost model of accounting.

d. Business Combinations-Business combinations are accounted for using the purchase method. Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses in the periods in which the costs are incurred. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which shall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. A parent's ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the parent's ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted is accounted for as capital surplus as long as the parent retains control over its subsidiary.

e. Cash Equivalents-Cash equivalents are short-term investments that are readily convertible into cash and exposed to insignificant risk of changes in value.

Cash equivalents include time deposits and certificates of deposit, all of which mature or become due within six months of the date of acquisition.

f. Inventories-Inventories are stated at the lower of cost, determined mainly by the specific identification method and the weighted-average method, or net selling value (see Note 5).

g. Marketable and Investment Securities-Marketable and investment securities are classified and accounted for, depending on management's intent, as follows: (1) trading securities, which are held for the purpose of earning capital gains in the near term, are reported at fair value, and the related unrealized gains and losses are included in earnings; (2) held-to-maturity debt securities, for which there is a positive intent and ability to hold to maturity, are reported at amortized cost; and (3) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity.

Nonmarketable available-for-sale equity securities are stated at cost determined by the moving-average method. For other-than-temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income.

h. Property, Plant, and Equipment-Property, plant, and equipment are stated at cost. Depreciation of property, plant, and equipment of the Company and consolidated subsidiaries is computed substantially by the straight-line method over the estimated useful lives of the assets. Contributions in aid of purchases of property, plant, and equipment from national and local governments are deducted from the acquisition costs of related assets in accordance with tax regulations. The range of useful lives is principally as follows:

Buildings and structures	2-60 years
Machinery, equipment, and tools	2-17 years

i. Intangible Assets and Goodwill-Amortization of intangible assets included in other assets and goodwill is computed by the straight-line method. Software for internal use is amortized over a period of 2 to 10 years, and goodwill is amortized over a period of 7 to 8 years.

j. Long-Lived Assets-The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset, or the net selling price at disposition.

k. Allowance for Doubtful Receivables-The allowance for doubtful receivables is stated in amounts considered to be appropriate based on customers' past credit loss experience and an evaluation of potential losses in the receivables outstanding.

I. Retirement and Pension Plans-The Company accounts for the liability for retirement benefits based on the projected benefit obligations and plan assets at the consolidated balance sheet date. The projected benefit obligations are attributed to periods on a benefit formula basis. Actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income) after adjusting for tax effects and are recognized in profit or loss over 10 to 12 years, no longer than the expected average remaining service period of the employees.

Past service cost is amortized using the straight-line method over a fixed number of years (11 to 12 years) within the average remaining service period of employees at the time of occurrence.

Certain consolidated subsidiaries are required to process all actuarial gains and losses and past service costs at the time of occurrence.

m. Stock Options-The cost of employee stock options is measured based on the fair value at the date of grant and recognized as compensation expense over the vesting period as consideration for receiving goods or services. In the consolidated balance sheet, stock options are presented as stock acquisition rights as a separate component of equity until exercised.

n. R&D Costs-R&D costs are charged to income as incurred.

o. Significant Basis for Recording Revenues and Costs-The main performance obligations of the Group in its primary businesses and the point in time when the Group typically satisfies the performance obligations (when the Group typically recognizes revenues) are as follows:

(1) Manufacture and sale of products

The Group's main business is the manufacture and sale of social infrastructure-related products, such as disaster-prevention systems and surveillance systems, wireless communication equipment products, electronic device products (analog semiconductors, etc.), brake friction materials for automobiles, fans for air conditioners, peripheral products for automobile headlamps, precision-processed parts for electronically controlled brakes systems, heat insulating materials, high-performance chemicals (resin modifiers, etc.), carbon separators for fuel cells, textile products (shirts, etc.), as well as sale of real estate. Regarding the manufacture and sale of products, the Group judges that the main performance obligation is to deliver the finished product to the customer.

The Group determined that the performance obligation is satisfied when the customer obtains control of the product. For domestic transactions, revenue is recognized upon delivery of products. For export transactions, revenue is recognized upon transfer of risk to the customer, mainly based on trade terms stipulated in Incoterms, etc. In addition, revenue is recognized on a net basis for transactions in which the Group's role is that of an agent. Revenue is recognized at the net amount of consideration, excluding the purchase price of raw materials, etc., for paid receipt transactions in which raw materials, etc., are purchased from customers, processed, and then sold to the customer.

(2) Construction contract

The Group has concluded construction contracts and manufacturing contracts with customers, mainly in the wireless and telecommunications business. For such contracts, when it is determined that the performance obligations will be satisfied over a period, revenue is recognized based on the progress of the satisfaction of the performance obligations. If it is determined that a performance obligation will not be satisfied over a period, revenue is recognized when the construction is completed as a point-in-time satisfied performance obligation. The degree of progress is calculated by estimating the total costs expected to be incurred from the contract initiation date to the satisfaction of the performance obligations, aggregating the actual costs incurred during the relevant period, and calculating the percentage of the total costs.

(3) Entrusted development contract

The Group, mainly in the microdevice business, undertakes entrusted development of custom products that utilize various sensors and signal processing technologies based on contracts with customers. If the products or services promised to the customer result in a single performance obligation, the phases are aggregated even if the contract has multiple phases. For such contracts, when it is determined that the performance obligations will be satisfied over a period, revenue is recognized based on the progress of the satisfaction of the performance obligations. If it is determined that a performance obligation will not be satisfied over a period, revenue is recognized when the development is completed as a point-in-time satisfied performance obligation.

p. Income Taxes-The provision for income taxes is computed based on the pretax income included in the consolidated statement of profit or loss. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.

The Group files a tax return under the consolidated taxation system, which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned domestic subsidiaries.

q. Application of Tax Effect Accounting Pertaining to Transition from the Consolidated Taxation System to the Group Tax Sharing System-Starting from the beginning of the next consolidated fiscal year, the group tax sharing system will be applied to the Company and its domestic subsidiaries instead of the consolidated taxation system. Deferred tax liabilities according to the provisions of the tax acts before amended based on the treatment of Paragraph 3 of "Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System" (ASBJ Practical Solutions No. 39, March 31, 2020), instead of applying the provision of Paragraph 44 of "Implementation Guidance on Tax Effect Accounting" (ASBJ Guidance No. 28, February 16, 2018), regarding the transition to the group tax sharing system established in "Act for Partial Amendment of the Income Tax Act, etc." (Act No. 8 of 2020) and items for which the nonconsolidated taxation system has been reviewed in line with transition to the group tax sharing system.

Starting from the beginning of the next consolidated fiscal year, the Company and its domestic subsidiaries plan to apply "Practical Solution on the Accounting and Disclosure Under the Group Tax Sharing System" (ASBJ Practical Solution No. 42, August 12, 2021), which sets forth the accounting treatment of national and local corporate income taxes and tax effect accounting, as well as the handling of disclosure, when the group tax sharing system is applied.

r. Foreign Currency Transactions-All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of comprehensive income to the extent that they are not hedged by forward exchange contracts.

s. Foreign Currency Financial Statements-The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the consolidated balance sheet date, except for equity, which is translated at the historical rates. Differences arising from such translation are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income in a separate component of equity. Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the average exchange rate.

t. Derivatives and Hedging Activities-The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by the Group to reduce foreign currency exchange. The Group does not enter into derivatives for trading or speculative purposes.

Derivative financial instruments are classified and accounted for as follows:

(1)	All derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of profit or loss.
(2)	For derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.

Foreign currency forward contracts employed to hedge foreign exchange exposures for export sales are measured at fair value, and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at fair value, but the unrealized gains/losses are deferred until the underlying transactions are completed.

Long-term debt denominated in foreign currencies for which foreign exchange forward contracts are used to hedge foreign currency fluctuations is translated at the contracted rate if the forward contracts qualify for hedge accounting.

u. Per Share Information-Basic net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding during the year.

Diluted net income per share reflects the potential dilution that could occur if stock options were exercised. Diluted net income per share of common stock assumes that all stock options are exercised.

Cash dividends per share presented in the accompanying consolidated statement of profit or loss are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year.

v. Accounting Changes and Error Corrections-Under ASBJ Statement No. 24, "Accounting Standard for Accounting Changes and Error Corrections," and ASBJ Guidance No. 24, "Guidance on Accounting Standard for Accounting Changes and Error Corrections," accounting treatments are required as follows: (1) Changes in Accounting Policies-When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively, unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation-When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates-A change in an accounting estimate is accounted for in the period of the change if the change affects that period only and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors-When an error in prior-period financial statements is discovered, those statements are restated.

Application of "Accounting Standard for Revenue Recognition"

The Company and its domestic subsidiaries have applied "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29 revised on March 31, 2020; hereinafter the "Revenue Recognition Standard") and relevant implementation guidance from the beginning of the year ended December 31, 2022. Accordingly, the Company and its domestic subsidiaries recognize revenue as the amount expected to be entitled in exchange for the promised goods or services when the control of those goods or services is transferred to the customer. The main changes due to the application of revenue recognition accounting standards, etc., are as follows:

(1) Performance obligations satisfied over time

Revenue from constructions that was previously recognized by the percentage-of-completion method or the construction completion method is now recognized based on the progress toward complete satisfaction of performance obligations.

(2) Combination of contracts and identification of performance obligations

For some development contracts, revenue was previously recognized separately for each phase. If a series of promised goods or services is a single performance obligation, the Group has changed the method to recognize revenue after aggregating the phases, even if there are multiple contracts for each phase.

(3) Transactions in which the Group acts as an agent

For transactions in which the Group acts as an agent in providing goods or services to customers, the method of recognizing revenue on a gross basis has been changed to the method of recognizing revenue on a net basis.

(4) Paid receipt transactions

For paid receipt transactions in which raw materials, etc., are purchased from customers, processed, and sold to the customers, revenue was previously recognized based on the total amount of consideration, including the purchase price of raw materials, etc., is now recognized based on the net amount of consideration excluding the purchase price of raw materials, etc.

The Group applies the Revenue Recognition Standard, etc., in accordance with the transitional treatment provided for in the proviso to Paragraph 84 of the Revenue Recognition Standard. The cumulative impact of retrospectively applying the new accounting policies to prior consolidated fiscal years is adjusted to retained earnings at the beginning of the current consolidated fiscal year, with the new accounting policies applied from the beginning balance.

As a result, in the current consolidated fiscal year, net sales; cost of sales; and selling, general, and administrative expenses decreased by ¥24,476 million ($181,304 thousand), ¥24,053 million ($178,170 thousand), and ¥453 million ($3,356 thousand), respectively, and operating income and income before income taxes each increased by ¥29 million ($215 thousand) and ¥693 million ($5,133 thousand), respectively. The impact on the consolidated balance sheet for the current consolidated fiscal year is minor.

In the consolidated cash flow statement for the current consolidated fiscal year, income before income taxes increased by ¥693 million ($5,133 thousand). Due to the cumulative impact reflected in net assets at the beginning of the current fiscal year, the balance of retained earnings at the beginning of the consolidated statement of changes in equity increased by ¥39 million ($289 thousand).

In accordance with the transitional treatment stipulated in Paragraph 89-3 of the Revenue Recognition Standard, notes pertaining to revenue recognition for the previous fiscal year are not presented.

Application of the Accounting Standard for Fair Value Measurement, etc.

The Group has applied the "Accounting Standard for Fair Value Measurement" (ASBJ Statement No. 30, July 4, 2019; hereinafter "Fair Value Measurement Standard") and other standards from the beginning of the current consolidated fiscal year, and will prospectively apply the new accounting policies stipulated by the Fair Value Measurement Standard, etc., in accordance with the transitional treatment provided in Paragraph 19 of the Fair Value Measurement Standard and Paragraph 44-2 of the "Accounting Standard for Financial Instruments" (ASBJ Statement No. 10, July 4, 2019).

The application has no impact on the consolidated financial statements.

w. New Accounting Pronouncements-On August 12, 2021, the ASBJ issued Practical Solution No. 42, "Practical Solution on the Accounting and Disclosure Under the Group Tax Sharing System." The outline of the solution is that with the transition to the group tax sharing system, the handling of corporate tax, local corporate tax, and tax effect accounting and disclosure when applying the group tax sharing system is stipulated.

The accounting standard is effective for annual periods beginning on or after April 1, 2022. Earlier application is permitted for annual periods ending on or after March 31, 2022.

The Company and domestic subsidiaries expect to apply the accounting standard for annual periods beginning on or after January 1, 2023, and are in the process of measuring the effects of applying the accounting standard in future applicable periods.

On October 28, 2022, the ASBJ issued revised Accounting Standards No. 27, "Accounting Standards for Corporation Tax, Resident Tax, Enterprise Tax," etc. It stipulates the classification of corporate tax, etc., when taxed on other comprehensive income and the treatment of tax effects related to the sale of subsidiary shares, etc., when the group corporate tax system is applied.

The accounting standard is effective for annual periods beginning on or after April 1,2024. Earlier application is permitted for annual periods beginning on or after April 1,2023.

The Company expects to apply the accounting standard for annual periods beginning on or after January 1, 2025, and is in the process of measuring the effects of applying the accounting standard in future applicable periods.

3. SIGNIFICANT ACCOUNTING ESTIMATES

a. Recoverability of Deferred Tax Assets

(1) Carrying amounts

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Deferred tax assets	¥13,170	¥ 9,984	$97,556
Deferred tax liabilities	9,990	11,001	74,000
Income taxes-deferred	777	(7,565)	5,756

(2) Information on the significant accounting estimate

The recoverability of the deferred tax assets was determined using estimates of future taxable income towards deductible temporary difference and tax loss carryforwards at the end of the current fiscal year.

Taxable income based on future profitability is calculated by reasonably estimating the timing and amount of taxable income that can be earned in the future, based on the profits in the future management plan approved by the Board of Directors.

The management plan includes certain estimates and assumptions, such as information regarding external factors of market trend, sales (including unit sales and unit price) estimated in consideration of business growth, and operating income as a result of cost reduction activities.

The estimates and assumptions are different for each business segment and fiscal year, but in particular, the consolidated tax payment group, which operates multiple businesses, is significantly affected by Wireless and Communications business and Microdevices business which have a large business scale and are subject to unstable business environment. Therefore, the estimates and assumption toward uncertainty of these businesses are significant.

Because the recoverability of the deferred tax assets depends on the estimates of future taxable income, if the estimate is changed due to unforeseeable changes in business assumptions or tax rates in the future, the tax cost may increase and affect profit or loss.

b. Impairment of Long-Lived Assets

(1) Carrying amounts

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Net property, plant, and equipment	¥178,104	¥172,749	$1,319,290
Loss on impairment of long-lived assets	(1,385)	(1,619)	(10,259)

(2) Information on the significant accounting estimate

For long-lived assets, including goodwill, the Group identifies the smallest unit that generates independent cash flow based on the type of business, groups assets, and determines if there is any sign of impairment.

The carrying amounts of the assets group that need to identify impairment loss among the assets group with an indication of impairment are reduced to the recoverable amounts, and this reduction is recorded as a loss on impairment of long-lived assets. The higher value of the net selling price or the value in use is determined as the recoverable amounts of the assets group. For calculating the value in use, the Group estimated the future cash flow based on the future management plan approved by the Board of Directors and discounted it to the present value using an appropriate discount rate. The management plan includes certain estimates and assumptions, such as information regarding external factors of market trend related to the assets group, sales (including unit sales and unit price) estimated in consideration of business growth, and operating income as a result of cost reduction activities.

Please see Note 6 for information about the impairment loss that have been recorded for this fiscal year.

If the estimate is changed due to unforeseeable changes in business assumptions in the future and the recoverable amount decreases, an impairment loss may occur that may affect profit or loss.

4. INVESTMENT SECURITIES

The costs and aggregate fair values of investment securities as of December 31, 2022 and 2021, were as follows:

	Millions of Yen
December 31, 2022	Cost	Unrealized Gains	Unrealized Losses	Fair Value
Securities classified as:
Available-for-sale:
Equity securities	¥10,805	¥25,333	¥386	¥35,752
December 31, 2021
Securities classified as:
Available-for-sale:
Equity securities	¥12,629	¥38,469	¥476	¥50,622

	Thousands of U.S. Dollars
December 31, 2022	Cost	Unrealized Gains	Unrealized Losses	Fair Value
Securities classified as:
Available-for-sale: Equity securities	$80,037	$ 187,652	$2,859	$264,830

The information for available-for-sale securities, which were sold during the years ended December 31, 2022 and 2021, was as follows:

	Millions of Yen
December 31, 2022	Proceeds	Realized Gains	Realized Losses
Available-for-sale:
Equity securities	¥9,242	¥7,278	¥-
Total	¥9,242	¥7,278	¥-
December 31, 2021
Available-for-sale:
Equity securities	¥5,596	¥2,418	¥ 0
Total	¥5,596	¥2,418	¥ 0

	Thousands of U.S. Dollars
December 31, 2022	Proceeds	Realized Gains	Realized Losses
Available-for-sale:
Equity securities	$68,459	$53,911	$-
Total	$68,459	$53,911	$-

The impairment losses on available-for-sale equity securities for the year ended December 31, 2022, were ¥51 million ($378 thousand), and there were no impairment losses on available-for-sale equity securities for the year ended December 31, 2021.

5. INVENTORIES

Inventories at December 31, 2022 and 2021, consisted of the following:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Merchandise and finished products	¥ 56,304	¥ 46,317	$ 417,067
Work in process	55,522	47,541	411,274
Raw materials and supplies	37,576	28,983	278,340
Total	¥149,402	¥122,841	$1,106,681

6. LONG-LIVED ASSETS

The Group reviewed its long-lived assets for impairment as of December 31, 2022 and 2021. As a result, the Group recognized the impairment loss of ¥1,385 million ($10,259 thousand) as other expenses mainly related to Saeron Automotive Corporation for the year ended December 31, 2022. The Group also recognized the impairment loss of ¥1,619 million as other expenses, which mainly related to Nisshinbo Urban Development Co., Ltd., Tokyo Shirts Co., Ltd. and the Company for the year ended December 31, 2021. The impairment losses above were mainly due to termination of use of the assets or continuing operating losses of those units, and the carrying amounts of the relevant assets were written down to the recoverable amounts for the years ended December 31, 2022 and 2021.

7. INVESTMENT PROPERTY

The Group owns certain rental properties, such as shopping centers, office buildings, and land in Tokyo and other areas. The net of rental income and operating expenses for those rental properties was ¥2,667 million ($19,756 thousand) for the year ended December 31, 2022.

In addition, the carrying amounts, changes in such balances, and market prices of such properties were as follows:

	Millions of Yen
Carrying Amount			Fair Value
January 1, 2022	Increase/Decrease	December 31, 2022	December 31, 2022
¥ 11,202	¥664	¥11,866	¥27,077

	Millions of Yen
Carrying Amount			Fair Value
January 1, 2021	Increase/Decrease	December 31, 2021	December 31, 2021
¥10,499	¥703	¥11,202	¥25,757

	Thousands of U.S. Dollars
Carrying Amount			Fair Value
January 1, 2022	Increase/Decrease	December 31, 2022	December 31, 2022
$82,978	$4,918	$87,896	$200,570

Notes:

1. Carrying amount recognized in the consolidated balance sheet is net of accumulated impairment losses, if any.

2. The increase during the year ended December 31, 2022, primarily represents the acquisition of certain properties of ¥1,039 million ($7,696 thousand) and the increase of ¥413 million ($3,059 thousand) due to currency exchange fluctuation. The decrease primarily represents the sale of certain properties of ¥145 million ($1,074 thousand), depreciation of ¥458 million ($3,393 thousand), and the reclassification of some properties of ¥184 million ($1,363 thousand) from property, plant, and equipment to inventories due to change in holding purpose.

3. Fair value of properties as of December 31, 2022, is measured by the Group in accordance with its real estate appraisal standard.

8. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Short-term bank loans at December 31, 2022 and 2021, consisted of notes to banks. The weighted-average interest rates applicable to the short-term bank loans as of December 31, 2022 and 2021, were 0.8% and 0.6%, respectively.

The weighted-average interest rate applicable to the short-term debt of commercial paper as of December 31, 2022 and 2021, was (0.0)%.

Long-term debt as of December 31, 2022 and 2021, consisted of the following:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Long-term debt with collateral	¥ 18	¥ 38	$ 133
Long-term debt without collateral	57,016	60,290	422,341
Total	57,034	60,328	422,474
Less current portion	(46,180)	(6,356)	(342,074)
Long-term debt, less current portion	¥10,854	¥53,972	$ 80,400

Annual maturities of long-term debt as of December 31,2022, were as follows:

Year Ending December 31	Millions of Yen	Thousands of U.S. Dollars
2023	¥46,180	$342,074
2024	6,422	47,570
2025	2,757	20,422
2026	1,675	12,408
2027	-	-
2028 and thereafter	-	-
Total	¥57,034	$422,474

The carrying amounts of assets pledged as collateral for short-term bank loans of ¥1,000 million ($7,408 thousand), long-term debt of ¥18 million ($133 thousand) included in the above, notes and accounts payable, trade of ¥1,056 million ($7,822 thousand), and other long-term liabilities of ¥2,523 million ($18,689 thousand) at December 31,2022, were as follows:

	Millions of Yen	Thousands of U.S. Dollars
Property, plant, and equipment	¥2,222	$16,459
Inventories	4,491	33,267
Accounts receivable, trade	18	133
Investment securities	604	4,474
Total	¥7,335	$ 54,333

As is customary in Japan, the Company maintains substantial deposit balances with banks with which it has borrowings. Such deposit balances are not legally or contractually restricted as to withdrawal.

General agreements with respective banks provide, as is customary in Japan, that additional collateral must be provided under certain circumstances if requested by such banks and that certain banks have the right to offset cash deposited with them against any long-term or short-term debt or obligation that becomes due and, in case of default and certain other specified events, against all other debt payable to the banks. The Company has never been requested to provide any additional collateral.

9. RETIREMENT AND PENSION PLANS

The Company and certain consolidated subsidiaries have severance payment plans for employees, directors, and Audit & Supervisory Board members. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service, and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain consolidated subsidiaries and annuity payments from a trustee. Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age.

a. Defined Benefit Pension Plan

The Company and certain consolidated subsidiaries have contributory funded defined benefit pension plans and unfunded retirement benefit plans for employees, which cover approximately 57% and 43%, respectively, of their benefits. Other consolidated subsidiaries have unfunded retirement benefit plans.

The liabilities for retirement benefits as of December 31, 2022 and 2021, for directors and Audit & Supervisory Board members were ¥4 million ($30 thousand) and ¥17 million, respectively, and are paid subject to the approval of the shareholders. The retirement benefits for directors and Audit & Supervisory Board members are not included in the tables below:

(1) The changes in defined benefit obligation for the years ended December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Balance at beginning of year	¥ 113,527	¥ 115,483	$ 840,941
Current service cost	4,181	4,114	30,970
Interest cost	805	719	5,963
Actuarial losses	(9,300)	(656)	(68,889)
Benefits paid	(6,127)	(6,069)	(45,385)
Past service cost	7	(1.610)	52
Exchange differences	957	1,546	7,089
Decrease due to revision of retirement and pension plans	(4,529)	-	(33,548)
Balance at end of year	¥ 99,521	¥113,527	$737,193

(2) The changes in plan assets for the years ended December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Balance at beginning of year	¥76,121	¥72,716	$ 563,859
Expected return on plan assets	1,583	1,477	11,726
Actuarial (gains) losses	(8,654)	2,193	(64,104)
Contributions from the employer	1,625	1,483	12.038
Benefits paid	(3,378)	(3,120)	(25.022)
Exchange differences	(21)	1,372	(156)
Decrease due to revision of retirement and pension plans	(552)	-	(4,089)
Balance at end of year	¥66,724	¥76,121	$494,252

(3) A reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets was as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Defined benefit obligation	¥57,208	¥62,983	$423,763
Plan assets	(66,724)	(76,120)	(494,252)
Total	(9,516)	(13,137)	(70,489)
Unfunded defined benefit obligation	42,313	50,544	313,430
Net liability arising from defined benefit obligation	¥32,797	¥ 37,407	$242,941

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Liability for retirement benefits	¥42,377	¥51,967	$313,904
Asset for retirement benefits	9,580	14,560	70,963
Net liability arising from defined benefit obligation	¥32,797	¥37,407	$242,941

(4) The components of net periodic benefit costs for the years ended December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Service cost	¥4,181	¥4,113	$ 30,970
Interest cost	805	719	5,963
Expected return on plan assets	(1,583)	(1,477)	(11,726)
Amortization of prior service cost	(352)	(285)	(2,607)
Recognized actuarial losses	457	680	3,385
Net periodic benefit costs	¥3,508	¥ 3,750	$25,985

(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Prior service cost	¥ (359)	¥ 1,321	$(2,659)
Actuarial losses	1,080	3,454	8,000
Total	¥ 721	¥4,775	$ 5,341

(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Unrecognized prior service cost	¥2,884	¥3,243	$21,363
Unrecognized actuarial gains	1,275	195	9,444
Total	¥4,159	¥3,438	$30,807

(7) Plan assets

(a) Components of plan assets

Plan assets as of December 31, 2022 and 2021, consisted of the following:

	2022	2021
Debt investments	25.8 %	27.7 %
Equity investments	22.8	20.0
Cash and cash equivalents	5.9	3.8
Insurance assets	13.4	14.6
Others	32.1	33.9
Total	100.0%	100.0%

(b) Method of determining the expected rate of return on plan assets

The expected rate of return on plan assets is determined considering the long-term rates of return, which are expected currently and in the future from the various components of the plan assets.

(8) Assumptions used for the years ended December 31, 2022 and 2021, were set forth as follows:

	2022	2021
Discount rate	(0.0)%-7.6%	(0.0)%-7.1%
Expected rate of return on plan assets	1.5%-5.2%	1,4%-4.0%
Expected salary increase	1.0%-7.0%	1,0%-9.0%

b. Defined Contribution Plan

The amount of contributions, which certain consolidated subsidiaries (including the multiemployer pension plan of the welfare pension insurance fund accounted for similarly to the defined contribution plans) contributed under the defined contribution plan, is ¥1,990 million ($14,741 thousand) and ¥1,203 million for the years ended December 31, 2022 and 2021, respectively.

10. EQUITY

Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:

a. Dividends

Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders' meeting. Additionally, for companies that meet certain criteria, including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if a company has prescribed so in its articles of incorporation. The Company meets all the above criteria, and accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.

The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to certain limitations and additional requirements.

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of a company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts within equity under certain conditions upon resolution of the shareholders.

c. Treasury Stock and Treasury Stock Acquisition Rights

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders, which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

11. STOCK OPTIONS

The stock options outstanding as of December 31, 2022, were as follows:

Stock Options	Persons Granted	Number of Options Granted	Date of Grant	Exercise Price	Exercise Period
The 10th Series of Stock Option	9 directors, 7 executive officers, and 43 employees of the Company	177,000 shares	August 3, 2015	¥1,425 ($10.56)	From August 1, 2017 to July 31, 2022
The 11th Series of Stock Option	6 directors, 10 executive officers, and 46 employees of the Company	176,000 shares	August 1, 2016	¥1,021 ($7.56)	From August 1, 2018 to July 31, 2023
The 12th Series of Stock Option	6 directors, 9 executive officers, and 45 employees of the Company	169,000 shares	August 1, 2017	¥1,192 ($8.83)	From August 1, 2019 to July 31, 2024

The stock option activity is as follows:

Year Ended December 31, 2022	The 10th Series of Stock Option	The 11th Series of Stock Option	The 12th Series of Stock Option
Number of stock options (Shares)
Nonvested
December 31, 2021-Outstanding	-	-	-
Granted	-	-	-
Canceled	-	-	-
Vested	-	-	-
December 31, 2022-Outstanding	-	-	-
Vested
December 31, 2021-Outstanding	165,000	171,000	169,000
Vested	-	-	-
Exercised	-	5,000	-
Canceled	165,000	-	-
December 31, 2022-Outstanding	-	166,000	169,000
Information on unit price
Exercise price	¥1,425	¥1,021	¥1,192
	($10.56)	($7.56)	($8.83)
Average stock price at exercise	-	¥1,022	-
	-	($7.57)	-
Fair value price at grant date	¥323	¥189	¥230
	($2.39)	($1.40)	($1.70)

12. INCOME TAXES

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes, which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 30.6% for the years ended December 31, 2022 and 2021.

The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax assets and liabilities at December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Deferred tax assets:
Loss on devaluation of inventories	¥ 2,398	¥ 2,110	$ 17,763
Tax loss carryforwards	38,614	40,707	286,030
Unrealized gain caused by intercompany transactions	1,199	1,132	8,881
Provision for bonuses	558	566	4,133
Accrued severance benefits	10,532	10,557	78,015
Impairment of long-lived assets and depreciation in excess of tax limitation	6,477	6,909	47,978
Devaluation of investment securities	2,113	2,603	15,652
Software costs	1,166	1,271	8,637
Allowance for doubtful accounts	1,061	620	7,859
Other	5,783	5,984	42,837
Total of tax loss carryforwards and temporary differences	69,901	72,459	517,785
Less valuation allowance for tax loss carryforwards	(29,040)	(30,546)	(215,111)
Less valuation allowance for temporary differences	(14,757)	(16,515)	(109,311)
Total valuation allowance	(43,797)	(47,061)	(324,422)
Deferred tax assets	26,104	25,398	193,363
Deferred tax liabilities:
Unrealized gain on available-for-sale securities	(7,894)	(11,821)	(58,474)
Reserve for advanced depreciation of noncurrent assets	(4,426)	(4,657)	(32,785)
Retained earnings of overseas subsidiaries	(4,152)	(3,654)	(30,756)
Assets recognized in business combination	(3,516)	(4,270)	(26,044)
Other	(2,936)	(2,013)	(21,748)
Deferred tax liabilities	(22,924)	(26,415)	(169,807)
Net deferred tax assets (liabilities)	¥ 3,180	¥ (1,017)	$ 23,556

The expiration of tax loss carryforwards, the related valuation allowances, and the resulting net deferred tax assets as of December 31, 2022 and 2021, were as follows:

	Millions of Yen
December 31, 2022	1 Year or Less	After 1 Year through 2 Years	After 2 Years through 3 Years	After 3 Years through 4 Years	After 4 Years through 5 Years	After 5 Years	Total
Deferred tax assets relating to tax loss carryforwards	¥1,322	¥530	¥637	¥ 93	¥434	¥35,598	¥38,614
Less valuation allowances for tax loss carryforwards	(1,223)	(356)	(588)	(21)	(297)	(26,555)	(29,040)
Net deferred tax assets relating to tax loss carryforwards	99	174	49	72	137	9,043	9,574
December 31, 2021
Deferred tax assets relating to tax loss carryforwards	¥1,199	¥664	¥677	¥853	¥507	¥36,807	¥40,707
Less valuation allowances for tax loss carryforwards	(1,191)	(568)	(512)	(802)	(350)	(27,123)	(30,546)
Net deferred tax assets relating to tax loss carryforwards	8	96	165	51	157	9,684	10,161

	Thousands of U.S. Dollars
December 31, 2022	1 Year or Less	After 1 Year through 2 Years	After 2 Years through 3 Years	After 3 Years through 4 Years	After 4 Years through 5 Years	After 5 Years	Total
Deferred tax assets relating to tax loss carryforwards	$9,793	$3,926	$4,719	$689	$3,215	$ 263,688	$ 286,030
Less valuation allowances for tax loss carryforwards	(9,060)	(2,637)	(4,356)	(156)	(2,200)	(196,702)	(215,111)
Net deferred tax assets relating to tax loss carryforwards	733	1,289	363	533	1,015	66,986	70,919

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of profit or loss for the year ended December 31, 2022, with the corresponding figures for the year ended December 31, 2021, is as follows:

	2022	2021
Normal effective statutory tax rate	30.6 %	30.6 %
Expenses not deductible for income tax purposes	3.4	4.3
Income not taxable for income tax purposes	(0.2)	(2.5)
Net change in valuation allowance	(23.5)	74.5
Tax credit for R&D expenses	(4.5)	(1.1)
Amortization of goodwill	2.5	1.8
Lower income tax rates applicable to income in certain foreign countries	0.0	1.9
Equity in earnings of unconsolidated subsidiaries and affiliates	(4.3)	(3.5)
Additional taxes on retained earnings in foreign subsidiaries	1.8	1.9
Unrealized gain caused by intercompany transactions	(0.5)	(0.9)
Tax loss carryforwards	4.0	(39.5)
Consolidated adjustment of loss on valuation of stocks of subsidiaries	-	(86.4)
Income taxes for prior periods	5.7	3.1
Other	7.7	1.4
Actual effective tax rate	22.7 %	(14.4) %

13. R&D COSTS

R&D costs charged to income were ¥25,865 million ($191,593 thousand) and ¥23,719 million for the years ended December 31, 2022 and 2021, respectively.

14. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(1) Group Policy for Financial Instruments

The Group uses financial instruments, mainly bank loans and commercial paper, based on its capital financing plan. Cash surpluses, if any, are invested in low-risk financial assets. Short-term bank loans are used to fund the Group's ongoing operations. Derivatives are not used for speculative purposes, but to manage exposure to financial risks as described in (2) below.

(2) Nature and Extent of Risks Arising from Financial Instruments

Receivables, such as trade notes and trade accounts, are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, parts of them are hedged using forward foreign currency contracts. Investment securities, which mainly relate to customers and suppliers of the Group, are exposed to the risk of market price fluctuations.

Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although raw materials are exposed to the market risks of fluctuation, parts of them are hedged using forward foreign currency contracts and commodity futures contracts.

Bank loans and commercial paper are used for fundraising for working capital and business investment. Parts of such bank loans and commercial paper are exposed to market risks from changes in variable interest rates.

Derivatives mainly include forward foreign currency contracts, which are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables. Please see Note 15 for more detail about derivatives.

(3) Risk Management for Financial Instruments

Credit risk management

Credit risk is the risk of economic loss arising from a counterparty's failure to repay or service debts according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of major customers by each business administration department to identify the default risk of customers at an early stage. With respect to derivative transactions, the Group manages exposure to credit risk by limiting the transactions to that with high-credit-rated financial institutions.

The maximum credit risk exposure of financial assets is limited to their carrying amounts as of December 31, 2022.

Market risk management (foreign exchange risk)

Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Part of the risk are hedged by forward foreign currency contracts. In addition, when foreign currency trade receivables and payables are expected to arise from forecasted transactions, forward foreign currency contracts may be used.

Parts of the purchase price fluctuation risk of raw materials are hedged by commodity futures contracts.

Marketable and investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.

Derivative transactions are approved by management of each department based on the internal guidelines, which prescribe the authority and the limits for each transaction. The results of the transactions are reported to the chief financial officer.

Liquidity risk management

Based on reports from each department, the Company manages liquidity risk by creating and updating a fund-raising plan in a timely manner and by maintaining liquidity on hand.

(4) Fair Values of Financial Instruments

Fair values of financial instruments are as follows:

(a) Fair values of financial instruments

	Millions of Yen
December 31, 2022	Carrying Amount	Fair Value	Unrealized Gain/Loss
Investment securities	¥35,752	¥35,752	¥ -
Affiliates stocks	817	1,880	1,063
Lona-term loans	218
Allowance for doubtful accounts	(50)
	168	168	0
Total	¥36,737	¥37,800	¥1,063
Long-term debt (including one-year repayment plan)	¥57,034	¥56,887	¥ (147)
Total	¥57,034	¥56,887	¥ (147)
Derivative transactions:
To which hedge accounting is not applied	¥ 175	¥ 175	¥ -
To which hedge accounting is applied	(93)	(93)	-
Total	¥ 82	¥ 82	¥ -
December 31, 2021
Investment securities	¥50,622	¥50,622	¥ -
Affiliates stocks	724	2,042	1,318
Long-term loans	345
Allowance for doubtful accounts	(50)
	295	296	1
Total	¥51,641	¥52,960	¥1,319
Long-term debt (including one-year repayment plan)	¥60,328	¥60,317	¥ (11)
Total	¥60,328	¥60,317	¥ (11)
Derivative transactions:
To which hedge accounting is not applied	¥ (16)	¥ (16)	¥ -
To which hedge accounting is applied	8	8	-
Total	¥ (8)	¥ (8)	¥ -

	Thousands of U.S. Dollars
December 31, 2022	Carrying Amount	Fair Value	Unrealized Gain/Loss
Investment securities	$ 264,830	$264,830	$ -
Affiliates stocks	6,052	13,926	7,874
Long-term loans	1,615
Allowance for doubtful accounts	(371)
	1,244	1,244	0
Total	$272,126	$280,000	$ 7,874
Long-term debt (including one-year repayment plan)	$422,474	$421,385	$(1,089)
Total	$ 422,474	$421,385	$(1,089)
Derivative transactions:
To which hedge accounting is not applied	$ 1,296	$ 1,296	$ -
To which hedge accounting is applied	(689)	(689)	-
Total	$ 607	$ 607	$ -

Cash, Cash Equivalents, Time Deposits, Receivables, Short-Term Bank Loans, Commercial Paper, Payables, and Accrued Income Taxes

The fair values of cash, cash equivalents, time deposits, receivables, short-term bank loans, commercial paper, payables, and accrued income taxes are not disclosed because the maturities of the said financial instruments are short, and the carrying values approximate fair value.

Investments in Equity Instruments That Do Not Have a Quoted Market Price in an Active Market

Investments in equity instruments that do not have a quoted market price in an active market are not included in the table above. Please see the following (b) for the carrying amount of these investments in equity instruments. Fair value information for marketable and investment securities by classification is included in Note 4.

Long-Term Loans

Allowance for doubtful accounts estimated individually for specific loans is deducted from long-term loans.

Derivatives

Asset and liability arising from derivative transactions are shown in net, and if it is a net liability, the amount is shown as a negative figure. Fair value information for derivatives is included in Note 15.

(b) Carrying amount of investments in equity instruments that do not have a quoted market price in an active market

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Unlisted stocks of unconsolidated subsidiaries and affiliates	¥21,909	¥21,116	$ 162,289
Other unlisted stocks	2,014	1,994	14,919

(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

	Millions of Yen
December 31, 2022	Due in 1 Year or Less	Due after 1 Year through 5 Years	Due after 5 Years through 10 Years	Due after 10 Years
Cash, cash equivalents, and time deposits	¥ 45,172	¥ -	¥ -	¥ -
Receivables	114,838	-	-	-
Long-term loans	-	88	45	84
Total	¥160,010	¥88	¥45	¥84

	Thousands of U.S. Dollars
December 31, 2022	Due in 1 Year or Less	Due after 1 Year through 5 Years	Due after 5 Years through 10 Years	Due after 10 Years
Cash, cash equivalents, and time deposits	$ 334,608	$ -	$ -	$ -
Receivables	850,651	-	-	-
Long-term loans	-	652	333	622
Total	$1,185,259	$652	$333	$622

Please see Note 8 for annual maturities of long-term debt.

(6) Financial Instruments Categorized by Fair Value Hierarchy

The fair value of financial instruments is categorized into the following three levels, depending on the observability and significance of the inputs used in making fair value measurements:

Level 1:	Fair values measured by using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:	Fair values measured by using inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3:	Fair values measured by using unobservable inputs for the assets or liabilities.

If multiple inputs are used that have a significant impact on the measurement of fair value, the fair value is categorized at the lowest level in the fair value measurement among the levels to which each of these inputs belongs.

(a) The financial assets and liabilities measured at the fair values in the consolidated balance sheet

	Millions of Yen
	Fair Value
December 31, 2022	Level 1	Level 2	Level 3	Total
Investment securities:
Stocks	¥35,602	¥ -	¥ -	¥35,602
Others	-	-	150	150
Total	¥35,602	¥ -	¥150	¥35,752
Derivative transactions:
Foreign currency forward contracts	¥ -	¥116	¥ -	¥ 116
Commodity futures contracts	-	(34)	-	(34)
Total	¥ -	¥ 82	¥ -	¥ 82

	Thousands of U.S. Dollars
	Fair Value
December 31, 2022	Level 1	Level 2	Level 3	Total
Investment securities:
Stocks	$263,719	$ -	$ -	$263,719
Others	-	-	1,111	1,111
Total	$263,719	$ -	$1,111	$264,830
Derivative transactions:
Foreign currency forward contracts	$ -	$859	$ -	$ 859
Commodity futures contracts	-	(252)	-	(252)
Total	$ -	$607	$ -	$ 607

(b) The financial assets and liabilities not measured at the fair values in the consolidated balance sheet

	Millions of Yen
	Fair Value
December 31,2022	Level 1	Level 2	Level 3	Total
Affiliates stocks	¥1,880	¥ -	¥-	¥ 1,880
Long-term loans	-	168	-	168
Total	¥1,880	¥ 168	¥ -	¥2,048
Long-term debt (including one-year repayment plan)	¥-	¥56,887	¥ -	¥56,887
Total	¥ -	¥56,887	¥ -	¥56,887

	Thousands of U.S. Dollars
	Fair Value
December 31, 2022	Level 1	Level 2	Level 3	Total
Affiliates stocks	$13,926	$ -	$-	$ 13,926
Long-term loans	-	1,244	-	1,244
Total	$ 13,926	$ 1,244	$ -	$ 15,170
Long-term debt (including one-year repayment plan)	$ -	$421,385	$-	$421,385
Total	$ -	$421,385	$ -	$421,385

Description of valuation methodologies and inputs used for measurement of the fair value of assets and liabilities is as follows:

Investment Securities

The fair values of listed stocks are measured at the quoted market prices. The fair values of listed stocks are categorized as Level 1 because they are traded in active markets. The fair value of one of the investment securities is categorized as Level 3 because unobservable inputs are used in the measurement.

Long-Term Loans

The fair values of long-term loans are measured by discounting the cash flows related to the debt at an appropriate index, such as the yield of government bonds plus the credit spread, and are categorized as Level 2.

Derivative Transactions

The fair values of derivative transactions are mainly determined based on the prices provided by the financial institutions or measured by using discounted present value techniques and are categorized as Level 2.

Long-Term Debt

The fair value of long-term debt (including one-year repayment plan) is determined by discounting the cash flows related to the debt at the rate that is assumed to be applied when a similar loan is newly borrowed and is categorized as Level 2.

15. DERIVATIVES

The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. The Group also enters into interest rate swap contracts to manage its interest rate exposures on certain liabilities.

All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within the Group's business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities.

Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk.

Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount.

Derivative Transactions to Which Hedge Accounting Is Not Applied

	Millions of Yen
December 31, 2022	Contract Amount	Contract Amount Due after 1 Year	Fair Value	Unrealized Gain/Loss
Commodity futures contract- Buying raw materials	¥ 298	¥ -	¥ (34)	¥(34)
Foreign currency forward contracts:
Buying USD	137	-	(5)	(5)
Selling USD	4,368	-	214	214
December 31,2021
Commodity futures contract- Buying raw materials	¥ 122	¥ -	¥ 11	¥ 11
Foreign currency forward contracts:
Buying USD	344	-	0	0
Buying GBP	192	-	2	2
Selling USD	2,666	-	(29)	(29)

	Thousands of U.S. Dollars
December 31,2022	Contract Amount	Contract Amount Due after 1 Year	Fair Value	Unrealized Gain/Loss
Commodity futures contract- Buying raw materials	$ 2,207	$-	$ (252)	$ (252)
Foreign currency forward contracts:
Buying USD	1,015	-	(37)	(37)
Selling USD	32,356	-	1,585	1,585

Derivative Transactions to Which Hedge Accounting Is Applied

		Millions of Yen
December 31, 2022	Hedged Item	Contract Amount	Contract Amount Due after 1 Year	Fair Value
Principal processing method
Foreign currency forward contracts:
Buying USD	Payables	¥2,105	¥ -	¥(102)
Buying RMB	Payables	7	-	(0)
Buying EUR	Payables	49	-	(0)
Selling USD	Receivables	402	-	10
Vibration treatment
Foreign currency forward contracts:
Buying USD	Payables	331	-	-
Buying EUR	Payables	1	-	-
Selling USD	Receivables	341	-	-

		Millions of Yen
December 31, 2021	Hedged Item	Contract Amount	Contract Amount Due after 1 Year	Fair Value
Principal processing method
Foreign currency forward contracts:
Buying USD	Payables	¥487	¥ -	¥9
Buvina EUR	Pavables	5	-	0
Selling USD	Receivables	66	-	(1)
Vibration treatment
Foreign currency forward contracts:
Buying USD	Payables	207	-	-
Selling USD	Receivables	204	-	-
Selling RMB	Receivables	498	-	-

		Thousands of U.S. Dollars
December 31, 2022	Hedged Item	Contract Amount	Contract Amount Due after 1 Year	Fair Value
Principal processing method
Foreign currency forward contracts:
Buying USD	Payables	$15,593	$-	$(756)
Buying RMB	Payables	52		(0)
Buving EUR	Pavables	363	-	(0)
Selling USD	Receivables	2,978	-	74
Vibration treatment
Foreign currency forward contracts:
Buying USD	Payables	2,452	-	-
Buying EUR	Payables	7
Selling USD	Receivables	2,526	-	-

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.

The contract or notional amounts of derivatives, which are shown in the above table, do not represent the amounts exchanged by the parties and do not measure the Group's exposure to credit or market risk.

16. OTHER COMPREHENSIVE INCOME

The components of other comprehensive income for the years ended December 31, 2022 and 2021, were as follows:

	Millions of Yen		Thousands of U.S. Dollars
	2022	2021	2022
Net unrealized (loss) gain on available-for-sale securities:
(Loss) gain arising during the year	¥ (5,766)	¥ 2,478	$(42,711)
Reclassification adjustments to profit or loss	(7,277)	(2,406)	(53,904)
Amount before income tax effect	(13,043)	72	(96,615)
Income tax effect	3,928	(41)	29,096
Total	¥ (9,115)	¥ 31	$(67,519)
Deferred (loss) gain on derivatives under hedge accounting:
(Loss) gain arising during the year	¥ (102)	¥ 11	$ (756)
Reclassification adjustments to profit or loss	1	0	8
Cost adjustment of assets	-	-	-
Amount before income tax effect	(101)	11	(748)
Income tax effect	33	(4)	244
Total	¥ (68)	¥ 7	$ (504)
Foreign currency translation adjustments:
Adjustments arising during the year	¥ 7,498	¥ 6,893	$ 55,541
Reclassification adjustments to profit or loss	377	-	2,792
Amount before income tax effect	7,875	6,893	58,333
Income tax effect	-	-	-
Total	¥ 7,875	¥ 6,893	$ 58,333
Postretirement liability adjustments:
Adjustments arising during the year	¥ 529	¥ 4,274	$ 3,919
Reclassification adiustments to profit or loss	192	501	1,422
Amount before income tax effect	721	4,775	5,341
Income tax effect	1,134	(1,003)	8,400
Total	¥ 1,855	¥ 3,772	$ 13,741
Equity in earnings of unconsolidated subsidiaries and affiliates:
Gain arising during the year	¥ 682	¥ 1,224	$ 5,052
Reclassification adjustments to profit or loss	-	-	-
Total	¥ 682	¥ 1,224	$ 5,052
Total other comprehensive income	¥ 1,229	¥11,927	$ 9,103

17. NET INCOME PER SHARE

A reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended December 31, 2022 and 2021, was as follows:

	Millions of Yen	Thousands of Shares	Yen	U.S. Dollars
Year Ended December 31, 2022	Net Income Attributable to Owners of the Company	Weighted- Average Shares		EPS
Basic EPS-Net income available to common shareholders	¥19,740	163,065	¥121.06	$0.90
Effect of dilutive securities	-	1
Diluted EPS-Net income for computation	¥19,740	163,066	¥121.06	$0.90
Year Ended December 31, 2021
Basic EPS-Net income available to common shareholders	¥24,817	166,461	¥149.08

Diluted net income per share for the year ended December 31, 2021, was not disclosed because there were no potentially dilutive securities.

18. SUBSEQUENT EVENT

Decision to Acquire Company through Purchase of Shares

The Company has resolved to acquire the shares of HVJ Holdings Inc. ("HVJ Holdings"), jointly with Nisshinbo Singapore Pte. Ltd. ("Nisshinbo Singapore"), a wholly owned subsidiary of the Company (the "Share Acquisition") at the Board of Directors' meeting held on May 31, 2023, and has concluded a share transfer agreement. Accompanying the Share Acquisition, Hitachi Kokusai Electric Inc. ("Hitachi Kokusai Electric"), an HVJ Holdings' subsidiary, will become a consolidated subsidiary. As a result, the Group will hold 80% of Hitachi Kokusai Electric shares (consisting of the Company: 95%; Nisshinbo Singapore: 5%), while Hitachi, Ltd. ("Hitachi") continues to hold 20% of the shares of Hitachi Kokusai Electric.

(1) Reasons for the acquisition of shares

In the wireless and communications business, with Japan Radio Co., Ltd. playing a central role, the Group contributes to the safety and security of people around the world and global environmental preservation through the variety of wireless communication technologies in areas from social infrastructure, such as disaster-prevention systems and surveillance systems, to mobile communication equipment for shipping and automobiles.

Hitachi Kokusai Electric is developing its solutions business mainly for public agencies with its advanced wireless and telecommunications technologies. The two companies complement each other in terms of technology and sales and have a particularly strong affinity in high-speed, large-capacity communication technology and video technology for which expansion of the market and technology domains can be expected, especially in the industrial solutions field. The two companies will pursue synergies on a global level, also utilizing the overseas bases of the Group to strengthen the solutions business' revenue base, which serves as a source of investment in growth areas. In addition, the Group is convinced that, with Hitachi Kokusai Electric joining the Group, the technologies that will be created by synergies with the Group's diverse technologies will no doubt contribute to the realization of a super-smart society, including the promotion of DX, significantly contributing to new developments.

Hitachi Kokusai Electric will continue contributing to the development of Hitachi's social innovation business as an equity-method affiliate and a procurement partner after the Share Acquisition. The Company and Hitachi will work together to create a win-win relationship through this Share Acquisition.

(2) Name of the counterparty of the Share Acquisition

	Japan Industrial Partners IV Investment Limited Partnership
	Shepherds Hill Fund II, L.P.
	Manaslu Fund II, L.P.
	Sonora Fund II, L.P.

(3) Outline of acquired companies

Name:	HVJ Holdings Inc.
Details of business:	Investment, holding and management of securities such as shares and corporate bonds
Capital:	¥10 million
Name:	Hitachi Kokusai Electric Inc.
Details of business:	Provision of systems, solutions and products focused on wireless and video technologies
Capital:	¥1 billion

(4) Date of Share Acquisition

July 31, 2023 (planned)

(5) Number of shares to be acquired, acquisition value, and equity ratio after the acquisition

Number of shares owned before transfer:	0 shares (Number of voting rights: 0) (Percentage of voting rights held: 0.0%)
Number of shares to be acquired:	930,001 shares (Number of voting rights: 930,001)
Acquisition value:	Ordinary shares of HVJ Holdings: ¥19,200 million
Equity ratio after the acquisition:	930,001 shares (Number of voting rights: 930,001) (Percentage of voting rights held: 100.0%)

19. SEGMENT INFORMATION

Under ASBJ Statement No. 17, "Accounting Standard for Disclosures about Segments of an Enterprise and Related Information," and ASBJ Guidance No. 20, "Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and Related Information," an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments.

(1) Description of Reportable Segments

The Company's reportable segments are components of business activities for which discrete financial information is available, and such information is regularly reviewed by the Company's Board of Directors in order to make decisions about the allocation of resources and evaluate its operating performance. The Company is a holding company, with Japan Radio Co., Ltd., Nisshinbo Micro Devices Inc., Nisshinbo Brake Inc., Nisshinbo Mechatronics Inc., Nisshinbo Chemical Inc., and Nisshinbo Textile Inc. Each core company operates integrated businesses to develop and provide services with its subsidiaries in the same business field. Therefore, the Company's segments are separated based on the products and services provided by the core operating companies and the seven segments "Wireless and Communications," "Microdevices," "Automobile Brakes," "Precision Instruments," "Chemicals," "Textiles," and "Real Estate" are treated as reportable segments.

The main businesses of the Company's reportable segments are as follows:

Wireless and Communications	Production and sale of wireless communications equipment and others
Microdevices	Production and sale of electronic parts and others
Automobile Brakes	Production and sale of brake friction material and others
Precision Instruments	Production and sale of customized production equipment, precision parts processing, plastic molding and processing, and others
Chemicals	Production and sale of rigid urethane foam, fine carbon products, carbodilite high-performance chemical additives, and others
Textiles	Production and sale of cotton fabric, synthetic fabric, spandex products, and others
Real Estate	Leasing and sale of offices and shopping centers and others

(2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets, Liabilities, and Other Items for Each Reportable Segment

The accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting Policies."

(3) Information about Sales, Profit (Loss), Assets, Liabilities, and Other Items

	Millions of Yen 2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Chemicals
Sales:
Sales to external customers	¥150,393	¥85,329	¥153,643	¥53,655	¥12,673
Intersegment sales or transfers	803	1,214	10	393	218
Total	¥151,196	¥86,543	¥153,653	¥54,048	¥12,891
Segment profit (loss)	¥ 4,821	¥ 8,948	¥ (4,664)	¥ 776	¥ 2,182
Segment assets	174,644	82,099	156,344	78,880	12,244
Other:
Depreciation and amortization	4,067	4,341	8,851	4,718	348
Increase in property, plant, and equipment and intangible assets	5,072	4,989	11,141	5,002	541

	Millions of Yen 2022
	Textiles	Real Estate	Other Businesses	Eliminations/ Corporate	Consolidated
Sales:
Sales to external customers	¥38,334	¥11,179	¥10,879	¥ -	¥516,085
Intersegment sales or transfers	27	1,381	1,817	(5,863)	-
Total	¥38,361	¥12,560	¥12,696	¥(5,863)	¥516,085
Segment profit (loss)	¥ 99	¥ 8,720	¥ 284	¥(5,731)	¥ 15,435
Segment assets	41,871	39,241	35,733	(4,782)	616,274
Other:
Depreciation and amortization	1,407	833	220	303	25,088
Increase in property, plant, and equipment and intangible assets	683	1,177	31	380	29,016

	Millions of Yen 2021
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Chemicals
Sales:
Sales to external customers	¥155,085	¥77,374	¥138,295	¥55,769	¥11,083
Intersegment sales or transfers	946	1,089	25	565	160
Total	¥156,031	¥78,463	¥138,320	¥56,334	¥11,243
Segment profit (loss)	¥ 7,815	¥ 4,292	¥ 3,558	¥ 716	¥ 2,054
Segment assets	175,886	75,312	148,709	71,824	11,311
Other:
Depreciation and amortization	3,935	3,966	7,726	4,417	330
Increase in property, plant, and equipment and intangible assets	4,701	4,236	9,879	4,511	1,378

	Millions of Yen 2021
	Textiles	Real Estate	Other Businesses	Eliminations/ Corporate	Consolidated
Sales:
Sales to external customers	¥34,479	¥15,584	¥22,974	¥ -	¥510,643
Intersegment sales or transfers	23	1,383	1,867	(6,058)	-
Total	¥34,502	¥16,967	¥24,841	¥ (6,058)	¥510,643
Segment profit (loss)	¥ (1,023)	¥ 9,389	¥ 133	¥ (5,145)	¥ 21,789
Segment assets	38,099	37,582	32,757	13,319	604,799
Other:
Depreciation and amortization	1,361	915	226	289	23,165
Increase in property, plant, and equipment and intangible assets	562	1,783	85	(653)	26,482

	Thousands of U.S. Dollars 2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Chemicals
Sales:
Sales to external customers	$1,114,022	$ 632,067	$1,138,096	$ 397,445	$93,874
Intersegment sales or transfers	5,948	8,993	74	2,911	1,615
Total	$1,119,970	$641,060	$1,138,170	$ 400,356	$ 95,489
Segment profit (loss)	$ 35,711	$ 66,281	$ (34,548)	$ 5,748	$16,163
Segment assets	1,293,659	608,141	1,158,104	584,296	90,696
Other:
Depreciation and amortization	30,126	32,156	65,563	34,948	2,578
Increase in property, plant, and equipment and intangible assets	37,570	36,956	82,525	37,052	4,007

	Thousands of U.S. Dollars 2022
	Textiles	Real Estate	Other Businesses	Eliminations/ Corporate	Consolidated
Sales:
Sales to external customers	$283,956	$ 82,807	$ 80,585	$ -	$3,822,852
Intersegment sales or transfers	200	10,230	13,459	(43,430)	-
Total	$284,156	$ 93,037	$ 94,044	$ (43,430)	$3,822,852
Segment profit (loss)	$ 733	$ 64,593	$ 2,104	$(42,452)	$ 114,333
Segment assets	310,156	290,674	264,689	(35,422)	4,564,993
Other:
Depreciation and amortization	10,422	6,170	1,630	2,244	185,837
Increase in property, plant, and equipment and intangible assets	5,059	8,719	230	2,815	214,933

(4) Information about Products and Services

Since the same information is disclosed in the segment information, the description is omitted.

(5) Information about Geographical Areas

a. Sales

Millions of Yen 2022
Asia
Japan	China	Others	Europe	Other	Total
¥235,656	¥48,797	¥76,369	¥98,140	¥57,123	¥516,085

Millions of Yen 2021
Asia
Japan	China	Others	Europe	Other	Total
¥265,890	¥51,234	¥57,758	¥91,621	¥44,140	¥510,643

Thousands of U.S. Dollars 2022
Asia
Japan	China	Others	Europe	Other	Total
$1,746,904	$ 361,459	$ 565,696	$ 725,659	$423,134	$3,822,852

Note: Sales are classified by country or region based on the location of customers.

b. Property, plant, and equipment

Millions of Yen 2022
Asia
Japan	China	Others	Europe	Other	Total
¥95,950	¥23,780	¥22,164	¥20,615	¥ 15,595	¥ 178,104

Millions of Yen 2021
Asia
Japan	China	Others	Europe	Other	Total
¥98,544	¥22,064	¥22,864	¥17,308	¥11,969	¥172,749

Thousands of U.S. Dollars 2022
Asia
Japan	China	Others	Europe	Other	Total
$710,741	$ 176,148	$164,178	$ 152,704	$115,519	$1,319,290

(6) Information about Impairment Losses of Assets for Each Reportable Segment

	Millions of Yen
	2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Textiles	Real Estate	Subtotal	Elimination/ Corporate	Total
Impairment losses of assets	¥101	¥-	¥1,165	¥36	¥1	¥81	¥1,384	¥1	¥1,385

	Millions of Yen
	2021
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Textiles	Real Estate	Subtotal	Elimination/ Corporate	Total
Impairment losses of assets	¥197	¥ -	¥94	¥196	¥494	¥528	¥1,509	¥110	¥1,619

	Thousands of U.S. Dollars
	2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Textiles	Real Estate	Subtotal	Elimination/ Corporate	Total
Impairment losses of assets	$748	$-	$8,630	$267	$7	$600	$10,252	$7	$10,259

(7) Information about Amortization and Unamortized Balance of Goodwill for Each Reportable Segment

	Millions of Yen
	2022
	Wireless and Communications	Microdevices	Precision Instruments	Textiles	Total
Amortization of goodwill	¥984	¥296	¥842	¥ -	¥2,122
Goodwill at December 31, 2022	294	964	-	-	1,258

	Millions of Yen
	2021
	Wireless and Communications	Microdevices	Precision Instruments	Textiles	Total
Amortization of goodwill	¥ 196	¥ 296	¥842	¥ -	¥1,334
Goodwill at December 31, 2021	1,202	1,260	842	-	3,304

	Thousands of U.S. Dollars
	2022
	Wireless and Communications	Microdevices	Precision Instruments	Textiles	Total
Amortization of goodwill	$7,289	$2,193	$6,237	$-	$15,719
Goodwill at December 31, 2022	2,178	7,141	-	-	9,319

20. REVENUE RECOGNITION

(1) Disaggregation of Revenue

	Millions of Yen 2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Chemicals	Textiles	Real Estate	Other	Total
Products and services:
Solutions and specialized equipment	¥ 68,983	¥ -	¥ -	¥ -	¥ -	¥ -	¥ -	¥ -	¥ 68,983
Marine systems	35,790	-	-	-	-	-	-	-	35,790
Mobility	14,137	-	-	-	-	-	-	-	14,137
ICT and mechatronics	22,517	-	-	-	-	-	-	-	22,517
Medical equipment	6,525	-	-	-	-	-	-	-	6,525
Other businesses of wireless and communications	2,441	-	-	-	-	-	-	-	2,441
Electronic devices	-	77,255	-	-	-	-	-	-	77,255
Microwave	-	8,074	-	-	-	-	-	-	8,074
Friction materials	-	-	153,643	-	-	-	-	-	153,643
Precision parts, etc.	-	-	-	13,797	-	-	-	-	13,797
Molding products	-	-	-	39,858	-	-	-	-	39,858
Environment and energy-related products	-	-	-	-	10,763	-	-	-	10,763
Carbon products, etc.	-	-	-	-	1,910	-	-	-	1,910
Textiles	-	-	-	-	-	38,334	-	-	38,334
Real estate	-	-	-	-	-	-	891	-	891
Other	-	-	-	-	-	-	-	10,763	10,763
Revenues from contracts with customers	150,393	85,329	153,643	53,655	12,673	38,334	891	10,763	505,681
Other revenue	-	-	-	-	-	-	10,288	116	10,404
Total	¥150,393	¥85,329	¥153,643	¥53,655	¥12,673	¥38,334	¥11,179	¥10,879	¥516,085

	Thousands of U.S. Dollars 2022
	Wireless and Communications	Microdevices	Automobile Brakes	Precision Instruments	Chemicals	Textiles	Real Estate	Other	Total
Products and services:
Solutions and specialized equipment	$ 510,985	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ 510,985
Marine systems	265,111	-	-	-	-	-	-	-	265,111
Mobility	104,719	-	-	-	-	-	-	-	104,719
ICT and mechatronics	166.793	-	-	-	-	-	-	-	166,793
Medical equipment	48,333	-	-	-	-	-	-	-	48.333
Other businesses of wireless and communications	18,081	-	-	-	-	-	-	-	18,081
Electronic devices	-	572,260	-	-	-	-	-	-	572,260
Microwave	-	59,807	-	-	-	-	-	-	59,807
Friction materials	-	-	1,138,096	-	-	-	-	-	1,138,096
Precision parts, etc.	-	-	-	102,200	-	-	-	-	102,200
Molding products	-	-	-	295,245	-	-	-	-	295,245
Environment and energy-related products	-	-	-	-	79,726	-	-	-	79,726
Carbon products, etc.	-	-	-	-	14,148	-	-	-	14,148
Textiles	-	-	-	-	-	283,956	-	-	283,956
Real estate	-	-	-	-	-	-	6,600	-	6,600
Other	-	-	-	-	-	-	-	79,726	79,726
Revenues from contracts with customers	1,114,022	632,067	1,138,096	397,445	93,874	283,956	6,600	79,726	3,745,786
Other revenue	-	-	-	-	-	-	76,207	859	77,066
Total	$1,114,022	$632,067	$1,138,096	$397,445	$93,874	$283,956	$82,807	$ 80,585	$3,822,852

(2) Basic Information to Understand Revenues from Contracts with Customers

The basis for understanding revenue is described in Note 2.0, "Significant Basis for Recording Revenues and Costs."

(3) Information about Geographical Areas Contract Balances

Receivables from contracts with customers, contract assets, and contract liabilities at the beginning and end of the year are as follows:

	Millions of Yen	Thousands of U.S. Dollars
	2022	2022
Receivables from contracts with customers:
Balance at beginning of year	¥114,371	$847,193
Balance at end of year	111,011	822,304
Contract assets:
Balance at beginning of year	10,167	75,311
Balance at end of year	8,081	59,859
Contract liabilities:
Balance at beginning of year	11,653	86,319
Balance at end of year	6,799	50,363

Contract assets are mainly for construction contracts, etc., of which the Group's right to consideration received in exchange for the satisfaction of performance obligations calculated based on the progress as of the end of the reporting period. It will be transferred to receivables when it becomes an unconditional condition that requires only the passage of time.

Contract liabilities are primarily recognized for the portion of the consideration received from customers that have not satisfied performance obligations. It increases when consideration is received from a customer before transferring goods or services to the customer under a contract with a customer, such as a construction contract, and decreases when a performance obligation is satisfied.

Of the contract liabilities at the beginning of the fiscal year, the amount recognized as revenue during the fiscal year was ¥10,830 million ($80,222 thousand).

There were no material changes in the balance of contract assets and contract liabilities during the fiscal year.

(4) Transaction Prices Allocated to Remaining Performance Obligations

In the wireless and communications business and microdevices business, the following table shows the summary of the transaction prices allocated to remaining performance obligations that are unsatisfied as of December 31, 2022:

	Millions of Yen 2022
	Wireless and Communications	Microdevices
Within one year	¥ 76,215	¥53,912
After one year to two years	23,237	1,844
After two to three years	5,066	548
After three years	1,585	117
Total	¥106,103	¥56,421

	Thousands of U.S. Dollars 2022
	Wireless and Communications	Microdevices
Within one year	$ 564,555	$ 399,348
After one vear to two vears	172.126	13.659
After two to three years	37,526	4,059
After three years	11,741	867
Total	$ 785,948	$ 417,933

In addition, there are no material transactions with an initial expected contract term of more than one year in the automobile brakes business, precision instruments business, chemicals business, textiles business, and real estate business.

Attachment to the Consolidated Financial Statements for the Year Ended December 31, 2022, and Independent Auditor's Report

Risk Management System

The Nisshinbo Group has established a risk management system to appropriately address business risks and minimize any losses associated with those risks.

Risk Management Structure-The Nisshinbo Group established the" Nisshinbo Group Crisis Management Regulations" to respond promptly in the event of an earthquake, fire or other emergency. Furthermore, to prepare for large-scale earthquakes and other emergencies from the perspective of business continuity, the Group conducts annual information communication training necessary for confirming the safety of employees and quickly recovering from disasters. A" safety confirmation and emergency contact system" was developed and introduced to confirm safety quickly and reliably.

Disaster Prevention System-Self-defense fire brigades have been established at Nisshinbo Holdings and major Nisshinbo Group companies, with inspections of fire protection equipment and firehose training conducted regularly. We have also conducted annual disaster prevention inspections for more than 50 years to strengthen response capabilities immediately after a disaster and improve our initial response system. Furthermore, we are deploying business continuity management (BCM) across the entire Group, organically linking initial response systems with business continuity planning (BCP).

Information System-The Group is promoting the transition of its major systems to the cloud with the aim of preparing for large earthquakes and other disasters, as well as realizing safe operations 24 hours a day, 365 days a year.

Personal Information Protection-To properly manage important information pertaining to customers, employees, and others, Nisshinbo conducts regular internal audits annually in accordance with internal rules and regulations in an effort to realize continuous improvements. In conjunction with the launch of Japan's My Number system, we also formulated and enforced Rules for Handling Specified Personal Information. Additionally, the Nisshinbo Privacy Policy is published on our corporate website.

Business Results and Strategy

Nisshinbo is a global supplier with world-class development capabilities in the field of friction materials, which are key components in automobile brake systems. Our strategy in the Automobile Brakes business is to address the specific requirements of each market and customer with three businesses-Nisshinbo Brake, TMD Friction Group and Saeron Group-aiming to meet global automaker needs for optimum parts procurement as the world's leading friction materials company.

Summary of Financial Results for 2022

In 2022, the Automobile Brakes business reported sales of ¥153,643 million (up 11.8% year on year after reclassification) and segment profit of ¥4,664 million (a deterioration of ¥7,637 million compared with the previous fiscal year after reclassification).

Global automobile production, which significantly affects the Automobile Brakes business, experienced a mild recovery in 2022 despite additional impacts from the situation in Ukraine and China's zero-COVID measures due to a partial easing of automotive semiconductor shortages. However, the price of steel and other raw materials and energy costs continue to rise in several regions.

Under these conditions, Nisshinbo Brake Group sales increased and its market share improved due to a recovery in orders from major customers and new orders for copper-free (less than 0.5%) friction materials. However, soaring raw material and energy costs put downward pressure on profit, with profit declining at Chinese and South Korean subsidiaries that manufacture products for Japanese, US, and Japan-affiliated customers. Even so, profitability recovered at our China subsidiary, which manufactures products for South Korean and North American customers, while profit at our subsidiary in Thailand remained on par with fiscal 2021 due to a recovery in automobile production in the ASEAN market. We are negotiating with customers to pass on cost increases through sales prices.

The TMD Group, for which Europe is its main market, increased sales with aggressive price pass-throughs in both the aftermarket and assembled products businesses in response to the sharp rise in raw material costs in Europe. However, skyrocketing inflation, along with tight energy supply and demand caused by the situation in Ukraine led to a significant increase in losses.

Note:

In year-on-year performance comparisons, 2021 performance uses converted values based on new profit recognition standards.

Medium- to Long-Term Business Strategy

Market Environment and Business Strategy-Global automobile production has not yet returned to prepandemic levels, but there were signs of improvement in the shortage of automotive semiconductors in some regions beginning in the second half of 2022, and operations of automobile manufacturers are expected to gradually return to normal going forward. Despite concerns that automobile demand may decline due to economic slowdowns and other factors, we expect further sales growth in this business through the launch of copper-free friction materials, and have received new orders for these products in Japan, the US, and China. To expand sales of copper-free friction materials, we will optimize our global production system and make capital investments while monitoring actual orders. In anticipation of labor shortages particularly in developed countries, we will also proactively make investments related to automation and labor saving. The Company has decided to integrate its three Chinese subsidiaries in order to address operational risks associated with strengthened environmental regulations and to streamline operations. Moving forward, the company will promote rationalization through the transfer of functions and equipment, among other measures. At the same time, in the aftermarket business where the TMD Group operates, we will continue to strategically strengthen production systems. In the assembled products business, where we have been formulating a business revitalization plan, production at plants in France and Leverkusen was terminated in 2022, and we have made progress toward integrating production by transferring products to other plants. We will continue to enhance cost competitiveness through the promotion of optimized local production utilizing the Romania plant, among other efforts. Although soaring raw material and utility costs are putting downward pressure on profits, Nisshinbo Brake Inc., and the TMD Group will continue firmly negotiating with customers to pass on cost increases through sales prices.

Toward the Spread of Electrification and Autonomous Driving-Plans are under way for electrification and autonomous driving-related next-generation vehicles and new brakes at finished vehicle manufacturers. HEVs, BEVs and other electric vehicles accumulate energy (regenerative braking) when braking by using an electric drive system that reduces wear on conventional mechanical brake friction materials, thus we expect demand for repair parts to decrease in the long run. On the other hand, parts for new passenger cars must be durable enough to withstand long term use, realizing stable braking force through coordination with electronically controlled regenerative braking. In addition, in response to the enhanced silence of the vehicle, there are demands for high-quality products with excellent noise and vibration suppression during braking. Anticipating changes in demand for friction materials due to the way automobiles will be used going forward, Nisshinbo is focusing efforts on the research and development of products that are highly compatible with electronically controlled braking. In product development, we are working to improve product performance and efficiency through further advances in simulation and digitalization, incorporating a new PDCA cycle with data-driven R&D using Al into development. To support these efforts, we have launched an educational program to cultivate human resources with digital skills with data scientists at the top. Further, we are setting our own targets for achieving zero CO ₂ emission by 2050 while engaging in the research and development of materials and manufacturing processes. Through internal Nisshinbo Group collaborations, we are also promoting research on undercarriage sensing focused on vehicle safety and autonomous driving.

Improvement Activities and Efforts to Enhance Competitiveness-Global improvement activities are the foundation of management. In addition to existing efforts promoted in accordance with the regional characteristics and level of each base, we have recently begun promoting DX initiatives incorporating improvement activities. Efforts focused on automation and labor-saving in manufacturing processes, efficient production management using ICT and IoT technologies, visualization of facility operation status and predictive facility maintenance, and quality control using AI cameras have been successful in increasing profitability and improving product quality. We are cultivating a Company-wide culture of improvement by sharing knowledge gained at each base through regular improvement activity presentations.