[Translation for Reference Purposes Only]
Please note that the following is an unofficial English translation of the Japanese original text of the Notice of Convocation of the 116th Ordinary General Meeting of Shareholders of Akebono Brake Industry Co., Ltd. The Company provides this translation for reference purposes only and without any warranty as to its accuracy or otherwise. In the event of any discrepancy between this translation and the Japanese original, the latter shall prevail.
Securities Code: 7238 May 31, 2017 To Shareholders with Voting Rights Akebono Brake Industry Co., Ltd. 19-5, Nihonbashi Koami-cho, Chuo-ku, Tokyo Chairman, President & CEO Hisataka Nobumoto
NOTICE OF CONVOCATION OF THE 116TH ORDINARY GENERAL MEETING OF SHAREHOLDERS
Akebono Brake Industry Co., Ltd. (the “Company”) cordially invites you to attend the 116th Ordinary General Meeting of Shareholders, to be held as set forth below. If you are unable to attend the meeting in person, you can still exercise your voting rights by mail or via the Internet. Please refer to the “Exercise of Voting Rights” on page 2 and exercise your voting rights after reading the “Reference Documents for the General Meeting of Shareholders” contained herein by 5:40 p.m. June 15 (Thursday), 2017.
1. Date and Time June 16 (Friday), 2017, at 10:00 a.m. (Reception will open at 9:00 a.m.) 2. Place COREDO Muromachi 1, Nihonbashi Mitsui Hall (Reception desk: 4th floor, Meeting venue: 5th floor) 2-2-1, Nihonbashi Muromachi, Chuo-ku, Tokyo
3. Purpose of the Meeting Matters to be Reported (1) Business Report and Consolidated Financial Statements, as well as Results of the Audits of the Consolidated Financial Statements by the Independent Auditor and the Audit & Supervisory Board for the 121st Business Term (From April 1, 2016 to March 31, 2017) (2) Non-Consolidated Financial Statements for the 121st Business Term (From April 1, 2016 to March 31, 2017) Matters to be Resolved Proposal No. 1: Reduction of Legal Capital Surplus and Appropriation of Surplus Proposal No. 2: Election of Five (5) Directors Proposal No. 3: Election of One (1) Audit & Supervisory Board Member Proposal No. 4: Continuation of Policy toward Bulk Purchase of Shares and Other Securities
・ Should any revisions be made to the Reference Documents for the General Meeting of Shareholders, Business Report, Consolidated Financial Statements and/or Non-Consolidated Financial Statements, such revisions will be posted on the Company’s website on the Internet (http://www.akebono-brake.com/english/ir).
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Exercise of Voting Rights
The right to vote is an important right that allows the shareholders to participate in the running of the Company. We ask that shareholders exercise their voting rights after referring to the “Reference Documents for the General Meeting of Shareholders.”
Shareholders who will attend the meeting When you attend the meeting, you are requested to present the enclosed Voting Rights Exercise Form at the reception desk upon arrival at the meeting.
To save paper resources, we request that you bring this booklet with you when attending the meeting. * Attending the meeting by proxy When shareholders exercise their voting rights by proxy, that voting rights may be exercised by one other shareholder of the Company who possesses voting rights. In such a case, however, it is a condition that either the Voting Rights Exercise Form, or a document that can provide proof of identity (copy of certificate of seal impression, driver’s license, etc.) be submitted together with a letter of consent that contains the signature or seal of the entrusting shareholder.
Date and Time: June 16 (Friday), 2017 at 10:00 a.m.
Shareholders who will not attend the meeting If you are unable to attend the meeting, you can exercise your voting rights by writing or on the Internet. Exercising Voting Rights by Mail Please indicate your agreement or disagreement with respective proposals on the enclosed Voting Rights Exercise Form and send it by mail to us. Please note the no indication of agreement or disagreement with respective proposals shall be deemed to be an indication of “agreement” to the proposals of the Company. Deadline for Exercising Voting Rights: To arrive no later than 5:40 p.m. on June 15 (Thursday), 2017.
Exercising Voting Rights via the Internet Please access the site for exercising voting rights (http://www.evote.jp/) from your computer or smartphone, and enter your vote for each proposal following instructions on screen. (Not available from 2:00 a.m. to 5:00 a.m.) Deadline for Exercising Voting Rights: No later than 5:40 p.m. on June 15 (Thursday), 2017.
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REFERENCE DOCUMENTS FOR THE GENERAL MEETING OF SHAREHOLDERS
Proposals and Reference Matters
Proposal No. 1: Reduction of Legal Capital Surplus and Appropriation of Surplus
The Company has recorded a deficit of ¥19,184,500,332 in retained earnings brought forward for the non-consolidated accounts for the fiscal year ended March 31, 2017. Therefore, the amount of legal capital surplus shall be reduced and surplus appropriated with the aims of offsetting the deficit of retained earnings brought forward and establishing a framework for enabling resumption of dividend payments as early as possible.
1. Matters Regarding Reduction of Legal Capital Surplus This will involve reducing the amount of legal capital surplus and transferring that amount to other capital surplus, as stipulated under Article 448, Paragraph 1 of the Companies Act. (1) The account to be decreased within capital surplus and amount thereof Legal capital surplus: ¥4,992,712,461 (2) The account to be increased within capital surplus and amount thereof Other capital surplus: ¥4,992,712,461
2. Matters Regarding Appropriation of Surplus Appropriation to offset the deficit is to involve transferring an amount of ¥14,145,213,902 of other capital surplus upon having made the transfer as described in section 1, above, to retained earnings brought forward, as stipulated under Article 452 of the Companies Act. (1) The account to be decreased within surplus and amount thereof Other capital surplus: ¥14,145,213,902 (2) The account to be increased within surplus and amount thereof Retained earnings brought forward: ¥14,145,213,902
3. Effective date of Reduction of legal capital surplus and appropriation of surplus June 16, 2017
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Proposal No. 2: Election of Five (5) Directors Term of office of six (6) Directors, Hisataka Nobumoto, Yoshimasa Ogino, Kazuo Matsumoto, Kanji Miyajima, Kunio Ito and Takuo Tsurushima will expire at the close of this Ordinary General Meeting of Shareholders. Accordingly, the Company proposes the election of five (5) Directors. The details of the candidates for directors are as follows: Brief Personal History, Assignments and Position in Number of the Name No. the Company, and any Important Representation of Company’s (Date of Birth) Other Entities Shares Held April 1973 Joined Ducellier-Bendix-Air Equipment S.A. (France) June 1977 Joined the Company June 1983 Director, the Company June 1984 Managing Director, the Company June 1985 Senior Managing Director, the Company June 1986 Representative Director & Vice President, the Company 934,250 1 October 1986 Chairman, President, Ambrake shares Corporation (Now Akebono Brake Hisataka Corporation) Nobumoto June 1990 Representative Director & President, the (May 9, 1949) Company June 1994 Representative Director, Chairman, President & CEO, the Company (Current) April 2000 Executive Officer, Chairman, President & CEO, the Company (Current) [Reason for selecting Hisataka Nobumoto as the candidate for director] Hisataka Nobumoto has long stood at the helm of the management of the Company and through his accomplishments of expanding the scale of business through various measures, he has built Akebono Group to what it is today. The Company once again nominates him as a candidate for Director because of the extensive experience and in-depth insight in the management of a global corporation that he thus far holds, and because he is essential for the enhancement of the corporate value as a leader who can steer Akebono Group through the rapidly changing business environment.
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Brief Personal History, Assignments and Position in Number of the Name No. the Company, and any Important Representation of Company’s (Date of Birth) Other Entities Shares Held April 1975 Joined ITOCHU Corporation July 2004 Joined the Company, Advisor December 2004 In-charge, Finance & Accounting Division April 2005 Managing Executive Officer, the Company June 2005 Director and CFO of the Company April 2006 Senior Managing Executive Officer, the Company February 2007 Executive Vice President, the Company (Current) August 2008 Representative Director, the Company (Current) July 2009 Officer-in-charge, Planning & 23,457 2 Administration, the Company (Current) shares April 2011 Assistant to the President & CEO, the Yoshimasa Ogino Company (Current) (June 3, 1950) May 2011 Chairman, Akebono Brake Corporation January 2012 Chairman, Akebono Europe S.A.S. (Current) April 2015 Chairman, President & CEO, Akebono Brake Corporation January 2016 CFO (Current) [Assignments in the Company] Assistant to the President & CEO Officer-in-charge, Planning & Administration, CFO [Any Important Representation of Other Entities] Chairman, Akebono Europe S.A.S. [Reason for selecting Yoshimasa Ogino as the candidate for director] Yoshimasa Ogino has thus far served as a corporate leader in a broad range of positions and fields including CFO, corporate planning, finance & accounting, and planning & administration, and he has contributed to the expansion of scale of enterprise and growth of the Company through the development of various businesses with a global focus. The Company once again nominates him as a candidate for Director because the extensive experience and in-depth insight that he thus far holds is deemed essential for the enhancement of the corporate value of Akebono Group.
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Brief Personal History, Assignments and Position in Number of the Name No. the Company, and any Important Representation of Company’s (Date of Birth) Other Entities Shares Held April 1977 Joined the Company January 2007 Executive Officer Status, the Company January 2010 Managing Executive Officer Status, the Company President & CEO, Akebono Brake Corporation November 2011 Managing Executive Officer, the Company April 2012 Head of the Production Planning Division July 2012 CEO, Akebono Europe S.A.S. January 2013 Officer-in-charge, Manufacturing
June 2013 Director, the Company
Senior Managing Executive Officer, the Company 43,513 3 August 2014 President, PT. Akebono Brake Astra shares Indonesia Kazuo Matsumoto September 2015 In-charge, Asian Operations (Current) (September 3, 1952) January 2016 Head of the Global Manufacturing Planning Division February 2016 In-charge, Investment Strategy Planning Office (Current) June 2016 Representative Director, the Company (Current) Executive Officer, Vice President, the Company (Current) Overall Manufacturing (Current) [Assignments in the Company] Overall Manufacturing, In-charge, Investment Strategy Planning Office, In-charge, Asian Operations [Reason for selecting Kazuo Matsumoto as the candidate for director] Kazuo Matsumoto has intimate knowledge of the overall manufacturing business from the abundant experience he has in the Company, specifically in the manufacturing divisions. In addition he has served as the officer in charge of multiple overseas manufacturing bases, giving him comprehensive overall knowledge of Akebono Group’s manufacturing activities with a global focus. The Company once again nominates him as a candidate for Director because it expects to utilize this experience and knowledge to strengthen the effectiveness of the decisions and supervisory functions of Directors.
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Brief Personal History, Assignments and Position in Number of the Name No. the Company, and any Important Representation of Company’s (Date of Birth) Other Entities Shares Held April 1980 Lecturer, Faculty of Commerce and Management, Hitotsubashi University April 1984 Assistant Professor, Hitotsubashi University April 1992 Professor, Hitotsubashi University August 2002 Dean of the Graduate School of Commerce and Management/Faculty of Commerce and Management, Hitotsubashi University December 2004 Vice President/Director, Hitotsubashi University June 2005 Outside Director, the Company (Current) December 2006 Professor, Faculty of Commerce and
Management/Graduate School of
Commerce and Management, Hitotsubashi University Kunio Ito April 2015 Adjunct Professor, Graduate School of Commerce and Management, 11,900 4 (December 13, 1951) A candidate for Hitotsubashi University (Current) shares Outside Director Director, Center for CFO Education and A candidate for Research, Hitotsubashi University Independent Officer (Current) [Attendance at Meetings Specially Appointed Professor, Chuo of the Board of Directors] Graduate School of Strategic 13 of 13 meetings Management (Current) (100%) [Any Important Representation of Other Entities] Adjunct Professor, Graduate School of Commerce and Management, Hitotsubashi University Director, Center for CFO Education and Research, Hitotsubashi University Specially Appointed Professor, Chuo Graduate School of Strategic Management Outside Director, Sumitomo Chemical Company, Limited Outside Director, KOBAYASHI PHARMACEUTICAL CO., LTD. Outside Director, Seven & i Holdings Co., Ltd. Outside Director, Toray Industries, Inc. [Reason for selecting Kunio Ito as the candidate for outside director] Kunio Ito has long-standing experience as a university professor (management and accounting) and experience as an outside officer at various companies. The Company requests his reelection on the expectation of benefiting from his valuable advice on a wide range of topics. Although he thus far has no experience in the management of a company other than as an outside officer, the Company judges him capable of appropriately executing duties as an Outside Director from a viewpoint of supervision and the review of management based on his experience and performance as a well-known university professor whose area of expertise is finance and management.
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Brief Personal History, Assignments and Position in Number of the Name No. the Company, and any Important Representation of Company’s (Date of Birth) Other Entities Shares Held September 1961 Joined Tokyo Stock Exchange May 1990 Executive Board Member, Tokyo Stock
Exchange
May 1991 Director, Tokyo Stock Exchange May 1994 Executive Director, Tokyo Stock Exchange May 1997 Executive Vice President, Tokyo Stock Takuo Tsurushima Exchange 1,963 5 (February 11, 1938) November 2001 Corporate Advisor, Tokyo Stock shares A candidate for Exchange, Inc. Outside Director June 2002 President & CEO, Japan Securities A candidate for Independent Officer Clearing Corporation
[Attendance at Meetings April 2004 President & CEO, Tokyo Stock of the Board of Directors] Exchange, Inc. 13 of 13 meetings December 2005 Resigned President & CEO, Tokyo Stock (100%) Exchange, Inc. June 2007 Outside Director, the Company (Current) [Reason for selecting Takuo Tsurushima as the candidate for outside director] Takuo Tsurushima has served as representative director in other entities and holds extensive insight and experience in corporate management. The Company requests his reelection on the expectation of benefitting from his valuable advice on a wide range of topics including advice from a perspective of investors.
Notes: 1. There is no special interest between any of the candidates and the Company. 2. Kunio Ito and Takuo Tsurushima are candidates for outside directors. The Company has registered them as independent officers to the Tokyo Stock Exchange under the regulations of the said Exchange. The Company intends to keep them registered as independent officers if their reappointment as outside directors is approved. 3. Kunio Ito and Takuo Tsurushima are incumbent outside directors of the Company and their term of office as outside directors at the close of this Ordinary General Meeting of Shareholders will have been 12 years for Kunio Ito and 10 years for Takuo Tsurushima. Please refer to (4) “Matters related to Outside Directors and Officers” on page 18 of the Business Report for the status of the main activities of both Kunio Ito and Takuo Tsurushima in the fiscal year under review. 4. Kunio Ito and Takuo Tsurushima were not aware of the improper accounting disclosed by the Company in November 2015, but have performed the duties of Outside Directors, continuing to advise the Company on improvement of internal controls and strengthening compliance functions, and advising on ways to prevent a recurrence after the incident became known. 5. Kunio Ito and Takuo Tsurushima have concluded agreements with the Company for limiting their liabilities that are planned to be renewed if their reappointment as outside directors is approved. Effective after entering into these agreements, should an outside director or an outside Audit & Supervisory Board Member bear any liability arising from his/her act or omission and such outside director or outside Audit & Supervisory Board Member performed his/her duty in good faith and without gross negligence in relation to such act or omission, his/her liabilities shall be limited to an amount equal to the higher of
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¥1 million or the minimum amount of his/her obligation as stipulated under Article 425, Paragraph 1 of the Companies Act. 6. The number of the Company’s shares held by any of the candidates includes shares he holds through the Officers’ Shareholding Association of the Company.
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(Reference)
Standard Regarding the Independence of Outside Officers
Akebono Brake Industry Co., Ltd. (the “Company”) sets forth the Standard Regarding the Independence of Outside Officers of the Company as detailed below. The Outside Officers of the Company shall not fall under any of the standard below. 1. A person who is or has previously been an executive (Note 1) of Akebono Group 2. A major shareholder of the Company (Note 2) 3. A person to whom Akebono Group is a major business counterparty (Note 3), or, when such a person is a corporation, an executive of the corporation (Note 1) 4. A person who is a major business counterparty of Akebono Group (Note 4), or, when such a person is a corporation, an executive of the corporation (Note 1) 5. A certified public accountant (or a tax accountant) who belongs to the independent auditor of Akebono Group, or an employee who belongs to an auditing firm (or a tax accounting firm) 6. A consultant, an accounting specialist such as a certified public accountant, or a legal expert such as attorney at law, who receives from Akebono Group a significant amount of money or other assets (Note 5) other than remuneration for officer (when a person who receives such assets is an organization such as a corporation or an association, a person who belongs to such organization) 7. A person or an executive thereof (Note 1) who receives a large amount of donation (Note 6) from Akebono Group 8. A close relative (Note 8) of an important person (Note 7) among those who fall under any of 2. to 7. above 9. A person who in the past three years has fell under any of 2. to 8. 10. Other person who is reasonably judged to be in circumstances under which he or she is unable to fulfill his or her duties as an Outside Officer Provided, however, that, if a person who falls under any of 1. to 9. and if the Company judges that the said person is qualified to become an Outside Officer of the Company in view of his or her personality, insight and other attributes, the Company may elect the said person as an Outside Officer on the condition that the reason why the Company judges that the said person is qualified as an Outside Director is publicly explained.
Notes: 1. An ”executive” refers to an executive as defined in Item 6, Paragraph 3, Article 2 of the Ordinance for Enforcement of the Companies Act, and means an executive director, an executive officer, a corporate officer and an employee who executes the business of an equity-method company (if an employee is a corporation, or other person who executes duties stated in Paragraph 1, Article 598 of the Companies Act, or a person equivalent to such person), a person who executes the business of a corporation other than a company or an organization, and an employee (a staff, etc.) of a corporation including a company or an organization. 2. A “major shareholder” means a shareholder who holds 10% and more of the voting rights of the Company or an executive of such shareholder. 3. A “person to whom Akebono Group is a major business counterparty” means a person for whom transactions of the business counterparty’s group to Akebono Group in the most recent fiscal year amount to more than 2% of the consolidated net sales of the business counterparty.
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4. A “person who is a major business counterparty of Akebono Group” means a person for whom the transactions of Akebono Group to the business counterparty’s group amounts to more than 2% of the consolidated net sales of Akebono Group. 5. A “significant amount of money or other assets” means that the total amount of the value amounts to ¥10 million or more in the most recent fiscal year in the case of an individual, and, in case of an organization, more than 2% of the consolidated net sales in the most recent fiscal year. 6. A “significant amount of donation” means that the average annual donation amounts to ¥10 million or more in the past three years. 7. An “important person” means an officer or a person with a managerial position of each company or business counterparty in the case of an executive in 2., 3., 4. and 7. above, and a public accountant who belongs to an auditing firm or an attorney at law who belongs to a law firm in the case of a person who belongs to an organization in 5. and 6. above. 8. A “close relative” means a spouse or persons within the second degree of consanguinity.
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Proposal No. 3: Election of One (1) Audit & Supervisory Board Member
Term of office of Audit & Supervisory Board Member Takeshi Okumura will expire at the close of this Ordinary General Meeting of Shareholders. Accordingly, the Company proposes the election of one (1) Audit & Supervisory Board Member. This proposal has already been approved by the Audit & Supervisory Board. The details of the candidate for Audit & Supervisory Board Member are as follows:
Number of the Name Brief Personal History and Position in the Company, Company’s (Date of Birth) and any Important Representation of Other Entities Shares Held April 1977 Joined the Company February 1999 Group Leader, ICAT Group, Strategy Planning Division (General Manager) January 2006 General Manager, Research Strategy Office, Akebono Research & Development Centre Ltd.
January 2008 General Manager, Ikegami Laboratory, Akebono Research & Development Centre Ltd. January 2009 Deputy General Manager, New Product 12,900 Frontiers Pioneering Department, R&D shares Division Hiroshi Ikegami January 2010 General Manager, Legal & Intellectual (August 18, 1954) Property Department
New candidate July 2014 Senior Manager, Legal & Intellectual
Property Department January 2016 Research Engineer, Akebono Research & Development Centre Ltd. (Current) January 2017 Senior Manager, Legal & Intellectual Property Department, Legal & General Affairs Group (Current) [Reason for selecting Hiroshi Ikegami as the candidate for Audit & Supervisory Board Member] Hiroshi Ikegami has extensive knowledge in technological fields including research and development, as well as administrative fields such as legal and compliance, and the Company proposes to elect him as Audit & Supervisory Board Member because it expects he can perform his duties appropriately as a full-time Audit & Supervisory Board Member.
Note: There is no special interest between the candidate and the Company.
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Proposal No. 4: Continuation of Policy toward Bulk Purchase of Shares and Other Securities
At the meeting of the Company’s board of directors held on May 7, 2007, the Company determined a basic policy regarding what and how a person in control of decisions on the Company’s financial and business policies should be (hereinafter referred to as the “Basic Policy”) and adopted a policy toward any possible bulk purchases of shares and other securities of the Company (hereinafter referred to as the “Plan”) as an effort to prevent the Company’s financial and business policies from being controlled by a person who is inappropriate in accordance with the Basic Policy, which was approved by the shareholders at the Company’s 106th annual general meeting of shareholders held on June 21, 2007. The continuance of the Plan has been also approved by the shareholders at the Company’s annual general meetings of shareholders held after the said general meeting of shareholders.
We are pleased to inform you that, in response to the termination of the Plan as at the close of the Company’s 116th annual general meeting of shareholders (hereinafter referred to as the “Annual General Meeting of Shareholders”), the Company determined, at the meeting of its board of directors held on May 11, 2017, to continue the Plan, upon receiving the unanimous approval of all the seven (7) directors, including the three (3) outside directors. However, the Plan will be continued on the condition precedent that, at the Annual General Meeting of Shareholders, the agenda for approval of the continuation of the Plan shall be approved by a resolution of the shareholders.
This proposal asks the shareholders to approve the Plan. The details of the Plan are described below. Regarding the basic policies, please refer to the “Business Report for the 121st Business Term” on the pages from 26 to 28.
All the five (5) audit & supervisory board members of the Company, including the three (3) outside audit & supervisory board members, expressed their opinion in favor of the continuation of the Plan on the condition that the Plan be executed fairly.
1. Application of the Plan The Plan applies to any purchase of Shares and Other Securities3 of the Company by a Group of Shareholders1 with the intent to hold twenty percent (20%) or more of the Voting Rights Ratio2 of the Company, or any purchase of Shares and Other Securities of the Company resulting in a Group of Shareholders holding twenty percent (20%) or more of the Voting Rights Ratio of the Company (we do not make any distinction based on specific means of purchase, such as market transactions or tender offers); however, the Plan shall not apply to purchases to which the board of directors of the Company has given prior consent.
Any such purchase to which the Plan is applied shall be hereinafter referred to as a “Bulk Purchase” and a person that conducts a Bulk Purchase shall be hereinafter referred to as a “Bulk Purchaser.”
Notes 1 A Group of Shareholders shall mean: (i) a Holder (including a person deemed as a holder pursuant to Paragraph 3, Article 27-23 of the Financial Instruments and Exchange Law. The same shall apply hereinafter) and any Joint Holders (provided in Paragraph 5, Article 27-23 of the Financial Instruments and Exchange Law, including a person deemed as a Joint Holder pursuant to Paragraph 6 thereof. The same shall apply hereinafter) of Shares and Other Securities (provided in Paragraph 1, Article 27-23 of the
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Financial Instruments and Exchange Law) of the Company, and a person who has a certain relationship, which is similar to the relationship between a Holder and a Joint Holder, with such Holder or a Joint Holder in respect of such Holder (hereinafter referred to as a “Semi-joint Holder”); or (ii) a person who makes purchases, etc. (provided in Paragraph 1, Article 27-2 of the Financial Instruments and Exchange Law, including any purchase, etc. made on a financial instruments exchange market, regardless of whether or not such purchase, etc. is made by the auction method) of the Shares and Other Securities (provided in Paragraph 1, Article 27-2 of the Financial Instruments and Exchange Law) and a Special Affiliate (provided in Paragraph 7, Article 27-2 of the Financial Instruments and Exchange Law) of such person. 2 Voting Rights Ratio shall mean: (i) in the case of Note 1 (i) above, the ratio obtained by adding (i) the Share Holding Ratio (provided in Paragraph 4, Article 27-23 of the Financial Instruments and Exchange Law; in this case, the number of Shares and Other Securities Held (the number of Shares and Other Securities Held as provided in the same Paragraph; the same shall apply hereinafter) of the Joint Holders in respect of the holder shall be taken into consideration in calculation) of the holder of the Shares and Other Securities of the Company to (ii) the Share Holding Ratio of the Semi-joint holder in respect of such Holder (however, in the addition of (i) to (ii), the number of Shares and Other Securities Held reflected both in (i) and (ii) shall be deducted); or (ii) in the case of Note 1(ii) above, the amount of the sum of the Shareholding Ratio (provided in Paragraph 8, Article 27-2 of the Financial Instruments and Exchange Law) of such Bulk Purchaser and its Special Affiliates. Further, in calculating the Share Holding Ratio and the Shareholding Ratio, the annual report, the quarterly report or the treasury stock purchase report of the Company, whichever document has been most recently submitted to the authorities, may be referred to in deciding the Total Number of Voting Rights (provided in Paragraph 8, Article 27-2 of the Financial Instruments and Exchange Law) or Total Number of Issued Shares (provided in Paragraph 4, Article 27-23 of the Financial Instruments and Exchange Law). 3 Shares and Other Securities shall mean Shares and Other Securities as provided in Paragraph 1, Article 27-23 of the Financial Instruments and Exchange Law.
2. Details of the Bulk Purchase Rules (1) Outline of the Bulk Purchase Rules The Bulk Purchase Rules, upon a Bulk Purchase, require that (i) a Bulk Purchaser provide, in advance, necessary and sufficient information regarding the Bulk Purchase, (ii) the board of directors of the Company secure time to collect information on and discuss the relevant Bulk Purchase, (iii) after conducting (ii), the board of directors of the Company offer a plan of the management of the Company or alternative plans, etc. to the shareholders of the Company and negotiate with the Bulk Purchaser, and establish the procedure that (iv) the Company hold a general meeting of shareholders to confirm the intention of the shareholders of the Company on whether or not to take countermeasures against the relevant Bulk Purchase and secure the opportunity to confirm the intentions of such shareholders of the Company. The Bulk Purchase Rules require the Bulk Purchaser not to commence the Bulk Purchase until the completion of the procedures of (i) through (iv) above.
(2) Provision of Information A Bulk Purchaser is required, in advance of the conduct of the Bulk Purchase, to submit to the Representative Director of the Company a “declaration letter” to observe the Bulk Purchase Rules, which shall specify the name, address, law governing the incorporation, name of the
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representative, contact details in Japan of the Bulk Purchaser and an outline of the proposed Bulk Purchase, and in addition, a Bulk Purchaser is required to provide the board of directors of the Company with necessary and sufficient information (hereinafter referred to as the “Necessary Information”) to allow shareholders of the Company to make their decision and the board of directors of the Company to form its opinion.
Within ten (10) business days after receipt of such declaration letter, the board of directors of the Company will deliver to the Bulk Purchaser a list of the Necessary Information to be provided by the relevant Bulk Purchaser. If the relevant information is considered to fall short of the Necessary Information as a result of the board of directors’ examination of the information provided by the Bulk Purchaser and consultation with outside experts independent of the board of directors of the Company as necessary, the board of directors of the Company will require the Bulk Purchaser to provide additional information until the Company has received all of the Necessary Information.
Details of the Necessary Information may differ according to the attribute of the Bulk Purchaser and the purpose and details of the Bulk Purchase; however, items to be generally included as Necessary Information shall be as follows:
(i) An outline (including information relating to the substance of the business of the Bulk Purchaser, capital structure and experience in businesses similar to the Company’s business or the Group’s business) of the Bulk Purchaser and its group (including Joint Holders, Semi-joint Holders and Special Affiliates); (ii) The purpose and substance of the Bulk Purchase (including amounts/type of the consideration of the purchase, etc., timing of the purchase, etc., structure of related transactions, and legality of the means of purchase, etc., feasibility of purchase, etc. and related transactions); (iii) The basis for the calculation of the proposed purchase price for Shares and Other Securities of the Company and financial resources backing the purchase (includes specific names of the financial backers (including substantial backers), financing methods, and substance of related transactions); (iv) The candidates for the management team (including information regarding experience at businesses similar to business of the Company and the Group), management policy, business plan, financial plan, capital policy, distribution policy, policy of utilization of assets, etc. (hereinafter referred to as the “Management Policy after Purchase”) expected after the Bulk Purchaser participates in the management of the Company’s business and the Group’s business; and (v) The substance of changes, if any, in the Company’s and the Group’s relationship with stakeholders, such as business partners, customers, employees, etc., that the Bulk Purchaser plans after the completion of the Bulk Purchase.
We will disclose at the time the board of directors of the Company considers appropriate all or part of the fact that a Bulk Purchase was proposed and the Necessary Information provided to the board of directors of the Company, if such disclosure is considered necessary for the shareholders of the Company to make their decisions.
(3) Assessment period for the board of directors of the Company Subsequent to the Bulk Purchaser completing its provision of the Necessary Information, the board of directors of the Company shall set a period equal to sixty (60) days (in the case of a purchase of all the shares of the Company by way of a tender offer for only cash in yen) or a period equal to ninety (90) days (in the case of other Bulk Purchases), which is necessary for the board of directors of the Company to assess, examine, negotiate, form an opinion and seek alternative plans (hereinafter referred to as the “Board Assessment Period”). In the event the
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Necessary Information is completely provided, the board of directors of the Company shall promptly disclose such fact and the expiration date of the Board Assessment Period.
During the Board Assessment Period, the board of directors of the Company shall thoroughly assess and examine the Necessary Information it receives, with advice from outside experts independent of the board of directors of the Company as necessary, and shall carefully form and disclose its opinion. In addition, the board of directors of the Company may negotiate with the Bulk Purchaser in order to improve the terms of the proposed Bulk Purchase or may offer alternative plans to shareholders of the Company, in the capacity of the board of directors of the Company, as necessary.
(4) Confirmation of Intent of Shareholders at General Meetings of Shareholders of the Company In the event that a Bulk Purchaser observes the Bulk Purchase Rules, the board of directors of the Company shall, in principle, promptly convene, after expiration of the Board Assessment Period and in accordance with the procedures set forth below, a general meeting of shareholders of the Company (hereinafter referred to as the “General Meeting of Shareholders for Confirmation of Shareholders’ Intent”) to determine whether or not any countermeasures should be taken against the relevant Bulk Purchase.
In the case, however, the board of directors of the Company considers it appropriate to leave the decision on whether or not a Bulk Purchase shall be accepted to the shareholders, then the board of directors of the Company shall be entitled to determine not to hold the General Meeting of Shareholders for Confirmation of Shareholders’ Intent (in this case, the board of directors of the Company shall take no countermeasures against the relevant Bulk Purchase).
(i) The board of directors of the Company shall give a public notice in accordance with the method prescribed in the Articles of Incorporation of the Company to designate the reference date (hereinafter referred to as the “Reference Date”) for the purpose of determination of such shareholders of the Company which may be able to exercise voting rights at the General Meeting of Shareholders for Confirmation of Shareholders’ Intent. Such notice shall be given two (2) weeks or more prior to the Reference Date. (ii) The shareholders of the Company entitled to exercise their voting rights at the General Meeting of the Shareholders for Confirmation of Shareholders’ Intent shall be those stated or recorded in the register of the shareholders of the Company as of the end of Reference Date. (iii) The board of directors of the Company shall announce the details of countermeasures, for which the decision on the commencement shall be made by the shareholders of the Company at the General Meeting of Shareholders for Confirmation of Shareholders’ Intent, upon prior determination thereof. (iv) Resolutions at a General Meeting of Shareholders for Confirmation of Shareholders’ Intent shall be adopted by the majority of the voting rights of such shareholders present at the same general meeting of shareholders which may represent at least one third of the total number of the exercisable voting rights of the Company in accordance with the applicable laws and the provisions of Article 43 of the Articles of Incorporation of the Company. (v) A Bulk Purchaser shall not commence the purchase of Shares and Other Securities of the Company until such time as the General Meeting of Shareholders for Confirmation of Shareholders’ Intent may have ended. (In the case that the purchase of Shares and Other Securities of the Company is commenced under the relevant Bulk Purchase before a General Meeting of Shareholders for Confirmation of Shareholders’ Intent has ended, then the board of directors of the Company shall be entitled to suspend the holding of the General Meeting of Shareholders for
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Confirmation of Shareholders’ Intent and execute any of the countermeasures under a resolution adopted only by the board of directors of the Company.) (vi) In the case of the occurrence of any material change in the information, etc. to be used by the shareholders of the Company for the exercise of their voting rights at a General Meeting of Shareholders for Confirmation of Shareholders’ Intent, the board of directors of the Company shall be entitled to change the Reference Date or defer the date for or cancel the holding of a General Meeting of Shareholders for Confirmation of Shareholders’ Intent even after it may have established the Reference Date.
3. In the event a Bulk Purchaser observes the Bulk Purchase Rules If a Bulk Purchaser observes the Bulk Purchase Rules, the board of directors of the Company, as stated above, unless a resolution that approves the commencement of taking any countermeasures is made at a General Meeting of Shareholders for Confirmation of Shareholders’ Intent, will not take countermeasures against the Bulk Purchase.
4. In the event a Bulk Purchaser does not observe the Bulk Purchase Rules If a Bulk Purchaser does not observe the Bulk Purchase Rules, regardless of the specific method of purchase, the board of directors of the Company may take countermeasures against the Bulk Purchase to protect the common interests of the shareholders of the Company. Countermeasures include the issuance of subscription rights to shares or any other measures that the board of directors of the Company is permitted to take under the Corporation Law or other applicable laws and the Articles of Incorporation of the Company. The board of directors of the Company shall decide whether or not a Bulk Purchaser observes the Bulk Purchase Rules and whether it is appropriate to take countermeasures by taking into account the opinions of outside experts, etc. independent of the board of directors of the Company.
The board of directors of the Company will adopt the specific countermeasures that it considers most appropriate at that time. The outline of allotment of subscription rights to shares without consideration as a specific countermeasure shall be as described in Exhibit 1 attached hereto.
Even in the event that a Bulk Purchaser does not observe the Bulk Purchase Rules, the board of directors of the Company may hold a General Meeting of Shareholders for Confirmation of Shareholders’ Intent in accordance with the outline as set forth in III 2 (4) above, with the intent of respecting the intentions of the shareholders of the Company to let them make a decision on whether or not to commence the countermeasures.
5. Influence, etc. on Shareholders and Investors (1) Influence, etc. of Adoption and Continuation of the Plan on Shareholders and Investors The purpose of the Plan is to provide the shareholders of the Company with (i) the information necessary for them to determine whether or not to accept a Bulk Purchase and (ii) the opinion of the board of directors of the Company that is actually in charge of the Company’s management, as well as to ensure that the shareholders of the Company have opportunities to receive any alternative plans and ultimately, to let the shareholders of the Company as of the time of the proposal of the Bulk Purchase directly make decisions on whether or not to commence countermeasures. We believe that under the Plan, the shareholders of the Company, with sufficient information, will be able to make appropriate decisions as to whether or not to accept the Bulk Purchase, whereby the corporate value of the Company and the value of the shareholders of the Company shall be ensured and improved. Accordingly, we believe that the adoption and continuation of the Plan is a prerequisite for appropriate investment decisions of the shareholders of the Company and investors and is in the interest of the shareholders of the Company and investors.
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It is advisable that the shareholders of the Company and investors pay attention to any actions by a Bulk Purchaser, because the policy of the Company toward a Bulk Purchase will differ depending on whether or not a Bulk Purchaser observes the Bulk Purchase Rules, as described in 3 and 4 above.
(2) Influence, etc. of Countermeasures on Shareholders and Investors In a certain case, such as the case in which a Bulk Purchaser does not observe the Bulk Purchase Rules, the board of directors of the Company may take countermeasures, which the board of directors is permitted to take under the Corporation Law or other applicable laws and the Articles of Incorporation of the Company, to protect the common interests of the shareholders of the Company. However, with the structure of the countermeasures, we do not expect that taking such countermeasures will cause any legal or economic damage or loss to the shareholders of the Company (excluding any Bulk Purchaser who does not observe the Bulk Purchase Rules and any Bulk Purchaser for whom the shareholders of the Company at a General Meeting of Shareholders for Confirmation of Shareholders’ Intent make a decision to the effect that it is appropriate to take countermeasures). For example, we do not expect that, in the case a resolution to issue the subscription rights to shares by way of allotment of subscription rights to shares without consideration as a specific countermeasure, it will withdraw such resolution after the ex-rights date concerning such allotment of subscription rights to shares without consideration. When the board of directors of the Company elects to take any specific countermeasure, the board of directors will make appropriate disclosure in a timely manner in accordance with the applicable laws, regulations and stock exchange rules.
(3) Procedure Required of Shareholders upon Commencement of Countermeasures a. Procedures for Stating or Recording in the Register of Shareholders In the event that allotment of subscription rights to shares without consideration is to be made by the Company as a countermeasure against a Bulk Purchase in accordance with a resolution adopted either by the board of directors of the Company or a General Meeting of Shareholders for Confirmation of Shareholders’ Intent, the Company shall give a public notice of the allotment date relating to the relevant allotment of subscription rights to shares without consideration. In order that the shareholders of the Company may receive the allotment of subscription rights to shares, the shareholders of the Company are required to be stated or recorded in the register of the shareholders of the Company as of the end of the allotment date, because the shareholders stated or recorded in the register of the shareholders of the Company as of the end of the allotment date shall be entitled to allotment of subscription rights to shares without consideration.
b. Procedures for Exercise of Share Acquisition Rights In the event that any resolution is adopted on allotment of subscription rights to shares without consideration either by the board of directors of the Company or at a General Meeting of Shareholders for Confirmation of Shareholders’ Intent, the Company shall mail to the shareholders stated or recorded in the register of the shareholders of the Company as of the end of the allotment date the application form (the form prescribed by the Company which shall set forth the contents and number, etc. of the subscription rights to shares and a statement to confirm that the relevant shareholder belongs to no Group of Shareholders) and any other documents necessary for exercise of the subscription rights to shares. After completion of allotment of subscription rights to shares without consideration, the shareholders of the Company are expected to submit such documents to the Company within the exercise period and to pay to the payment agents of the Company the amount equal to one (1) yen or more per one (1) subscription right to shares as determined by the board of directors of the Company at the time of the resolution on allotment of subscription rights to
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shares without consideration, and then a certain number of the shares of the Company separately determined by the board of directors of the Company per one (1) subscription right to shares will be issued to such shareholders.
c. Procedure for the Company to Acquire the Share Acquisition Rights In the event that the board of directors of the Company has adopted a resolution to acquire the subscription rights to shares, the Company shall acquire the subscription rights to shares as of the date to be separately determined by the board of directors of the Company under the applicable laws and regulations. If the Company is to deliver the equity shares of the Company to the shareholders of the Company in exchange for the subscription rights to shares, such delivery of the shares shall promptly be made by the Company. In such case, the shareholder may be expected to separately submit to the Company such document in the form prescribed by the Company which may be set forth in a sentence to confirm that the shareholder belongs to no Group of Shareholders, etc. Also, in order to deliver the equity shares of the Company to the shareholders of the Company in exchange for the subscription rights to shares, the Company may ask the shareholders to provide to the Company the information on their accounts in which book-entry shares are to be recorded.
Please note that the details, etc. of the method of allotment and exercise of the new share acquisition rights by the shareholders and the method of acquisition by the Company of the subscription rights to shares will be disclosed or notified to the shareholders of the Company after a resolution on the countermeasures against any Bulk Purchase is adopted by the board of directors of the Company.
6. Period of validity of the Plan In the event that, at the Annual General Meeting of Shareholders, the agenda for approval of the continuation of the Plan, are approved by resolutions, the period of validity of the Plan will be extended until the close of the Company’s 117th annual general meeting of shareholders to be held on or before June 30, 2018. However, if the Plan is approved to be continued at the 117th annual general meeting of shareholders, the effective term of the Plan will be extended for another one (1) year and the same shall apply thereafter. If the continuation of the Plan is approved, the board of directors of the Company shall promptly notify the shareholders of such fact.
However, even before the expiration of the period of validity, the Plan may be abolished upon a resolution of a general meeting of shareholders of the Company or of the board of directors of the Company. In addition, from the viewpoint of protection of the common interests of the shareholders of the Company, the Plan will be reviewed from time to time, taking into consideration improvement of related laws and regulations and the listing system of the Tokyo Stock Exchange, and may be changed upon the approval of a general meeting of shareholders of the Company. However, technical modifications to the Plan associated with the amendment or abolishment of related laws, regulations and stock exchange rules, etc. may be made upon a resolution adopted by a meeting of the Company’s board of directors. In case of any such change or modification, the board of directors of the Company will promptly notify the shareholders of the contents of such change or modification.
Since the period of validity of the Plan is approximately one (1) year up until the close of the Company’s 117th annual general meeting of shareholders, unless the board of directors submits the agenda for approval of the continuation of the Plan to the said annual general meeting of shareholders, the Plan will not be extended and therefore will lose its effect; otherwise, the Plan may be abolished upon a resolution of a general meeting of shareholders of the Company or the board of directors of the Company before the expiration of the period of validity. Further, with respect to the Plan, if agreed to in advance by the board of directors, the application of the Plan to specific purchase of Shares and Other Securities of the Company may be eliminated. From the above-mentioned facts, the Plan falls under neither the dead-hand type take-over defense plan (the
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take-over defense plan under which the commencement of countermeasures may not be prevented even though the majority of the members of the board of directors is replaced) nor the slow-hand type take-over defense plan (the take-over defense plan under which the members of the board of directors may not be replaced at once and therefore it takes time to prevent the commencement of countermeasures).
The major shareholders of the Company as of March 31, 2017 are as described in “Business Report for the 121st Business Term” on the page 13.
7. The Plan is consistent with the Basic Policy, does not damage the common interests of the shareholders of the Company and does not pursue the maintenance of the status of directors of the Company, and reasons therefor (1) The Plan will comply with the Basic Policy The Plan sets forth matters such as the substance of the Bulk Purchase Rules, the policy toward a Bulk Purchase, and the influence on shareholders and investors.
In the Plan, it is stipulated that a Bulk Purchaser is required to provide the board of directors of the Company in advance with all necessary and sufficient information concerning the Bulk Purchase and that it may commence the relevant Bulk Purchase only after a certain assessment period for the board of directors of the Company has elapsed and the board of directors has directly confirmed the intention of the shareholders of the Company on whether or not to take countermeasures at the General Meeting of Shareholders for Confirmation of Shareholders’ Intent, and that the board of directors of the Company may take countermeasures against any Bulk Purchaser who does not observe these rules.
In addition, it is stipulated that, (i) if a Bulk Purchaser observes the Bulk Purchase rules, whether or not to commence countermeasures against the Bulk Purchase shall be determined, in principle, based on the decision-making of the shareholders of the Company at the General Meeting of Shareholders for Confirmation of Shareholders’ Intent, and that (ii) unless a resolution that approves the commencement of countermeasures is made, the board of directors of the Company shall not take countermeasures against the Bulk Purchase.
As set forth above, the Plan is consistent with the Basic Policy.
(2) The Plan does not damage the common interests of shareholders of the Company As described in I, the Basic Policy is based on the assumption that the common interests of shareholders of the Company should be respected. The Plan is established in consistent with the Basic Policy and is intended to ensure that shareholders of the Company have the opportunity to be provided with the information necessary to decide whether or not to accept a Bulk Purchase, the opinion and alternative plans of the board of directors of the Company, and ultimately to let the shareholders of the Company as of the time of the proposal of the Bulk Purchase make a decision on whether or not to take countermeasures. Because the shareholders of the Company and investors can make proper investment judgments through the Plan, it does not damage the common interests of the shareholders of the Company, but rather contributes in securing their interests.
In addition, we believe that the facts that (i) the effectuation and extension of the Plan depend on the approval of shareholders of the Company and that (ii) the shareholders can abolish the Plan if they desire ensure that the Plan does not damage the common interests of shareholders of the Company.
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(3) The Plan does not pursue the maintenance of the status of directors The Plan, with a broad principle that leaves the final decision on whether or not a Bulk Purchase shall be accepted to the shareholders of the Company, requires compliance with the Bulk Purchase Rules and allows countermeasures to the extent necessary to protect the common interests of the shareholders of the Company. The Plan discloses the condition that the board of the directors of the Company may take countermeasures in advance and in detail, and countermeasures by the board of directors of the Company may be commenced in accordance with the provisions of the Plan, and in principle, the shareholders of the Company shall directly make decision on whether or not to take the countermeasures at the General Meeting of Shareholders for Confirmation of Shareholders’ Intent. The board of directors of the Company cannot independently have the Plan come into force or be extended, and the approval of shareholders of the Company is necessary.
As described above, we believe that it is clear that the Plan does not pursue the maintenance of the status of directors.
End of document
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Exhibit Outline of Subscription Right to Shares
1. Shareholders who are entitled to receive subscription rights to shares and conditions of issuance thereof: One (1) subscription right to shares shall be allotted to a shareholder for each share of common stock of the Company held by such shareholder (excluding the shares of common stock held by the Company), whose name is stated or recorded in the register of shareholders as of the end of the allotment date to be specified by the board of directors of the Company, without any consideration.
2. Type and number of shares to be acquired upon exercise of a subscription right to shares: The type of shares to be acquired upon exercise of a subscription right to shares shall be shares of common stock of the Company, and the total number of such shares shall be up to the number obtained by deducting the total number of the issued shares of common stock of the Company (excluding the shares of common stock held by the Company) from the total number of the shares issuable of the Company as of the allotment date determined by the board of directors of the Company. The number of shares to be acquired upon exercise of one (1) subscription right to shares shall be separately determined by the board of directors of the Company; provided, however, that such number shall be adjusted to the extent necessary if the Company makes a stock split or a stock consolidation.
3. Total number of subscription rights to shares to be issued: The total number of subscription rights to shares to be allotted shall be separately determined by the board of directors of the Company. The board of directors of the Company may allot subscription rights to shares in installments.
4. Amount of assets to be contributed (the amount to be paid) upon exercise of a subscription right to shares: The amount of assets to be contributed (the amount to be paid) upon exercise of a subscription right to shares shall be the amount to be determined by the board of directors of the Company which shall be at least one (1) yen.
5. Restriction on transfer of a subscription right to shares: A subscription right to shares may not be transferred without the approval of the board of directors of the Company.
6. Conditions of exercise of a subscription right to shares: Certain conditions of exercise shall be provided, including a condition that a person belonging to a Group of Shareholders that holds at least 20% of the Voting Rights Ratio may not exercise a subscription right to shares. Details of the conditions shall be separately determined by the board of directors of the Company.
7. Exercise period, etc. of a subscription right to shares: The exercise period, grounds for acquisition, conditions of acquisition and other necessary subject matter of a subscription right to shares shall be separately determined by the board of directors of the Company.
End of document
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Attachment
Business Report for the 121st Business Term (From April 1, 2016, to March 31, 2017)
0 [Translation for Reference Purposes Only]
1. Current State of the Group (1) Business Progress and Results We provide details of the Akebono Group’s business performance for the current fiscal year (Note) as follows. Weak automobile sales within Japan and slowing exports during the first half contributed to a decline of sales of the Japanese operations. At the same time, favorable order trends in North America, increases in orders in China, and start of mass produced high performance vehicles business applications on a full scale in Europe contributed to increases in sales in local currencies in all geographic regions excluding Japan. However, the large influence of fluctuations in the value of the yen (-¥23.4 billion) caused sales to decline by ¥15.2 billion or 5.4% year-on-year to ¥266.1 billion. With regard to profit, earlier than anticipated results of various measures including cost reduction efforts within Japan and restructuring of the North American operations (Refer to section 2 North America as below) and increases in orders in China allowed operating profit to improve from a loss of ¥3.8 billion in the previous term to a profit of ¥4.2 billion in the current term despite a continuation of some of the production issues in North America (Additional labor cost, expedited freight). Declines in interest expenses were offset by foreign exchange losses and contributed to the booking of ordinary profit of ¥0.8 billion compared with a loss in the previous term of ¥6.8 billion. Profit attributable to owners of parent improved from a loss in the previous term of ¥19.5 billion to an profit of ¥0.4 billion due in part to the booking of extraordinary income from sales of some investment securities and subsidy income (Fukushima business investment subsidy for revitalization of industries). Details of our earnings by geographical segment are provided below. 1) Japan Despite positive factors of increases in new orders, transfer of production from overseas facilities and higher sales of aftermarket parts, total orders declined because of decreased production of compact trucks for overseas markets and lower exports of industrial machinery application products. As the result, sales declined by ¥2.1 billion or 2.7% year-on-year to ¥80.9 billion. With regard to profits, efforts to rationalize manufacturing and procurement functions, cost reductions, and reductions in development expenses of overseas Group companies allowed operating profit to rise by ¥0.8 billion or 26.5% year-on-year to ¥4.1 billion. 2) North America Results of various restructuring measures for the North American operations have been achieved earlier than expected and new business inquiries have recovered progressively in the wake of the production issues. Consequently, orders continued to trend at high levels and sales in local currency rose 1.3% year-on-year. However, sales in yen terms fell by 13.8 billion or 8.2% year-on-year to ¥153.1 billion due to the impact of the stronger yen (-¥16.0 billion). In addition, the production issues, which caused large losses to be incurred in the previous term, are approaching an end due to the success of various measures, and a subsequent considerable improvement in profitability has allowed the operating loss to contract to ¥3.2 billion in the current term from ¥11.2 billion in the previous term.
Progress in achieving success in critical measures implemented for the North American operations is described below. 1. Fundamental organizational reforms A new Chief Executive Officer and Chief Financial Officer, new plant and marketing managers, production division managers and purchasing division managers have been hired to renew the core management and overall organizational structure, and strengthen the organizational and supervisory structure. In addition, efforts to change the awareness
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associates and improve the working environment implemented in the current term are expected to yield results and lead to large improvements in earnings from the coming term onwards. In February 2017, restructuring of the organizational and supervisory structure has been completed with the hiring of a new executive has responsible for the human resources division. Furthermore, measures will be implemented to strengthen collaboration within the Akebono Group, and restructure the manufacturing function by promoting production efficiency improvements and increasing production capacity based upon a return to the basic philosophy of Akebono’s corporate culture of “Monozukuri” (manufacturing excellence) to achieve stability of operations and further improvements in earnings.
2. Productivity improvement Akebono Brake is promoting optimization of manufacturing functions on a global basis by considering Akebono Group’s various production facilities’ capacity utilization and reviewing logistics conditions, and by transferring production of some friction material products to overseas facilities within our Akebono Group (Japan and Thailand). Manufacturing lines had been operating at full capacity three shifts per day, seven days a week in response to the prolonged period of strong demand. But optimization efforts have allowed our company to reduce the work load to three shifts for six days a week, and to begin reducing the number of shifts to two per day at some lines. Consequently, facility maintenance and repairs can now be implemented as planned and expenses for expedited shipments of parts because of production delays have been reduced by a large margin and earnings improvements are being achieved. Akebono Group will conduct efforts to achieve further improvements in manufacturing optimization and stability.
3. Manufacturing capacity increase In response to the growing demand for aluminum brake calipers in North America and Europe, new manufacturing facilities have been introduced to increase production capacity to the Columbia Plant in South Carolina in April 2016, and a new line began full scale operation in October 2016. Moreover, the expanded manufacturing facilities for friction materials as part of the highly profitable aftermarket parts business at the Glasgow Plant in Kentucky were expanded in February 2017. Furthermore, output capacity of products responding to strong demand from pickup trucks and sports utility vehicles (SUVs) applications will be expended with a view to customer needs and market trends.
4. Optimization of sales and purchase prices Efforts to improve manufacturing costs, and reviews to optimization of sales and purchase pricing were undertaken to improve the earnings generating structure of the North America business. The results of these efforts are expected to contribute to improved earnings of the North American business from the current term onwards. 3) Europe While aftermarket friction materials products sales declined, expansion in products sold to global platform applications (common platforms for global distribution) and full scale sales of disc brake calipers for mass produced high performance vehicles allowed sales to grow by ¥0.7 billion or 6.5% year-on-year to ¥11.6 billion. With regard to profits, the increase in one-off expenses arising from preparations for increased production at the newly established Slovakia Plant and deterioration in the product sales mix due to declines in the friction
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materials business caused operating loss to expand to ¥1.3 billion from ¥0.9 billion in the previous term. 4) China Orders grew due to favorable sales of SUVs and compact cars on the back of special tax incentives and sales rose by ¥0.5 billion or 2.8% year-on-year to ¥20.0 billion. With regard to profits, changes in sales composition arising from increases in orders for friction materials and cost reduction efforts allowed operating profit to rise by 0.04 billion or 1.7% year-on-year to ¥2.6 billion despite increases in labor cost and depreciation related to environmental responses and an increase in manufacturing lines. 5) Indonesia Orders within Indonesia associated with new business for multi purpose vehicles (MPVs) that meet low-cost green car (LCGC) regulations, and shipments of products for global platform vehicle applications in Europe remained favorable and allowed sales in local currency terms to grow. However, the negative influence of the stronger yen (-¥1.8 billion) caused sales to decline by ¥0.2 billion or 1.3% year-on-year to ¥16.3 billion. With regard to profits, higher materials expenses caused by a weakening of the Indonesian rupiah and increases in labor expenses caused operating profit to decline by ¥0.3 billion or 17.9% year-on-year to ¥1.4 billion. 6) Thailand Increases in production of compact cars for export, start of production of newly ordered parts, optimization of production within the Akebono Group arising from transfer of production from North America and increases in orders in general allowed sales to rise by ¥0.6 billion or 10.1% year-on-year to ¥6.6 billion. With regard to profits, higher depreciation accompanying the start of new businesses for compact cars, increases in labor expenses and start-up expenses arising from the start of production at a new foundry caused operating profit to fall by ¥0.04 billion or 9.5% year-on-year to ¥0.4 billion despite higher sales.
* The influence of foreign currency fluctuations upon earnings Against the backdrop of recent large fluctuations in foreign currencies, the Akebono Group takes measures to reduce risks arising from foreign currency fluctuations, but identifies the influence of fluctuations upon its earnings during the current fiscal year as follows. 1) Net sales: Caused a ¥23.4 billion year-on-year decline 2) Operating profit: Caused a ¥0.2 billion year-on-year decline 3) Non-operating expenses: A ¥1.2 billion foreign exchange loss was incurred The main reasons for the above mentioned items resulted from factors other than the differences in foreign currency exchange rates at the time of sales of products and procurement of materials are described in the following two points. i. Currency translation on foreign currency denominated loans extended by Akebono Brake in Japan to its overseas subsidiaries of ¥0.5 billion ii. Currency translation on United States dollar denominated loans assumed by the local subsidiary in Mexico of ¥0.3 billion While the incidences of business denominated in United States dollars had been common traditionally, settlements denominated in Euros and Mexican pesos are increasing in response to the recent global expansion of Akebono Group’s business and influence of the severe fluctuations in foreign exchange rates. Consequently, Akebono Brake is doing its utmost to reduce the influence of foreign exchange fluctuations by assuming loans locally denominated
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in local currencies and assuming other methods of hedging foreign exchange risks.
Note: Our current fiscal years are defined as follows: (1) North America, China, Indonesia and Thailand: January to December, 2016 (2) Japan and Europe: April, 2016 to March, 2017 Net sales by segment (region) were as follows: (Billions of yen) 120th Business Term 121st Business Term Net Sales by Year-on-Year (Fiscal year ended (Fiscal year ended Segment (Region) Increase (Decrease) March 31, 2016) March 31, 2017) Japan 83.1 80.9 (2.2) North America 166.9 153.1 (13.8) Europe 10.9 11.6 0.7 China 19.4 20.0 0.5 Indonesia 16.6 16.3 (0.2) Thailand 6.0 6.6 0.6 Subtotal 302.9 288.5 (14.3) Inter-company (21.5) (22.4) (0.9) elimination Total 281.3 266.1 (15.2)
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(2) Issues to Be Addressed Regarding the various issues we face, including the response to the production issues which began to occur at our North American business in 2014, initiatives for the global common platforms of automobile manufacturers, and the establishment of a business of high performance brakes (brakes for mass produced higher performance vehicles) through the differentiation of our technology, following various measures taken as part of initiatives in the first year of the new mid-term business plan “akebono New Frontier 30 – 2016” (hereinafter referred to as the “aNF30 – 2016”) that ends in fiscal year 2018, we have already seen some level of results. Aiming for further recovery in results and sustained growth, we will strive to accomplish the goals set out in aNF30 – 2016. 1) The “aNF30 – 2016” new mid-term business plan The Akebono Brake Group maintains a goal of achieving its long term target of “Global 30” (Acquire 30% of the worldwide OEM disc brake pad market) identified within its “aNF30 – 2016” mid-term business plan, which was announced in May 2016. “aNF30 – 2016” maintains the goals of “Rebuilding the North American operations,” “Establishing global networks based on product-based business units,” and “Expanding high performance brake (brakes for mass produced higher performance vehicles) business and recreating European operations” as a means of “Restoring health to our financial structure” and achieving sustainable growth. Results of the various measures of the mid-term business plan are described below.
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Establishment Business Units (BU) Corresponding Product Responsibility Date HP BU January 2016 High performance disc brakes, brake pads Foundation BU January 2016 Disc brakes, drum brakes, mechanical parts, etc. Infrastructure and Mobility BU April 2016 Products for rolling stock, industrial machinery and sensors Friction Material BU October 2016 Brake pads, lining and other friction materials Aftermarket BU October 2016 Aftermarket parts
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In light of these conditions, it is deemed that there are no “important uncertainties regarding going concern assumptions.” (3) Capital and Other Investments Capital investments (including intangible fixed assets) undertaken in the fiscal year under review totaled ¥18.7 billion. Regional breakdown is: ¥3.7 billion in Japan; ¥9.5 billion in North America (including ¥3.8 billion for partial purchase of leased properties); ¥1.6 billion in Europe; ¥2.0 billion in China; ¥1.1 billion in Indonesia; and ¥0.7 billion in Thailand. These investments were mainly directed toward maintenance of a proving ground (Ai-Ring) in Japan, expansion of production capacities for high performance vehicles (mass produced higher performance vehicles) and General Motors in North America, expansion of manufacturing facilities for high performance vehicles in Europe, expansion of production capabilities associated with increases in orders received in China and Indonesia, and expansion of production capabilities and construction of a cast iron plant in Thailand. (4) Financing In the fiscal year under review, we have raised ¥14.7 billion in funding by long-term loans payable, mainly to be used for capital investments and refinancing. (5) Significant business restructuring, etc. With April 1, 2016 as the effective date, the Company has merged the operations of Akebono Brake Industrial Machinery & Rolling Stock Component Sales Co., Ltd., APS Co., Ltd. and Akebono Sensor Technology Co., Ltd., which were wholly owned subsidiaries of the Company (short-form merger).
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(6) Trends in Assets and Income 1) Changes in the Results of Operations and the Financial Position (Consolidated)
(Millions of yen unless otherwise stated)
118th Business Term 119th Business Term 120th Business Term 121st Business Term Item (Fiscal year ended (Fiscal year ended (Fiscal year ended (Fiscal year ended March 31, 2014) March 31, 2015) March 31, 2016) March 31, 2017) Net sales 236,665 254,157 281,341 266,099 Operating profit (loss) 8,084 4,004 (3,761) 4,223 Ordinary profit (loss) 7,269 2,833 (6,815) 761 Profit (loss) attributable 2,423 (6,095) (19,462) 354 to owners of parent Basic earnings (loss) 18.24 (45.83) (146.31) 2.66 per share (Yen) Total assets 199,198 225,894 204,404 201,790 Net assets 60,432 59,919 30,103 29,380
2) Changes in the Results of Operations and the Financial Position (Non-Consolidated) (Millions of yen unless otherwise stated)
118th Business Term 119th Business Term 120th Business Term 121st Business Term Item (Fiscal year ended (Fiscal year ended (Fiscal year ended (Fiscal year ended March 31, 2014) March 31, 2015) March 31, 2016) March 31, 2017) Net sales 86,056 83,491 80,669 80,454 Operating profit (loss) (1,875) (976) (907) 1,668 Ordinary profit 661 6,181 2,228 6,253 Profit (loss) (59) 1,413 (32,118) 9,262 Basic earnings (loss) (0.44) 10.63 (241.40) 69.55 per share (Yen) Total assets 143,082 158,598 138,956 140,156 Net assets 48,194 53,911 13,982 24,537
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(7) Significant Subsidiaries and Affiliated Companies of the Group Investment Company Name Capital Stock Principal Business Ratio Akebono Brake Yamagata Manufacturing Production of disc brake pads, clutch ¥100 million 100.0% Co., Ltd. facing, etc. Production of brake linings, friction Akebono Brake Fukushima ¥20 million 100.0% and other materials for industrial Manufacturing Co., Ltd. machinery and rolling stock Akebono Brake Iwatsuki Manufacturing Production of disc brakes, drum ¥20 million 100.0% Co., Ltd. brakes and rolling stock brakes Akebono Brake Sanyo Manufacturing Production of drum brakes, wheel ¥94 million 100.0% Co., Ltd. cylinders and other brake components Research and development on Akebono Research & Development ¥100 million 100.0% brake-related safety, environmental Centre Ltd. pollution and energy conservation Alocs Corporation ¥35 million 100.0% Transportation and packing services Akebono 123 Co., Ltd. ¥13 million 100.0% Cleaning-related services Akebono Advanced Engineering Co., Research and development on brake ¥30 million 100.0% Ltd. systems for high performance vehicles Development, production and sales of Akebono Brake Corporation USD 128 million 100.0% automotive products Production and sales of disc brakes and Akebono Brake Mexico S.A. de C.V. MXN 711 million 100.0% drum brakes Production, sales, research and Akebono Europe S.A.S. EUR 12 million 100.0% development of disc brake pads Akebono Brake Slovakia s.r.o. EUR 32 million 100.0% Production and sales of disc brakes Akebono Advanced Engineering (UK) Research and development on GBP 50 thousand 100.0% Ltd. automotive products Production and sales of drum PT. Akebono Brake Astra Indonesia IDR 40.0 billion 50.0% brakes, disc brakes, disc brake pads, brake linings and master cylinders Production and sales of disc brakes and Akebono Brake Astra Vietnam Co., Ltd. VND 62.6 billion 50.0% master cylinders for motorcycles Production and sales of disc brakes and Akebono Corporation (Guangzhou) CNY 62,074 thousand 70.0% drum brakes Production and sales of disc brake Akebono Corporation (Suzhou) CNY 74,334 thousand 70.0% pads Production and sales of disc brakes and Akebono Brake (Thailand) Co., Ltd. THB 610 million 100.0% disc brake pads Production and sales of cast iron A&M Casting (Thailand) Co., Ltd. THB 607 million 74.9% automotive components Notes: 1. Figures for investment ratio indicate total of direct and indirect ownership. 2. A&M Casting (Thailand) Co., Ltd. began production in November 2016. 3. The Company has acquired all shares of Akebono Europe S.A.S. and all equities of Akebono Brake Slovakia s.r.o. from Akebono Brake Europe N.V., which is a wholly owned subsidiary of the Company in accordance with a resolution of the Company’s Board of Directors at a meeting held on March 16, 2017. The Company is in the process of liquidating Akebono Brake Europe N.V.
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(8) Primary Businesses (as of March 31, 2017) The Group is a general manufacturer of brake products. Its activities include the research and development, production, and sales of a wide spectrum of brake products, components and related products.
Major Products
Disc Brake, Disc Brake Pad, Disc Rotor, Corner Module, Drum Brake, Drum Brake Automotive Product Shoe, Brake Lining
Motorcycle Product Disc Brake, Disc Brake Pad, Master Cylinder
Disc Brake for Bullet Trains, Brake Lining for Bullet Trains, Brake Shoe for Rolling Rolling Stock Product Stock, Disc Brake for Monorails
Industrial Machinery Drum Brake for Forklifts, Disc Brake for Rough Terrain Cranes, Brake Shoe for Product Elevators
Sensor Cluster, Concrete Pouring Detection System, IT Ground Tiltmeter, Sensor Product Abnormal Behavior Detection System (for trains)
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(9) Primary Business Places (as of March 31, 2017) 1) Domestic
Head Office Global Head Office (19-5 Nihonbashi Koami-cho, Chuo-ku, Tokyo, Japan) Headquarters Ai-City (Headquarters) (5-4-71 Higashi, Hanyu-shi, Saitama, Japan) Factory Tatebayashi Foundry (Gumma) Sapporo Sales Office (Hokkaido), Sendai Sales Office (Miyagi), Kanto Sales Office (Saitama), Tokyo Metropolitan Sales Office (Tokyo), Sales office Chubu Office (Aichi), Osaka Sales Office (Osaka), Hiroshima Sales Office (Hiroshima), Fukuoka Sales Office (Fukuoka)
Akebono Brake Yamagata Manufacturing Co., Ltd. (Yamagata), Akebono Brake Fukushima Manufacturing Co., Ltd. (Fukushima), Subsidiaries Akebono Brake Iwatsuki Manufacturing Co., Ltd. (Saitama), Akebono Brake Sanyo Manufacturing Co., Ltd. (Okayama),
2) Overseas
Headquarters: Akebono Brake Corporation (Michigan, U.S.) Factory: Akebono Brake, Elizabethtown Plant (Kentucky, U.S.) Akebono Brake, Glasgow Plant (Kentucky, U.S.) North America Akebono Brake, Clarksville Plant (Tennessee, U.S.) Akebono Brake, Columbia Plant (South Carolina, U.S.) Akebono Brake Mexico S.A. de C.V. (Mexico)
Akebono Europe S.A.S. (France) Europe Akebono Brake Slovakia s.r.o. (Slovakia)
PT. Akebono Brake Astra Indonesia (Indonesia) Akebono Brake Astra Vietnam Co., Ltd. (Vietnam) Akebono Corporation (Guangzhou) (China) Asia Akebono Corporation (Suzhou) (China) Akebono Brake (Thailand) Co., Ltd. (Thailand) A&M Casting (Thailand) Co., Ltd. (Thailand)
Notes: 1. A&M Casting (Thailand) Co., Ltd. began production in November 2016. 2. The Company is in the process of liquidating Akebono Brake Europe N.V. in accordance with a resolution of the Company’s Board of Directors meeting held on March 16, 2017.
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(10) Number and Details of Employees (as of March 31, 2017)
1) Number and Details of Group Employees Year-on-Year Item Number of Employees Increase (Decrease) Domestic 3,175 (49) Overseas 6,282 268 Total 9,457 219 Note: The above number does not include 1,583 average number of non-regular, temporary plant, part-time and casual employees during the fiscal year under review.
2) Number and Details of Company Employees Year-on-Year Average Years Number Increase of Employees Average Age of Employment (Decrease) 1,135 64 42.8 18.0
Notes: 1. The above number does not include 849 dispatched personnel and 106 average number of non-regular, temporary plant, part-time and casual employees during the fiscal year under review. 2. The number of employees has increased by 64 compared with the end of the previous fiscal year. This is mainly attributable to the short-form merger of Akebono Brake Industrial Machinery & Rolling Stock Component Sales Co., Ltd. in the fiscal year under review.
(11) Principal Lenders (as of March 31, 2017) Loan Balance Lenders (Millions of yen) Mizuho Bank, Ltd. 17,737 Sumitomo Mitsui Trust Bank, Limited 17,369 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 14,285 Sumitomo Mitsui Banking Corporation 14,145
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2. Matters related to the Current Situation of the Company (1) Matters related to Shares (as of March 31, 2017) 1) Authorized Number of Shares 440,000,000 2) Number of Shares Issued and Outstanding 135,992,343 (Includes 2,784,786 shares of treasury stock) 3) Number of Shareholders 15,379 4) Major Shareholders Number of Percentage of Shareholders shares held shares held (thousands of shares) % Toyota Motor Corporation 15,495 11.6
Robert Bosch L.L.C. 12,597 9.4
Isuzu Motors Limited 12,111 9.0
Japan Trustee Services Bank, Ltd. (trust account) 5,151 3.8
Deutsche Bank AG, Frankfurt - Domestic Custody Services 3,900 2.9
Aisin Seiki Co., Ltd. 3,133 2.3 Akebono Brake SEIWAKON Employees’ Shareholding 2,381 1.7 Association Marubeni-Itochu Steel Inc. 2,000 1.5
KYB Corporation 2,000 1.5
SECOM CO., LTD. 2,000 1.5 Notes: 1. The Company currently holds 2,784,786 shares of treasury stock. These shares do not have voting rights. Accordingly, details have been omitted from the above Major Shareholders data. 2. Percentage of shares held has been calculated after deducting the total number of treasury stock.
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(2) Matters related to the Company’s Subscription Rights to Shares 1) Status of Subscription Rights to Shares Held by Officers of the Company (as of March 31, 2017)
Directors (excluding Outside Directors)
Number of Number of Issue Price of Exercise Period Number of Name of Subscription Rights Number of Item Subscription Underlying Subscription of Subscription Directors Number of (Allotment date) subscription Rights to Shares Shares Rights to Shares Rights to Shares holding underlying rights to shares subscription shares held rights to shares
Eighth Subscription Rights to 3,100 July 6, 2015 to 3,100 Shares 31 ¥33,200 2 31 shares July 5, 2018 shares (July 5, 2012)
A Ninth Subscription Rights to 6,700 June 29, 2016 to 3,800 (Medium- Shares 67 ¥42,900 2 38 shares June 28, 2019 shares term) (June 28, 2013)
Tenth Subscription Rights to 55,800 June 20, 2017 to 28,800 Shares 558 ¥45,500 4 288 shares June 19, 2020 shares (June 19, 2014)
Fifth Subscription Rights to 17,600 June 21, 2008 to 17,600 Shares 176 Issued in gratis 2 176 shares June 20, 2038 shares (June 20, 2008)
Sixth Subscription Rights to 50,600 June 22, 2010 to 50,600 Shares 506 Issued in gratis 2 506 shares June 21, 2040 shares (June 21, 2010)
Seventh Subscription Rights to 98,100 June 21, 2011 to 98,100 Shares 981 Issued in gratis 3 981 shares June 20, 2041 shares B (June 20, 2011) (Long- term) Eighth Subscription Rights to 17,200 July 6, 2012 to 14,400 Shares 172 ¥33,100 4 144 shares July 5, 2042 shares (July 5, 2012)
Ninth Subscription Rights to 38,300 June 29, 2013 to 18,900 Shares 383 ¥42,900 4 189 shares June 28, 2043 shares (June 28, 2013)
Tenth Subscription Rights to 114,500 June 20, 2014 to 58,900 Shares 1,145 ¥44,700 4 589 shares June 19, 2044 shares (June 19, 2014) Notes: 1. The number of shares per subscription right to shares is 100 shares of the Company’s common stock. 2. The amount to be paid when exercising subscription rights to shares is one yen per share. 3. The number of subscription rights to shares held by employees and other parties as well as the number of underlying shares are included in the number of shares applicable to “Number of Subscription Rights to Shares” and “Number of Underlying Shares.” 4. Outside Directors and Audit & Supervisory Board Members do not hold subscription rights to shares.
2) Subscription Rights to Shares Issued to Employees and Other Parties in the Fiscal Year Ended March 31, 2017 No applicable
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(3) Members of the Board of Directors and Audit & Supervisory Board Members of the Company 1) Status of Members of the Board of Directors and Audit & Supervisory Board Members (as of March 31, 2017) Assignments and any Important Position in the Company Name Representation of Other Entities Representative Director Executive Officer Hisataka Nobumoto Chairman, President & CEO Assistant to the President & CEO Representative Director Officer-in-charge, Planning & Administration Yoshimasa Ogino Executive Vice President CFO Chairman, Akebono Europe S.A.S. Overall Manufacturing Representative Director Kazuo Matsumoto In-charge, Investment Strategy Planning Office Executive Vice President In-charge, Asian Operations In-charge, North American Operations Director Kanji Miyajima Senior Managing Executive Officer Chairman, Akebono Brake Corporation Chairman, Akebono Brake Mexico S.A. de C.V. Adjunct Professor, Graduate School of Commerce and Management, Hitotsubashi University Director, Center for CFO Education and Research, Hitotsubashi University Specially Appointed Professor, Chuo Graduate School of Strategic Management Director Kunio Ito Outside Director, Sumitomo Chemical Company, Limited Outside Director, KOBAYASHI PHARMACEUTICAL CO., LTD. Outside Director, Seven & i Holdings Co., Ltd. Outside Director, Toray Industries, Inc. Director Takuo Tsurushima Institute Professor, Graduate School of Engineering, Tokyo Institute of Technology Director Ken Okazaki Visiting Professor, World Premier International Research Center Initiative, Kyushu University Full-time Audit & Supervisory Takunobu Okada Board Member Full-time Audit & Supervisory Takeshi Okumura Board Member Representative, Endo Certified Public Accountant Audit & Supervisory Board Office Kesao Endo Member Senior Partner, ABS Audit Corporation Outside Director, Career Link Co., Ltd. Vice Chairman, WWF Japan Outside Director, KITO CORPORATION Outside Director, INVAST SECURITIES CO., Audit & Supervisory Board Keizo Tannawa LTD. Member Outside Statutory Auditor, ZMP Inc. Outside Director, TSUBAKI NAKASHIMA Co., Ltd. Outside Director, Livesense Inc. Audit & Supervisory Board Representative, Katayama Law and Accounting Tomohiro Katayama Member Firm
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Notes: 1. Directors Takashi Kudo and Takeshi Saito retired from the Company by resignation at the close of its 115th Ordinary General Meeting of Shareholders held on June 17, 2016. 2. Audit & Supervisory Board Members Satoshi Utsugi and Michiyoshi Homma retired from the Company by resignation at the close of the 115th Ordinary General Meeting of Shareholders held on June 17, 2016. In addition, Audit & Supervisory Board Members Takunobu Okada and Tomohiro Katayama were newly appointed as Audit & Supervisory Board Members at the same Meeting. 3. Directors Kunio Ito, Takuo Tsurushima and Ken Okazaki satisfy the required conditions for Outside Directors stipulated under Article 2, Item 15 of the Companies Act. 4. Directors Kunio Ito and Ken Okazaki hold positions concurrently with other companies. The Company has no special relationship with these companies. 5. Audit & Supervisory Board Members Kesao Endo, Keizo Tannawa and Tomohiro Katayama satisfy the required conditions for Outside Audit & Supervisory Board Members stipulated under Article 2, Item 16 of the Companies Act. 6. Audit & Supervisory Board Members Kesao Endo, Keizo Tannawa and Tomohiro Katayama hold positions concurrently with other companies. The Company has no special relationship with these companies. 7. Audit & Supervisory Board Members Takeshi Okumura and Takunobu Okada who have many years of experience overseeing the Company’s financial and accounting operations, have substantial knowledge concerning financial and accounting matters. In addition, Audit & Supervisory Board Members Kesao Endo and Tomohiro Katayama, who are qualified as certified public accountants, have substantial knowledge concerning financial and accounting matters. 8. The Company has registered all Outside Directors and Outside Audit & Supervisory Board Members as independent officers to the Tokyo Stock Exchange under the regulations of the said Exchange. 9. The following changes took effect on or subsequent to March 31, 2017. ・ At the meeting of the Company’s Board of Directors held on May 23, 2017, it was resolved that the following change would take effect on July 1, 2017. Assignments and any Important Position in the Company Name Representation of Other Entities Assistant to the President & CEO
Representative Director Officer-in-charge, Planning & Administration Yoshimasa Ogino Executive Vice President CFO In-charge, North American Operations Chairman, Akebono Brake Corporation Chairman, Akebono Europe S.A.S.
2) Total Amount of Compensation Paid to Directors and Audit & Supervisory Board Members
Compensation by category (Millions of yen) Number of Directors/ Amount of Audit & Item Compensation Performance-based Remuneration Fixed Supervisory (Millions of yen) Remuneration Medium-term Long-term Board Short-term (Cash) (Subscription (Subscription Members (Cash) Rights to Shares) Rights to Shares) Directors 184 184 – – – 9 Audit & Supervisory 51 51 – – – 7 Board Members Total 234 234 – – – 16 (Outside Directors and Audit & (41) (41) (–) (–) (–) (7) Supervisory Board Members) Notes: 1. The above table includes amounts paid to two (2) Directors and two (2) Audit & Supervisory Board Members who retired from the position at the close of the 115th Ordinary General Meeting of Shareholders held on June 17, 2016.
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The Company has seven (7) Directors and five (5) Audit & Supervisory Board Members as of the end of the current fiscal year. 2. Upper limits of annual compensation for Directors and Audit & Supervisory Board Members upon resolution of the Ordinary General Meeting of Shareholders: (1) Directors Fixed Remuneration ¥300 million Short-term Performance-based Remuneration ¥120 million (excluding Outside Directors) Medium-term Performance-based Remuneration ¥60 million (excluding Outside Directors) Long-term Performance-based Remuneration ¥120 million (excluding Outside Directors) (2) Audit & Supervisory Board Members Fixed Remuneration ¥60 million
3) Basic Policy for Determining Compensation Paid to Directors and Audit & Supervisory Board Members The Company formulates the basic policy for determining the compensation for Directors and Audit & Supervisory Board Members as follows: 1. Acquire and develop talented human resources 2. Motivate them to continuously improve corporate performance and value 3. Maintain a high level of fairness and rationality To maintain an objective and fair compensation system for Directors, we have established a Director Compensation Advisory Committee, which will review the basic matters relating to Director compensation. Based on the results of this review, the amount of compensation for each Director will be determined within the limit of the total amount approved by the Ordinary General Meeting of Shareholders. The compensation for Directors (excluding Outside Directors) consists of the fixed remuneration and the performance-based remuneration. The fixed remuneration is a basic compensation for their duties determined based on their positions, and the total amount of the fixed remuneration should be approved in the Ordinary General Meeting of Shareholders. The performance-based remuneration is determined based on the performance of the Company and individual Directors in the preceding fiscal year. The upper limit of the performance-based remuneration should be 100% of the fixed remuneration: of which, 40% (cash) is provided as short-term performance-based remuneration; 20% (subscription rights to shares) as medium-term performance-based remuneration; and 40% (subscription rights to shares) as long-term performance-based remuneration. The compensation for Outside Directors consists of the fixed remuneration only. The compensation for each Audit & Supervisory Board Member is determined through discussion by the Audit & Supervisory Board, within the limit of the amount approved by the Ordinary General Meeting of Shareholders.
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(4) Matters related to Outside Directors and Officers 1) Principal Activities during the Fiscal Year Ended March 31, 2017 Name Title Main Activities
Attended all of the 13 meetings of the Board of Directors convened during the fiscal year ended March 31, 2017. Provided necessary Kunio Ito Outside Director comments on the overall management and operations of the Company from an objective and neutral perspective as a specialist with significant knowledge and experience in the management and accounting fields.
Attended all of the 13 meetings of the Board of Directors convened during the fiscal year ended March 31, 2017. Provided necessary Takuo comments on the overall management and operations of the Company Outside Director Tsurushima from an objective and neutral perspective taking into consideration a number of aspects including disclosure based on abundant management experience and deep insight.
Attended all of the 13 meetings of the Board of Directors convened during the fiscal year ended March 31, 2017. Provided necessary Ken Okazaki Outside Director comments on the overall management and operations of the Company from an objective and neutral perspective as a specialist with a wealth of expertise in engineering.
Attended all of the 13 meetings of the Board of Directors convened Outside Audit & during the fiscal year ended March 31, 2017. In addition, attended all of Kesao Endo Supervisory the 14 meetings of the Audit & Supervisory Board convened during the Board Member fiscal year under review. Mainly provided necessary comments from an objective perspective as a specialist certified public accountant.
Attended 12 of the 13 meetings of the Board of Directors convened during the fiscal year ended March 31, 2017. In addition, attended 13 of Outside Audit & the 14 meetings of the Audit & Supervisory Board convened during the Keizo Tannawa Supervisory fiscal year under review. Mainly provided necessary comments from an Board Member objective perspective with his broad experience and insights as a consultant of management, organization and human resources.
After being appointed as Outside Audit & Supervisory Board Member of the Company on June 17, 2016, Mr. Katayama attended all of the 9 meetings of the Board of Directors convened during the fiscal year ended Outside Audit & Tomohiro March 31, 2017. In addition, attended all of the 10 meetings of the Audit Supervisory Katayama & Supervisory Board convened during the fiscal year under review. Board Member Mainly provided necessary comments from an objective perspective with his broad experience and insights as an attorney at law and as a certified public accountant. Note: Matters related to important representation of other entities and relationships with the Company are as outlined in “(3) Members of the Board of Directors and Audit & Supervisory Board Members of the Company” on page 15.
2) Outline of Limited Liability Agreements As prescribed under the Company’s existing Articles of Incorporation, and with the aim of ensuring that its Outside Directors and officers comprise individuals of the highest quality, the Company is permitted to conclude agreements with Outside Directors and officers limiting their liability for damages.
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On this basis, the Company has concluded limited liability agreements with its Outside Directors and Outside Audit & Supervisory Board Members. Effective after entering into these agreements, should an Outside Director or an Outside Audit & Supervisory Board Member bear any liability arising from his/her act or omission and such Outside Director or Outside Audit & Supervisory Board Member performed his/her duty in good faith and without gross negligence in relation to such act or omission, his/her liabilities shall be limited to an amount equal to the higher of ¥1 million or the minimum amount of his/her obligation as stipulated under Article 425, Paragraph 1 of the Companies Act.
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(5) Independent Auditor 1) Name of the Company’s Independent Auditor Deloitte Touche Tohmatsu LLC
2) Independent Auditor’s Fees Amount Paid
(Millions of yen)
Total amount of fees paid to the independent auditor applicable to the 71 fiscal year ended March 31, 2017
Total monetary and other financial asset earnings to be paid by the 75 Company and its subsidiaries to the independent auditor
Notes: 1. The audit agreement concluded between the Company and the independent auditor does not distinguish between the amount of fees paid for auditing under the Companies Act and auditing under the Financial Instruments and Exchange Act. In practice, such amounts cannot be distinguished. As a result, the above amount reflects the total amount of fees paid to the independent auditor applicable to the fiscal year ended March 31, 2017. 2. The Audit & Supervisory Board approves the remuneration, etc., of the independent auditors after obtaining the necessary materials and information from the independent auditors and relevant departments of the Company and examining the content of the independent auditors’ audit plan, basis of calculation of the auditors’ remuneration estimate, and the content of, and remuneration for non-auditing work. 3. Certain important foreign subsidiaries are audited or reviewed by auditing firms other than the Company’s independent auditor. 4. The Company commissions financial surveys and other non-auditing duties to the independent auditors.
3) Policy for Determining the Dismissal or Non-Reappointment of Independent Auditor In addition to the conditions for independent auditor dismissal stipulated under Article 340 of the Companies Act, the Company shall submit a proposal concerning the dismissal or non-reappointment of the independent auditor to the General Meeting of Shareholders in the event that the independent auditor breaches or infringes on the Companies Act, Certified Public Accountants Act or other relevant laws and regulations, and whereby the Audit & Supervisory Board deems that the proper performance of duties by the independent auditor has been impeded, upon comprehensively taking into account factors such as audit capacity and audit quality.
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(6) Systems to Ensure the Proper Execution of the Company’s Business and Operations 1) Systems to Ensure that the Execution of Duties by Directors and Employees of the Company and Directors, etc. and Employees of its Subsidiaries Complies with Relevant Laws and Regulations as well as the Company’s Articles of Incorporation i. Fundamental Stance The Company and its Group companies’ fundamental stance toward compliance is gathered together with its mission statement, message by the president and CEO, akebono Global Code of Conduct, akebono Global Standard of Behavior and other guidelines in the Global Compliance Manual.
Under the guidance of the president and CEO, the Compliance Committee was established to better promote compliance activities. Ongoing education is provided to Directors, officers and employees in an effort to ensure that each and every individual engages in behavior consistent with the Group’s fundamental compliance stance. On this basis, significant emphasis is placed on developing a robust compliance system. With respect to compliance activities, the Compliance Committee reports in an appropriate and timely manner to both Directors and Audit & Supervisory Board Members. At the same time, the Internal Audit Division reports the implementation status of compliance activities by each division of the Company and each Group company, in a timely manner, to both Directors and Audit & Supervisory Board Members.
Furthermore, the Company has established internal and external consultation services to deal with employees’ questions, concerns and complaints. Services handle inquiries from all Group employees including temporary and part-time staff. With this system, the Company is able to identify, rectify and put in place preventive measures at an early stage. In each of the Group’s major operating bases, consultation service officers have been appointed to provide internal consultation services. Employees may approach any one of these officers. External consultation services have been outsourced to a specialist external organization with one hotline launched. The Compliance Committee is mainly responsible for investigating and confirming the details of compliance issues. In the event that a problem is uncovered as a result of investigations, the Committee is again responsible for implementing remedial and preventive measures. Consultation services handle inquiries on an anonymous basis. The details of inquiries and reports as well as personal information are kept strictly confidential. The Company shall protect users of the consultation services from any prejudicial treatment.
Compliance promotion officers are appointed within each Group company in an effort to further promote compliance throughout the Company and its Group companies. Steps are also taken by the Company and each Group company to identify specific high-probability risks. On this basis, the Group proactively strives to establish and develop a system of preventive countermeasures.
ii. Key Details to Address
a. The Company and its Group companies take a firm and uncompromising stand against antisocial forces that threaten public order and the ability to engage in sound business practices of companies. Conduct consistent with a keen sense of equity and justice as well as behavior grounded in sound common sense are fundamental principles outlined in the Global Compliance Manual. The Company takes great pains to ensure that its Directors, officers and employees remain fully apprised of the importance of compliance. The Company and its Group companies constantly collects information relating to antisocial forces through general affairs divisions, and strives to prevent the involvement of antisocial forces in its business activities and possible damages from them. In case of the occurrence of such an event, the Company shall take appropriate measures on a company-wide level through collaboration with external professional institutions as necessary.
b. The Company and its Group companies clarify prohibited acts specified by the competition law as well as rules concerning the contact with competitors and trade associations, information retention, and document preparation, in order to comply with regulations, in particular cartel regulations, specified under the competition law of each country. The Company and its Group companies’ sales divisions and legal divisions cooperate with each other to monitor possible illegal acts. If any illegal act by the Company, its Group companies, or business partners is identified, such matter shall be
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reported to the Compliance Committee. In this case, the Company shall make the utmost efforts to minimize the damage through collaboration with competent regulatory authorities.
c. The Company shall comply with the Financial Instruments and Exchange Act and other applicable laws and regulations, and establish and operate an internal control system for financial reporting, thus ensuring the credibility of the Company’s financial statements and information that may have a material impact on the financial statements.
2) Systems for the Storage and Management of Information related to the Execution of Duties by Directors The Company records, stores, handles and manages written documents and electromagnetic media (hereafter referred to as “Documents”) related to information on the execution of duties by Directors in accordance with document handling and management regulations. The document handling and management regulations outline details of the Company’s Documents storage and management system. This includes the appointment of an officer responsible for the Documents, clear definitions of the scope of Documents to be stored, storage period, location and others. Directors and Audit & Supervisory Board Members can access Documents at any time.
3) Rules and Regulations as well as Other Systems related to the Management of Risk of Loss of the Company and its Subsidiaries The Company and its Group companies have organized the Risk Management Committee, which is chaired by the president and CEO, to serve as the Company and its Group companies’ overall risk management promotion organization. In this manner, steps have been taken to consolidate the risks managed by each division of the Company and its Group companies. The Risk Management Committee is comprised of members selected by the Committee chairperson and the officers responsible for the department identifying and managing significant Group-wide risks for each fiscal year.
The Risk Management Committee attends the formulation and implementation of risk management targets and plans approved by the Board of Directors, the formulation of internal risk management rules and regulations, evaluation of the status of risk management implementation together with its efficacy and the formulation and implementation of measures designed to modify and improve risk management systems. In addition, the Risk Management Committee establishes and develops emergency structures and systems that ensure the timely and appropriate distribution of information commensurate with specific risks as they arise in contingency situations.
Furthermore, the Risk Management Committee identifies significant risks that may have a major impact on the business and performance of the Company. Every year, the Committee assesses to what degree these risks could affect operations. Based on this assessment, steps are taken to formulate appropriate countermeasures, set targets and establish achievement schedules. In implementing the aforementioned, every effort is made to reduce risks or damages from such risks.
Moreover, responsible officers in each division of the Company and its Group companies identify risks in their own areas and formulate appropriate countermeasures, set targets and establish achievement schedules. Action is then taken to reduce risks or the damages from such risks.
Furthermore, they produce and distribute a response manual and conduct training and education to enhance awareness. In this manner, the Company strives to minimize damages, impacts and losses attributable to such disasters as earthquakes and to prepare for every possible crisis and contingency.
4) Systems to Ensure the Efficient Execution of Duties by Directors of the Company and Directors of its Subsidiaries, etc. The Company and its Group companies formulate a mid-term business plan that takes into consideration future business conditions, sets budgets for each fiscal year, and formulates and puts into action specific plans to achieve plan targets.
The Company has introduced an Executive Officer System to separate executive duties from the management of the Company and to clarify responsibilities and authority. The Board of Directors meets regularly once a month and at other times on an as needed basis. In addition, the Company has adopted a
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multi-level council system, composed of Directors and executive officers. This multi-level council system engages in the prior deliberation of relevant management issues. Based on these deliberations, discussion details and proposals are submitted to the Board of Directors for determination and approval. With respect to prior deliberations, management and discussion information are shared in advance utilizing electronic media. In this manner, efforts are made to more efficiently distribute information.
Each responsible Director or executive officer reports in a timely and appropriate manner to the Board of Directors and Board of Executive Officers, respectively, in connection with the execution status of approved operations. In addition, periodic audits are conducted by the Audit & Supervisory Board and Internal Audit Division.
5) Matters related to Reporting to the Company regarding the Execution of Duties of Directors, etc., of its Subsidiaries The Company requires that each Group company sets internal rules to provide a system for reporting important management matters such as operating results and financial condition to the Company, and establishes a department responsible for the administration of its Group companies.
To this end, the Company’s Directors and officers responsible at each Group company maintain the necessary authority and responsibility to establish and operate an internal control system that ensures the appropriate execution of duties by each division of the Company and its Group companies.
The Company’s Audit & Supervisory Board Members and Internal Audit Division conduct regular audits of operations both in Japan and overseas. The results of each audit are reported to the Board of Directors as well as the relevant departments.
In order to further ensure that duties are executed in an appropriate manner by the Company and its Group companies, the Company plays a central role in formulating the management authority rules and regulations of each Group company. Moreover, each Group company’s Audit & Supervisory Board Member is provided not only with accounting audit authority but also with business audit authority.
6) Matters related to Employees in Cases Where Audit & Supervisory Board Members Request the Appointment of Employees to Assist in the Duties of Audit & Supervisory Board Members The Company has established the Audit & Supervisory Board Members’ Office and allocated full-time staff in an effort to assist Audit & Supervisory Board Members in the execution of their duties (hereinafter “Staff of Audit & Supervisory Board Members’ Office”).
7) Matters related to Independence of Employees Who Assist in the Duties of Audit & Supervisory Board Members from Directors and Ensuring the Effectiveness of Directions to Such Employees by Audit & Supervisory Board Members Staff of Audit & Supervisory Board Members’ Office carry out their duties under the direction and supervision of the Audit & Supervisory Board Members and do not receive command from Directors. This is to ensure their independence from Directors and to ensure the effectiveness of directions by Audit & Supervisory Board Members. In addition, personnel, evaluation and disciplinary issues relating to the Staff of Audit & Supervisory Board Members’ Office are discussed and determined in consultation with the Audit & Supervisory Board. Staff of the Audit & Supervisory Board Members’ Office work exclusively for Audit & Supervisory Board Members and do not engage in any other duties to ensure the effectiveness of the instructions of Audit & Supervisory Board Members to the staff.
8) Systems for Directors and Employees to Report to Audit & Supervisory Board Members and Other Systems for Reports to Audit & Supervisory Board Members of the Company Directors and employees of the Company and directors, officers and employees of its Group companies (including those to whom these persons report) must report to an Audit & Supervisory Board Member without delay and by an appropriate method if they learn any fact that may have a serious effect on the management and earnings of the Company or a Group company, or any fact that may correspond to, or represents a risk of a serious violation of laws, regulations, or the Company’s Articles of Incorporation. Any person who reports to the Company as described above shall not be disadvantaged in any way by the Company or its Group companies.
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Full-time Audit & Supervisory Board Members attend important meetings including the Board of Directors and Board of Executive Officers in order to better grasp the processes relating to important decision-making as well as the status of business execution. Prior to each meeting, all Audit & Supervisory Board Members familiarize themselves with relevant documentation and materials by utilizing electronic media. Moreover, full-time Audit & Supervisory Board Members can request Directors and employees to provide supplementary explanations and reports as necessary.
9) Matters Regarding Policies Pertaining to Procedures for Advance Payments or Reimbursement of Expenses Arising in the Performance of Duties by Audit & Supervisory Board Members and Other Payment of Expenses and Liabilities Arising in the Performance of Said Duties The Company shall immediately pay expenses or liabilities where an Audit & Supervisory Board Member has requested advance payments or reimbursement of expenses arising in the performance of his or her duties, excluding cases where they were not considered relevant to the performance of said duties.
10) Other Systems to Ensure the Effective Conduct of Audits by Audit & Supervisory Board Members Audit & Supervisory Board coordinates with independent auditors and the Internal Audit Division. In addition to the exchange of information, the Audit & Supervisory Board receives explanations of accounting audit details and business audit details from independent auditors and the Internal Audit Division respectively.
Audit & Supervisory Board holds regular meetings with the Company’s management to ensure the appropriate exchange of information and opinions.
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(7) Overview of Operation of Systems to Ensure Sound Business Operations 1) Status of Initiatives concerning Compliance The Company has established the “akebono Global Code of Conduct,” the “akebono Global Standard of Behavior” and Compliance Regulations, etc., and it carries out compliance activities including Compliance Committee meetings held on a regular basis. In accordance with the annual activity plan approved by the Compliance Committee, the Company implements various measures to improve compliance awareness among employees such as various training such as compliance tests and feedback sessions, as well as campaigns focusing on the prevention of cartels and insider trading, etc. In the promotion of compliance activities, the Company has placed greater attention on efficacy by reflecting the results of the discussions held in the Business Reform Promotion Committee that was launched in the aim of preventing the recurrence of inappropriate accounting practices that announced in November 2015. As a result of communications with employees entered into via internal and external consultation services, we have implemented investigations when deemed necessary and responded in an appropriate manner. In addition, we reported the status of compliance committees and the content of information discussed via the consultation services to the Board of Directors on a regular basis. 2) Progress with Risk Management The Company has put in place a risk management structure by providing internal risk management rules to reduce risk and minimize losses. The Risk Management Committee identifies major risks and develops a policy for dealing with them, issues risk management instructions and monitors their execution and effectiveness. In addition, the Risk Assessment Committee, which is a sub-organization of the Risk Management Committee, regularly analyzes major risks for each business division and runs checks and issues instructions for managing them. In this way, the Company is prepared to activate a risk management PDCA cycle as appropriate. 3) Progress with Measures to Ensure Efficiency of the Execution of Duties of Directors The Company holds meetings of the Board of Directors regularly or as appropriate and also holds multilevel council meetings to serve as forums for prior deliberation. Furthermore, it has carried out a revision of the standards defining which matters are submitted to the Board of Directors as a part of ongoing efforts to ensure accurate, swift and efficient management decision making. The Company is also working on structures to ensure the efficiency of business execution such as setting rules limiting final decision-making authority by clarifying the scope of authority and responsibility. 4) Progress with Measures to Ensure the Effectiveness of Auditing by the Audit & Supervisory Board Members The Audit & Supervisory Board holds meetings with the Company’s management, regularly or as appropriate, in addition to attending meetings of the Board of Directors and other council meetings and exchanging information with Directors to ensure timely discussion and response to matters that have a serious effect on the management and earnings results of the Company. The Audit & Supervisory Board also meets regularly with independent auditors and holds monthly update meetings with the Internal Audit Division. One employee is assigned to the Audit & Supervisory Board Members’ Office to support the execution of the duties of Audit & Supervisory Board Members.
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(8) Basic policy regarding the control of the Company 1) Basic policy regarding what and how a person controlling decisions on the Company’s financial and business policies should be The board of directors of the Company believes that since we, as a public corporation, allow the free purchase and sale of shares of the Company, the shareholders of the Company should be entrusted to make the final decision regarding whether or not to accept a bulk purchase of shares by a specific person.
However, to improve the corporate value of the Group in the future, the management of the Company from a medium-term and long-term perspective is indispensable, and for such purpose, not to mention keeping good relationships with customers, business partners, employees and the community, business operations based on a deep understanding of the Group, such as utilizing the most of various specialized and technical know-how that the Company has accumulated since the establishment of the Company in 1929, is essential.
Also, it is indispensable that the shareholders of the Company be provided with appropriate and sufficient information by both a purchaser and the board of directors of the Company in order to appropriately determine, within a short period of time, whether or not the purchase price of the Company’s shares proposed by the purchaser is reasonable, when a bulk purchase of shares is suddenly made. In addition, we believe that information regarding the impact of the purchase on the Company, the management policy and the business plans that the purchaser wishes to adopt if the purchaser participates in the management of the Company, and the opinion of the board of directors of the Company toward the purchase, etc. is material to the decision making process of the shareholders of the Company who intend to hold the Company’s shares continuously in respect of whether or not to continue to hold such shares.
Taking the above into account, we believe that a bulk purchaser should provide the board of directors of the Company in advance necessary and sufficient information regarding the purchase and should wait until a certain assessment period elapses, in accordance with certain reasonable rules established and disclosed in advance by the Company for the benefit of the decision-making process of the shareholders of the Company. We also believe that it is necessary to take such measures as the board of directors of the Company deems appropriate in accordance with such reasonable rules against a purchase that is in breach of the said rules to protect the common interests of the shareholders of the Company.
Since we consider that the final decision on whether or not to sell or purchase shares of the Company in acceptance of any bulk purchase to the decision of the shareholders shall be left to the shareholders of the Company who hold the shares of the Company, we believe in principle that it is desirable to directly confirm the intentions of the shareholders of the Company at a general meeting of shareholders of the Company on the adoption, continuance or abolishment of the policy toward the relevant bulk purchase or whether or not any specific countermeasure based on the relevant policy shall be commenced (the foregoing policy regarding what and how a person controlling decisions on the Company’s financial and business policies should be shall be hereinafter referred to as the “Basic Policy”.)
2) Effective utilization of our assets, the formation of the appropriate corporate group, and other special efforts to realize the Basic Policy i. Special efforts to realize the Basic Policy The Company stipulated that its corporate mission shall be “Through ‘Friction and Vibration, their Control and Analysis,’ we are determined to Protect, Grow and Support Every Individual Life,” and based on the management policies of the Company, namely, “Customers’ Needs First,” “Technology Realignment” and “Establishing a Global Network,” the Company aims to achieve growth of its business by concentrating all of its available managerial resources on the manufacturing of brakes and products related thereto.
We drew up our new mid-term business plan “akebono New Frontier 30 -2016,” which ends in three years in fiscal year 2018 in furtherance of achieving Akebono’s targets established in its “Global30” (acquire 30% of the worldwide OEM disc brake pad market). Efforts will also be made to establish a management structure that can strengthen the competitive standing of Akebono Brake by implementing a product category based business strategy on a global basis.
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This new mid-term business plan maintains the three main goals of “Rebuilding the North American Business,” “Establishing a Global Network through implementation of Product Category Specific Business Divisions,” and “Expanding the high performance (application for mass produced high performance vehicles) business and creating new business structure in Europe” as a means of “Restoring Health to Our Financial Structure.” Details are as follows.
Due to the additional costs arising from the production issues which occurred from the middle of 2014, our North American business incurred large losses in fiscal year 2015. Akebono Brake management has identified the resolution of this issue as a top priority, and we are currently conducting measures to rebuild our business foundations and strengthen our management structure there as part of a program of drastic reforms. Specifically, outside professionals are employed to help with efforts to assess the current business and review current problems and issues, review product category profitability, reduce sales, general and administrative expenses and indirect costs, secure stable quality levels, reduce expedited shipments, replace management level staff, and make adjustments to ensure appropriate levels of staff are maintained. In addition, management reforms was implemented to implement a strategy that prioritizes profitability over sales and reduces cost of sales. Moreover, we will improve profitability by strictly eliminating wastes in our manufacturing processes. A person with strong experiences has been appointed to become the new chief executive officer of the United States operations and a new chief financial officer has also been hired as part of the restructuring of the management team.
Along with the diversification of business on a global level, Akebono Brake promotes strong collaboration between its business operations in Japan, North America, Europe and Asia by implementing a business structure that is based upon product categories. This new organizational structure (Business Unit, BU) will divide the marketing, development, procurement and manufacturing functions based upon product categories on a global basis to respond to the diversified needs of customers. Consequently, disc brake and friction material products will be “standardized” on a global basis through the creation of a database and promotion of a product strategy based upon S+t (Standardization + topping or characteristics) to expand business globally. Specifically, a global deployment strategy based upon the five main product categories of 1) high performance brake, 2) infra-mobility (machinery, railway, sensors, other new applications), 3) service parts, 4) friction materials, and 5) foundation brake (vehicle mounted brakes) is implemented.
Akebono Europe S.A.S. in France has been responsible for the manufacture of friction materials in Europe until now. However, we are endeavoring to establish an integrated manufacturing structure in Europe along with the start of manufacture of disc brake products at the newly established Akebono Brake Slovakia s.r.o. in Slovakia in 2015. In addition, we established BU last year specifically for the high performance business in order to expand the European business and by integrating current product technologies for mass produced automobiles in Japan, North America and Asia. These efforts will also act as a means of further differentiating our products and contribute to the development of new business opportunities on a global level.
The aggressive business expansion that led to pursuit of sales and subsequent acquisition of orders largely exceeding our manufacturing capacity required unanticipated expenses and contributed to the unprecedented losses in our North American business in fiscal year 2015. Based upon the lessons learned, the North American business will be restructured to improve profitability by focusing upon cash flow and unprofitable work will be eliminated as part of a strict cost control program. These efforts are also expected to restore health to our financial structure as well.
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ii. Views of the Board of Directors of the Company Concerning Special Efforts for the Realization of the Basic Policy We believe that the efforts described above under the mid-term business plan of the Company shall enhance the market valuation of our Company Group and thus decrease the risk of the appearance of a purchaser who extremely impairs the common interests of the shareholders of the Company. Such efforts are, therefore, in line with the Basic Policy. Again, we believe that it is obvious that these efforts are intended to increase the value of our Company Group, and that they do not impair any of the common interests of the shareholders of the Company nor are they intended to secure or protect the positions of the Company’s directors.
3) Efforts to prevent the Company’s financial and business policies from being controlled by a person who is inappropriate according to the Basic Policy (Policy toward a bulk purchase of shares and other securities of the Company)
We establish reasonable rules (hereinafter referred to as the “Bulk Purchase Rules”) in the contents as set forth below, as an effort to prevent the Company’s financial and business policies from being controlled by a person who is inappropriate according to the Basic Policy and as a policy toward a bulk purchase of shares and other securities of the Company.
The Plan will be continued on the condition precedent that, at the Annual General Meeting of Shareholders, the agenda for approval of the Plan shall be approved by a resolution of the shareholders. The details of the Plan and the policy of the Company’s Board of Directors toward (3) above are described in the REFERENCE DOCUMENTS FOR THE GENERAL MEETING OF SHAREHOLDERS on the pages from 13 to 22.
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Consolidated Financial Statements for the 121st Business Term (From April 1, 2016 to March 31, 2017)
[Translation for Reference Purposes Only]
Consolidated Balance Sheet (As of March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Item Amount Item Amount (Assets) (Liabilities) Current assets 75,761 Current liabilities 94,176 Cash and deposits 15,564 Notes and accounts payable - trade 29,330 Notes and accounts receivable - trade 34,045 Short-term loans payable 22,580 Current portion of long-term loans Merchandise and finished goods 4,165 24,355 payable Work in process 1,923 Lease obligations 638 Raw materials and supplies 14,301 Income taxes payable 542 Accounts receivable - other 3,644 Accrued expenses 7,953 Deferred tax assets 978 Deferred tax liabilities 0 Other 1,263 Provision for bonuses 1,778 Allowance for doubtful accounts (123) Notes payable - facilities 1,875 Other 5,125 Non-current assets 126,029 Property, plant and equipment 105,010 Non-current liabilities 78,234 Buildings and structures 26,457 Long-term loans payable 66,436 Machinery, equipment and vehicles 47,239 Lease obligations 4,044 Land 21,269 Long-term accounts payable - other 500 Provision for directors’ retirement Construction in progress 7,419 31 benefits Other 2,626 Net defined benefit liability 2,233 Intangible assets 2,092 Deferred tax liabilities 1,397 Deferred tax liabilities for land Investments and other assets 18,927 3,155 revaluation Investment securities 12,902 Other 438 Net defined benefit asset 3,936 Total liabilities 172,410 Deferred tax assets 801 (Net assets) Other 1,298 Shareholders’ equity 11,977 Allowance for doubtful accounts (11) Capital stock 19,939 Capital surplus 12,935 Retained earnings (19,020) Treasury shares (1,878) Accumulated other comprehensive 13,088 income Valuation difference on available-for-sale 4,584 securities Revaluation reserve for land 6,741 Foreign currency translation adjustment 1,541 Remeasurements of defined benefit plans 222 Subscription rights to shares 174 Non-controlling interests 4,140 Total net assets 29,380 Total assets 201,790 Total liabilities and net assets 201,790
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Consolidated Statement of Income (From April 1, 2016 to March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Item Amount Net sales 266,099 Cost of sales 239,535 Gross profit 26,563 Selling, general and administrative expenses 22,340 Operating profit 4,223 Non-operating income Interest income 110 Dividend income 310 Other 264 684 Non-operating expenses Interest expenses 1,483 Foreign exchange losses 1,164 Share of loss of entities accounted for using equity method 10 Expenses for product compensation 378 Depreciation 14 Amortization of business commencement expenses 216 Other 881 4,146 Ordinary profit 761 Extraordinary income Gain on sales of non-current assets 68 Gain on sales of investment securities 807 Subsidy income 1,209 Reversal of provision for business structure improvement 202 2,285 Extraordinary losses Loss on sales and retirement of non-current assets 320 Impairment loss 146 466 Profit before income taxes 2,581 Income taxes - current 1,576 Income taxes - deferred (263) 1,313 Profit 1,268 Profit attributable to non-controlling interests 914 Profit attributable to owners of parent 354
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Consolidated Statement of Changes in Equity (From April 1, 2016, to March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Shareholders’ equity Capital Capital Retained Treasury Total stock surplus earnings shares shareholders’ equity Balance at beginning of 19,939 12,971 (19,373) (1,980) 11,558 current period Changes of items during
period Profit attributable to 354 354 owners of parent Purchase of treasury (1) (1) shares Disposal of treasury (37) 103 66 shares Net changes of items other than shareholders’ equity Total changes of items during － (37) 354 102 419 period Balance at end of current 19,939 12,935 (19,020) (1,878) 11,977 period
Accumulated other comprehensive income Valuation Total Foreign Remeasure- Subscription Non- difference on Revaluation accumulated Total net currency ments of rights to controlling available- reserve for other com- assets translation defined shares interests for-sale land prehensive adjustment benefit plans securities income Balance at beginning of 3,291 6,741 3,307 (1,090) 12,249 240 6,057 30,103 current period Changes of items during the
period Profit attributable to 354 owners of parent Purchase of treasury (1) shares Disposal of treasury 66 shares Net changes of items other than 1,293 － (1,766) 1,313 839 (66) (1,916) (1,142) shareholders’ equity Total changes of items 1,293 － (1,766) 1,313 839 (66) (1,916) (723) during period Balance at end of current 4,584 6,741 1,541 222 13,088 174 4,140 29,380 period
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(Basis of Presenting the Consolidated Financial Statements) 1. Scope of consolidation Number of consolidated subsidiaries: 24 The names of the major consolidated subsidiaries of the Company are as follows: Akebono Brake Yamagata Manufacturing Co., Ltd., Akebono Brake Fukushima Manufacturing Co., Ltd., Akebono Brake Iwatsuki Manufacturing Co., Ltd., Akebono Brake Sanyo Manufacturing Co., Ltd., and Akebono Brake Corporation. Akebono Brake Industrial Machinery & Rolling Stock Component Sales Co., Ltd., APS Co., Ltd. and Akebono Sensor Technology Co., Ltd. were excluded from the scope of consolidation in the fiscal year under review as these companies were merged into the Company.
2. Application of equity method (1) Number of associates accounted for by the equity method: 1 DAIWA SANGYO CO., LTD. (2) Number of associates not accounted for by the equity method: 2 TOWA METAL Co., Ltd., and one other company that are not accounted for by the equity method are excluded from the application of the equity method because both are small in size and their respective profit/loss and retained earnings have no significant impact on the consolidated financial statements and they are immaterial as a whole. 3. Fiscal year end of consolidated subsidiaries As for Akebono Brake Corporation and seven other foreign subsidiaries, their closing date is December 31. In presenting the consolidated financial statements, we use their financial statements as of December 31, with providing necessary adjustments for consolidation purposes to reflect any material transactions from December 31 to March 31. 4. Significant accounting policies (1) Valuation basis and method for significant assets 1) Investment securities Available-for-sale securities primarily designated as available-for-sale securities for which the fair values are readily determinable: Stated at fair value based on the average market prices during one month before the consolidated balance sheet date. Unrealized gains or losses on investment securities are directly included in net assets at net of tax. The cost of securities sold is determined by the moving-average method. Other securities primarily designated as available-for-sale securities for which the fair values are not readily determinable: Stated at cost determined by the moving-average method. 2) Derivatives Stated at fair value 3) Inventories The Company and domestic consolidated subsidiaries: Stated at cost determined by the gross average method. (The balance sheet amounts were determined by writing down the book value according to a decrease in profitability.) Foreign consolidated subsidiaries: Principally stated at the lower of cost, determined by the first-in first-out method, or market.
(2) Depreciation method for major depreciable assets 1) Property, plant and equipment (excluding leased assets) Depreciation of property, plant and equipment is computed by the straight-line method. 2) Intangible assets (excluding leased assets) Amortization of intangible assets is computed by the straight-line method. Software for internal use in the Company is amortized by the straight-line method over estimated useful life of five years. 3) Leased assets Depreciation of leased assets is computed by the straight-line method over the lease term, assuming the lease period as the useful life. (3) Basis for significant reserves 1) Allowance for doubtful accounts Allowance for doubtful accounts is provided at amounts considered to be appropriate based on the
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Company’s credit loss experience for ordinary receivables, and on an evaluation of potential losses for specific doubtful receivables outstanding. 2) Provision for bonuses Provision for bonuses for employees is provided at an amount to be accrued as of the consolidated balance sheet date. 3) Provision for directors’ retirement benefits Provision for directors’ retirement benefits is provided by certain domestic consolidated subsidiaries to accrue the retirement benefits to directors and Audit & Supervisory Board Members in accordance with the Company’s internal rules if all eligible directors and Audit & Supervisory Board Members were to resign their positions as of the consolidated balance sheet date. (4) Method for Accounting for Retirement Benefits 1) Method of attributing expected benefit to periods In calculating benefit obligations, the benefit formula basis is mainly used as a method of attributing the projected amount of retirement benefits to periods till the end of the fiscal year under review. 2) Method of accounting treatment of actuarial gains and losses and past service costs Prior service cost is amortized as incurred by the straight-line method over a period of five years, which is shorter than the average remaining service years of employees. Actuarial gains and losses are amortized by the straight-line method over a period of 13-15 years, which is shorter than the average remaining service years of employees, from the fiscal year following the fiscal year in which the differences are recognized.
(5) Basis for translating significant assets and liabilities denominated in foreign currencies into Japanese yen Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rate in effect at the consolidated balance sheet date, and translation differences are recorded as a gain or a loss. The assets and liabilities of the foreign subsidiaries are translated into Japanese yen at the spot exchange rate in effect at their respective balance sheet dates, and the revenue and expenses of the foreign subsidiaries are translated into Japanese yen based on the average market prices during their respective fiscal year, with translation adjustment included in “Foreign currency translation adjustment” and “Non-controlling interests” as components of net assets. (6) Significant hedge accounting 1) Hedge accounting method Deferred hedge accounting is applied. Interest rate swaps that satisfy requirements for special treatments are accounted for by the special treatment. Interest rate and currency swaps that satisfy requirements for treatments that incorporate swaps into underlying accounting items (special treatment and furiate treatment (treatment accounting for transactions using the forward contracted rate)) are accounted for by incorporating swaps into underlying accounting items. Foreign exchange forward contracts are measured at fair value, and the related unrealized gains and losses are recognized in income. 2) Hedging instruments and hedged items (a) Hedging instruments…... Foreign exchange forward contracts, Currency options Hedged items………….. Assets and liabilities denominated in foreign currencies (b) Hedging instruments…... Interest rate swap, Interest rate options Hedged items………….. Interests on loans (c) Hedging instruments…... Interest rate and currency swaps Hedged items………….. Foreign currency denominated loans and interests on loans
3) Hedge policy Pursuant to the internal rules, the Group uses derivative financial instruments to avoid foreign currency exchange and interest rate risks. 4) Assessment of hedge effectiveness The Company assesses hedge effectiveness quarterly by comparing cumulative cash flow or fair value fluctuations of hedged items with those of hedging instruments and based on those fluctuation amounts. However, assessment is omitted for interest rate swaps treated specially as explained above.
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(7) Other significant matters in presenting the consolidated financial statements 1) Tax exclusion method is used for accounting for consumption and local taxes. 2) The Group files a tax return under the consolidated corporate tax system. 3) Amounts less than ¥1 million on the consolidated financial statements are each rounded off.
5. Additional information (Application of ASBJ Guidance on Recoverability of Deferred Tax Assets) Effective from the fiscal year under review, the Company has applied the “Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016).
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(Notes to Consolidated Balance Sheet) (Millions of yen) 1. Accumulated depreciation of property, plant and equipment 179,780 2. Reduction of non-current assets for state subsidies, etc. 1,402 3. Balance of guarantee obligation 560 (Guarantee obligation 66) (Redemption obligation limit accompanying credit securitization 495) Of the guarantee obligation, ¥66 million is the portion for which the Group is liable. The entire joint
guarantee including other companies’ liabilities amounts to ¥101 million. 4. Revaluation of land Pursuant to the “Act on Revaluation of Land” (Act No. 34 issued on March 31, 1998), the Company revaluated its land for business use. The income tax effect of the difference between the book value and the revalued amount has been presented under liabilities as “Deferred tax liabilities for land revaluation” and the remaining balance has been presented under net assets as “Revaluation reserve for land” in the accompanying consolidated balance sheet. - Land revaluation method The value of land is calculated based on the appraisal and valuation requirements and methods set forth in Article 2, Item 5; and the road rating as set forth in Article 2, Item 4, of the Order for Enforcement of the Act on Revaluation of Land (Government Ordinance No. 119 promulgated on March 31, 1998). - Date of land revaluation March 31, 2002 - Difference between the fair value of the revaluated land as of the consolidated balance sheet date and the carrying amount of the land after revaluation ¥(5,037) million
5. Financial covenants (1) The Company’s short-term loans payable under the commitment line contract (¥12,500 million in total) (Outstanding balances of loans payable: ¥– million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings included in net assets presented in the consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the previous year; and ・ The Company undertakes to ensure that for the ordinary profit or loss presented in the consolidated statements of income for each fiscal year, any ordinary loss will not be recognized for two consecutive fiscal years. (2) The Company’s short-term loans payable under the commitment line contract (EUR 20 million in total) (Outstanding balances of loans payable: ¥1,797 million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings included in net assets presented in the consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the previous year; and ・ The Company undertakes to ensure that for the operating profit or loss presented in the consolidated statements of income for each fiscal year, any operating loss will not be recognized. (3) The Company’s long-term loans payable (outstanding balances: ¥3,000 million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings in net assets presented in the non-consolidated and consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the total at the end of the immediately preceding fiscal year, respectively. ・ The Company undertakes to ensure that for the ordinary profit or loss presented in the non-consolidated and consolidated statements of income for each fiscal year, any ordinary loss will not be recognized for two consecutive fiscal years, respectively. (4) Long-term loans payable of Akebono Brake Corporation (hereinafter “ABC”) (Outstanding balances: ¥4,660 million) ・ The Company undertakes to ensure that the equity ratio of ABC as of the end of each fiscal year will not fall below 25%.
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(Notes to Consolidated Statement of Income) 1. Impairment loss The Group classified non-current assets into groups by product category, which are the minimum units generating cash flows. For the current fiscal year, the Company recorded impairment loss on the following assets. (Millions of yen) Location Major use Asset category Amount Machinery and equipment and Arras, France Assets for business use 146 construction in progress, etc.
(Notes to Consolidated Statement of Changes in Equity) 1. Matters related to class and number of shares issued and class and number of treasury shares (Thousand shares) Number of Number of shares at April 1, Increase Decrease shares at March 2016 31, 2017 Shares issued Common shares 135,992 – – 135,992 Total 135,992 – – 135,992 Treasury shares Common shares (Note 1, 2) 2,961 1 153 2,809 Total 2,961 1 153 2,809 Notes: 1. Increase of 1,000 common shares in treasury shares was mainly due to purchase of odd-lot shares. 2. Decrease of 153,000 common shares in treasury shares was due to disposal of treasury shares associated with exercise of subscription rights to shares.
2. Matters related to subscription rights to shares as of March 31, 2017 (excluding those with an exercise period that has not yet arrived)
Class of underlying shares: Common shares Number of underlying shares: 405 thousand shares
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(Notes on Retirement Benefits) 1. Overview of retirement benefit plans adopted by the Company The Company and certain domestic consolidated subsidiaries have defined benefit corporate pension plans and defined contribution pension plans. Certain foreign subsidiaries have in place defined contribution corporate pension plans or defined benefit corporate pension plans. There are cases where additional amounts, which are not subject to actuarial computation in accordance with accounting requirements for retirement benefits, are paid to those who retire.
2. Reconciliation between ending balances of retirement benefit obligations and pension plan assets, and net defined benefit asset and liabilities (Millions of yen)
(1) Retirement benefit obligations 25,687 (2) Pension plan assets (25,771) (3) Retirement benefit trust (1,745) (4) Subtotal (1)+(2)+(3) (1,830) (5) Retirement benefit obligations under unfunded system 126 (6) Net amount of assets and liabilities stated in the (1,703) consolidated balance sheet (4)+(5)
3. Matters relating to retirement benefit expenses (Millions of yen)
(1) Service cost 1,080 (2) Interest cost 92 (3) Expected return on pension plan assets (495) (4) Amortization of actuarial gains and losses 460 (5) Retirement benefit expenses (1)+(2)+(3)+(4) 1,137 (6) Other (Note) 825 (7) Total (5)+(6) 1,962 Note: Item (6) Other represents the amount of premiums paid to defined contribution pension plans.
4. Matters relating to the basis of computation of projected benefit obligation (1) Discount rate In principle, 0.4% (2) Expected return on pension plan assets In principle, 2.0%
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(Notes on Tax Effect Accounting) 1. Significant components of deferred tax assets and liabilities (Millions of yen) (Deferred tax assets) Expenses related to retirement benefits 1,037 Provision for bonuses 572 Allowance for doubtful accounts 113 Loss carryforward 16,112 Impairment loss 2,988 Accrued enterprise tax 74 Accrued expenses 538 Foreign tax credit carryforward 277 Other 3,004 Subtotal 24,716 Valuation allowance (18,777) Total deferred tax assets 5,939 (Deferred tax liabilities) Valuation difference on available-for-sale securities 1,955 Gain on contribution of securities to retirement benefit trust 250 Net defined benefit asset 1,099 Non-current assets of foreign subsidiaries 2,141 Other 112 Total deferred tax liabilities 5,557 Net deferred tax assets 382 Note: Net deferred tax assets are included in the following items in the consolidated balance sheet. Current assets - Deferred tax assets 978 Non-current assets - Deferred tax assets 801 Current liabilities- Deferred tax liabilities 0 Non-current liabilities - Deferred tax liabilities 1,397
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(Notes on Financial Instruments) 1. Matters related to the status of financial instruments (1) Policies on financial instruments As a policy, the Group restricts the investments only in short-term deposits and others and obtains funds through bank loans. The Group utilizes derivatives as a hedge against fluctuations in foreign currency exchange rates with respect to receivables and payables denominated in foreign currencies and fluctuations in interest rates with respect to loans. The Group does not enter derivative transactions for speculative trading purpose.
(2) Details of financial instruments, associated risks and risk management systems Operating receivables―notes and accounts receivable - trade is exposed to credit risk in relation to customers. For such risk, each responsible sales and marketing department regularly monitors the status of major customers, as well as due dates and balances by customers, to recognize and mitigate any concerns over their collection at an earlier stage. Furthermore, foreign currency denominated trade receivables are exposed to foreign currency fluctuation risk in the normal course of the Group’s global business operations. In principle, the Group utilizes foreign exchange forward contracts to hedge the net position of foreign currency denominated operating receivables and debt.
The Group is exposed to market price fluctuation risk in relation to its investment securities. Investment securities are, however, primarily the shares of companies with which the Group has operational relationships, and periodic analyses of market values are reported to the Board of Directors. Furthermore, a review of the Group’s investment securities holding status is undertaken on an ongoing basis taking into consideration relationships with business partner companies.
Almost all operating debt―notes and accounts payable - trade have payment due within one year. In addition, a part of operating debt is in connection with the import of raw materials and denominated in foreign currencies. As a result, the Group is exposed to foreign currency fluctuation risk. In principle, the Group utilizes foreign exchange forward contracts to hedge the net position of foreign currency denominated operating receivables and debt.
Loans payable are taken out principally for the purpose of procuring funds required for capital investment and ensuring liquidity. Loans payable with floating interest rates are exposed to interest rate fluctuation risks. In order to hedge this fluctuation risk applicable to interest payable and fix interest expenses, the Group enters into interest rate swap agreements for certain loans payable. Based on the premise that requirements for special treatment of interest rate swaps are met, evaluation of the hedge effectiveness have been omitted. Although the Group is exposed to interest rate and foreign currency fluctuation risks due to certain loans being foreign currency denominated loans, interest rate and currency swap transactions are used as hedging instruments.
Lease obligations pertaining to finance lease transactions are taken out principally for the purpose of procuring funds required for capital investment.
The execution and management of derivative transactions are undertaken in accordance with authorization policies outlined in internal rules and regulations. In order to reduce credit risk, derivative transactions are limited to financial institutions with high credit ratings.
Furthermore, operating debt and loans payable are exposed to liquidity risk. The Company strives to ensure liquidity on hand using cash management plan that is prepared and updated by Finance Department in a timely manner based on reports from each department.
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2. Matters related to the fair values of financial instruments The book value, fair value and difference between each for major balance sheet items as of March 31, 2017 are presented as follows. Details of balance sheet items whose fair values are extremely difficult to determine are not included. (Please refer to Note 2). (Millions of yen) Book Value (*) Fair Value (*) Difference (1) Cash and deposits 15,564 15,564 – (2) Notes and accounts receivable - trade 34,045 34,045 – (3) Investment securities 1) Available-for-sale securities 12,502 12,502 – (4) Notes and accounts payable - trade (29,330) (29,330) – (5) Short-term loans payable (22,580) (22,580) – (6) Long-term loans payable (including current (90,791) (90,591) 200 portion) (7) Lease obligations (including current portion) (4,682) (4,192) 490 (8) Derivatives – – – (*) Figures for liabilities are recorded in brackets.
Notes: 1. Matters Related to Measurement Methods for the Fair Values of Financial Instruments, Short-term Investment Securities and Derivative Transactions
(1) Cash and deposits (2) Notes and accounts receivable - trade The fair value of these items approximates their book value because of their short-term nature. Thus, the book value is used as fair value. (3) Investment securities The fair value of stock is based on the price on the stock exchange. (4) Notes and accounts payable - trade (5) Short-term loans payable The fair value of these items approximates their book value because of their short-term nature. Thus, the book value is used as fair value. (6) Long-term loans payable (7) Lease obligations The fair value of these items is measured by discounting combined total of principal and interests at a rate assumed for similar new loans or lease transactions. Since a portion of long-term loans payable with floating interest rates (including foreign currency denominated loans) are subject to special treatment of interest rate swaps or treatment that incorporates swaps into underlying accounting items for interest rate and currency swaps (refer to item (8) below), their fair value is measured based on present value by discounting combined total of principal and interests, which is accounted for as an integral part of applicable derivative transactions, at a rate reasonably estimated for similar new loans. (8) Derivatives The fair value of derivative transactions is measured based on the prices provided by counterparty financial institutions. The amount of derivative transaction is presented in net of receivables and payables. Items that fall within the scope of special treatment of interest rate swaps and treatment that incorporates swaps into underlying accounting items for interest rate and currency swaps are recorded together with long-term loans payable that qualify for hedging instruments. As a result, their fair values are included in and recorded with the fair values of relevant long-term loans payable (refer to item (6) above).
2. It is extremely difficult to determine the fair value of unlisted equity securities (book value ¥400 million), since they have no available market prices. On this basis, unlisted shares are not included in (3) Investment securities.
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(Notes on Per Share Information) 1. Net assets per share ¥188.20 2. Basic earnings per share ¥2.66 Basis for computation of basic earnings per share is as follows. Profit attributable to owners of parent ¥354 million Amount not attributable to common shareholders ¥– Profit attributable to owners of parent pertaining to common ¥354 million shares Average number of common shares for the fiscal year ended 133,145 thousand shares March 31, 2017
(Notes on Subsequent Events) (Reduction of Legal Capital Surplus and Appropriation of Surplus) At the meeting of its Board of Directors held on May 11, 2017, the Company determined to make proposals regarding the reduction of legal capital surplus and appropriation of surplus at the Ordinary General Meeting of Shareholders scheduled to be held on June 16, 2017.
1. Purpose of reduction of legal capital surplus and appropriation of surplus The Company has recorded a deficit of ¥19,184,500,332 in retained earnings brought forward for the non-consolidated accounts for the fiscal year ended March 31, 2017. Therefore, the amount of legal capital surplus shall be reduced and surplus appropriated with the aims of offsetting the retained earnings brought forward deficit and establishing a framework for enabling resumption of dividend payments as early as possible. 2. Outline of reduction of legal capital surplus and appropriation of surplus (1) Matters regarding reduction of legal capital surplus This will involve reducing the amount of ¥4,992,712,461 of legal capital surplus and transferring that amount to other capital surplus, as stipulated under Article 448, Paragraph 1 of the Companies Act. (2) Matters regarding appropriation of surplus Appropriation to offset the deficit is to involve transferring an amount of ¥14,145,213,902 of other capital surplus upon having made the transfer as described in (1) above, to retained earnings brought forward, as stipulated under Article 452 of the Companies Act. 3. Date of reduction of legal capital surplus as well as appropriation of surplus (planned) (1) Date of resolution of the Board of Directors: May 11, 2017 (2) Date of resolution of the Ordinary General Meeting of Shareholders: June 16, 2017 (planned) (3) Effective date: June 16, 2017 (planned)
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Non-consolidated Financial Statements for the 121st Business Term (From April 1, 2016 to March 31, 2017)
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Non-consolidated Balance Sheet (As of March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Item Amount Item Amount (Assets) (Liabilities) Current assets 48,889 Current liabilities 53,580 Cash and deposits 12,468 Notes payable - trade 161 Notes receivable - trade 779 Electronically recorded obligations - 6,907 Accounts receivable - trade 13,563 operating Merchandise and finished goods 569 Accounts payable - trade 9,628 Work in process 19 Short-term loans payable 13,090 Raw materials and supplies 490 Current portion of long-term loans 15,947 Prepaid expenses 253 payable Lease obligations 2 Short-term loans receivable from 5,234 Accounts payable - other 504 subsidiaries and associates Accrued expenses 2,639 Income taxes payable 209 Accounts receivable - other 15,255 Accrued Consumption taxes 294 Deferred tax assets 490 Deposits received 1,573 Other 5 Provision for bonuses 821 Allowance for doubtful accounts (237) Non-current assets Electronically recorded obligations - 91,267 1,782 facilities Property, plant and equipment 40,501 Other 23 Buildings 10,174 Non-current liabilities 62,039 Structures 2,765 Long-term loans payable 56,927 Machinery and equipment 7,678 Lease obligations 11 Vehicles 94 Deferred tax liabilities 1,418 Tools, furniture and fixtures 1,085 Long-term accounts payable - other 500 Land 18,284 Deferred tax liabilities for land 3,155 Leased assets 13 revaluation Construction in progress 407 Other 28 Intangible assets 863 Total liabilities 115,619 Software 736 (Net assets) Other 127 Shareholders’ equity 13,038 Investments and other assets 49,903 Capital stock 19,939 Investment securities 12,546 Capital surplus 14,145 Stocks of subsidiaries and associates 41,446 Legal capital surplus 4,993 Investments in capital of subsidiaries 4,871 Other capital surplus 9,153 and associates Long-term prepaid expenses 75 Retained earnings (19,185) Other retained earnings (19,185) Prepaid pension cost 3,073 Retained earnings brought forward (19,185) Other 573 Treasury shares (1,862) Allowance for doubtful accounts (11) Valuation and translation adjustments 11,324 Allowance for investment loss (12,671) Valuation difference on available-for-sale 4,583 securities Revaluation reserve for land 6,741
Subscription rights to shares 174 Total net assets 24,537 Total assets 140,156 Total liabilities and net assets 140,156
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Non-consolidated Statement of Income (From April 1, 2016, to March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Item Amount Net sales 80,454 Cost of sales 68,912 Gross profit 11,542 Selling, general and administrative expenses 9,874 Operating profit 1,668 Non-operating income Interest income 106 Dividend income 308 Dividends from subsidiaries and associates 5,420 Rent received from associated companies 487 Lease income from associated companies 1,268 Other 462 8,050 Non-operating expenses Interest expenses 541 Depreciation of assets for rent 1,287 Foreign exchange losses 687 Expenses for product compensation 231 Other 719 3,464 Ordinary profit 6,253 Extraordinary income Gain on sales of non-current assets 18 Gain on sales of investment securities 807 Subsidy income 1,158 Reversal of allowance for doubtful accounts 942 Gain on extinguishment of tie-in shares 1,213 4,137 Extraordinary losses Loss on sales and retirement of non-current assets 32 Loss on liquidation of subsidiaries 703 Provision of allowance for investment loss 440 Loss on extinguishment of tie-in shares 1 1,177 Profit before income taxes 9,213 Income taxes - current 352 Income taxes - deferred (401) (49) Profit 9,262
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Non-consolidated Statement of Changes in Equity (From April 1, 2016, to March 31, 2017) (Millions of yen) (Amounts less than one million are rounded off.) Shareholders’ equity
Capital surplus Retained earnings Other retained Total Treasury Capital stock earnings shareholders’ Legal capital Other capital Total capital Total retained shares Retained equity surplus surplus surplus earnings earnings brought forward Balance at beginning of current 19,939 4,993 9,189 14,182 (28,447) (28,447) (1,964) 3,710 period Changes of items during period
Profit 9,262 9,262 9,262
Purchase of treasury shares (0) (0)
Disposal of treasury shares (37) (37) 103 66 Net changes of items other
than shareholders’ equity Total changes of items during – – (37) (37) 9,262 9,262 102 9,328 period Balance at end of current period 19,939 4,993 9,153 14,145 (19,185) (19,185) (1,862) 13,038
Valuation and translation adjustments Subscription rights to Valuation difference Total valuation and Total net assets Revaluation shares on available-for-sale translation reserve for land securities adjustments Balance at beginning of current 3,291 6,741 10,032 240 13,982 period Changes of items during period
Profit 9,262
Purchase of treasury shares (0)
Disposal of treasury shares 66 Net changes of items other 1,293 － 1,293 (66) 1,227 than shareholders’ equity Total changes of items during 1,293 － 1,293 (66) 10,555 period Balance at end of current period 4,583 6,741 11,324 174 24,537
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(Notes on Significant Accounting Policies) 1. Valuation basis and method for investment securities Shares in subsidiaries and associates: Stated at cost determined by the moving-average method. Other securities primarily designated as available-for-sale securities for which the fair values are readily determinable: Stated at fair value based on the average market prices during one month before the balance sheet date. Valuation difference on investment securities are directly included in net assets at net of tax. The cost of securities sold is determined by the moving-average method. Other securities primarily designated as available-for-sale securities for which the fair values are not readily determinable: Stated at cost determined by the moving-average method. 2. Valuation basis and method for derivatives Stated at fair value 3. Valuation basis and method for inventories Stated at cost determined by the gross average method. (The balance sheet amounts were determined by writing down the book value according to a decrease in profitability.)
4. Depreciation method for non-current assets (1) Property, plant and equipment (excluding leased assets) Depreciation of property, plant and equipment is computed by the straight-line method. (2) Intangible assets (excluding leased assets) Amortization of intangible assets is computed by the straight-line method. Software for internal use in the Company is amortized by the straight-line method over estimated useful life of five years. (3) Leased assets Depreciation of leased assets is computed by the straight-line method over the lease term, assuming the lease period as the useful life. 5. Basis for translating assets and liabilities denominated in foreign currencies into Japanese yen Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rate in effect at the balance sheet date, and translation differences are recorded as a gain or a loss. 6. Basis for reserves (1) Allowance for doubtful accounts Allowance for doubtful accounts is provided at amounts considered to be appropriate based on the Company’s credit loss experience for ordinary receivables, and on an evaluation of potential losses for specific doubtful receivables outstanding. (2) Allowance for investment loss Allowance for investment loss is provided at an amount equivalent to decreases in substantive values to prepare for any loss resulting from investments in associates, in consideration of their financial positions. (3) Provision for bonuses Provision for bonuses for employees is provided at an amount to be accrued as of the balance sheet date. (4) Provision for retirement benefits Provision for retirement benefits for employees is provided at an amount to be accrued based on the retirement benefit obligations and pension plan assets at the balance sheet date. 1) Method of attributing expected benefit to periods In calculating the retirement benefit obligations, the benefit formula basis is used as the method of attributing the projected amount of retirement benefits to periods up to the end of the fiscal year under review. 2) Method of expensing actuarial gains and losses Actuarial gains and losses are amortized proportionally using the straight-line method over a period of 13-15 years, which is shorter than the average remaining service years of employees, from the fiscal year following the fiscal year in which the differences are recognized.
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7. Hedge accounting (1) Hedge accounting method Deferred hedge accounting is applied. Interest rate swaps that satisfy requirements for special treatments are accounted for by the special treatment. Interest rate and currency swaps that satisfy requirements for treatments that incorporate swaps into underlying accounting items (special treatment and furiate treatment (treatment accounting for transactions using the forward contracted rate)) are accounted for by incorporating swaps into underlying accounting items. Foreign exchange forward contracts are measured at fair value, and the related unrealized gains and losses are recognized in income. (2) Hedging instruments and hedged items (a) Hedging instruments ...... Foreign exchange forward contracts, Currency options Hedged items ...... Assets and liabilities denominated in foreign currencies (b) Hedging instruments ..... Interest rate swap, Interest rate options Hedged items ...... Interests on loans (c) Hedging instruments ...... Interest rate and currency swaps Hedged items ...... Foreign currency denominated loans and interests on loans
(3) Hedge policy Pursuant to the internal rules, the Company uses derivative financial instruments to avoid foreign currency exchange and interest rate risks. (4) Assessment of hedge effectiveness The Company assesses hedge effectiveness quarterly by comparing cumulative cash flow or fair value fluctuations of hedged items with those of hedging instruments and based on those fluctuation amounts. However, assessment is omitted for interest rate swaps treated specially as explained above. 8. Other significant matters in presenting the non-consolidated financial statements (1) Tax exclusion method is used for accounting for consumption and local taxes. (2) The Company files a tax return under the consolidated corporate tax system. (3) Amounts less than ¥1 million on the non-consolidated financial statements are each rounded off. 9. Changes in Presentation (Non-consolidated Statement of Income) “Foreign exchange losses” which was included in “Other” under “Non-operating expenses” in the previous fiscal year has become more significant in monetary terms. Accordingly, the Company listed this item in the current fiscal year. 10. Additional information Application of ASBJ Guidance on Recoverability of Deferred Tax Assets Effective from the fiscal year under review, the Company has applied the “Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016).
(Notes to Non-consolidated Balance Sheet) (Millions of yen) 1. Accumulated depreciation of property, plant and equipment 76,814 2. Reduction of non-current assets for state subsidies, etc. 778 3. Balance of guarantee obligation 38,823 (Guarantee obligation 37,887) (Debt assumption that accompanies the factoring services trust 442) (Redemption obligation limit accompanying credit securitization 495) 4. Monetary receivables from subsidiaries and associates 17,194 (Short-term monetary receivables from subsidiaries and associates 16,817) (Long-term monetary receivables from subsidiaries and associates 378) 5. Monetary payables to subsidiaries and associates 9,553 (Short-term monetary payables to subsidiaries and associates 9,540) (Long-term monetary payables to subsidiaries and associates 13) 6. Revaluation of land Pursuant to the “Act on Revaluation of Land” (Act No. 34 issued on March 31, 1998), the Company revaluated its land for business use. The income tax effect of the difference between the book value and the revalued amount has been presented under liabilities as “Deferred tax liabilities for land revaluation” and the remaining balance has been presented under net assets as “Revaluation reserve for land” in the
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accompanying balance sheet. - Land revaluation method The value of land is calculated based on the appraisal and valuation requirements and methods set forth in Article 2, Item 5; and the road rating as set forth in Article 2, Item 4, of the Order for Enforcement of the Act on Revaluation of Land (Government Ordinance No. 119 promulgated on March 31, 1998). - Date of land revaluation March 31, 2002 - Difference between the fair value of the revaluated land as of the balance sheet date and the carrying amount of the land after revaluation ¥(5,037) million 7. Financial covenants (1) The Company’s short-term loans payable under the commitment line contract (¥12,500 million in total) (Outstanding balances: ¥– million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings included in net assets presented in the consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the previous year; and ・ The Company undertakes to ensure that for the ordinary profit or loss presented in the consolidated statements of income for each fiscal year, any ordinary loss will not be recognized for two consecutive fiscal years. (2) The Company’s short-term loans payable under the commitment line contract (EUR 20 million in total) (Outstanding balances: ¥1,797 million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings included in net assets presented in the consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the previous year; and ・ The Company undertakes to ensure that for the operating profit or loss presented in the consolidated statements of income for each fiscal year, any operating loss will not be recognized. (3) The Company’s long-term loans payable (outstanding balances: ¥3,000 million) ・ The Company undertakes to maintain the total of capital stock, capital surplus, and retained earnings in net assets presented in the non-consolidated and consolidated balance sheet as of the end of each fiscal year at the level of 75% or more, compared to the total at the end of the immediately preceding fiscal year, respectively. ・ The Company undertakes to ensure that for the ordinary profit or loss presented in the non-consolidated and consolidated statements of income for each fiscal year, any ordinary loss will not be recognized for two consecutive fiscal years, respectively.
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(Notes to Non-consolidated Statement of Income) 1. Transactions with subsidiaries and associates (Millions of yen) Operating transactions Net sales 12,672 Supplied materials 34,045 Purchased products 71,966 Transactions other than operating transactions 11,636 Note: Cost of supplied materials is accounted for as a reduction from the amount of purchased products.
(Notes to Non-consolidated Statement of Changes in Equity) Matters related to class and number of treasury shares (Thousand shares)
Number of shares Number of shares Increase Decrease at April 1, 2016 at March 31, 2017
Common shares 2,937 1 153 2,784 Total 2,937 1 153 2,784 Notes: 1. Increase of 1,000 common shares in treasury shares was due to purchase of odd-lot shares. 2. Decrease of 153,000 common shares in treasury shares was due to disposal of treasury shares associated with exercise of subscription rights to shares.
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(Notes on Tax Effect Accounting) 1. Significant components of deferred tax assets and liabilities (Millions of yen) (Deferred tax assets) Expenses related to retirement benefits 405 Provision for bonuses 247 Allowance for doubtful accounts 74 Loss on valuation of investment securities 3 Loss on valuation of shares of subsidiaries and associates 7,882 Allowance for investment loss 3,789 Loss carryforward 2,189 Impairment loss 725 Accrued enterprise tax 53 Foreign tax credit carryforward 277 Other 1,153 Subtotal 16,796 Valuation allowance (14,592) Total deferred tax assets 2,204 (Deferred tax liabilities) Valuation difference on available-for-sale securities 1,955 Gain on contribution of securities to retirement benefit trust 250 Prepaid pension cost 921 Other 6 Total deferred tax liabilities 3,132 Net deferred tax assets (928) Note: Net deferred tax assets are included in the following items in the non-consolidated balance sheet. Current assets – Deferred tax assets 490 Non-current liabilities – Deferred tax liabilities 1,418
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(Notes on Transactions with Related Parties) Subsidiaries
Balance at Holding ratio Transaction the end of Capital Name of Description of of voting rights Relationships with Details of amount the fiscal Attributes Location (Millions Item company businesses (ratio of voting the related party transactions (Millions of year of yen) rights held) (%) yen) (Millions of yen)
Production of the Accounts Akebono Supply of Company’s 6,857 receivable - 1,312 Brake (Holding ratio) materials; Sagae-shi, Production of products; other Yamagata 100 Direct 100.00 Yamagata disc brake pads Concurrent Purchase of Manufacturing Indirect – Accounts directors and products 14,033 1,443 Co., Ltd. payable - trade officers (Note 1) Production of the Production of Akebono Company’s drum brakes, (Holding ratio) Purchase of Brake Sanyo Soja-shi, products; Accounts 94 wheel cylinders Direct 100.00 products 10,782 1,041 Manufacturing Okayama Concurrent payable - trade and other Indirect – (Note 1) Co., Ltd. directors and products officers Accounts Supply of 18,905 receivable - 3,561 materials; Production of the other Production of Akebono Company’s Purchase of disc brakes, (Holding ratio) Accounts Brake Iwatsuki Saitama-shi, products; products 31,347 3,116 20 drum brakes Direct 100.00 payable - trade Manufacturing Saitama Concurrent (Note 1) and other Indirect – Co., Ltd. directors and Lease of products Accounts officers non-current 1,211 receivable - 102 assets other (Note 2) Production of Production of the Akebono brake linings, Company’s Brake friction and (Holding ratio) Purchase of Koori-machi, products; Accounts Fukushima 20 other materials Direct 100.00 products 7,755 756 Fukushima Concurrent payable - trade Manufacturing for industrial Indirect – (Note 1) directors and Co., Ltd. machinery and officers rolling stock Short-term loans Interest
Subsidiaries receivable from income 53 2,244 subsidiaries and Loan of Company (Note 3) Development, associates Akebono production and (Holding ratio) funds; Guarantee Accounts Michigan, USD 128 Guarantee of Brake sales of Direct 100.00 of obligation; 33,123 receivable - 21 U.S.A. million obligation; Corporation automotive Indirect – Concurrent other products directors and officers Guarantee commission 81 received (Note 4)
Contribution Contribution 2,174 – – of capital of capital (Note 5) Production and Akebono MXN (Holding ratio) Guanajuato, sales of Brake Mexico 711 Direct 90.26 Guarantee of 1,475 Mexico automotive Guarantee of S.A. de C.V. million Indirect 9.74 obligation; products obligation; Accounts Concurrent Guarantee co receivable - 1 mmission rec directors and 5 other officers eived (Note 4) Accounts Guarantee of Guarantee of 1,764 receivable - 5 Development, obligation; (Holding ratio) obligation; other Akebono Gonesse, EUR 12 production and Direct 100.00 Concurrent Europe S.A.S. France million sales of disc Guarantee Indirect – directors and commission brake pads 5 officers received (Note 4)
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Balance at Holding ratio Transaction the end of Capital Name of Description of of voting rights Relationships with Details of amount the fiscal Attributes Location (Millions Item company businesses (ratio of voting the related party transactions (Millions of year of yen) rights held) (%) yen) (Millions of yen)
Contribution Akebono Production and (Holding ratio) of capital; Contribution Trencin, EUR 32 Brake Slovakia sales of disc Direct 100.00 Concurrent 2,396 – – Slovakia million of capital s.r.o. brakes Indirect – directors and (Note 6) Subsidiaries officers The transaction amounts listed in the preceding table do not include consumption taxes. Balances at the end of the fiscal year, on the other hand, include consumption taxes. Transaction terms and conditions and underlying policies to determine terms and conditions Notes: 1. Prices for supplied materials and purchased products are determined on the basis of market prices and other factors. 2. Rents of non-current assets are determined through negotiation each fiscal term. 3. Terms and conditions of loans are determined through negotiation essentially based on those (rate of interest, etc.) provided by the Company. 4. Guarantees of obligations cover their borrowings from financial institutions. Guarantee fees are set in accordance with the form of guarantee. 5. “Contribution of capital” refers to the Company’s subscriptions of capital increase through shareholder allocation, which was carried out by Akebono Brake Mexico S.A. de C.V. 6. The underwriting of the capital increase of Akebono Brake Slovakia s.r.o. is the investment in-kind of loans receivable through debt equity swap. 7. The Company has provided for an allowance for doubtful accounts totaling ¥233 million as a reserve for possible losses on receivables from subsidiaries. The Company also recorded an amount of ¥942 million as reversal of allowance for doubtful accounts for the fiscal year ended March 31, 2017. 8. Allowance for investment loss is provided at the amount of ¥12,671 million for the decrease in the substantive value of subsidiary shares held by the Company. Provision of allowance for investment loss is provided at the amount of ¥440 million for the fiscal year ended March 31, 2017
(Notes on Per Share Information) 1. Net assets per share ¥182.89 2. Basic earnings per share ¥69.55 Basis for computation of basic earnings per share is as follows. Profit for the fiscal year ended March 31, 2017 ¥9,262 million Amount not attributable to common shareholders ¥– Profit pertaining to common shares ¥9,262 million Average number of common shares for the fiscal year ended 133,170 thousand shares March 31, 2017
(Notes on Subsequent Events) (Reduction of Legal Capital Surplus and Appropriation of Surplus) At the meeting of its Board of Directors held on May 11, 2017, the Company determined to make proposals regarding the reduction of legal capital surplus and appropriation of surplus at the Ordinary General Meeting of Shareholders scheduled to be held on June 16, 2017. 1. Purpose of reduction of legal capital surplus and appropriation of surplus The Company has recorded a deficit of ¥19,184,500,332 in retained earnings brought forward for the non-consolidated accounts for the fiscal year ended March 31, 2017. Therefore, the amount of legal capital surplus shall be reduced and surplus appropriated with the aims of offsetting the retained earnings brought forward deficit and establishing a framework for enabling resumption of dividend payments as early as possible. 2. Outline of reduction of legal capital surplus and appropriation of surplus (1) Matters regarding reduction of legal capital surplus This will involve reducing the amount of ¥4,992,712,461 of legal capital surplus and transferring that amount
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to other capital surplus, as stipulated under Article 448, Paragraph 1 of the Companies Act. (2) Matters regarding appropriation of surplus Appropriation to offset the deficit is to involve transferring an amount of ¥14,145,213,902 of other capital surplus upon having made the transfer as described in (1) above, to retained earnings brought forward, as stipulated under Article 452 of the Companies Act. 3. Date of reduction of legal capital surplus as well as appropriation of surplus (planned) (1) Date of resolution of the Board of Directors: May 11, 2017 (2) Date of resolution of the Ordinary General Meeting of Shareholders: June 16, 2017 (planned) (3) Effective date: June 16, 2017 (planned)
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INDEPENDENT AUDITOR’S REPORT May 19, 2017 To the Board of Directors of Akebono Brake Industry Co., Ltd. Deloitte Touche Tohmatsu LLC Yoshihiro Tsuda (seal) Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant
Takayuki Owada (seal) Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant
Pursuant to Article 444, Paragraph 4 of the Companies Act, we have audited the consolidated financial statements, namely, the consolidated balance sheet, the consolidated statement of income, the consolidated statement of changes in equity and notes to consolidated financial statements of Akebono Brake Industry Co., Ltd. (the “Company”) for the fiscal year from April 1, 2016 to March 31, 2017.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries as of March 31, 2017, and the results of their operations for the year then ended in conformity with accounting principles generally accepted in Japan.
Interest Our firm and the engagement partners do not have any interest in the Company for which disclosure is required under the provisions of the Certified Public Accountants Act.
The above represents a translation, for convenience only, of the original report issued in the Japanese language.
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INDEPENDENT AUDITOR’S REPORT May 19, 2017 To the Board of Directors of Akebono Brake Industry Co., Ltd. Deloitte Touche Tohmatsu LLC Yoshihiro Tsuda (seal) Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant
Takayuki Owada (seal) Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant
Pursuant to the Article 436, Paragraph 2, Item 1 of the Companies Act, we have audited the non-consolidated financial statements, namely, the non-consolidated balance sheet, the non-consolidated statement of income, the non-consolidated statement of changes in equity, notes to non-consolidated financial statements and the supplementary schedules of Akebono Brake Industry Co., Ltd. (the “Company”) for the 121st business term from April 1, 2016 to March 31, 2017.
Management’s Responsibility for the Non-consolidated Financial Statements Management is responsible for the preparation and fair presentation of these non-consolidated financial statements and the supplementary schedules in conformity with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of non-consolidated financial statements and the supplementary schedules that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility Our responsibility is to express an opinion on these non-consolidated financial statements and the supplementary schedules based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements and the supplementary schedules are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-consolidated financial statements and the supplementary schedules. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the non-consolidated financial statements and the supplementary schedules, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the non-consolidated financial statements and the supplementary schedules in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the non-consolidated financial statements and the supplementary schedules. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit Opinion In our opinion, the non-consolidated financial statements and the supplementary schedules referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2017, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in Japan.
Interest Our firm and the engagement partners do not have any interest in the Company for which disclosure is required under the provisions of the Certified Public Accountants Act.
The above represents a translation, for convenience only, of the original report issued in the Japanese language.
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Audit Report of the Audit & Supervisory Board Audit Report
With respect to the Directors’ performance of their duties during the 121st business year (from April 1, 2016 to March 31, 2017), the Audit & Supervisory Board has prepared this audit report after deliberations based on the audit reports prepared by each Audit & Supervisory Board Member, and hereby reports as follows:
1. Method and Contents of Audit by Audit & Supervisory Board Members and the Audit & Supervisory Board (1) The Audit & Supervisory Board has established the audit policies, assignment of duties, etc., and received a report from each Audit & Supervisory Board Member regarding the status of implementation of their audits and results thereof. In addition, the Audit & Supervisory Board has received reports from the Directors, etc. and the Independent Auditor regarding the status of performance of their duties, and requested explanations as necessary.
(2) In conformity with the Audit & Supervisory Board Member auditing standards established by the Audit & Supervisory Board, and in accordance with the audit policies and assignment of duties, etc., each Audit & Supervisory Board Member endeavored to facilitate mutual understanding with the Directors, the Internal Audit Department and other employees, etc., endeavored to collect information and maintain and improve the audit environment and conducted audits in the following ways.
(i) Each Audit & Supervisory Board Member attended the meetings of the Board of Directors and other important meetings, received reports on the status of performance of duties from the Directors and employees, etc. and requested explanations as necessary, inspected important documents for approval and decision, and investigated the status of the corporate affairs and assets at the head office and other principal business locations. In regards to subsidiaries, each Audit & Supervisory Board Member endeavored to facilitate mutual understanding and exchange information with the Directors and the Internal Auditors, etc. of the subsidiaries, and if necessary, received reports on business operations from the subsidiaries. (ii) Each Audit & Supervisory Board Member received reports on a regular basis from the Directors and employees, etc., requested explanations as necessary, and provided opinions with respect to matters mentioned in the business report. Such matters consist of the contents of the Board of Directors’ resolutions regarding the development and maintenance of the system to ensure that the Directors’ performance of their duties complied with applicable laws and regulations and the Articles of Incorporation of the Company and other systems that are set forth in Article 100, paragraphs 1 and 3 of the Ordinance for Enforcement of the Companies Act of Japan as being necessary for ensuring the appropriateness of the corporate affairs of a joint stock company (kabushiki kaisha), and the systems developed and maintained based on such resolutions (internal control systems). With respect to internal control covering financial reporting, the Audit & Supervisory Board Members received reports from the Directors, etc. and Deloitte Touche Tohmatsu LLC on evaluation of the said internal control and status of audit and requested explanations as necessary. (iii) The contents of the basic policies set forth in Article 118, item 3 (a) of the Ordinance for Enforcement of the Companies Act as described in the business report and undertakings set forth in (b) in the same item, as well as matters that were noted as stipulated in Article 118, item 5 (a) of the Ordinance for Enforcement of the Companies Act and judgment and reasons, set forth in (b) of the same item, were also considered in light of the circumstances, etc. of deliberations by the Board of Directors and other bodies. (iv) The Audit & Supervisory Board Members monitored and verified that Independent Auditor maintains independence and conducts the audits appropriately. The Audit & Supervisory Board Members also received reports of the status of the execution of duties from Independent Auditor and requested explanation as necessary. In addition, the Audit & Supervisory Board Members were informed by Independent Auditor that they were developing the “structure and system to ensure that their duties would be executed in a proper manner” (items prescribed in Article 131 of the “Company Calculation Regulations”) in accordance with “Quality Control Standard for Auditing” (by Business Accounting Council dated October 28, 2005), and requested explanations as necessary. Based on the aforementioned methods, the Audit & Supervisory Board Members examined the Company’s business report, supplementary schedules, non-consolidated financial statements (non-consolidated balance sheet, non-consolidated statement of income, non-consolidated statement of changes in equity, and notes to non-consolidated financial statements), supplementary schedules, and consolidated financial statements (consolidated balance sheet, consolidated statement of income, consolidated statement of changes in equity, and notes to consolidated financial statements) for the fiscal year under review.
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2. Results of Audit (1) Results of Audit of Business Report, etc. (i) We acknowledge that the business report and the supplementary schedules fairly present the status of the Company in conformity with the applicable laws and regulations and the Articles of Incorporation of the Company. (ii) We acknowledge that no misconduct or material fact constituting a violation of any law or regulation or the Articles of Incorporation of the Company was found with respect to the Directors’ performance of their duties. (iii) We acknowledge that the Board of Directors’ resolutions with respect to the internal control systems are appropriate. We did not find any matter to be mentioned with respect to the Directors’ performance of their duties concerning the internal control systems including the internal control related to the financial report. (iv) We did not find any matter to be mentioned with respect to the basic policies, described in the business report, regarding those who control the Company’s determination of its financial and business policies. Undertakings set forth in Article 118, item 3 (b) of the Ordinance for Enforcement of the Companies Act and described in the business report are in line with the basic policies, do not impair the common interests of the Company’s shareholders, and are not directed to the purpose of maintaining the status of the officers of the Company. (2) Results of Audit of Non-consolidated Financial Statements and Supplementary Schedules We acknowledge that the methods and results of audit performed by the Independent Auditor Deloitte Touche Tohmatsu LLC, are appropriate. (3) Results of Audit of Consolidated Financial Statements We acknowledge that the methods and results of audit performed by the Independent Auditor Deloitte Touche Tohmatsu LLC, are appropriate.
May 22, 2017
The Audit & Supervisory Board, Akebono Brake Industry Co., Ltd. Full-time Audit & Supervisory Board Member, Takunobu Okada (seal) Full-time Audit & Supervisory Board Member, Takeshi Okumura (seal) Outside Audit & Supervisory Board Member, Kesao Endo (seal) Outside Audit & Supervisory Board Member, Keizo Tannawa (seal) Outside Audit & Supervisory Board Member, Tomohiro Katayama (seal)
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