ネットワンシステムズ（7518） – Disclosure on the Internet in conformity with Laws and Regulations and the Articles of Incorporations

May 31, 2022 To Our Shareholders: Disclosure on the Internet in conformity with Laws and Regulations and the Articles of Incorporations Main offices Status of employees Status of the Company’s share acquisition rights, etc. Consolidated statement of changes in net assets Notes to Consolidated Financial Statements Non-consolidated statement of changes in net assets Notes to Non-Consolidated Financial Statements For the 35th Fiscal Year April 1, 2021 to March 31, 2022 Net One Systems Co., Ltd. The Company provides this information to its shareholders by posting it on its website (https://www.netone.co.jp/) in accordance with the provisions of laws and regulations and the Articles of Incorporation. 1 Main offices (as of March 31, 2022) Company name Net One Systems Co., Ltd. Office name Head Office Kansai Branch Tennoz Office Hokkaido Branch Tohoku Branch Tsukuba Office Chubu Branch Toyota Office Hokuriku Office Hiroshima Office Takamatsu Office Kyushu Branch Okinawa Office Technical Center Net One Partners Co., Ltd. Net One Next Co., Ltd. eXtreak, Inc. Net One Asia Pte. Ltd. Net One Asia Sdn. Bhd. PT Net One Asia ARK Virtualization Pte. Ltd. Head Office Head Office Head Office Head Office Head Office Head Office Head Office Location Chiyoda-ku, Tokyo Yodogawa-ku, Osaka Shinagawa-ku, Tokyo Chuo-ku, Sapporo Aoba-ku, Sendai Tsukuba-shi, Ibaraki Naka-ku, Nagoya Toyota-shi, Aichi Kanazawa-shi, Ishikawa Naka-ku, Hiroshima Takamatsu-shi, Kagawa Hakata-ku, Fukuoka Naha-shi, Okinawa Shinagawa-ku, Tokyo Kariya-shi, Aichi Matsuyama-shi, Ehime Chiyoda-ku, Tokyo Chiyoda-ku, Tokyo Minato-ku, Tokyo Singapore Malaysia Indonesia Singapore Quality Assurance & Management Center Ota-ku, Tokyo Quality Assurance & Management Center West Branch Joto-ku, Osaka Kariya Satellite Office Matsuyama Satellite Office 2 Name of segment, etc. Number of employees Comparison to end of previous FY Total 2,703 Increase of 143 (Note) The number of employees includes individuals dispatched to the Group from outside the Group but excludes individuals dispatched outside the Group from the Group. (2) Number of employees of the Company Name of segment, etc. Number of employees Comparison to end of previous FY Status of employees (as of March 31, 2022) (1) Number of employees of the Corporate Group Enterprise Sector Telecom carrier Sector Public Sector Enterprise/Telecom carrier/Public common business Partner Sector (Net One Partners Co., Ltd.) Other Support services for maintenance and operation Unallocable (Common) Enterprise Sector Telecom carrier Sector Public Sector Enterprise /Telecom carrier/Public common business Partner Sector (Net One Partners Co., Ltd.) Support services for maintenance and operation Unallocable (Common) Total Other 361 175 448 569 181 127 335 507 361 175 448 466 – – 335 460 2,245 Decrease of 14 Increase of 28 Decrease of 14 Increase of 112 Increase of 3 Increase of 5 Increase of 31 Decrease of 8 Decrease of 14 Increase of 28 Decrease of 14 Increase of 97 – – Increase of 31 Increase of 27 Increase of 155 (Note) The number of employees includes individuals dispatched to the Company from other companies but excludes individuals dispatched from the Company to other companies. 3 Status of the Company’s share acquisition rights, etc. (1) Outline of share acquisition rights under the stock compensation-type stock options plan held by Executive Directors (excluding Outside Executive Directors) of the Company as of end of FY2021 Name (Date of resolution to issue) Number of owners Number of share acquisition rights Net One Systems Co., Ltd. FY2012 share acquisition rights (June 14, 2012) Net One Systems Co., Ltd. FY2013 share acquisition rights (June 13, 2013) Net One Systems Co., Ltd. FY2014 share acquisition rights (June 17, 2014) Net One Systems Co., Ltd. FY2015 share acquisition rights (June 16, 2015) Net One Systems Co., Ltd. FY2016 share acquisition rights (June 16, 2016) Net One Systems Co., Ltd. FY2017 share acquisition rights (June 15, 2017) Net One Systems Co., Ltd. FY2018 share acquisition rights (June 14, 2018) Net One Systems Co., Ltd. FY2019 share acquisition rights (June 13, 2019) 2 Executive Directors (excluding Outside Executive Directors) 2 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 3 Executive Directors (excluding Outside Executive Directors) 44 56 104 75 111 63 45 42 Class and number of shares to be issued upon the exercise of share acquisition rights Amount to be paid in for share acquisition rights Value of assets contributed upon the exercise of the share acquisition rights Effective period during which the share acquisition rights are exercisable Conditions for the exercise of share acquisition rights Remarks 4,400 shares of common stock of the Company 90,000 yen per share acquisition right 1 yen per share July 3, 2012 to July 2, 2042 (Note 1) (Note 2) 5,600 shares of common stock of the Company 62,700 yen per share acquisition right 1 yen per share July 2, 2013 to July 1, 2043 (Note 1) (Note 2) 10,400 shares of common stock of the Company 56,400 yen per share acquisition right 1 yen per share July 4, 2014 to July 3, 2044 (Note 1) (Note 3) 7,500 shares of common stock of the Company 71,700 yen per share acquisition right 1 yen per share July 3, 2015 to July 2, 2045 (Note 1) (Note 3) 11,100 shares of common stock of the Company 53,100 yen per share acquisition right 1 yen per share July 5, 2016 to July 4, 2046 (Note 1) (Note 3) 6,300 shares of common stock of the Company 101,400 yen per share acquisition right 1 yen per share July 4, 2017 to July 3, 2047 (Note 1) (Note 3) 4,500 shares of common stock of the Company 175,400 yen per share acquisition right 1 yen per share July 3, 2018 to July 2, 2048 (Note 1) (Note 4) 4,200 shares of common stock of the Company 287,200 yen per share acquisition right 1 yen per share July 2, 2019 to July 1, 2049 (Note 1) 4 Name (Date of resolution to issue) Number of owners Number of share acquisition rights Net One Systems Co., Ltd. FY2020 share acquisition rights (June 11, 2020) Net One Systems Co., Ltd. FY2021 share acquisition rights (June 23, 2021) 4 Executive Directors (excluding Outside Executive Directors) 4 Executive Directors (excluding Outside Executive Directors) 53 75 Class and number of shares to be issued upon the exercise of share acquisition rights Amount to be paid in for share acquisition rights Value of assets contributed upon the exercise of the share acquisition rights Effective period during which the share acquisition rights are exercisable Conditions for the exercise of share acquisition rights Remarks 5,300 shares of common stock of the Company 341,400 yen per share acquisition right 1 yen per share July 2, 2020 to July 1, 2050 (Note 1) (Note 5) 7,500 shares of common stock of the Company 344,600 yen per share acquisition right 1 yen per share July 13, 2021 to July 12, 2051 (Note 1) (Notes) 1. (1) Persons who have received allotment of share acquisition rights (herein, “Share Acquisition Right Holders”) may only execute the share acquisition rights as one lump transaction that shall be limited to the period from the day following the day on which any position of Director, Audit & Supervisory Board Member, Executive Officer or employee (excluding consigned employees) of the Company or the Company’s subsidiary during the exercise period of the share acquisition rights has been forfeited until the day on which ten days expire (if the tenth day falls on a holiday, then the next business day). (2) In the event that a Share Acquisition Right Holder dies while serving or being employed in any position of Director, Audit & Supervisory Board Member, Executive Officer or employee (excluding consigned employees) of the Company or the Company’s subsidiary, or between the period from the day following the day on which such position has been forfeited until the day on which ten days expire, the heir of that person may only execute the share acquisition rights as one lump transaction that shall be limited to the period from the day that follows the day on which that person died until the day on which six months expire. 2. The share acquisition rights owned by two (2) Executive Directors were granted prior to 3. The share acquisition rights owned by three (3) Executive Directors were granted prior to appointment as Executive Director. appointment as Executive Director. 4. The share acquisition rights owned by one (1) Executive Director out of three (3) Executive Directors were granted prior to appointment as Executive Director. 5. The share acquisition rights owned by one (1) Executive Director out of four (4) Executive Directors were granted prior to appointment as Executive Director. (2) Outline of share acquisition rights under the stock compensation-type stock options plan granted to employees, etc. during the current fiscal year Name (Date of resolution to issue) Number of grantees Number of share acquisition rights Class and number of shares to be issued upon the exercise of share acquisition rights Amount to be paid in for share acquisition rights Value of assets contributed upon the exercise of the share acquisition rights Effective period during which the share acquisition rights are exercisable Conditions for the exercise of share acquisition rights Net One Systems Co., Ltd. FY2021 share acquisition rights (June 23, 2021) 8 Vice Presidents 75 7,500 shares of common stock of the Company 344,600 yen per share acquisition right 1 yen per share July 13, 2021 to July 12, 2051 (Note) 5 (Notes) 1. Persons who have received allotment of share acquisition rights (herein, “Share Acquisition Right Holders”) may only execute the share acquisition rights as one lump transaction that shall be limited to the period from the day following the day on which any position of Director, Audit & Supervisory Board Member, Executive Officer or employee (excluding consigned employees) of the Company or the Company’s subsidiary during the exercise period of the share acquisition rights has been forfeited until the day on which ten days expire (if the tenth day falls on a holiday, then the next business day). 2. In the event that a Share Acquisition Right Holder dies while serving or being employed in any position of Director, Audit & Supervisory Board Member, Executive Officer or employee (excluding consigned employees) of the Company or the Company’s subsidiary, or between the period from the day following the day on which such position has been forfeited until the day on which ten days expire, the heir of that person may only execute the share acquisition rights as one lump transaction that shall be limited to the period from the day that follows the day on which that person died until the day on which six months expire. 6 Consolidated statement of changes in net assets (April 1, 2021 to March 31, 2022) Capital stock Capital surplus Retained earnings Treasury stock Shareholders’ equity (unit: million yen) Total shareholders’ equity 12,279 19,536 42,247 (987) 73,075 (638) (638) 12,279 19,536 41,608 (987) 72,436 (6,427) 11,225 (10,000) (10,000) (6,427) 11,225 – 172 – (7,656) 55 7,656 117 7,518 (7,518) – (82) (2,720) (2,226) (5,029) 12,279 19,453 38,888 (3,214) 67,406 Balance as of April 1, 2021 Cumulative effects of changes in accounting policies Balance as of April 1, 2021 reflecting changes in accounting policies Changes of items during the period Dividends from surplus Profit attributable to owners of parent Purchase of treasury stock Cancellation of treasury stock Disposal of treasury stock Transfer from retained earnings to capital surplus Net changes of items other than shareholders’ equity Total changes of items during the period Balance as of March 31, 2022 7 Balance as of April 1, 2021 Cumulative effects of changes in accounting policies Balance as of April 1, 2021 reflecting changes in accounting policies Changes of items during the period Dividends from surplus Profit attributable to owners of parent Purchase of treasury stock Cancellation of treasury stock Disposal of treasury stock Transfer from retained earnings to capital surplus Net changes of items other than shareholders’ equity Total changes of items during the period Balance as of March 31, 2022 Accumulated other comprehensive income Valuation difference on available-for-sale securities Deferred gains or losses on hedges Foreign currency translation adjustment Total accumulated other comprehens-ive income Share acquisition rights Non-controlling interests Total net assets 0 448 (10) 438 222 60 73,795 0 448 (10) 438 222 60 73,156 (638) (6,427) 11,225 (10,000) 172 – – (0) 530 (12) 518 (53) (44) 420 (0) 530 (12) 518 (53) (44) (4,608) – 978 (22) 956 168 15 68,547 8 Notes to consolidated financial statements (Significant matters related to the basis of preparation of consolidated financial statements) 1. Matters related to the scope of consolidation (1) Number of consolidated subsidiaries 7 companies Names of consolidated subsidiaries Net One Partners Co., Ltd. Net One Next Co., Ltd. eXtreak, Inc. Net One Asia Pte. Ltd. Net One Asia Sdn. Bhd. PT Net One Asia ARK Virtualization Pte. Ltd. PT Net One Asia changed its company name from PT SCALENOW SOLUSI. (2) Names, etc. of non-consolidated subsidiaries Names of non-consolidated subsidiaries Net One Connect G.K. Net One Business Operations G.K. Net One Systems USA, Inc. Net One Systems Singapore Pte. Ltd. (Reason for excluding from the consolidation) Those non-consolidated subsidiaries are small in size and their total assets, net sales, profit or loss for the Company’s equity interest, and retained earnings for the Company’s equity interest do not have a significant effect on the consolidated financial statements. 2. Matters related to application of equity method (1) Number of associates accounted for using equity method None (2) Non-consolidated subsidiaries (Net One Connect G.K., Net One Business Operations G.K., Net One Systems USA, Inc., Net One Systems Singapore Pte. Ltd.) are excluded from the scope of application of the equity method, as their profit or loss for the Company’s equity interest and retained earnings for the Company’s equity interest do not have a significant effect on the consolidated financial statements and their impact are immaterial as a whole. 3. Matters related to fiscal years of consolidated subsidiaries Of the consolidated subsidiaries, the closing dates for Net One Asia Pte. Ltd. and its subsidiaries Net One Asia Sdn. Bhd., PT Net One Asia and ARK Virtualization Pte. Ltd. fall on December 31. The consolidated financial statements are prepared using their financial statements as of the same date, and necessary adjustments are made to reflect significant transactions that occurred between their closing dates above and the consolidated balance sheet date. The closing dates for all the other consolidated subsidiaries are the same as the consolidated balance sheet date. 9 4. Matters related to accounting policies (1) Basis and method of valuation for significant assets I. Securities Available-for-sale securities Securities other than shares, etc. that do not have a market price Stated at market value. (Net unrealized holding gains or losses, net of the applicable income taxes, are directly included in a component of net assets. The cost of securities sold is measured by the moving average method.) Shares, etc. that do not have a market price Stated at cost based upon the moving average method. II. Derivatives Stated at market value III. Inventories Merchandise Costs on uncompleted construction contracts Stated at cost based upon the moving average method (The balance sheet amount is adjusted by writing down the book value where the profitability declines.) Stated at cost based upon the specific identification method (The balance sheet amount is adjusted by writing down the book value where the profitability declines.) (2) Depreciation method for significant depreciable assets I. Property, plant and equipment (excluding lease assets) II. Intangible assets (excluding lease assets) Declining balance method is applied for the Company and its consolidated subsidiaries in Japan. The major useful lives of assets are: Buildings 3 to 23 years Tools, furniture and fixtures 2 to 20 years Straight line method is applied for the Company and its consolidated subsidiaries in Japan. The major useful lives of assets are: Software for own use 3 to 5 years Software for sale 3 years 10 III. Lease assets Lease assets in finance leases that transfer ownership to the lessee Lease assets are depreciated using the same manner to the accounting for the non-current assets owned by the Company. Lease assets in finance leases that do not transfer ownership to the lessee Lease assets are depreciated using the straight line method over the corresponding lease terms as useful lives with their residual values to be zero. (3) Basis for significant reserves I. Allowance for doubtful accounts The Company and its consolidated subsidiaries recorded allowance for doubtful accounts to provide provision for possible losses on receivables, loans receivable, etc., by the historical uncollectible rate for ordinary receivables and with consideration of individual collectability of specific doubtful receivables from debtors in financial difficulties. II. Provision for bonuses The Company and its consolidated subsidiaries recorded provision for bonuses to accrue the amount for bonuses to employees of the Company for the fiscal year. III. Provision for directors’ bonuses The Company and its consolidated subsidiaries recorded provision for directors’ bonuses to accrue the amount for bonuses to Executive Directors and Audit & Supervisory Board Members of the Company for the fiscal year. (4) Recognition standard for significant revenues and expenses The Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020) and the “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 26, 2021) and recognized revenue when control of the promised goods or services is transferred to the customer or as they are transferred to the customer at the amount expected to be received in exchange for such goods or services. The major performance obligations in the major businesses of the Company and its consolidated subsidiaries and the usual time point at which revenue is recognized are described in the “Notes to revenue recognition.” (5) Other significant matters related to the basis of preparation of consolidated financial statements Japanese yen I. Bases for translation of significant foreign currency denominated assets and liabilities into Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the spot exchange rate on the closing date of the accounting period, with translation difference charged to profit or loss. Assets and liabilities of overseas subsidiaries are translated into yen at the spot exchange rate on the closing date of the overseas subsidiaries, while revenues and expenses are translated into yen at the average exchange rate during the period, and translation adjustments are included in foreign 11 currency translation adjustment and non-controlling interests. II. Significant hedge accounting method a. Hedge accounting method Deferral hedge accounting is applied. However, monetary claims and liabilities denominated in foreign currencies subject to forward exchange contracts are translated at the foreign exchange rates stipulated in the contract if the forward exchange contract satisfies the requirements for this treatment. (“Furiate-shori” method) b. Hedging instruments and hedged items Hedging instruments: Forward exchange contract Hedged items: Planned transactions denominated in foreign currencies c. Hedging policy The Company employs hedging instruments to manage risk exposure to fluctuations in foreign currency exchange rates for foreign currency denominated receivables and payables in connection with the purchase of operating assets in the future pursuant to the internal management regulations which define the transaction limit amount and the transaction authority. d. Assessment of hedge effectiveness Assessment of hedge effectiveness is omitted for foreign currency forward exchange contracts since their hedge relationship is deemed highly effective. III. Method and term of amortization of goodwill Depending on the source of occurrence, the amortization of goodwill is carried out within a five year period using the straight line method. (Note) Figures are rounded down to the nearest million yen. (Notes to changes in accounting policies) (Application of Accounting Standard for Revenue Recognition, etc.) Effective from the beginning of the fiscal year under review, the Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020; hereinafter the “Revenue Recognition Standard”) and other standards and has recognized revenue at the time when control of the promised goods or services is transferred to the customer in the amount expected to be received in exchange for those goods or services. As a result, although the Company previously recognized revenue at the time of shipment for certain sales, revenue from those sales is now recognized at the time of acceptance of goods or services. In addition, the Company has recognized revenue by calculating the transaction price for each unit of performance by distributing the entire project to appropriate prices. The Company has followed the transitional treatment prescribed in the proviso of Paragraph 84 of the Revenue Recognition Standard in applying the Revenue Recognition Standard and other standards. The cumulative effect of retrospective application of the new accounting policies to the period prior to the beginning of the fiscal year under review is added to or deducted from retained earnings at the beginning of the fiscal year under review, and the new accounting policies are applied from such beginning balance. However, the new accounting policies are not applied retrospectively to contracts for which almost all revenue amounts were recognized in accordance with the previous 12treatment prior to the beginning of the fiscal year under review by applying the method prescribed in Paragraph 86 of the Revenue Recognition Standard. In addition, the Company has applied the method prescribed in Paragraph 86 (1) of the Revenue Recognition Standard to account for contract modifications made prior to the beginning of the fiscal year under review based on the contract terms after reflecting all contract modifications, and the cumulative effect of such change has been added to or deducted from retained earnings at the beginning of the fiscal year under review. “Notes and account receivable-trade,” which was presented under “Current assets” in the consolidated balance sheet for the previous fiscal year, is included in “Notes and accounts receivable-trade, and contract assets” from the fiscal year under review. As a result, the beginning balance of retained earnings in the consolidated statement of changes in net assets decreased by 638 million yen due to the cumulative effect reflected on net assets at the beginning of the fiscal year under review. The effect of this change on profit and loss for the fiscal year under review is immaterial. (Application of Accounting Standard for Fair Value Measurement) Effective from the beginning of the fiscal year under review, the Company has applied the “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019; hereinafter “Fair Value Measurement Standard”) and other standards, and the Company decided to apply new accounting policy stipulated in the Fair Value Measurement Standard, etc. in accordance with the transitional treatment prescribed 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) prospectively. This change has no impact on the consolidated financial statements. In addition, notes on matters concerning the breakdown of financial instruments into the appropriate categories of fair value are provided in “Notes to financial instruments.” (Notes to changes in representation methods) (Consolidated balance sheet) “Short-term borrowings,” which was included in “Other” under “Current liabilities” in the previous fiscal year, is separately presented in the fiscal year under review due to its increased financial materiality. The amount of “Short-term borrowings” in the previous fiscal year was 2 million yen. (Notes to accounting estimates) (Deferred tax assets) (1) Amount recorded in the consolidated financial statements for the fiscal year under review Deferred tax assets 2,955 million yen (2) Information regarding details of important accounting estimates for identified items Deferred tax assets are recorded when taxable income can be sufficiently ensured based on future profit plans and deductible temporary differences are deemed collectable. As the collectability of deferred tax assets depends on estimates of future taxable income, if the precondition or assumption of such estimates changes, it may have a significant impact on the amount of deferred tax assets and income taxes-deferred, etc. for the consolidated financial statements of the following fiscal year. (Additional information) (Matters related to fraudulent transactions) In the fiscal year ended March 31, 2020, the Company has recognized that transactions without actual deliveries had been repeated since December 2014. Payables of 5,553 million yen arising from the cancellation of transactions, etc. related to the fraud are included in and presented as “Other” of “Current liabilities.” 13Since the settlements between the companies involved in the fraudulent transactions and the Company’s request for correction of income taxes, etc. have not been completed and lawsuits seeking compensation for damages, etc. from each company are still ongoing, the financial position and business performance of the Group may be affected depending on future circumstances. In the event that the Company is found liable in said lawsuits, the above current liabilities may be used to pay for damages and other liabilities. In addition, the Company received a notice of suit on October 28, 2020 by NS Solutions Corporation (hereinafter, the “defendant”) in the case where Mizuho-Toshiba Leasing Company, Limited (hereinafter, the “plaintiff”) made a penalty claim against the defendant. As stated in the notice of suit, the plaintiff claims penalties for cancellation of sales contracts of 10,926 million yen and damages for delay against the defendant, and if the defendant losses the penalty claim case, which resulted from involvement in transactions related to fraud by a former employee of the Company, the plaintiff shall exercise claims for compensation for loss or damage against the Company based on vicarious liability of the Company. With regard to this penalty claim case, the Company filed an application for assisting intervention on September 17, 2021. On June 11, 2021, the Securities and Exchange Surveillance Commission recommended that the Prime Minister and the Commissioner of the Financial Services Agency issue a payment order for a surcharge in the amount of 81 million yen against the Company pursuant to Article 20, Paragraph 1 of the Act for Establishment of the Financial Services Agency. Subsequently, on June 16, 2021, the Company received a notice of decision of commencement of hearing from the Commissioner of the Financial Services Agency. On June 23, 2021, the Company submitted a written answer to the Administrative Law Judges of the Financial Services Agency admitting the facts pertaining to the said surcharge and the amount of the surcharge to be paid. On August 5, 2021, the Company received a decision from the Commissioner of the Financial Services Agency ordering the payment of the surcharge, and in accordance with the decision on the payment order for a surcharge and the payment notice, the Company paid the surcharge to the national treasury on August 31, 2021. (Impact of COVID-19) Due to the spread of COVID-19, while remote work projects have increased, there were also delays in some projects. It does not currently have a significant effect on business of the Group, however, it is crucial that the future impact on the business is monitored. 1. Of notes and accounts receivable-trade, and contract assets, the amount of receivables arising from (Note to consolidated balance sheet) contracts with customers is as follows: Notes receivable-trade Accounts receivable-trade 685 million yen 50,411 million yen 2. Inventories and provision for loss on order received pertaining to order contracts that are expected to incur losses are offset. The amount of the provision for loss on order received offset against the inventories is as follows: Costs for uncompleted construction contracts 21 million yen 3. Total accumulated depreciation of property, plant and equipment 19,212 million yen The above accumulated depreciation includes accumulated impairment losses. 14(Note to consolidated statement of income) Revenue from contracts with customers Of net sales, the amounts of revenue from contracts with customers and revenue from other sources are as follows. Revenue from contracts with customers Revenue from other sources 186,780 million yen 1,740 million yen (Notes to consolidated statement of changes in net assets) 1. Class and number of issued shares as of March 31, 2022 Class of shares Common stock Number of shares as of March 31, 2022 83,267,300 shares 2. Items regarding dividends from surplus during FY2022 Date of resolution Record Date Effective date Total cash dividends (million yen) Cash dividend per share (yen) Class of shares Common stock Common stock June 23, 2021 Annual Shareholders Meeting November 4, 2021 Board of Directors Meeting 3,389 40.00 March 31, 2021 June 24, 2021 3,038 36.00 September 30, 2021 December 2, 2021 3. Among the dividends whose record date is within FY2022, those having effective date in FY2023 To be placed on the agenda of the Annual Shareholders Meeting scheduled for June 22, 2022. Date of declaration Record Date Effective date Class of shares Total cash dividends (million yen) Dividend resource Cash dividend per share (yen) Common stock 2,956 Retained earnings 36.00 March 31, 2022 June 23, 2022 June 22, 2022 Annual Shareholders Meeting 4. Class and number of shares to be issued upon the exercise of share acquisition rights (excluding those whose exercise period has not yet commenced) as of March 31, 2022 Class of shares Common stock Number of shares as of March 31, 2022 112,000 shares 15(Notes to financial instruments) 1. Status of financial instruments (1) Policy on treating financial instruments With regard to the fund management, the Net One Systems Group (the Group) utilizes highly secure financial assets for temporary surplus funds. Also, it is the Group’s policy to utilize derivatives to avoid foreign exchange fluctuation risks pertaining to operating receivables and payables denominated in foreign currencies and not to use derivatives for speculation. (2) Details of financial instruments, and risks and risk management system thereof Notes and accounts receivable-trade, which are operating receivables, and investments in leases are exposed to customer credit risks. To manage these risks, the status of collection of these receivables from counterparties is periodically monitored and the due dates and balances are managed for each counterparty pursuant to the internal management regulations; and efforts trying to identify at an early stage and reduce losses from doubtful accounts caused by their worsened financial positions are made. Investment securities, mainly consisted of stocks issued by companies with business relations, are exposed to fluctuation risks of the stock issuers’ financial positions. The Group periodically examines the issuers’ financial positions and continuously reviews the stock holdings in consideration of relationships with the issuers. Due dates of accounts payable-trade, which are operating debt, are within one year. Short-term borrowings are used for short-term business funds. Default risk of accounts payable-trade and short-term borrowings on due dates are managed by a timely fund management. Some of accounts payable-trade are denominated in foreign currencies and exposed to foreign exchange fluctuation risks, but these risks are hedged by forward exchange contracts. Derivatives adopted are forward exchange contracts used for the purpose of hedging foreign exchange fluctuation risks arising from operating receivables and payables denominated in foreign currencies. The basic policy on derivatives is determined by the Board of Directors, and the Finance Department executes and manages derivative transactions pursuant to the internal management regulations which define the transaction limit amount and the transaction authority. Regarding hedging instruments and hedged items, hedging policy and method of assessing hedge effectiveness in hedge accounting, please refer to the aforementioned (5) II. “Significant hedge accounting method” in “Significant matters related to the basis of preparation of consolidated financial statements, 4. Matters related to accounting policies.” (3) Supplementary explanation to matters regarding fair values of financial instruments The contracted amounts related to derivatives, mentioned in “2. Matters regarding fair values of financial instruments,” in themselves, should not be considered indicative of the market risks associated with the derivatives. 162. Matters regarding fair values of financial instruments Consolidated balance sheet amounts and fair values as of March 31, 2022, and their variances, of financial instruments, are as follows. Shares, etc. that do not have a market price (the consolidated balance sheet amount of 147 million yen) are not included. Cash is not included in the notes, and deposits, notes and accounts receivable-trade, accounts payable-trade, and short-term borrowings are also not included in the notes because they are settled in a short period of time and their market value approximates their book value. (unit: million yen) Fair value (*) Variance (1) Investments in leases (2) Lease obligations (3) Derivatives 15,694 (22,765) 978 (357) 269 – (*1) The figures in parentheses indicate those posted in liabilities. (*2) Net receivables and payables arising from derivatives are presented on a net basis. Consolidated balance sheet amount (*) 16,051 (23,035) 978 (Note) 1. A description of the valuation technique(s) and inputs used in the fair value measurements The fair value of financial instruments is classified into the following three levels according to the observability and materiality of inputs used to measure fair value. Level 1 fair value: Fair value measured using observable inputs, i.e. quoted prices in active markets for assets or liabilities that are the subject of the measurement. Level 2 fair value: Fair value measured using observable inputs other than Level 1 inputs. Level 3 fair value: Fair value measured using unobservable inputs. If multiple inputs are used that are significant to the fair value measurement, the fair value measurement is categorized in its entirety in the level of the lowest level input that is significant to the entire measurement. (1) Investments in leases The fair value is the discounted present value of total principal and interest using an assumed interest rate on equivalent new lease transactions, and is classified as Level 2. (2) Lease obligations The total amount of lease obligations (current liabilities) and lease obligations (non-current liabilities) is presented. The fair value is the discounted present value of total principal and interest using an assumed interest rate on equivalent new lease transactions, and is classified as Level 2. (3) Derivatives I. Derivatives to which hedge accounting is not applied: None. II. Derivatives to which hedge accounting is applied: Contracted amounts or notional amounts defined in contracts as of consolidated balance sheet date for each hedge accounting method are as follows: 17Hedge accounting method Type of derivatives Major hedged items Contracted amounts Deferral hedge Sold forward accounting method exchange contracts –U.S. -British Accounts dollar receivable-trade 172 pound Accounts sterling receivable-trade -Singapore Accounts dollars receivable-trade 12 3 Accounts Accounts Accounts Purchased forward exchange contracts –U.S. exchange contracts –U.S. Purchased forward exchange contracts –U.S. (unit: million yen) As of March 31, 2022 Of the contracted amounts, those over 1 year Fair value Fair value measurement method Based on prices provided by counterparty financial (0) institutions and classified as Level 2 – – – 0 (0) dollar payable-trade 25,080 – 978 “Furiate-shori” Sold forward method dollar receivable-trade 407 – (*) dollar payable-trade 7,789 – (*) (*) Forward exchange contracts under designated hedge accounting (“Furiate-shori”) method are 33,465 Total 978 – accounted for together with accounts payable-trade designated as a hedged item, their fair values are included in the corresponding amount of accounts payable-trade. (Note) 2. Scheduled redemption amounts of monetary claims after the consolidated balance sheet date Within 1 year Cash and deposits Notes and accounts receivable-trade Investments in leases Total (unit: million yen) Over 1 year within 5 years – Over 5 years within 10 years – – 10,620 10,620 – 88 88 20,281 51,362 5,343 76,987 18(Note) 3. Scheduled repayment amounts of lease obligations after the consolidated balance sheet date Lease obligations Total (unit: million yen) Within 1 year Over 1 year within 5 years 14,279 Over 5 years within 10 years 113 14,279 113 8,642 8,642 (Note regarding per share information) Net assets per share Profit per share 832.48 yen 134.15 yen (Note regarding significant subsequent events) Not applicable (Notes to revenue recognition) 1. Disaggregation of revenue from contracts with customers Reportable segment ENT Sector SP Sector PUB Sector Partner Sector Other Total Subtotal (Note 1) (unit: million yen) Net sales Equipment Service Revenue from contracts with customers Revenue from other sources Net sales to outside customers 18,249 25,067 25,892 34,012 103,221 1,389 104,611 28,334 17,845 31,068 6,189 83,438 470 83,908 45,363 42,887 56,467 40,200 184,919 1,860 186,780 1,220 24 493 1 1,740 – 1,740 46,583 42,912 56,961 40,201 186,660 1,860 188,520 (Notes) 1. “Other” is a business segment that is not included in the reportable segments and includes the Global Sector, etc. 2. Revenue from other sources mainly includes lease revenues based on the “Accounting Standard for Lease Transactions.” 192. Useful information in understanding revenue The Group provides services in two product groups, the equipment product group and the service product group, in four reportable segments: ENT Sector, SP Sector, PUB Sector, and Partner Sector. For the equipment product group, the Company sells to customers purchased products such as networks and platforms that comprise ICT systems. Since delivery of products to customers is a performance obligation, the Company judges that the performance obligation is satisfied at the time of customer acceptance and recognizes revenue at that point. For the service product group, the Company mainly provides support services and design/construction services for systems that combine equipment handled in the equipment product group. For system design/construction, the Company judges that the performance obligation is satisfied when provision of the design, performance verification, and/or configuration services is completed and acceptance has been received from the customer, and recognizes revenue at that point. For system maintenance/operation, cloud services, and capital services, the Company recognizes revenue as performance obligations that are satisfied over a certain period of time because their services are routine or recurring. The Company also provides services that combine the above two product groups. In the case of combined services of equipment products and system design/construction included in one contract, the Company identifies them as a single performance obligation and recognizes revenue accordingly. In the case of combined services that include system maintenance/operation, cloud services, and capital services, the Company identifies the performance obligation to be satisfied at a point in time and the performance obligation to be satisfied over a certain period of time separately and recognizes revenue accordingly. The Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to the customer. In the case of a combined service that involves both performance obligation satisfied at a point in time and performance obligation satisfied over a certain period of time, to allocate the transaction price to each performance obligation in proportion to the stand-alone selling prices, the Group calculates the stand-alone selling prices of the separate goods or services underlying each performance obligation in the contract and allocates the transaction price in proportion to such stand-alone selling prices. If a stand-alone selling price is not directly observable, it is estimated. For the equipment and service product groups, the stand-alone selling price is the price calculated by the approach of adding an amount equal to profit to the expected cost. For combined services, the transaction price is calculated by subtracting discounts, etc. from the amount determined through negotiations with the customers, and is allocated based on the stand-alone selling price calculated for each performance obligation. Payments are received at the normal due date after satisfying the performance obligation, according to the payment terms stipulated in each contract. In cases where consideration is received in the form of advance payment prior to the satisfaction of a performance obligation in accordance with the terms of the contract depending on the customer and other conditions, advances received is recorded. There are no variable considerations, non-cash considerations, or significant financial elements in the calculation of transaction prices. 203. Useful information in understanding revenue for the current and subsequent fiscal years (1) Balance of contract assets and contract liabilities, etc. The balances of receivables and contract liabilities arising from contracts with customers are as follows. Fiscal year under review Receivables from contracts with customers (beginning balance) Receivables from contracts with customers (ending balance) Contract liabilities (beginning balance) Contract liabilities (ending balance) 62,801 million yen 51,097 million yen 17,068 million yen 18,858 million yen In the consolidated balance sheet, receivables arising from contracts with customers are included in notes and accounts receivable-trade, and contract assets, while contract liabilities are included in advances received. The amount of revenue recognized in the fiscal year under review that was included in contract liabilities as of the beginning of the period was 9,302 million yen. The amount of revenue recognized in the fiscal year under review from performance obligations that were satisfied (or partially satisfied) in prior periods is not material. (2) Transaction price allocated to the remaining performance obligations The total transaction price allocated to the remaining performance obligations and the time frame the Company expects to recognize the amount as revenue are as follows. Fiscal year under review Within one year Over one year and within two years Over two years and within three years Over three years Total (Other notes) Notes to impairment losses 103,668 million yen 13,754 million yen 9,164 million yen 12,573 million yen 139,160 million yen In the fiscal year under review, the Group recognized impairment losses on the following assets. Location Purpose of use Type Impairment loss Shinagawa-ku, Tokyo Software for in-house use Software Singapore Assets for the Global Sector operations Buildings; tools, furniture and fixtures; software; and other intangible assets 462 million yen 118 million yen The Group considers assets used for network-related business in Japan as a single asset group because all assets generate cash flow together. The Global Sector operations of Net One Asia Pte. Ltd. and its subsidiaries is grouped individually. Of the software for in-house use held by the Company, the Company evaluated the recoverable amount of assets that are not expected to be used in the future as zero, and recorded the book value of 462 million yen as an extraordinary loss. In the Global Sector, the Company has assessed the recoverable amount of non-current assets held 21by Net One Asia Pte. Ltd. and its subsidiaries for which no future cash flow is expected as zero because they have continued to incur operating losses since the previous fiscal year. As a result, an unamortized balance of 118 million yen was recognized as an extraordinary loss. The breakdown of impairment losses is as follows: I. Software for in-house use II. Assets for the Global Sector operations Software Buildings Software Total Tools, furniture and fixtures Other intangible assets 462 million yen 17 million yen 34 million yen 0 million yen 66 million yen 118 million yen 22Non-consolidated statement of changes in net assets (April 1, 2021 to March 31, 2022) Shareholders’ equity Capital surplus Capital stock Legal capital surplus Other capital surplus Total capital surplus Retained earnings Other retained earnings (Note 1) Total retained earnings Legal retained earnings Treasury stock Valuation and translation adjustments (Note 2) Total share- holders’ equity Share acquisition rights Total net assets 12,279 19,453 82 19,536 86 32,380 32,467 (987) 63,295 9 222 63,526 (unit: million yen) (638) (638) (638) (638) 12,279 19,453 82 19,536 86 31,741 31,828 (987) 62,656 9 222 62,887 – – – (6,427) (6,427) (6,427) 8,802 8,802 8,802 (10,000) (10,000) 7,656 – – (6,427) 8,802 (10,000) – 172 – (7,656) (7,656) 55 55 117 172 7,518 7,518 (7,518) (7,518) – (12) (53) (66) – – (82) (82) – (5,143) (5,143) (2,226) (7,452) (12) (53) (7,518) 12,279 19,453 – 19,453 86 26,598 26,685 (3,214) 55,203 (3) 168 55,369 Balance as of April 1, 2021 Cumulative effects of changes in accounting policies Balance as of April 1, 2021 reflecting changes in accounting policies Changes of items during the period Provision of general reserve Dividends from surplus Profit Purchase of treasury stock Cancellation of treasury stock Disposal of treasury stock Transfer from retained earnings to capital surplus Net changes of items other than shareholders’ equity Total changes of items during the period Balance as of March 31, 2022 23(Note) 1. Details of other retained earnings General reserve Retained earnings brought forward Total (unit: million yen) (Note) 2. Details of Valuation and translation adjustments Valuation difference on available-for-sale securities Deferred gains or losses on hedges Total (unit: million yen) 10,850 (638) 10,211 (1,340) (6,427) 8,802 (7,518) (6,483) 3,728 9 9 (12) (12) (3) 32,380 (638) 31,741 – (6,427) 8,802 (7,518) (5,143) 26,598 9 9 (12) (12) (3) Balance as of April 1, 2021 Cumulative effects of changes in accounting policies Balance as of April 1, 2021 reflecting changes in accounting policies Changes of items during the period Provision of general reserve Dividends from surplus Profit Transfer from retained earnings to capital surplus Total changes of items during the period Balance as of March 31, 2022 Balance as of April 1, 2021 Cumulative effects of changes in accounting policies Balance as of April 1, 2021 reflecting changes in accounting policies Changes of items during the period Net changes of items other than shareholders’ equity Total changes of items during the period Balance as of March 31, 2022 21,530 21,530 1,340 1,340 22,870 0 0 (0) (0) – 24Notes to non-consolidated financial statements (Significant accounting policies) 1. Basis and method of valuation for assets (1) Securities I. Subsidiaries and affiliates II. Available-for-sale securities Securities other than shares, etc. that do not have a market price Shares, etc. that do not have a market price Stated at cost based upon the moving average method. (2) Derivatives (3) Inventories I. Merchandise II. Costs for uncompleted construction contracts Stated at cost based upon the moving average method Stated at market value. (Net unrealized holding gains or losses, net of the applicable income taxes, are directly included in a component of net assets. The cost of securities sold is measured by the moving average method.) Stated at market value Stated at cost based upon the moving average method (The balance sheet amount is adjusted by writing down the book value where the profitability declines.) Stated at cost based upon the specific identification method (The balance sheet amount is adjusted by writing down the book value where the profitability declines.) 2. Depreciation method for non-current assets (1) Property, plant and equipment (excluding lease assets) Declining balance method is applied. The major useful lives of assets are: Buildings 3 to 23 years Tools, furniture and fixtures 2 to 20 years Straight line method is applied. The major useful-lives of assets are: Software for own use Software for sale 5 years 3 years (2) Intangible assets (excluding lease assets) 25(3) Lease assets I. Lease assets in finance leases that transfer ownership to the lessee Lease assets are depreciated using the same manner to the accounting for the non-current assets owned by the Company. II. Lease assets in finance leases that do not transfer ownership to the lessee Lease assets are depreciated using the straight line method over the corresponding lease terms as useful lives with their residual values to be zero. 3. Basis for reserves (1) Allowance for doubtful accounts Allowance for doubtful accounts is recorded to provide provisions for possible losses on receivables based on the historical uncollectible rate for ordinary receivables and on an estimate of individual collectability of specific doubtful receivables from debtors in financial difficulties. (2) Provision for bonuses Provision for bonuses is recorded to accrue the amount for bonuses to employees of the Company for the fiscal year. (3) Provision for directors’ bonuses Provision for directors’ bonuses is recorded to accrue the amount for bonuses to Executive Directors and Audit & Supervisory Board Members of the Company for the fiscal year. 4. Recognition standard for revenues and expenses The Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020) and the “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 26, 2021) and recognized revenue when control of the promised goods or services is transferred to the customer or as they are transferred to the customer at the amount expected to be received in exchange for such goods or services. The major performance obligations in the major businesses of the Company and the usual time point at which revenue is recognized are described in the “Notes to consolidated financial statements, (Notes to revenue recognition).” 5. Other significant matters related to the basis of preparation of non-consolidated financial statements (1) Bases for translation of foreign currency denominated assets and liabilities into Japanese yen Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the spot exchange rate on the closing date of the accounting period, with translation difference charged to profit or loss. (2) Significant hedge accounting method I. Hedge accounting method Deferral hedge accounting is applied. However, monetary claims and liabilities denominated in foreign currencies subject to forward exchange contracts are translated at the foreign exchange rates stipulated in the contract if the forward exchange contract satisfies the requirements for this treatment. (“Furiate-shori”) II. Hedging instruments and hedged items Hedging instruments: Forward exchange contract Hedged items: Planned transactions denominated in foreign currencies 26 III. Hedging policy The Company employs hedging instruments to manage risk exposure to fluctuations in foreign currency exchange rates for foreign currency denominated receivables and payables in connection with the purchase of operating assets in the future pursuant to the internal management regulations which define the transaction limit amount and the transaction authority. IV. Assessment of hedge effectiveness Assessment of hedge effectiveness is omitted for foreign currency forward exchange contracts since their hedge relationship is deemed highly effective. (Note) Figures are rounded down to the nearest million yen. (Notes to changes in accounting policies) (Application of Accounting Standard for Revenue Recognition, etc.) Effective from the beginning of the fiscal year under review, the Company has applied the “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 31, 2020; hereinafter the “Revenue Recognition Standard”) and other standards and has recognized revenue at the time when control of the promised goods or services is transferred to the customer in the amount expected to be received in exchange for those goods or services. As a result, although the Company previously recognized revenue at the time of shipment for certain sales, revenue from those sales is now recognized at the time of acceptance of goods or services. In addition, the Company has recognized revenue by calculating the transaction price for each unit of performance by distributing the entire project to appropriate prices. The Company has followed the transitional treatment prescribed in the proviso of Paragraph 84 of the Revenue Recognition Standard in applying the Revenue Recognition Standard and other standards. The cumulative effect of retrospective application of the new accounting policies to the period prior to the beginning of the fiscal year under review is added to or deducted from retained earnings at the beginning of the fiscal year under review, and the new accounting policies are applied from such beginning balance. However, the new accounting policies are not applied retrospectively to contracts for which almost all revenue amounts were recognized in accordance with the previous treatment prior to the beginning of the fiscal year under review by applying the method prescribed in Paragraph 86 of the Revenue Recognition Standard. In addition, the Company has applied the method prescribed in Paragraph 86 (1) of the Revenue Recognition Standard to account for contract modifications made prior to the beginning of the fiscal year under review based on the contract terms after reflecting all contract modifications, and the cumulative effect of such change has been added to or deducted from retained earnings at the beginning of the fiscal year under review. As a result, the beginning balance of retained earnings in the non-consolidated statement of changes in net assets decreased by 638 million yen due to the cumulative effect reflected on net assets at the beginning of the fiscal year under review. The effect of this change on profit and loss for the fiscal year under review is immaterial. (Application of Accounting Standard for Fair Value Measurement) Effective from the beginning of the fiscal year under review, the Company has applied the “Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019; hereinafter “Fair Value Measurement Standard”) and other standards, and the Company decided to apply new accounting policy stipulated in the Fair Value Measurement Standard, etc. in accordance with the transitional treatment prescribed 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) prospectively. This change has no impact on the non-consolidated financial statements. 27(Notes to accounting estimates) (Deferred tax assets) (1) Amount recorded in the non-consolidated financial statements for the fiscal year under review Deferred tax assets 2,176 million yen (2) Information regarding details of important accounting estimates for identified items Deferred tax assets are recorded when taxable income can be sufficiently ensured based on future profit plans and deductible temporary differences are deemed collectable. As the collectability of deferred tax assets depends on estimates of future taxable income, if the precondition or assumption of such estimates changes, it may have a significant impact on the amount of deferred tax assets and income taxes-deferred, etc. for the non-consolidated financial statements of the following fiscal year. (Additional information) (Matters related to fraudulent transactions) This note has been omitted as it is the same as described under “Notes to consolidated financial statements, Additional information, (Matters related to fraudulent transactions)” above. (Notes to non-consolidated balance sheet) 1. Total accumulated depreciation of property, plant and equipment 18,160 million yen 2. Monetary claims and liabilities to subsidiaries and associates Short-term monetary claims Short-term monetary liabilities 12,553 million yen 4,322 million yen 3. Guarantee of obligations of subsidiaries and associates A guarantee is offered for the following subsidiary’s obligation to its specified supplier. Net One Partners Co., Ltd. 2,935 million yen (Note to non-consolidated statement of income) Transactions with subsidiaries and associates Transactions relating to the Company’s operation Net sales Purchase Selling, general and administrative expenses Transactions not relating to the Company’s operation (Note to non-consolidated statement of changes in net assets) Class and number of treasury shares as of March 31, 2022 784 million yen 16,620 million yen 1,984 million yen 1,360 million yen Class of shares Common stock Number of shares as of March 31, 2022 1,147,475 28(Notes regarding tax effect accounting) 1. Breakdown of major reason for deferred tax assets and deferred tax liabilities (as of March 31, 2022) (unit: million yen) Deferred tax assets Provision for bonuses Depreciation for tools, furniture and fixtures Accounts receivable-other Accrued enterprise tax Asset retirement obligations Software Loss on valuation of investment securities Loss on valuation of inventories Loss on fraudulent transactions Other Sub-total deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities Asset retirement cost Total deferred tax liabilities Net deferred tax assets 684 774 164 74 249 53 95 6 1,581 1,264 4,947 (2,651) 2,296 (119) (119) 2,176 Extraordinary losses of 1,581 million yen and other in current assets and current liabilities of 644 million yen that occurred due to the cancellation of transactions related to wrongful act are included in the valuation allowance of negative 2,651 million yen. 2. Breakdown of significant items that lead to a significant difference between statutory tax rate and effective tax rate after adoption of tax effect accounting This note has been omitted as the difference between the statutory tax rate and the effective tax rate after adoption of tax effect accounting is 5% or less of the statutory tax rate. 29(Notes regarding transactions with related parties) Subsidiaries Classification Company name Relationship Transaction Account Amount of transaction Percent