セイコーホールディングス（8050） – Disclosure on the Internet regarding Notice of Convocation Annual General Meeting 2022

[Translation]June 9, 2022To Shareholders with Voting Rights:Disclosures on the Internet pursuant to Laws and Regulations and the Articles of Incorporation regarding the Notice of the 161st Ordinary General Meeting of Shareholders “Overview of the system to ensure proper operations and the implementation status thereof” for the Business ReportI. Overview of a resolution to establish systems to ensure the proper operations of the Company ･･･････････････Pages 1II. Overview of the implementation status of the system to ensure proper operations ･･･････････････Pages 5 Consolidated Financial StatementsConsolidated Statements of Changes in Equity･･･････････････Pages 8Notes to Consolidated Financial Statements･････････････････Pages 9 Non-Consolidated Financial StatementsNon-Consolidated Statements of Changes in Equity･･･････････Pages 28Notes to Non-Consolidated Financial Statements･････････････Pages 29The above-mentioned documents are provided to our shareholders by posting on the Company’s website (English: https://www.seiko.co.jp/en/ir/) (Japanese: https://www.seiko.co.jp/ir/) via the Internet pursuant to laws and regulations and Article 16 of the Articles of Incorporation of the Company.SEIKO HOLDINGS CORPORATION- 1 -Systems and policies of the CompanyI.Overview of a resolution to establish systems to ensure the proper operations of the Company(1)System to ensure that the duties of Directors and employees are executed in compliance with laws and regulations and the Articles of IncorporationIn order for Directors and employees to comply with corporate ethics, laws and regulations, and internal rules, the Company shall establish the “Basic Principles of Corporate Ethics” and the “Action Guidelines for Corporate Ethics” to thoroughly ensure their compliance with corporate ethics and laws and regulations, as follows:1)The President shall repeatedly convey the spirit of the “Basic Principles of Corporate Ethics” to all Directors and employees to ensure that compliance with corporate ethics and the laws and regulations are the basis for every corporate activity.2)The “Corporate Ethics Committee” chaired by the President shall discuss corporate ethical issues that might significantly affect the Company and its subsidiaries (the “Company Group”) and matters related to revisions of the system to comply with corporate ethics, and report the results of discussion to the Board of Directors.3)The Company shall develop a system where any Director or employee who finds any action suspected of violating the laws and regulations can promptly report such findings to the “Corporate Ethics Committee”, and establish a “Corporate Ethics Helpline” as a means for reporting information.and regulations.4)The Company shall continuously provide training sessions on corporate ethics to Directors and employees to foster and enhance their awareness of compliance with corporate ethics and laws (2)System to store and manage information regarding execution of the duties of Directors(i)Pursuant to the “Internal Document Management Rules”, the Company shall record information regarding execution of the duties of Directors in a document or in an electromagnetic medium, and store and manage it properly.(ii)Directors and Corporate Auditors may inspect such document or medium at any time pursuant to the “Internal Document Management Rules”.- 2 -(3)Regulations and systems for loss risk management of the Company and its subsidiaries(i)Pursuant to the “Risk Management Rules”, the Company shall set forth the basic policy for risk management of the Company Group and develop a risk management system.(ii)The Company shall establish the “Risk Management Committee” chaired by the President in order to build, develop and monitor risk management processes, including understanding business risks that might affect the activities of the Company Group, and identifying, analyzing, evaluating and monitoring risks.(iii)The Risk Management Committee shall report the status of each risk to the Board of Directors, regularly or as necessary, pursuant to the “Risk Management Rules”.(4)System to ensure that the duties of Directors of the Company and its subsidiaries are efficiently executed(i)The Company shall develop a Mid-Term Management Plan as the target to be shared by Directors and employees of the Company Group. It shall also review the progress of annual budgets consisting of the said plan on a quarterly basis using the management accounting method, and promote the efficiency of operation by considering and implementing an remedial measures for the progress of annual budget.(ii)In order to respect autonomous and independent management of its subsidiaries while contributing to the proper and efficient operation of the Group management, the Company shall develop basic management rules therefor. It shall also establish the “Management Council” comprising standing Directors of the Company and respective President of major subsidiaries of the Companies, in order to share the management policy and management information of the Company Group.(iii)The Company shall clarify the Director’s assignment of duties, and the responsibility and authority of each division/department, and secure the efficient execution of the Director’s duties.(5)System to ensure the proper operations of the Corporate Group comprising the Company and its subsidiaries(i)The Company shall assist its subsidiaries to develop a system to comply with corporate ethics, and laws and regulations, and other systems to ensure their proper operations.- 3 -(ii)Each subsidiary of the Company shall share the “Basic Principles of Corporate Ethics” and the “Action Guidelines for Corporate Ethics” established by the Company, and manage its operations pursuant to them. The Company shall set forth the rules for reporting any violation of laws and regulations by any subsidiary, and assist its subsidiaries to develop their internal reporting systems.(iii)Pursuant to the “Consolidated Business Management Rules”, the Company shall request that each subsidiary consult in advance with, and report to, the Company regarding significant management-related matters, and whenever necessary, shall dispatch its officers or employees as Directors or Corporate Auditors of the subsidiary so as to properly supervise and audit the operation of subsidiary.(iv)Pursuant to the “Consolidated Business Management Rules”, each subsidiary shall report its business results, financial position and other important matters to the Company, and whenever necessary, the President of the relevant subsidiary shall report the execution status of the operations to the Board of Directors of the Company.(v)The Company’s Internal Audit Department shall conduct internal audits on each subsidiary regarding the execution status of the operations, compliance with laws and regulations, the Articles of Incorporation, and risk management.(6)Matters related to employees to assist the duties of Corporate Auditors(i)Internal Audit Department shall be responsible for assisting the duties of Corporate Auditors.(ii)Employees who are assigned to the Internal Audit Department shall not concurrently hold duties related to the execution of operations.(iii)Regarding any transfer of the General Manager of the Internal Audit Department, the President shall discuss with the Board of Corporate Auditors in advance, and shall respect the Board of Corporate Auditors’ opinions.(7)System for reporting to Corporate Auditors(i)Each Director and employee of the Company shall regularly report to Corporate Auditors the status of finance, compliance with corporate ethics, risk management, and internal audits. If anyDirector/employee finds any fact likely to significantly damage the Company or its subsidiaries, – 4 -any violation of laws and regulations or internal rules, he/she shall immediately report such findings to the Corporate Auditors of the Company.(ii)The Company shall develop a reporting system where if any Director, Corporate Auditor or employee of a subsidiary finds any material violation of laws and regulations or internal rules regarding the execution of operations of the Company or the subsidiary, or any fact which is likely to significantly damage the Company, he/she or the person who was reported by him/her shall report it to the Corporate Auditors of the Company.(iii)The Company shall develop necessary systems to ensure that the person who makes the report in accordance with the preceding two (2) paragraphs might not be treated disadvantageously on the grounds of having made such report.(iv)In conducting internal audits, the General Manager of the Internal Audit Department shall cooperate with Standing Corporate Auditors in advance, and make efforts to report important matters to Standing Corporate Auditors in a timely manner. In addition, the General Manager of the Internal Audit Department shall report the results of internal audits to Standing Corporate Auditors without delay, and regularly report such results to the Board of Corporate Auditors of the Company.(8)Other systems to ensure that audits by Corporate Auditors are effectively conducted(i)The Company shall ensure a system where, besides the Internal Audit Department, the General Affairs Department and the Finance & Accounting Department shall assist audits by Corporate Auditors from time to time based on respective instructions from Corporate Auditors.(ii)The Company shall ensure that Corporate Auditors attend important meetings and committees which are established and held by the Board of Directors in a timely manner to ensure proper operations of the Company.(iii)The President shall meet and consult with the Board of Corporate Auditors, as necessary, and exchange opinions regarding important management issues.(iv)If a Corporate Auditor requests that the Company pay expenses incurred in connection with executing his/her duties, the Company shall promptly reimburse such expenses unless the Company proves that such expenses are not necessary for the Corporate Auditor to execute his/her duties.- 5 -II.Overview of the implementation status of the system to ensure proper operations(1)System for compliance with corporate ethics and laws and regulations(i)The Company has established a “Corporate Ethics Committee” chaired by the President to discuss corporate ethical issues and the system for compliance with corporate ethics, including those relating to its subsidiaries, and reports the result of discussions to the Board of Directors. The Committee held four (4) meetings during the fiscal year ended March 31, 2022.(ii)The Company has established a “Corporate Ethics Helpline” internally and appointed a law firm as a reception to receive consultations or reports from employees regarding violations of laws and regulations within the Company. The Company has made sure all employees are well informed about how to use these helplines by posting them on its intranet and distributing portable cards, etc.(iii)The Company regularly provides training sessions on corporate ethics to enhance awareness of compliance with corporate ethics and laws and regulations. During the fiscal year ended March 31, 2022, the Company provided training sessions on “Conduct Risks” for standing officers and “Compliance Infraction Prevention” for employees.(2)Risk management system(i)The Company has established the “Risk Management Committee” chaired by the President to discuss the Company Group’s risk management system and various risk issues. The Committee also reports to the Board of Directors the matters discussed thereat and important risks which require the Company Group to take comprehensive measure. The Committee held four (4)meetings during the fiscal year ended March 31, 2022.Further, the Company has established the “Group Risk Management Committee” consisting of respective standing Directors of the Company and Presidents of its subsidiaries, and confirms and shares the risks and the counter-measures against them experienced by each group company. The Committee held three (3) meetings during the fiscal year ended March 31, 2022.(ii)Regarding responses when risks occur, the “Crisis Management Manual” sets out for the Company’s basic policy therefor and measures to respond to respective risks, such as natural disasters.- 6 -(3)System to ensure that the duties of Directors are efficiently executed(i)The Company has determined the assignment of duties for each Director upon a resolution of the Board of Directors, and the responsibility and authority of each division/department in accordance with the “Duty Assignment Rules”.(ii)The Company has established a council called the “Strategic Conference for Management” where the President and Executive Directors exchange opinions and share information with other Directors, Corporate Auditors, or General Managers of divisions/departments when they decide on and execute important matters relating to execution of their duties. The Strategic Conference for Management held forty-six (46) meetings during the fiscal year ended March 31, 2022.(iii)The Company has provided the “Consolidated Business Management Rules” for the execution of the operations of its subsidiaries in order to perform its management and support functions from the viewpoint of consolidated management.(4)System to ensure the proper operations of the Company Group(i)Pursuant to the “Consolidated Business Management Rules”, the Company properly discusses with its subsidiaries in advance regarding their business plan, annual budgets, and measures to respond to important corporate ethical issues, receives reports on material business matters from them, and dispatches its officers or employees to subsidiaries, as necessary, to supervise and audit them. As of the end of the fiscal year ended March 31, 2022, the Company has dispatched nine (9) Directors, two (2) Corporate Auditors, and sixteen (16) employees.Furthermore, the President of each subsidiary reports the execution status of its operations to the Board of Directors of the Company as necessary. During the fiscal year ended March 31, 2022, five (5) subsidiaries made such reports.(ii)Each unit of the Company assists its subsidiaries to develop a system to comply with corporate ethics and laws and regulations, and a system to comply with business operation laws. During the fiscal year ended March 31, 2022, training sessions and briefings were held for officers and employees of the Company’s subsidiaries to discuss topics such as “Conduct Risks” and “Compliance Infraction Prevention”.- 7 -(5)System to ensure that audits by Corporate Auditors are effectively conducted(i)The Internal Audit Department holds a regular meeting once a month with Standing Corporate Auditors and reports the performance status of internal audits.(ii)Standing Corporate Auditors attend important meetings such as the “Strategic Conference for Management”, “the Risk Management Committee”, and the “Corporate Ethics Committee”, etc.(iii)The President attends the Board of Corporate Auditors’ meetings to exchange opinions and gather information relating to material business issues.- 8 -[Translation]Consolidated Statements of Changes in Equity(From April 1, 2021 to March 31, 2022)Balance at beginning of periodCumulative effects of changes in accounting policiesRestated balanceChanges during periodDividends of surplusProfit attributable to owners of parentPurchase of treasury sharesDisposal of treasury sharesDisposal of treasury stock by ownership plan trustOtherNet changes in items other than shareholders’ equityTotal changes during periodBalance at end of periodShareholders’ equityShare capitalCapital surplusTreasury shares10,0007,24510,0007,245Retained earnings75,909-1,18274,727-2,0676,415-0Millions of yenTotal shareholders’equity-315-315-1024092,839-1,18291,657-2,0676,415-10240-10,000-07,2454,34879,07523-2924,37196,028Accumulated other comprehensive incomeValuation difference on available-for-sale securitiesDeferredgains or losses on hedgesRevaluation reserve for landForeign currency translation adjustmentRemeasurementsof defined benefit plansMillions of yenTotal accumulated other comprehensiveincomeNon-controlling interestsTotal net assets10,431-1338,1901,055-68718,8561,387 113,08210,431-1338,1901,055-68718,8561,387111,900-1,182-2,0676,415-10240511-1984,0618075,1821705,352511-1984,0618075,1821709,72310,942-3318,1905,11612024,0381,557 121,624–(Note) The 0 million yen of “Other” under treasury shares represents changes due to a change in the ratio of equity interests of the Company’s affiliates accounted for using equity method.Balance at beginning of periodCumulative effects of changes in accounting policiesRestated balanceChanges during periodDividends of surplusProfit attributable to owners of parentPurchase of treasury sharesDisposal of treasury sharesDisposal of treasury stock by ownership plan trustOtherNet changes in items other than shareholders’ equityTotal changes during periodBalance at end of period- 9 -[Translation]Notes to Consolidated Financial Statements1.Notes to Important Matters that are the Basis for Preparation of Consolidated Financial Statements(1)Matters relating to scope of consolidation61Number of consolidated subsidiaries:SEIKO WATCH CORPORATION, Morioka Seiko Instruments Inc., Seiko Instruments Inc., SEIKO Solutions Inc., SEIKO Time Creation Inc., WAKO Co., Ltd., Grand Seiko Corporation of America, Seiko Watch of America LLC, SEIKO U.K. Limited, SEIKO Hong Kong Ltd., SEIKO Manufacturing (H.K.) Ltd., SEIKO Manufacturing (Singapore) Pte. Ltd., Dalian Seiko Instruments Inc., Seiko Instruments Trading (H.K.) Ltd., Seiko Instruments (Thailand) Ltd., SEIKO Precision (Thailand) Co., Ltd., and others.Seiko Clock Inc. ceased to exist through an absorption-type merger with the Company’s consolidated subsidiary, Seiko Time Systems Inc. as the surviving company on April 1, 2021. The surviving company, Seiko Time Systems Inc. changed its corporate name to SEIKO Time Creation Inc. on the same date.Total System Engineering Co., Ltd. was included in the scope consolidation from the 3rdquarterly consolidated accounting period due to the acquisition of its shares.Non-consolidated subsidiaries:AOBA WATCH SERVICE Co. Ltd. and others are of a small scale in terms of net sales, total assets, profit and loss, and retained earnings, and none of them have any material impact on the consolidated financial statements. Therefore, they were excluded from the scope of consolidation.(2)Matters relating to the application of the equity methodNumber of affiliates accounted for by the equity method:SEIKO OPTICAL PRODUCTS CO., LTD., OHARA INC., and others.5Non-consolidated subsidiaries and affiliates not accounted for by the equity method:AOBA WATCH SERVICE Co. Ltd. and others have a minimal impact on the consolidated net income and loss and retained earnings and are of little significance. Therefore, the equity method has not been applied to these companies.(3)Standards and methods for evaluating significant assets(i) Inventories(ii) Securities Available-for-sale securities Securities other than shares, etc. that do not have a market price Shares, etc. that do not have a market priceBasically stated at cost using the moving-average method (for values stated on the balance sheet, writing down the book values in response to decreased profitability)Market value method based on the market price as of the consolidated closing date (differences in valuation are included directly in net assets and the costs of securities sold are calculated using the moving-average method)Stated at cost using the moving-average method- 10 – Investment Limited Partnership(4) Depreciation methods for significant depreciable assets(iii) Derivatives(i) Property, plant and equipment (excluding leased assets and right-of-use assets)Stated on a net basis equivalent to equity interests, based on the most recent financial statements available according to the financial reporting date stipulated in the partnership agreementMarket value methodAs for domestic consolidated companies, basically the straight-line method is used for buildings (excluding equipment attached to buildings), and the declining-balance method for those other than buildings (except that the straight-line method is used for the equipment attached to buildings, and structures that were acquired on or after April 1, 2016); as for consolidated subsidiaries outside Japan, basically the straight-line method is used. The estimated economic life reflecting the usable period, the actual period of use, and other factors for each asset is used for a useful life.The straight-line method is used. As for software for in-house use, the straight-line method is used with a usable period of 5 years.The same depreciation method as applied to the property, etc. owned by the Company is used.The straight-line method is used with a useful life of the lease period and with a residue value of zero.The straight-line method is used with a useful life of the lease period and with a residue value of zero.In order to prepare for possible losses on uncollectible receivables held, estimated uncollectible amounts are posted: for general receivables, according to the historical percentage of uncollectibles, and for doubtful receivables, considering the probability of collection.In order to prepare for possible losses on investments to subsidiaries and affiliates, anamount deemed necessary is provided after considering the financial position of each company and based on a respective review. The allowance for investment loss of subsidiaries and affiliates of 4 million yen is directly reduced from the amount of investment securities.In order to prepare for payment of bonuses to employees, a provision is made based on the estimated bonus payments, which are attributable to the consolidated fiscal year under review.(5) Accounting standards for significant allowances and provisions(i) Allowance for doubtful accounts(ii) Intangible assets (excluding leased assets)(iii) Leased assets Leased assets relating to finance lease with transfer of ownership Lease assets relating to finance lease without transfer of ownership(iv) Right-of-use assets(ii) Allowance for investment loss of subsidiaries and affiliates(iii) Provision for bonuses- 11 -(iv) Provision for goods warranties(v) Provision for loss on lease contracts(vi) Provision for business restructuring(vii) Provision for stock benefits(viii) Provision for retirement benefits for directors (and other officers)To provide for warranties of the goods sold at some of the consolidated subsidiaries outside Japan, respective estimated amount based on the past experience is posted.To provide for the loss expected to incur during the non-cancellable periods, an amount equivalent to the portion of rents for the real estate deemed likely to be non-performing up to the expiry of lease agreements is posted.The Company has posted an estimated amount of losses expected to be incurred in the future as a result of business restructuring.The Company has posted an estimated amount, as of the end of the consolidated fiscal year underreview, for the obligation to deliver shares, as a provision for the delivery of its shares to theExecutive Directors in accordance with the Rules for Delivery of Shares to Officers.Some of the domestic consolidated companies passed a resolution to discontinue their respective directors’ retirement benefit systems during the fiscal year ended March 2005 and that ended March 2014. Accordingly, the amount of retirement benefits for incumbent officers is posted corresponding to the terms of office till the end of the Ordinary General Meeting of Shareholders during the relevant consolidated fiscal year.- 12 -(6)Accounting standards for significant income and expenses(i) Watches BusinessThe Company Group manufactures, sells, and provides repair services for its own products as the wholesale of watches, and provides retail services, including other companies’ products, as the retail of watches.With regard to the time of satisfaction of performance obligations for the wholesale of watches, the Company Group applies the alternative treatment prescribed in Paragraph 98 of the “Implementation Guidance on Accounting Standard for Revenue Recognition” (hereinafter,the “Revenue Recognition Implementation Guidance”), and recognizes revenue at the time of shipment, if the period between the shipment and the transfer of control of products to customers is primarily a normal period of time for domestic sales. For other transactions, including export sales, revenue is recognized when risks are transferred to customers based on terms of contracts with each customer. For the retail of watches, revenue is recognized when products are delivered to customers.For transactions in which returns are expected at the time of sale, such amounts are not recognized as revenue, but are estimated based on historical experience and recognized as a liability for returns.For transactions in which the Company Group actsas an agent, revenue is recognized at a net amount.For transactions in which the Company Group actsas the principal, revenue is recognized at a grossamount.The Company Group generally receives consideration for transactions in the Watches Business within one to three months from the time when performance obligations are satisfied, and the receivables arising from contracts with such customers are not adjusted for significant financial components.- 13 -(ii) Electronic Devices Business(iii) Systems Solutions BusinessThe Company Group manufactures and sells products related to electronic devices, precision devices, and printing devices.The Company Group applies the alternative treatment prescribed in Paragraph 98 of the Revenue Recognition Implementation Guidance, and recognizes revenue at the time of shipment, if the period between the shipment and the transfer of control of products to customers is primarily a normal period of time for domestic sales. For other transactions, including export sales, revenue is recognized when risks are transferred to customersbased on terms of contracts with each customer.The Company Group generally receives consideration for transactions in the Electronic Devices Business within one to three months from the time when performance obligations are satisfied, and the receivables arising from contracts with such customers are not adjusted for significant financial components.The Company Group develops and sells products for businesses related to system, IoT, and settlement, and provides maintenance services for products sold and made-to-order software services.With regard to the time of satisfaction of performance obligations for the sale of products, revenue is recognized when products are delivered to customers or when customers inspect the products. For maintenance services, revenue is recognized over the period the services areprovided, as performance obligations are deemed to be satisfied over time, since the Company Group provides uniform services over the contract period. For the provision of made-to-order software services, revenue is recognized based on the degree of progress toward satisfying performance obligations, as performance obligations are deemed to be satisfied over a certain period of time. The degree of progress is measured based on the percentage of costs incurred to the end of each fiscal year of the total expected costs.The Company Group generally receives consideration for transactions in the Systems Solutions Business within one to six months from the time when performance obligations are satisfied (in some cases, advance payments are received based on contracts), and the receivables arising from contracts with such customers are not adjusted for significant financial components.- 14 -(7)Standards for translation of significant foreign currency-denominated assets or liabilities into Japanese yenForeign currency receivables/payables are translated into yen using the spot foreign exchange rate on the consolidated closing date, and translation differences are treated as income or loss. The assets and liabilities of subsidiaries outside Japan are translated into yen using the spot foreign exchange rate on the consolidated closing date; income and expenses are translated into yen using an average market rate during the period, and translation differences are included in “Foreign currency translation adjustment” and “Non-controlling interests” of the “Net assets”.(8) Significant hedge accounting methods (i) Hedge accounting method (ii) Means of hedging and hedged items(iii) Hedging policy(iv) Assessment of hedge effectivenessDeferred hedge accounting is employed. However, regarding domestic consolidated companies, basically deferral hedge accounting(“furiate-shori”) is employed for foreign currency receivables/payables with forward exchange contracts or the like, and with regard to interest-rate swaps that meet the requirements for exceptional accounting (“tokurei-shori”), exceptional accounting is employed.Forward exchange contracts and foreign currency deposits to hedge foreign exchange-rate fluctuation risks regarding foreign currency-denominated trade payables and receivables; and interest-rate swaps to avoid fluctuation risks regarding borrowings on floating interest rates.Forward exchange contracts, foreign currency deposits and interest-rate swaps are hedged to avoid exchange- and interest-rate fluctuation risks present in hedged items in accordance with the internal rules of the respective companies, and no speculative transactions are conducted. For interest-rate swaps, hedge effectiveness is assessed by analysis of the percentage between the accumulated cash flow changes of hedged items and the accumulated cash flow changes by means of hedging. However, the assessment of hedge effectiveness is omitted if the material conditions of the means of hedging and the hedged items are the same.(9)Accounting for employees’ retirement benefitsIn order to prepare to pay retirement benefits to employees, the net defined benefit liability isposted based on the estimated amount of retirement benefit obligations minus the amount of plan assets as of the end of the consolidated fiscal year under review. To calculate retirement benefit obligations, the benefit formula method is adopted as a method to attribute the estimated retirement benefits to the periods up to the end of the consolidated fiscal year under review. The actuarial differences that resulted are recognized in the following consolidated fiscal year by the straight-line method over various periods (5 to 8 years) that are not more than the average remaining service period of employees at the time of the accrual of a difference. Prior service costs are basically recognized by the straight-line method overvarious periods that are not more than the average remaining service period of employees at the time of the accrual thereof. Unrecognized actuarial differences and unrecognized prior – 15 -service costs after tax effect adjustment are posted in “Remeasurements of defined benefit plans”, “Accumulated other comprehensive income” in “Net assets”.(10) Matters relating to application of consolidated taxation systemConsolidated taxation system is applied.(11)Adoption of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing systemDomestic consolidated companies excluding a few exceptions will make a transition from the consolidated taxation system to the group tax sharing system from the following consolidated fiscal year. As for the items subjected to the transition to the group tax sharing systemestablished under the “Act on Partial Revision of the Income Tax Act, etc.” (Act No. 8 of 2020), as well as the items reviewed under the non-consolidated taxation system in conjunction with the transition to the group tax sharing system, such domestic consolidated companies have not adopted the provisions of Paragraph 44 of the “Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No. 28, issued on February 16, 2018) in accordance with the treatment under Paragraph 3 of the “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (PITF No. 39, issued on March 31, 2020). The amounts of deferred tax assets and deferred tax liabilities are calculated based on the provisions of the Income Tax Act before the revision. From the beginning of the following consolidated fiscal year, the Company plans to apply the “Practical Solution on the Accounting and Disclosure Under the Group Tax Sharing System” (PITF No. 42, issued on August 12, 2021), which provides for the accounting treatment and disclosure of income taxes, local income taxes, and tax effect accounting, when the group tax sharing system is adopted.(12) Method and period of amortization of goodwillGoodwill is equally amortized for 5 to 20 years; minor goodwill is entirely amortized upon accrual.- 16 -2.Notes to Changes in Accounting Policies(Application of the Accounting Standard for Revenue Recognition, etc.)The Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, issued on March 31, 2020; hereinafter, the “Revenue Recognition Accounting Standard”), etc., effective from the beginning of the fiscal year under review, and recognizes revenue in the amount expected to be received in exchange for promised goods or services at the time when control of these goods or services is transferred to customers. Accordingly, as a result of determining the role of the Company Group (as an agent or a principal) in providing goods or services to customers, the Company has changed its method to recognize revenue at a net amount, for transactions in which it is determined that the Company Group acted as an agent. In addition, for transactions in which the Company Group acts as the principal, the Company has changed its method to recognize revenue, which had previously been recognized at a net amount after deducting the amount equivalent to commissions for distributors from the amount to be received from the customers, at a gross amount. In sales transactions in which goods are expected to be returned, the Company does not recognize revenue at the time of sales, but instead recognizes the amount of compensation for merchandise and finished goods that are expected to be returned as refund liabilities in “Other” under “Current liabilities”, and the assets that are recognized as the right to recover merchandise and finished goods from customers at the time of settlement of refund liabilities as return assets in “Other” under “Current assets”.The application of the Revenue Recognition Accounting Standard, etc. is subject to the transitional treatment provided for in the proviso to Paragraph 84 of the Revenue Recognition Accounting Standard. The cumulative effect of the retroactive application of the new accounting policy, assuming that it has been applied to periods prior to the beginning of the fiscal year under review, is added to or subtracted from retained earnings at the beginning ofthe fiscal year under review, and the new accounting policy is applied from the beginning balance.In addition, “Notes and accounts receivable – trade,” which had been presented under “Current assets” in the Consolidated Balance Sheet of the previous fiscal year, has been included in “Notes receivable – trade”, “Accounts receivable – trade”, and “Contract assets” from the fiscal year under review, while “Other”, which had been presented under “Current liabilities” in the Consolidated Balance Sheet of the previous fiscal year, has been included in “Contract liabilities” and “Other” from the fiscal year under review.As a result, compared with the figures before the application of the Revenue Recognition Accounting Standard, etc., accounts receivable – trade decreased by 396 million yen, contract assets increased by 343 million yen, merchandise and finished goods decreased by 4 million yen, raw materials and supplies increased by 27 million yen, other under current assets increased by 1,313 million yen, investment securities increased by 26 million yen, deferred tax assets increased by 358 million yen, accounts payable – other decreased by 39 million yen, contract liabilities increased by 6,311 million yen, other under current liabilities decreased by 3,610 million yen, and balance at end of period of retained earnings decreased by 993 million yen in the Consolidated Balance Sheet for the fiscal year under review. In the Consolidated Statements of Income for the fiscal year under review, net sales increased by 2,834 million yen, cost of sales decreased by 282 million yen, and selling, general and administrative expenses increased by 2,881 million yen. As a result, operating profit increased by 235 million yen, and ordinary profit and profit before income taxes increased by 299 million yen, respectively.- 17 -As the cumulative effect was reflected in net assets at the beginning of the fiscal year under review, balance at beginning of period of retained earnings in the Consolidated Statements of Changes in Equity decreased by 1,182 million yen.Net assets per share for the fiscal year under review decreased by 24.09 yen, and net incomeper share and diluted earnings per share increased 4.52 yen, respectively.(Application of the Accounting Standard for Fair Value Measurement, etc.)The Company has applied the “Accounting Standard for Fair Value Measurement” (ASBJStatement No. 30, issued on July 4, 2019; hereinafter, the “Fair Value Measurement Accounting Standard”), etc., effective from the beginning of the fiscal year under review. Inaccordance with the transitional treatment provided for in Paragraph 19 of the Fair ValueMeasurement Accounting Standard and Paragraph 44-2 of the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, issued on July 4, 2019), the Company will apply the new accounting policy prescribed by the Fair Value Measurement Accounting Standard, etc. into the future. However, this application has no impact on the consolidated financial statements. In addition, the Company includes notes on matters relating to breakdown, etc. of market values of financial instruments by level in the “Notes to Financial Instruments”.3.Notes to Changes in Presentation Methods(Consolidated statements of income) “House rent and other rental revenues” under “Non-operating income” that were separately itemized in the previous fiscal year are included in “Other” under “Non-operating income” in the fiscal year under review due to its decreased financial significance.“House rent and other rental revenues” in the fiscal year under review are 135 million yen.4.(1)Notes to Accounting EstimatesValuation of inventories(i)Amounts posted in the consolidated financial statements for the fiscal year under reviewWatches BusinessElectronic Devices BusinessSystems Solutions BusinessTime Creation, WAKO and other BusinessesAdjustmentConsolidated total45,313 million yen17,269 million yen4,860 million yen6,267 million yen-662 million yen73,048 million yen(ii)Information useful for understanding the content of accounting estimatesThe Company Group evaluates inventories by writing down book values based on a decreasein profitability.- 18 -For products, etc. of each business company exceeding a given holding period and volume that are no longer part of the normal operating cycle, a decrease in profitability is reflected through a systematic write-down method, which has been determined mainly based on past sales and disposal results.However, products, etc. that are considered to be still in the process of the normal operating cycle in light of recent sales results and future sales estimates, despite exceeding a given holding period and volume, are exempted from systematic write-downs, in whole or in part.The Watches Business handles products, etc. directly related to personal consumption. Consequently, the business results and profitability of products, etc. are strongly affected by economic trends in Japan and overseas, especially personal consumption. The business results and profitability of products, etc. of the Electronic Devices Business are affected by trends of demand for electronic devices, etc. in Japan and overseas. Economic trends and personal consumption may fluctuate considerably due to factors that are out of the Company Group’scontrol, and thus are difficult to predict. Accordingly, in determining a systematic write-down method to reflect a decrease in profitability, significant judgments and assumptions are incorporated. Furthermore, determining whether products, etc. that are exempted from systematic write-downs are no longer in the process of the normal operating cycle also entails significant judgments.These estimates entailing judgments and assumptions may be affected by future trends in personal consumption and may significantly affect the amount of inventories in the consolidated financial statements for the following consolidated fiscal year.(2)Valuation of deferred tax assets(i)Amount posted in the consolidated financial statements for the fiscal year under reviewDeferred tax assets2,200 million yen(ii)Information useful for understanding the content of accounting estimatesDeferred tax assets are posted if they are judged to be recoverable by making reasonable estimates of when future taxable income will occur and its amount based on business plans, etc. Such estimates may be affected by changes in uncertain economic conditions, etc. in the future. If the actual timing of when the taxable income occurs and its amount differ from the estimates, it may significantly affect the amount of deferred tax assets in the consolidated financial statements for the following consolidated fiscal year.(Accounting estimates associated with the spread of the novel coronavirus)Although it is still difficult to predict when the novel coronavirus will be contained, the Company has made accounting estimates of the recoverability, etc. of deferred tax assets,based on an assumption that economic activities will recover in Japan and overseas from the following consolidated fiscal year onward.5.(1)(3)(4)(5)(6)- 19 -Notes to Consolidated Balance SheetAssets provided as security and secured obligationsAssets provided as securityCash and depositsDeposits (Investments and other assets)Secured obligationsGift certificates (Contract liabilities)31 million yen383 million yen320 million yenTotal 414 million yenTotal 320 million yen(2)Guarantee obligationThe Company has guaranteed borrowings extended to its employees from financial institutions, as follows.Employee (housing fund)1 million yenAmount of discount on negotiable instruments receivable944 million yenLand for business use was revaluated pursuant to the “Act on Revaluation of Land” (Act No. 34 promulgated on March 31, 1998), and valuation differences which correspond to taxes are posted as “Deferred tax liabilities for land revaluation” of “Liabilities” and the balance thereof is posted as “Revaluation reserve for land” of “Net assets”.(i)Method of revaluationLand for business use was evaluated based on the main-street land price set forth in Article 2, item 4 of the “Order for Enforcement of the Act on Revaluation of Land (Cabinet Order No. 119 promulgated on March 31, 1998), and that land without a main-street land price wasevaluated based on the assessed value of fixed assets as set forth in item 3 thereof, with reasonable adjustment.(ii)Date of revaluation: March 31, 2001Out of investment securities, 406 million yen is for lending stock.Loan commitment agreementThe Company has concluded loan commitment agreements with two banks in order to carry out efficient funding of working capital. The balance of unused line of credit, etc. under the loan commitment agreements at the end of the consolidated fiscal year under review is as follows.Total amount of loan commitmentBorrowing balanceBalance33,500 million yen12,900 million yen20,600 million yen6.Notes to Consolidated Statements of Income- 20 -“Loss on the spread of infectious disease” under extraordinary losses in the fiscal year under review is mainly for fixed costs incurred during the suspension of operations and business.Notes to Consolidated Statements of Changes in Equity7.(1)Matters relating to type and total number of issued shares, and type and number of treasury shares(Thousands of shares)Number of shares at the beginning of the consolidated fiscal year under reviewNumber of shares increased during the consolidated fiscal year under reviewNumber of shares decreased during the consolidated fiscal year under reviewNumber of shares at the end of the consolidated fiscal year under review41,40441,404175175――00――151541,40441,404160160Issued sharesCommon sharesTotalTreasury sharesCommon shares (Note)Total(Note) The number of common shares held as treasury shares at the end of the consolidated fiscal year under review includes 78 thousand shares of the Company held in the Board Benefit Trust (BBT). 0 thousand shares of increase in common shares held as treasury shares is due to the purchase of fractional shares.15 thousand shares of decrease in common shares held as treasury shares is due to the disposal of the Company shares through the Board Benefit Trust (BBT), the demand for sale of fractional shares, and a change in the ratio of equity interests of affiliates accounted for using equity method.- 21 -(2)Matters relating to dividend(i)Amount of dividend paidResolutionType of sharesTotal dividend (million yen)Dividend per share (yen)Record dateEffective dateOrdinary General Meeting of Shareholders on June 29, 2021Board of Directors meeting on November 9, 2021Common share1,03325.00June 30, 2021March 31, 2021Common share1,03325.00September 30, 2021December 6, 2021(Note 1) The total amount of dividend approved by a resolution of the Ordinary General Meeting of Shareholders on June 29, 2021 includes a dividend of 2 million yen payable for the Company shares held in the Board Benefit Trust (BBT).(Note 2) The total amount of dividend approved by a resolution of the Board of Directors meeting on November 9, 2021 includes a dividend of 1 million yen payable for the Company shares held in the Board Benefit Trust (BBT).(ii)Dividend for which the record date falls in the consolidated fiscal year under review but the effective date comes after the end of that consolidated fiscal yearResolutionType of sharesTotal dividend (million yen)Source for dividendDividend per share (yen)Record dateEffective dateCommon Share1,033Retained earnings25.00March 31, 2022June 30, 2022Ordinary General Meeting of Shareholders on June 29, 2022(Note) The total amount of dividend proposed for approval by a resolution of the Ordinary General Meeting of Shareholders on June 29, 2022 includes a dividend of 1 million yen payable for the Company shares held in the Board Benefit Trust (BBT).8.(1)Notes to Financial InstrumentsMatters relating to status of financial instrumentsThe Company Group raises funds (mainly borrowing from banks) necessary in light of respective business plans of business companies. Temporary surplus funds are invested in more safe financial assets.Notes and accounts receivable – trade (which are operating receivables) are exposed to customers’ credit risks; as such, the Company controls each customer’s due date and balance, and understands major customers’ credit status. Exchange-rate fluctuation risks for foreign currency operating receivables due to the Company’s global development are almost set off by the risks resulting from foreign currency operating payables, some of which are hedged using – 22 -forward exchange contracts. Investment securities are mainly shares of customers, and exposed to market price fluctuation risks.Most of the notes and accounts payable – trade (which are operating payables) are due within one year. Borrowings and bonds payable are mainly to raise funds for operating transactions,and interest-rate swaps are used to hedge part of exchange-rate fluctuation risks of borrowings.Derivatives include forward exchange contracts to hedge exchange-rate fluctuation risks present in foreign currency receivables/payables, and interest-rate swaps to hedge fluctuation risks of interest rates payable on borrowings.(2)Matters relating to market value, etc. of financial instrumentsAmounts posted on the Consolidated Balance Sheet, market values, and the corresponding differences between the two as of March 31, 2022, are as follows. Shares, etc. that do not have a market price are not included in the table below. Notes to cash are omitted. Deposits, notes receivable – trade, accounts receivable – trade, accounts receivable – other, notes and accounts payable – trade, electronically recorded obligations – operating, short-term borrowings, and accounts payable – other are omitted, as these are settled within a short time frame and therefore have a market value approximate to their book value.Amounts posted on the Consolidated Balance Sheet (*)Market value (*)Difference(Millions of yen)16,88422,82613,36922,826-3,514-(23,719)(23,732)(300)(299)(28,752)(28,754)(631)(631)-012-02-(1) Investment securities(i) Shares of subsidiaries and associates(ii) Available-for-sale securities(3) Current portion of long-term borrowings(4) Bonds payable(5) Long-term borrowings(6) Derivatives(2) Current portion of bonds payable(150)(149) (*) Items posted as liabilities are enclosed in brackets.(Note)Unlisted shares (posted as 142 million yen on the Consolidated Balance Sheet), shares of unlisted subsidiaries and associates (posted as 3,292 million yen on the Consolidated Balance Sheet), and Investment Limited Partnership (posted as 391 million yen on the Consolidated Balance Sheet) are shares, etc. that do not have a market price. As such, these items are not included in (1).(3)Matters relating to breakdown, etc. of market values of financial instruments by levelMarket values of financial instruments are classified into the following three levels based on the observability and materiality of inputs used to calculate market values.Level 1 market value: Market value calculated using (unadjusted) quoted prices in active markets for identical assets or liabilities- 23 -Level 2 market value: Market value calculated using directly or indirectly observable inputs other than Level 1 inputsLevel 3 market value: Market value calculated using significant unobservable inputsWhen multiple inputs that have a significant impact on the calculation of market value are used, market value is classified into the level with the lowest priority in the calculation of market value among the levels to which those inputs belong.(i)Financial assets and financial liabilities that are recognized on the Consolidated Balance Sheet at market valueLevel 1Level 2Level 3TotalMarket value(Millions of yen)Classification(1) Investment securitiesShares(6) Derivatives(*) Items posted as liabilities are enclosed in brackets.22,826–(631)(ii)Financial assets and financial liabilities that are not recognized on the Consolidated Balance Sheet at market valueLevel 1Level 2Level 3TotalMarket value(Millions of yen)Classification(1) Investment securitiesShares of subsidiaries andassociates(2) Current portion of bonds payable(3) Current portion of long-termborrowings(4) Bonds payable(5) Long-term borrowings13,369—–14923,73229928,754——-22,826(631)13,36914923,73229928,754(Note) Valuation methods used for the measurement of market value and a description of inputs(1) Investment securities:Listed shares are valued using quoted prices. Since listed shares are traded in active markets, their market value is classified as Level 1 market value.(2) Current portion of bonds and (4) Bonds payable:The market value of bonds payable, which are issued by subsidiaries, is calculated by discounting the total amount of principal and interest by an interest rate that takes into account the remaining term and credit risk of the bonds. It is classified as Level 2 market value.(3) Current portion of long-term borrowings and (5) Long-term borrowings:The market value of long-term borrowings is calculated by taking into account the remaining term of the bonds and discounting the total amount of principal and interest by the assumed interest rate that would be applied when new borrowings are conducted. It is classified as Level 2 market value. The market value of long-term borrowings that are subject to exceptional accounting treatment for interest-rate swaps is calculated by taking – 24 -into account the remaining term of the bonds and discounting the total amount of principal and interest, which is treated as one with the interest-rate swap in question, by a logically estimated interest rate that would be applied when similar borrowings are conducted.(6) Derivatives:The market values of interest-rate swaps and forward exchange contracts are calculated using observable inputs such as interest rates and foreign exchange rates. They are classified as Level 2 market values.Derivatives conducted through exceptional accounting treatment of interest-rate swaps are treated as being one with the long-term borrowings under the relevant hedge. As such, the market value of such transactions is presented as being included in the market value for the long-term borrowings concerned.9.Notes to Leased PropertyThe Company and some of its subsidiaries own real property for lease and others in Tokyo and other regions. Income or expenses from the leased property during the fiscal year ended March 2022 was 133 million yen (rent income was posted as non-operating income and expenses are posted as non-operating expenses), and gain on sales of non-current assets was 8million yen (posted as non-operating income).The amount posted on the Consolidated Balance Sheet, major changes during the consolidated fiscal year under review, market value on the consolidated closing date, and the calculation method of such market value are as follows:Amounts posted on the Consolidated Balance SheetBalance at the beginning of the consolidated fiscal year under reviewAmount of increases/decreasesduring the consolidated fiscal year under reviewBalance at the end of the consolidated fiscal year under reviewMarket value on the consolidated closing date17,191-91816,27218,972(Millions of yen)(Note 1)(Note 2)(Note 3)Amounts posted on the Consolidated Balance Sheet were the acquisition costsminus accumulated depreciation and accumulated impairment loss.Of the change during the consolidated fiscal year under review, the amount of increases mainly consists of the acquisition of rental real estate (532 million yen) and an increase in the rate of rent (272 million yen). In addition, the amount of decreases mainly consists of the reclassification of leased property from rental real estate to commercial real estate (1,391 million yen) and the sale of rental real estate (180 million yen).Calculation method of market valueBasically the amount based on a real-estate appraisal report prepared by a real-estate appraiser.- 25 -10.Notes to Per-Share InformationNet assets per shareNet income per share(Calculation basis) Profit attributable to owners of parentProfit attributable to owners of parent, available to common shares Average number of shares during the fiscal year under review2,911.17 yen155.56 yen6,415 million yen6,415 million yen41,240 thousand shares(Note 1) For the purpose of calculating the net income per share, the treasury shares remaining in trust posted as treasury shares in the “Shareholders’ equity” section are included in the treasury shares deducted in the calculation of the average number of shares during the fiscal year under review. For the purpose of calculating the net assets per share, the treasury shares so remaining in trust are included in the treasury shares deducted from the total number of shares issued and outstanding at the end of the fiscal year under review.For the purpose of calculating the net income per share, the average number of treasury shares, so deducted, during the fiscal year under review was 82 thousandshares, and for the purpose of calculating the net assets per share, the number of treasury shares, so deducted, as at the end of the fiscal year under review was 78thousand shares.Notes to Revenue Recognition11.(1)Information regarding disaggregated revenue arising from contracts with customersInformation by type of goods or servicesReported segmentsWatchesBusinessElectronicDevicesBusinessSystemsSolutionsBusinessTimeCreation,WAKOand otherBusinesses(Note 2)102,07723,666Wholesale of watches (Note 1)Retail of watches (Note 1)Electronic devices(Quartz crystals, micro batteries, etc.)Precision devices(Precision turned parts, etc.)–19,90914,47217,427—–(Including IT performance -15,254Printing devicesSystem-relatedmanagement)IoT-relatedSettlement-relatedOther———12,86413,1665,992—27,313(Millions of yen)——Total102,07723,66619,90914,47217,42715,25413,1665,99240,177Transactions with other segmentsRevenue arising from contracts with customersRevenues from external customersInformation by regionJapanThe AmericasEuropeAsia and othersRevenue arising from contracts with customersRevenues from external customers- 26 –2,669-6,505-1,901-3,685-14,762123,07458,16832,51123,627237,382123,07458,16832,51123,627237,382(Millions of yen)Reported segmentsWatchesBusinessElectronicDevicesBusinessSystemsSolutionsBusiness53,39117,04217,09935,54017,8635,5137,26327,52832,1742612945TimeCreation,WAKOand otherBusinesses(Note 2)20,9741,515921,044Total124,40324,33224,48564,160123,07458,16832,51123,627237,382123,07458,16832,51123,627237,382(Note 1)(Note 2)The wholesale of watches is classified as manufacturing, sales, and repair services for the Company’s own products. The retail of watches is classified as retail services including other companies’ products.Although portions of rental revenues from real estate are included, they are included in “Revenue arising from contracts with customers” due to its low financial significance.(2)Useful information in understanding revenueUseful information in understanding revenue is as described in “Notes to Important Matters that are the Basis for Preparation of Consolidated Financial Statements, (6) Accounting standards for significant income and expenses”.(3)Information in understanding the amounts of revenues in the fiscal year under review and the following fiscal years(i)Balance, etc. of contract assets and contract liabilities(Millions of yen)Fiscal year under reviewBalance at the beginning of the fiscal yearBalance at the end of the fiscal year824,5993436,574Contract assetsContract liabilitiesOf the amount of revenue recognized in the fiscal year under review, the amount included in the balance of contract liabilities at the beginning of the fiscal year was 2,540 million yen.- 27 -(ii)Transaction prices allocated to remaining performance obligationsThe Company has applied the practical expedient to notes on transaction prices allocated to remaining performance obligations. Contracts with an initially expected term of one year or less are not included in the notes. The performance obligations primarily relate to the Systems Solutions Business. The total transaction prices allocated to remaining performance obligations and the period in which the Company expects to recognize the amounts as revenue are as follows.One year or lessOver one year, two years or lessOver two years, three years or lessOver three yearsTotal(Millions of yen)Fiscal year under review5687645735962,50212.Presentation of AmountsIn the Consolidated Balance Sheet, Consolidated Statement of Income, Consolidated Statements of Changes in Equity, and Notes to Consolidated Financial Statements, any amount less than one million yen is discarded.- 28 -[Translation]Non-Consolidated Statements of Changes in Equity(From April 1, 2021 to March 31, 2022)Shareholders’ equityCapital surplusShare capitalLegal capital surplusOther capital surplusTotal capital surplusLegal retained earningsMillions of yenRetained earningsOther retained earningsRetained earnings broughtforwardTotal retained earningsTreasury sharesTotal shareholders’equity10,0002,3784,2466,62512121,18921,310-28837,646-0-0-2,0673,257-2,0673,257-2,0673,257-1024-1024−−-0-0−1,1901,190231,21310,0002,3784,2466,62512122,37922,500-26538,860Valuation and translation adjustmentsValuation difference onavailable-for-sale securities9,792Deferred gains or losses on hedgesRevaluation reserve for landTotal valuation and translationadjustmentsTotal net assets-1338,19017,84955,495Millions of yen34134110,1346969-64−−8,19041141118,260-2,0673,257-10244111,62457,120Balance at beginning of periodChanges during periodDividends of surplusProfitPurchase of treasury sharesDisposal of treasury sharesDisposal of treasury stock by ownership plan trustNet changes of items other than shareholders’equityTotal changes during periodBalance at end of periodBalance at beginning of periodChanges during periodDividends of surplusProfitPurchase of treasury sharesDisposal of treasury sharesDisposal of treasury stock by ownership plan trustNet changes of items other than shareholders’ equityTotal changes during periodBalance at end of period- 29 -[Translation]Notes to Non-Consolidated Financial Statements1.(1)Notes to Significant Accounting PoliciesStandards and methods for evaluating securities(i)(ii)(iii)(i)(ii)(iii)(i)Shares in subsidiaries and affiliates:Stated at cost using the moving-average methodAvailable-for-sale securities:Securities other than shares, etc. that do not have a market price:Market value methodShares, etc. that do not have a market price:M