Rinnai Corporation Securities Code: 5947
Notice of Convocation of the 66th Ordinary General Shareholders’ Meeting to Be Held on June 28, 2016
DATE AND TIME Tuesday, June 28, 2016 at 10:00 a.m.
PLACE 7F (“Tsubaki-no-ma” Room), Meitetsu New Grand Hotel 6-9, Tsubaki-cho, Nakamura-ku, Nagoya-shi
Matters for Resolution First Item on the Agenda: Approval of the proposed appropriation of retained earnings Second Item on the Agenda: Election of eight (8) directors Third Item on the Agenda: Election of four (4) audit & supervisory board members Fourth Item on the Agenda: Election of one (1) substitute audit & supervisory board member
Contents Notice of Convocation of the 66th Ordinary General Shareholders’ Meeting (Attachment) 02 Business Report 05 Consolidated Financial Statements 21 Nonconsolidated Financial Statements 33 Independent Auditors’ Report 40 Guide to Voting 44
This document has been prepared as a guide for non-Japanese investors and contains forward-looking statements that are based on management’s estimates, assumptions and projections at the time of publication. A number of factors could cause actual results to differ materially from expectations. This document is a translation of the Japanese-language original.
1 Securities Code: 5947 June 6, 2016 To the Shareholders of Rinnai Corporation Hiroyasu Naito President Rinnai Corporation 2-26, Fukuzumi-cho, Nakagawa-ku, Nagoya-shi, Aichi 454-0802, Japan
Notice of Convocation of the 66th Ordinary General Shareholders’ Meeting to Be Held on June 28, 2016
You are cordially invited to attend the 66th Ordinary General Shareholders’ Meeting of Rinnai Corporation (the “Corporation”). Details of the meeting are given below. In the event that you are unable to attend the meeting, you can exercise your voting rights in written form or by electromagnetic method (the Internet and mobile phone), as stated on the page 3 - 4. The forms must arrive at the Corporation no later than 5:20 p.m. on Monday, June 27, 2016.
1. DATE AND TIME Tuesday, June 28, 2016 at 10:00 a.m. 2. PLACE 7F (“Tsubaki-no-ma” Room), Meitetsu New Grand Hotel 6-9, Tsubaki-cho, Nakamura-ku, Nagoya-shi 3. AGENDA Matters for Reporting: 1. The Business Report, report on the Consolidated Financial Statements, and the results of the audit of the Consolidated Financial Statements by the Independent Auditor and the Audit & Supervisory Board Member for the 66th Fiscal Year (from April 1, 2015, to March 31, 2016). 2. Report on the Nonconsolidated Financial Statements for the 66th Fiscal Year (from April 1, 2015, to March 31, 2016). Matters for Resolution: First Item on the Agenda: Approval of the proposed appropriation of retained earnings Second Item on the Agenda: Election of eight (8) directors Third Item on the Agenda: Election of four (4) Audit & Supervisory Board members Fourth Item on the Agenda: Election of one (1) substitute Audit & Supervisory Board member -END-
-For those planning to attend the meeting in person, please submit the attached Exercise of Voting Rights form at the reception desk upon your arrival. -Any changes to attached Shareholder Reference Materials, Consolidated Financial Statements and other financial documents will be posted on the Corporation’s website (http://www.rinnai.co.jp).
2 Guide to Exercise of Voting Rights
You can exercise your voting rights by the following three means.
[Exercise of voting rights by attending the meeting in person] Please submit the enclosed Exercise of Voting Rights Form at the reception desk upon your arrival. 1. DATE AND TIME: Tuesday, June 28, 2016 at 10:00 a.m. 2. PLACE: 7F (“Tsubaki-no-ma” Room), Meitetsu New Grand Hotel 6-9, Tsubaki-cho, Nakamura-ku, Nagoya-shi
[Exercise of voting rights by mail] Please indicate your approval or disapproval of the proposals on the enclosed Voting Rights Form, and mail the Form to the Corporation. The form does not need any stamps. Deadline: Arriving to the Corporation by 5:20 p.m. on Monday, June 27, 2016
[Exercise of voting rights by Internet and others ] Please access the Online Voting Website from your computer, smart phone or mobile phone. First use the “Code” and “Password” shown on the enclosed Voting Rights Form, then follow the instructions on the screen and enter your approval or disapproval of the proposal. Website URL to exercise voting rights: http://www.web54.net (Japanese only) Deadline: Received by the Corporation by 5:20 p.m. on Monday, June 27, 2016 1. Voting rights may be exercised via the Internet only by accessing the following Online Voting Website designated by the Corporation.
2. The deadline for exercising voting rights is 5:20pm on Monday, June 27, 2016.
We recommend you exercise your voting rights earlier.
3. Any costs arising from access to the Online Voting Website for exercising voting rights (such as Internet connection fees) shall be borne by the shareholder.
3 Notice for exercising voting rights 1. If you have exercised your voting rights more than once, the last exercise of voting rights shall be deemed valid. If the voting form arrives at the Corporation on the same day that you vote by mail and internet, the online vote shall take precedence.
2. The Code on the Voting Form is valid for this Ordinary General Shareholders’ Meeting
only.
3. If an incorrect password is used more than a specified number of times, it will become inoperative. Shareholders who wish to have a new password issued are asked to apply by following the instructions on the screen. 4. The ability to exercise voting rights via personal computer or smartphone is dependent upon network environment and access may be hindered if your environment features a firewall is set for the Internet connection, antivirus software has been installed or a proxy server is used. 5. Should you be unsure of how to operate your personal computer or mobile phone in relation to exercising your voting rights using electromagnetic means, please contact the support desk at the number indicated below.
[For institutional investors] Institutional investors are also eligible to exercise voting rights via the “Electronic Voting Platform” run by ICJ, Inc.
Transfer Agent Web Support, Sumitomo Mitsui Trust Bank, Limited Contact Direct dial in Japan: 0120-652-031 (Hours: 9:00 am–9:00 pm, Toll Free)
4 Business Report April 1, 2015, to March 31, 2016
1. Consolidated Business Overview (1) Consolidated Business Results In the fiscal year ended March 31, 2016, the world economy took on increasing downside risk due to various factors. These included economic stagnation in China stemming from slowdowns in domestic demand and exports, the impact of which reverberated across many other economies, including in North America, Europe, and Southeast Asia. Meanwhile, the outlook for the Japanese economy remained unclear amid lack of momentum in consumer sentiment, despite improvements in corporate earnings and worker income conditions. The domestic housing appliance industry performed well, buoyed by an upward trend in new housing starts stemming from various government measures to support residential purchases, while replacement demand for housing appliances firmed as consumers looked for improvements in convenience and environmental performance. Under these conditions, the Rinnai Group embarked on a new medium-term business plan, entitled Evolution and Succession 2017, which began in April 2015. Under the plan, we will ensure the “succession” of our corporate culture and spirit attained through our history, while emphasizing “evolution” of our business model so we can create new products and services that benefit society. With respect to revenue, we reported a year-on-year increase in net sales thanks to solid sales of water heaters in Japan, United States, and China, as well as good progress in expanding our business in Australia and favorable foreign exchange factors. On the earnings side, we posted increased profit due to higher overseas sales, as well as improved added value stemming from cost reduction efforts. As a result, consolidated net sales for the year amounted to ¥319,935 million, up 8.4% from the previous year. Operating income grew 12.4%, to ¥34,593 million, and ordinary income climbed 8.7%, to ¥35,807 million. Net income attributable to owners of the parent company rose 10.0%, to ¥22,710 million.
Our results by geographical segment were as follows: Japan In Japan, sales of water heaters were solid overall, and our ECO ONE hybrid water heaters with heating systems saw increased take-up from our distributors. In kitchen appliances, new built-in hobs (stovetops) with upgraded grilling functions performed well. As a result, sales in Japan amounted to ¥178,781 million, up 1.5% from the previous year. Operating income rose 9.5%, to ¥23,007 million.
South Korea In South Korea, we enjoyed increased sales of high-efficiency boilers in the water heater category. Meanwhile, our kitchen appliances performed well as demand for cookers bottomed out and started showing a gradual recovery trend. Accordingly, sales in South Korea rose 6.1%, to ¥33,888 million, and operating income grew 2.9%, to ¥1,499 million.
United States In the United States, tankless water heaters, which offer superior convenience, continued to proliferate as the market for housing appliances expanded in the wake of economic recovery. 5 We also benefited from a rise in unit prices, stemming from an increase in the sales ratio for high-efficiency models, together with favorable foreign exchange factors. As a result, sales in the United States increased 27.3%, to ¥22,602 million, and operating income jumped 78.1%, to ¥1,817 million.
Australia Buoyed by a healthy local economy, in Australia we enjoyed solid sales of mainstay tankless water heaters, as well as business growth for solar systems and commercial water heaters. During the year, Brivis Climate Systems Pty Ltd became a consolidated subsidiary. As a result, sales in Australia jumped 50.8%, to ¥23,092 million. Due to depreciation of goodwill associated with the acquisition of Brivis Climate Systems, however, operating income declined 14.7%, to ¥1,148 million.
China Despite local economic slowdown sentiment in China, we benefited from expansion of gas infrastructure, a broader sales network, and rising living standards in interior cities. The result was growth in sales of gas appliances, especially water heaters. Consequently, sales in China increased 26.1%, to ¥31,966 million, and operating income rose 26.1%, to ¥2,659 million.
Indonesia In Indonesia, year-on-year revenue declined amid sluggish economic growth and weak personal consumption, while demand for tabletop cookers tapered after reaching a certain level of market proliferation. As a result, sales in Indonesia edged down 1.1%, to ¥11,038 million. However, operating income increased 1.5%, to ¥1,320 million, thanks to healthy sales of built-in hobs (stovetops) offering high added value.
Consolidated net sales and operating income by reporting segment (Millions of yen) 65th fiscal year 66th fiscal year (previous fiscal year) (current fiscal year) Change (April 1, 2014, (April 1, 2015,
to March 31, 2015) to March 31, 2016) Operating Operating Net Operating Net sales Net sales income income sales income Japan 176 ,087 21,006 178,781 23,007 1.5% 9.5% South Korea 31 ,928 1,457 33,888 1, 499 6.1 2.9 United States 17,754 1,020 22,602 1, 817 27.3 78.1 Australia 15, 310 1,3 45 23,092 1,148 50.8 (14.7 ) China 25 ,353 2,108 31,966 2,659 26.1 26.1 Indonesia 11,165 1, 300 11,038 1,320 (1.1) 1.5 Others 17,421 2,455 18,567 2,799 6.6 14.0 Adjustments — 92 — 341 — 271.3 Net sales on the consolidated 295,022 30,787 319,935 34,593 8.4 12.4 statements of income Notes: 1. “Others” includes sales from subsidiaries in Taiwan, Thailand, Vietnam, New Zealand, Brazil and other regions. 2. “Net sales” are sales to external customers, and “Adjustments” under “Operating income” are the intersegment transactions to eliminate.
6 A breakdown by product shows that sales in the water heaters segment totaled ¥169,623 million, up 10.4% year-on-year; kitchen appliances, ¥93,340 million, up 2.8%; home heaters, ¥19,463 million, up 30.0%; commercial-use equipment, ¥ 10,041 million, up 8.8%; other products, ¥27,466 million, up 4.5%.
Net sales by product (Millions of yen) 65th fiscal year 66th fiscal year (previous fiscal year) (current fiscal year) Change (April 1, 2014, (April 1, 2015, to March 31, 2015) to March 31, 2016) Amount % of total Amount % of total (%) Water heaters 153 ,697 52.1 169,623 53,0 10.4 Kitchen 90,838 30.8 93,340 29.2 2.8 appliances Home heaters 14,972 5. 1 19,463 6. 1 30.0 Commercial -use 9,227 3.1 10,041 3.1 8.8 equipment Othe rs 26,287 8.9 27,466 8.6 4.5 Total 295 ,022 100.0 319,935 100.0 8.4
(2) Consolidated Capital Expenditures In the period under review, the Group’s total capital expenditures amounted to ¥16,938 million. Funds were applied primarily to tools and fixtures, and equipment including molds for new products; renewal and rationalization of machinery and equipment aimed at cost reduction and quality improvement.
(3) Consolidated Fund Procurement There was no significant new fund procurement during the period under review.
(4) Issues Requiring Our Attention In the year ahead, we expect the world economy to continue recovering moderately, but economic growth in China and elsewhere in Asia will remain weak. In Japan, there are concerns that the earnings of exporting companies will deteriorate amid indications of an appreciating yen. However, we anticipate some increase in demand driven by a purchasing rush ahead of the next consumption tax hike. Under these circumstances, the Rinnai Group is implementing its medium-term business plan, entitled Evolution and Succession 2017, which began in April 2015. Under the plan, we will promote the “succession” of the “Rinnai Spirit” in order to continue stable business operations, while emphasizing “evolution” so we can respond to changes anticipated in the new era. By innovating our business model while preempting various changes in the business environment, we aim to create new products and services and thus firmly establish Rinnai as a comprehensive manufacturer of heat and energy appliances. In Japan, we will strengthen sales of products with exceptional environmental performances and energy efficiency. These include our ECO ONE hybrid water heater with heating system that uses electricity and gas separately with high efficiency, and our Eco Jozu series of highly efficient water heaters. We will also improve our planning and consulting capabilities with respect to water heaters with heating systems (and their peripherals) that use hot water for multiple purposes, as well as system-based offerings, such as stoves and range hoods for system kitchens. Overseas, we will bolster sales to match rising demand for heat-related products. These include gas water heaters in China and the
7 United States and kitchen appliances in Asia. We look forward to the renewed support and cooperation of all shareholders.
(5) Changes in Performance and Assets (¥ millions / except where noted) 63rd fiscal year 64th fiscal year 65th fiscal year 66th fiscal year (Year ended (Year ended (Year ended (Year ended March 31, March 31, March 31, March 31, 2013) 2014) 2015) 2016) (current fiscal year) Net sales 251,832 286,981 295,022 319,935 Ordinary income 29,064 36,910 32,938 35,807 Net income attributable to 19,371 23,254 20,647 22,710 owners of the parent company Net income per 394.86 454.74 397.03 436.71 share (yen) Total assets 262,590 334,382 357,506 370,246 Net assets 178,007 232,635 261,414 271,709 Net assets per 3,516.11 4,245.48 4,742.42 4,924.24 share (yen) Note: 1. Net income per share is calculated using the average number of shares outstanding during the fiscal year, and net assets per share is calculated using the number of shares outstanding at fiscal year-end. Number of outstanding shares excludes treasury stock. 2. From the fiscal year under review, the Corporation has applied “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, September 13, 2013). Accordingly, “net income” is stated as “net income attributable to owners of the parent company.”
(6) Significant Subsidiaries (As of March 31, 2016) The Corporation’s Name Capital Primary Business Holdings Yanagisawa Manufacture and sale of ¥150 million 100.0% Manufacturing Co., Ltd. gas appliances Rinnai Technica Co., Manufacture and sale of ¥200 million 100.0% Ltd. gas appliances Manufacture and sale of RB Controls Co., Ltd. ¥150 million 100.0% electronic control units Rinnai Precision Co., Manufacture and sale of ¥128 million 92.2% Ltd. gas appliance components Rinnai Net Co., Ltd. ¥300 million 100.0% Sale of gas appliances RG Co., Ltd. ¥150 million 51.0% Sale of gas appliances Rinnai Australia Pty., Manufacture and sale of A$2 million *100.0% Ltd. gas appliances Rinnai America US$11 million 100.0% Sale of gas appliances Corporation Rinnai Korea 15,107 million Manufacture and sale of *100.0% Corporation won gas appliances Shanghai Rinnai Co., Manufacture and sale of 74 million yuan 50.0% Ltd. gas appliances 3,085 million Manufacture and sale of P.T. Rinnai Indonesia 52.0% rupiah gas appliances * Percentage of shares includes shares held indirectly by subsidiaries.
8 (7) Principal Business (As of March 31, 2016) The Group is primarily engaged in the manufacture and sale of gas appliances and related businesses. Principal products by division are as follows: Division Principal Products Water heaters, Japanese-style bath heating systems, water heater Water heaters with heating system, and hybrid water heaters with heating system Tabletop cookers, built-in hobs, ovens, dishwashers, range hoods, Kitchen appliances and rice cookers Home heaters Fan heaters, fanned flue heaters, and infrared heaters Commercial-use Commercial-use ceramics griller, commercial-use ranges, and rice equipment cookers
Others Clothes dryers, infrared burners, and components
(8) Major offices and production facilities (As of March 31, 2016) (a) Parent Company Name Address Head office Nakagawa-ku, Nagoya-shi Technology Development Center Oguchi-cho, Niwa-gun, Aichi Head office and Production Technology Center Komaki-shi, Aichi related centers Integrated Logistics Center Komaki-shi, Aichi Rinnai Parts Center Iwakura-shi, Aichi Oguchi Factory Oguchi-cho, Niwa-gun, Aichi Seto Factory Seto-shi, Aichi Factories Akatsuki Factory Seto-shi, Aichi Asahi Factory Owariasahi-shi, Aichi Tohoku Wakabayashi-ku, Sendai-shi Kanto Shinagawa-ku, Tokyo Sales Branches Chubu Nakagawa-ku, Nagoya-shi Kansai Yodogawa-ku, Osaka-shi Kyushu Hakata-ku, Fukuoka-shi (b) Subsidiaries Name Address Yanagisawa Manufacturing Co., Ltd. Kadoma-shi, Osaka Rinnai Technica Co., Ltd. Minato-ku, Tokyo RB Controls Co., Ltd. Kanazawa-shi, Ishikawa Rinnai Precision Co., Ltd. Komaki-shi, Aichi Rinnai Net Co., Ltd. Nakagawa-ku, Nagoya-shi RG Co., Ltd. Shinagawa-ku, Tokyo Rinnai Australia Pty., Ltd. Melbourne, Victoria, Australia Rinnai America Corporation Peachtree City, Georgia, United States Rinnai Korea Corporation Incheon, South Korea Shanghai Rinnai Co., Ltd. Shanghai, People’s Republic of China P.T. Rinnai Indonesia Jakarta, Indonesia
9 (9) Number of Consolidated Employees (As of March 31, 2016) Increase (decrease) Number of employees from previous fiscal year-end 9,940 +258 Notes: The above figures do not include temporary employees. The average number of temporary employees during the fiscal year was 3,692.
2. Stock Information (As of March 31, 2016) (a) Number of authorized shares: 200,000,000 (b) Number of issued shares: 52,002,564 (Excluding 213,899 shares of treasury stock) (c) Number of shareholders: 3,831 (d) Major shareholders (top 10) Number of shares Shareholding ratio Name of shareholders (thousand) (%) Naito Co., Ltd. 6,215 11.95 Yoshikane Shoji Co., Ltd. 4,002 7.69 The Master Trust Bank of Japan, Ltd. 3,786 7.28 (Trust Account) Kenji Hayashi 2,502 4.81 Japan Trustee Services Bank, Ltd. 2,082 4.00 (Trust Account) Japan Trustee Services Bank, Ltd. 1,970 3.78 (Trust Account 9) Tokyo Gas Company, Limited 784 1.50 Nippon Life Insurance Company 720 1.38 Rinnai Kyoshin-kai 596 1.14 Yukimi Naito 550 1.05 Note: Shareholding ratios are calculated by number of shares excluding treasury stock.
3. Stock Acquisition Rights There is no applicable information.
10 4. Board of Directors and Auditors of Rinnai Corporation (1) Name of Directors and Audit & Supervisory Board Members (As of March 31, 2016) Position at Other Institutions or Position Name Major Profession Chairman, RB Controls Co., Ltd. Chairman, Rinnai Precision Co., Ltd. *Chairman Susumu Naito Chairman, Rinnai Korea Corporation Chairman, Rinnai Vietnam Co., Ltd. *Vice Chairman Kenji Hayashi *President and Executive Hiroyasu Naito Officer In charge of Research & Development Headquarters, Production Headquarters, *Director and Executive Overseas Business Headquarters, General Tsunenori Narita Vice President Manager of Marketing & Sales Headquarters, and President of Rinnai Net Co., Ltd. General Manager of Administration Director and Managing Headquarters, and General Manager of Masao Kosugi Executive Officer Corporate Planning Division President, Rinnai Enterprises Director and Managing General Manager of Research & Yuji Kondo Executive Officer Development Headquarters Professor under chancellor at Chubu University Outside Director at Fuji Machine MFG. Director Nobuyuki Matsui Co., Ltd. Outside Director at Aichi Tokei Denki Co., Ltd. Audit & Supervisory Board Yasuhiko Goto Member (Standing auditor) Audit & Supervisory Board Toshinori Tsutsumi Member (Standing auditor) Audit & Supervisory Board Kiyoakira Fukui President, Kiyoakira Fukui CPA Office Member Audit & Supervisory Board President of Nankan, Kitagawa & Ito Kinya Nankan Member Legal Office Notes: 1. Directors denoted by asterisk (*) have representative status. 2. Nobuyuki Matsui is an outside director. 3. Kiyoakira Fukui and Kinya Nankan (Audit & Supervisory Board Members) serve as outside auditors. 4. Mr. Fukui is a certified public accountant and has considerable knowledge about accounting and finance. 5. The Corporation has notified the Tokyo Stock Exchange and the Nagoya Stock Exchange that Mr. Matsui and Mr. Fukui satisfy the conditions for independent officer.
11 (2) Summary of liability-limiting agreements In accordance with the provisions of Article 427, Paragraph 1, of the Corporate Law, one outside director and two outside members of the Audit & Supervisory Board have signed agreements that limit liability for damages as provided for in Article 423 of the same law. The limit of liability for damages, based on these agreements, is an amount prescribed by law.
(3) Remuneration for Directors and Audit & Supervisory Board Members Recipients Remuneration (persons) (Millions of yen) Directors 7 383 (including outside directors) (1) (7) Audit & Supervisory Board Members 4 39 (including outside members) (2) (11) Total 11 422 Notes: 1. Remuneration for directors does not include the employee portion in the case of directors who serve concurrently as employees. 2. Per resolution of the 58th Ordinary General Shareholders’ Meeting held on June 27, 2008, the combined remuneration for directors is limited to ¥45 million per month (excluding the employee portion in the case of directors who serve concurrently as employees). 3. Per resolution of the 58th Ordinary General Shareholders’ Meeting held on June 27, 2008, the combined remuneration for Audit & Supervisory Board Members is limited to ¥5 million per month. 4. As of March 31, 2016, the Corporation had seven (7) directors, including one (1) outside member and four (4) Audit & Supervisory Board members, including two (2) from outside.
(4) Items Related to Outside Executives (a) Director: Nobuyuki Matsui i. Serving concurrently in important positions at other companies, etc., and the relationship between the Corporation and these companies, etc.: Mr. Matsui is a professor under the chancellor at Chubu University, an outside director at Fuji Machine MFG. Co., Ltd. and an outside director at Aichi Tokei Denki Co., Ltd. The Corporation has no special relationships with either of these organizations. ii Main activities in the year under review: Attended fourteen (14) of the 16 Board of Directors’ meetings held during the year, providing impartial advice mainly from a scholarly perspective based on his experience as a professor and president of a university.
(b) Audit & Supervisory Board Member: Kiyoakira Fukui i. Serving concurrently as executive director at another company and relationship between the Corporation and the other company: Mr. Fukui is President of the Kiyoakira Fukui CPA Office. The Corporation has no special relationship with the Kiyoakira Fukui CPA Office. ii. Main activities in the year under review: Attended fifteen (15) of the 16 Board of Directors’ meetings and all meetings of the Audit & Supervisory Board (14 times) held during the year, providing impartial advice mainly from accounting and taxation perspectives.
12 (c) Audit & Supervisory Board Member: Kinya Nankan i. Serving concurrently in important positions at other companies, and the relationship between the Corporation and these companies: Mr. Nankan is President of Nankan, Kitagawa & Ito Legal Office. The Corporation has no special relationship with Nankan, Kitagawa & Ito Legal Office. ii. Main activities in year under review: Attended fourteen (14) of the 16 Board of Directors’ meetings and thirteen (13) of the 14 meetings of the Audit & Supervisory Board held during the year, providing impartial advice mainly from legal perspectives.
5. Status of Independent Auditor (1) Name of independent auditor Deloitte Touche Tohmatsu LLC
(2) Compensation to independent auditor in the year under review (Millions of yen) Compensation for services as independent auditor 37 Total monetary and other financial profits paid by the Corporation and its 48 subsidiaries Notes: 1. Under the agreement between the Corporation and its independent auditor, there is no clear distinction between compensation for audits under the Corporate Law and audits under the Financial Instruments and Exchange Law. For this reason, only the total compensation amounts to the independent auditor are listed here. 2. Among major subsidiaries, Rinnai Korea Corporation and other overseas subsidiaries have different independent auditors. 3. Some subsidiaries paid fees to the independent auditor for accounting guidance and consultation services that fall outside the provisions of first clause of Article 2 of the Certified Public Accountant Law.
(3) Reason Audit & Supervisory Board Agrees to Compensation for Independent Auditor The Audit & Supervisory Board reviewed and discusses such aspects as the content of the audit plan by the independent auditor, the execution of duties by the independent auditor, and the basis for calculation of compensation estimates, and agreed that compensation to the independent auditor was in line with Article 399, Paragraph 1 of the Corporation Law.
(4) Policy on removal or non-reappointment of independent auditor If the Audit & Supervisory Board finds it necessary, due to an obstacle that prevents the independent auditor from properly executing required duties or due to some other issue of consequence, the Audit & Supervisory Board will prepare the content of an agenda item on the dismissal or non-reappointment of the independent auditor to be put before the general meeting of shareholders. In addition, the Audit & Supervisory Board will dismiss the independent auditor upon the consent of all members of the Audit & Supervisory Board, if the independent auditor falls subject to any of the provisions in Article 340, Paragraph 1 of the Corporate Law. In this event, a member of the Audit & Supervisory Board, chosen among board members, will give a report on the purpose for dismissing the independent auditor and associated background at the first general meeting of shareholders that convenes after the dismissal.
13 6. Systems to Ensure Appropriateness of Business Activities and Operational Status of the System (1) An overview of systems to ensure appropriateness of business activities An overview of systems to ensure that execution of business by directors conforms to legal regulations and the Articles of Incorporation, as well as systems to ensure appropriateness of other business activities, is given below.
(a) System to ensure that execution of business by directors and employees conforms to legal regulations and the Articles of Incorporation - To ensure that directors and employees are constantly aware of the need to observe legal regulations and the Articles of Incorporation when executing their duties, the Corporation has formulated the Rinnai Group Code of Ethics, which consists of the Corporation motto, the Rinnai’s Mission, the Rinnai Charter, and the Rinnai Code of Conduct. The Corporation shall work to ensure that all directors and employees are fully familiarized with the Rinnai Group Code of Ethics. - In addition to establishing the Business Ethics Committee to build, maintain and improve its internal control system, the Corporation shall build and maintain an effective compliance system. - If a director becomes aware of an incident in which there is suspicion of a major legal violation, he or she shall immediately report the incident to the Audit & Supervisory Board and the Board of Directors. - The Corporation has set up a business ethics hotline as an internal reporting system to handle incidents in which there is suspicion of a major legal violation. Operation of the hotline is based on the Corporation’s business ethics manual. - If an Audit & Supervisory Board Member believes there is a problem with the Corporation’s legal compliance system or internal hotline, he or she shall convey his or her opinion and seek measures to correct the situation.
(b) System for storing and managing information related to the execution of duties by directors - Information related to the execution of duties by directors shall be stored and managed appropriately according to the Corporation’s internal procedures for managing paper and electronic documents, in a manner appropriate to its storage medium and in an easily retrievable form.
(c) Regulations and other systems for managing the risk of loss - As part of its risk management system, the Corporation shall determine risk management regulations and promote internal checks and awareness activities to prevent the occurrence of risk, under the Risk Management Committee chaired by the president. Risk managers shall be assigned to deal with specific types of risk, and a risk management system shall be set up according to the relevant provisions.
(d) System to ensure efficient execution of duties by directors - To ensure that directors execute their duties in an efficient manner, meetings of the Board of Directors shall be held on a regular basis to discuss and debate important matters and make executive decisions. - Directors formulate management strategy and track the progress of management plans at the 14 group-wide executive meeting held every year. - Execution of business based on decisions made at Board of Directors meetings shall be performed by the relevant director according to the Corporation’s rules and procedures. - The Corporation formulates the management direction, management plan and management numerical target in each fiscal year, based on the medium-term management plan, medium-term numerical target, and management indicators. Each department formulates an action plan, according to the Corporation-wide plan and target for each fiscal year, and the Corporation practices consistent management of each department.
(e) System to ensure appropriate operations in the corporate group (parent company and subsidiaries) - To ensure that business at Rinnai Group companies is conducted appropriately, the Corporation shall formulate a Code of Ethics for Rinnai Group Companies to serve as a behavioral guide for Group members. Based on the Charter, Group companies shall create their own specific regulations. - Business control of Rinnai Group companies shall be based on procedures and reporting rules determined by provisions for controlling Rinnai Group companies. - If a director becomes aware of a legal violation or other major compliance-related incident at a subsidiary, he or she shall immediately report the incident to the Audit & Supervisory Board and the Board of Directors.
(f) System for employees when requested to support the Audit & Supervisory Board; system to ensure independence from directors - If an Audit & Supervisory Board Member makes a request for an employee to provide support, an employee from the Internal Control Office shall be assigned to concurrently provide such support to the Audit & Supervisory Board Member, and the assigned person shall also be responsible for duties within Office of the Audit & Supervisory Board. However, the assigned person shall not accept instructions or commands related to said support duties from superior officers in the department from which he or she was assigned. - Changes in personnel and assessment of performance of assigned persons from the Internal Control Office serving concurrently as support staff for an Audit & Supervisory Board Member shall require the consent of the Audit & Supervisory Board.
(g) System for reporting by directors and employees to Audit & Supervisory Board Members, other systems concerning reporting to Audit & Supervisory Board Members, and other system to ensure effective execution of duties by Audit & Supervisory Board Members - Directors and employees shall report immediately to the Audit & Supervisory Board incidents that could cause significant damage to the Corporation’s operations or its business performance. Moreover, Audit & Supervisory Board Members can request reports from directors and employees at any time as required. - The Audit & Supervisory Board shall hold regular meetings with the Board of Directors, Internal Control Office, and independent auditor to exchange opinions and ensure proper communication of intentions.
15 (h) System to ensure that individuals who have made reports to the Audit & Supervisory Board as described in (7) above will not be treated unfavorably (put at a disadvantage) on the basis of such reports - Every effort shall be made to ensure that directors and employees of the Corporation and its subsidiaries, who report information to a member of the Audit & Supervisory Board, will not be treated unfavorably on the basis of the report given.
(i) Matters concerning procedures for advance payment or reimbursement of expenses incurred by a member of the Audit & Supervisory Board in the process of executing duties and any other policy for processing costs and obligations - Costs incurred in the process of executing duties by a member of the Audit & Supervisory Board shall be covered by the Corporation.
(2) An overview of the operational status of systems to ensure appropriateness of business activities An overview of operational status of systems to ensure appropriateness of business activities at the current fiscal term are given below.
(a) Matters related to compliance • The Corporation revised the Rinnai Group Code of Ethics, which it established, printed an update—the fourth edition—and distributed copies to directors and employees of the Corporation and Group companies. • During Corporate Ethics Month, an opportunity created by the Corporation to reinforce ethics, all employees read the Rinnai Code of Conduct together, to ensure deeper awareness of ethics and appropriate conduct. A questionnaire survey was implemented to gauge the level of employee awareness. • The Corporation ran lectures by lawyers for compliance committee members in each division in an effort to raise awareness of legal and regulatory compliance and thereby underpin in-house compliance practices. • The Corporation maintains an internal reporting system, based on a manual for this purpose, and logged no reports of suspected serious legal or regulatory violations.
(b) Matters related to risk management • The Risk Management Committee, comprising executive officers and divisional heads and chaired by the president, met every quarter, and each person with responsibility gave a report on the implementation status of in-house checks and associated improvement pertaining to risk-related issues within the Corporation and at Group companies. The content was reviewed, information was shared, and efforts were made to prevent potential risks from becoming reality.
(c) Matters related to execution of duties by directors • During the current fiscal year, he Board of Directors met 16 times, including irregular meetings, to discuss and approve key agenda items and to receive business reports. • The Executive Committee, attended by executives responsible for operating divisions at the Corporation and at Group companies, met quarterly to review progress on annual business plans and to confirm status toward achieving goals and any issues requiring attention. • The minutes of Board of Directors’ meetings and Executive Committee meetings, along with approval documents, in written form were properly stored and managed.
16 (d) Matters related to appropriateness of the Group’s business • Key business management issues at Group companies were properly handled in accordance with approval rules established under Management Rules for Subsidiaries. Also, through regular opportunities to provide updates on business activities and the delivery of monthly reports, the Corporation was able to confirm the status of progress on fiscal management plans and pinpoint issues requiring attention. • Internal audits by the Internal Control Office and relevant divisions were carried out based on plans drafted to match the business content and operating scale of each Group company.
(e) Matters related to audits by members of the Audit & Supervisory Board • Members of the Audit & Supervisory Board performed business audits based on audit plans to ensure the appropriateness of business activities by the Corporation and Group companies. • Members of the Audit & Supervisory Board attended meetings of the Board of Directors and the Executive Committee, and stated opinions, as necessary. In addition, members of the Audit & Supervisory Board looked over request documents (ringi ) for circulating to executives in lieu of a meeting to obtain approval for some action as well as monthly business reports and the minutes of important meetings, and confirmed the content of such materials. • Members of the Audit & Supervisory Board communicated with the independent auditor and exchanged opinions regarding the audit plan proposed by the independent auditor and the results obtained through the audit. In addition, members of the Audit & Supervisory Board exchanged opinions with the representative director and the Internal Control Office. • Costs incurred by members of the Audit & Supervisory Board in the course of their work were swiftly processed as corporate expenses.
7. Basic Policy on Control of Joint Stock Companies The Corporation’s basic policy on the control of joint stock companies is given below.
(1) Basic policy concerning people who control decisions on the Corporation’s financial and business policies The Corporation believes, in principle, that the share certificates, etc. of the Corporation, as a listed company, should be freely sold and purchased in the market, and that its shareholders should make the final decisions of their own will as to whether or not they sell their shares, etc. in the Corporation in response to a large-scale purchase proposal made by a person or entity to conduct a large-scale purchase of share certificates, etc. of the Corporation. Consequently, the Corporation would not flatly refuse such a large-scale purchase proposal if it truly contributes to ensuring and raising the corporate value of the Corporation and the common interests of the shareholders. However, in the case where a large-scale purchase of share certificates, etc. is conducted unilaterally, without sufficient prior negotiations with or the consent of the Board of Directors of the Corporation and without the sufficient disclosure of information such as the purpose of the proposed purchase and management policies after the purchase, the Corporation is concerned that the shareholders who hold the share certificates, etc. of the Corporation might have difficulty ensuring sufficient time and information for their appropriate decision making as to whether or not they should accept such a large-scale purchase proposal, in view of such alarming circumstances. The Corporation believes that any person or entity seeking to purchase its shares in a manner that is likely to harm its corporate value and the common interests of its shareholders is not an appropriate person to control the Corporation’s decisions on financial and business policies. The Corporation believes that adopting an appropriate defense mechanism against such persons making large-scale purchases is necessary to protect its corporate value and the 17 common interests of its shareholders.
(2) Special initiatives for implementing basic policy Leveraging its stable earnings foundation, the Corporation is committed to strengthening its competitive position and raising levels of satisfaction among all stakeholders based on medium- and long-term perspectives. In these ways, Rinnai will strive to maintain and improve corporate value and to safeguard the common interests of shareholders, in order to encourage investment from a diverse range of investors. In the belief that such actions will facilitate implementation of its basic policy, the Corporation is pursuing the following initiatives. In the 96 years since its foundation in 1920, the Corporation has actively contributed through its businesses to improving people’s lives in the fields of water heaters, kitchen appliances, and home heaters with its sophisticated heat-utilization technologies and a passion for monozukuri , or manufacture and fabrication. Its continuous steady growth has been firmly supported by its mission of supplying a heat-based comfortable life for society on the basis of its original corporate philosophies: “Quality is our destiny” and “Wa-Ki-Shin (harmony, spirit and truth).” All Group companies in Japan and overseas have made concerted efforts to sustain corporate development by pursuing the stable supply of high-quality products and services to create comfortable lifestyles under the banner of the Rinnai brand. Regarding our overseas business operations, we have achieved solid performances for more than 40 years. As a consequence, we have established overseas production and sales bases in 16 countries and our foreign sales ratio has exceeded 40%. This is one of the defining features of the Corporation in the gas appliance industry. To continue improving corporate value, the Corporation must consistently execute a “customer’s priority on quality” and supply “environmentally friendly products” by focusing on safety and peace of mind, the environment, saving energy, and considerations to health and our aging society—all of which the Corporation has tackled for years. At the same time, the Corporation believes it must establish high standards to ensure a profit foundation and a growth strategy based on medium- and long-term perspectives, supported by the “reinforcement of our competitive edge through technological innovations.” In view of the historical background of the Corporation’s businesses and its desired future directions, management drafted “Evolution and Succession 2017,” a medium-term business plan ending this year—fiscal 2017—and is working to sustain the Rinnai spirit cultivated long ago and maintain stable business growth into the future while also evolving to meet the changes of a new era that are sure to emerge. In addition, the Rinnai Group will strive to achieve a consolidated operating income ratio of 10% or higher and a consolidated return on equity (ROE) of 10% or higher, while emphasizing increased profitability and capital efficiency in its core businesses by strengthening Groupwide collaboration. Rinnai regards reinforcement of corporate governance to be an important management issue. With this in mind, we will flexibly build an optimal management framework capable of addressing changes in the business environment. In addition, we have shortened the term of directors to one year, in order to further clarify their responsibilities on an annual basis and increase opportunities to confirm the confidence of shareholders in the elected management team.
(3) Measures to prevent decisions on financial and business policies from being controlled by inappropriate persons, in light of basic policy In light of its basic policy, the Corporation is taking steps to prevent decisions on financial and business policies from being controlled by inappropriate parties. When a person or entity makes 18 a large-scale purchase of the Corporation’s shares, etc., Rinnai believes that all shareholders should be given ample information and time to decide whether or not to take action in consideration of the Corporation’s specific characteristics, and should also be given full opportunity to negotiate with the purchaser. Therefore, the Corporation decided it was necessary to establish specific rules for use when a person or entity attempts to make large-scale purchases of shares, etc. The Board of Directors of Rinnai Corporation resolved the “Policy (Actions against Corporate Acquisition) toward Large-Scale Purchases of Share Certificates, etc., of Rinnai Corporation” at its meeting held on May 13, 2008, which was approved by shareholders at the 58th Ordinary General Shareholders’ Meeting held on June 27 of the same year. Following introduction, it has remained in force through resolution by the Board of Directors at its meeting on May 11, 2011, and shareholder approval at the 61st Ordinary General Shareholders’ Meeting on June 29 of the same year. These measures (hereafter, “This Plan” as the partially revised “Policy (Actions against Corporate Acquisition) toward Large-Scale Purchases of Share Certificates, etc., of Rinnai Corporation”) were again approved, by the Board of Directors at its meeting on May 9, 2014, and by shareholders at the 64th Ordinary General Shareholders’ Meeting on June 27 of the same year, and continue to remain in force. This Plan includes specific rules related to purchases of large volumes of shares, etc., with the intent to acquire 20% or more of the total voting rights, or purchases of shares, etc., resulting in the holding of 20% or more of the total voting rights. Such acts will also trigger a defense mechanism.
(4) This Plan does not compromise the corporate value and common interests of the Corporation’s shareholders, and its purpose is not to maintain the status of the directors of the Corporation
(i) Special initiatives for implementing basic policy Measures have been devised as specific measures aimed at continuously maintaining and improving corporate value and the common interests of shareholders. Such measures, which conform to This Plan, do not compromise the corporate value and common interests of the Corporation’s shareholders, and their purpose is not to maintain the status of the directors of the Corporation.
(ii) Measures to prevent decisions on financial and business policies from being controlled by inappropriate persons, in light of basic policy a. This Plan fully satisfies the three principles stipulated by the guidelines for takeover defense measures This Plan fully satisfies the following three principles set forth under the “Guidelines Regarding Takeover Defenses for Protecting and Enhancing Corporate Value and Shareholders’ Common Interests ( Kigyo-kachi/Kabunushi-kyodo no Rieki no Kakuho matawa Kojo no Tame no Baishu-boei-saku ni Kansuru Shishin )” jointly released by the Ministry of Economy, Trade and Industry and the Ministry of Justice as of May 27, 2005: (i) protection and enhancement of corporate value and shareholders’ common interests; (ii) prior disclosure and respect of shareholders’ intentions; and (iii) securing necessity and suitability. b. Respect for shareholders’ overall intention and the disclosure of information This Plan was approved by shareholders at the 64th Ordinary General Shareholders’ 19 Meeting held on June 27, 2014. Accordingly, the overall intention of the shareholders on the implementation of This Plan is properly reflected. In addition, even before the expiry of such term of validity, if the General Shareholders’ Meeting resolves to abolish This Plan, This Plan will be abolished at the time of such resolution. Therefore, the introduction and abolishment of This Plan is designed to fully reflect the shareholders’ intentions on this regard. Furthermore, to ensure the shareholders make appropriate decisions on abolishing This Plan and other matters, and make the final decision as to whether or not they sell their shares of the Corporation in response to a Large-Scale Purchase, the Board of Directors of the Corporation will appropriately disclose to the shareholders the Large-Scale Purchase Information and other information supplied by the Large-Scale Purchaser at the appropriate time. c. Schemes to eliminate arbitrary judgments of the Board of Directors of the Corporation (1) Respect of judgments of highly independent outside experts In order to eliminate arbitrary judgments of the Board of Directors, the Corporation established the Special Committee upon implementing This Plan. When a Large-Scale Purchase is proposed to the Corporation, the Board of Directors of the Corporation will make an inquiry to the Special Committee, and The Special Committee will deliberate and examine the appropriateness of any countermeasures toward the Large-Scale Purchase and submit a recommendation to the Board of Directors of the Corporation. The Board of Directors will respect the Special Committee’s recommendation to the greatest extent possible in making a resolution on whether or not to implement a countermeasure. Consequently, This Plan has a scheme to ensure that the Board of Directors will be prevented from implementing any countermeasures based on its arbitrary judgments. (2) Setting reasonable and objective requirements The actual application of This Plan will be limited only to cases where the Large-Scale Purchaser does not comply with the Large-Scale Purchase Rules stipulated in This Plan or where reasonable and detailed objective requirements are satisfied as a situation in which the Large-Scale Purchaser would significantly impair the corporate value of the Corporation. Consequently, This Plan has a scheme to ensure that the Board of Directors of the Corporation will be prevented from arbitrarily implementing any countermeasures in this regard. (3) Neither a dead-hand nor a slow-hand type anti-takeover measure This Plan may be abolished by a decision of the Board of Directors of the Corporation. Therefore, This Plan is not a dead-hand type anti-takeover measure. Moreover, This Plan is not a slow-hand type anti-takeover measure, because the Corporation has adopted no staggered board structure.
20 Consolidated Balance Sheets As of March 31, 2016 (Millions of yen) ASSETS LIABILITIES Current assets 216,480 Current liabilities 82,730 Cash and deposits 100,528 Notes and accounts payable 23,163 Notes and accounts 66,208 Electronically recorded 28,155 receivable monetary claims Marketable securities 8,036 Other payables 11,409 Products 23,461 Accrued consumption taxes 1,412 Raw materials and stores 12,608 Accrued income taxes 5,053 Deferred tax assets 3,488 Accrued employees’ bonuses 4,025 Other 2,748 Allowance for product 3,436 Less allowance for (600) guarantee doubtful accounts Other 6,073 Long-term liabilities 15,806 Fixed assets 153,766 Deferred tax liabilities 6,058 Property, plant and 63,299 Net defined benefit liabilities 6,349 equipment Other 3,398 Buildings and structures 20,285 Total liabilities 98,537 Machinery and vehicles 13,076 NET ASSETS Tools and fixtures 4,896 Shareholders’ equity 243,558 Land 17,061 Common stock 6,459 Leased assets 186 Capital surplus 8,719 Construction in progress 7,793 Earned surplus 229,372 Intangible fixed assets 5,887 Treasury stock (993) Investments and advances 84,579 Other accumulated 12,515 Investments in securities 64,133 comprehensive income Net defined benefit assets 16,603 Unrealized gain on 4,066 Deferred income taxes 988 marketable securities Other 3,261 Foreign exchange translation 5,288 Less allowance for (406) adjustment doubtful accounts Remeasurements of defined 3,160 benefit plans Non-controlling interests 15,636 Total net assets 271,709 Total assets 370,246 Total liabilities and net assets 370,246
21 Consolidated Statements of Income Year ended March 31, 2016 (Millions of yen) Net sales 319,935 Cost of sales 216,454 Gross profit 103,480 Selling, general and administrative expenses 68,886 Operating income 34,593 Other income Interest income 1,151 Dividends received 340 Other 592 2,084 Other expenses Interest expenses 40 Foreign exchange loss 437 Loss on retirement of fixed assets 191 Other 202 870 Ordinary income 35,807 Extraordinary income Gain on sales of fixed assets 271 271 Extraordinary losses Loss on reduction of fixed assets 182 182 Income before income taxes 35,896 Income taxes (current) 9,481 Income taxes (deferred) 1,384 10,866 Income before minority interests 25,030 Net income attributable to non-controlling interests 2,319 Net income attributable to owners of the parent 22,710 company
22 Consolidated Statements of Changes in Shareholders’ Equity Year ended March 31, 2016 (Millions of yen) Shareholders’ equity Total Common Capital Earned Treasury shareholders’ stock surplus surplus stock equity Balance at the beginning of current 6,459 8,719 208,866 (979) 223,065 term Net changes during the current term Dividends paid (4,056) (4,056) Net income attributable to owners of 22,710 22,710 the parent company Acquisition of treasury stock (14) (14) Change of scope of consolidation 1,852 1,852 Net other changes than shareholders’ equity during the current term Total net changes during the current — — 20,506 (14) 20,492 term Balance at the end of current term 6,459 8,719 229,372 (993) 243,558
Other accumulated comprehensive income Remeasure- Unrealized Foreign Total other ments of Minority Total net gain on exchange accumulated defined interests assets marketable translation comprehensive benefit securities adjustment income plans Balance at the beginning of current 5,921 10,046 7,591 23,559 14,789 261,414 term Net changes during the current term Dividends paid (4,056) Net income attributable to owners of 22,710 the parent company Acquisition of treasury stock (14) Change of scope of consolidation 1,852 Net other changes than shareholders’ (1,854) (4,757) (4,431) (11,044) 846 (10,197) equity during the current term Total net changes during the current (1,854) (4,757) (4,431) (11,044) 846 10,294 term Balance at the end of current term 4,066 5,288 3,160 12,515 15,636 271,709
23 Significant Accounting Policies of Consolidated Financial Statements The accompanying consolidated financial statements have been prepared based on the accounts maintained by Rinnai Corporation (the “Corporation”) and its consolidated subsidiaries. (The “Corporation” and its consolidated subsidiaries are hereinafter collectedly referred to as the “Corporations.”)
1. Scope of Consolidation (1) Number of consolidated subsidiaries and names of major companies, etc. Consolidated subsidiaries: 31 companies Major consolidated subsidiaries: RB Controls Co., Ltd., Rinnai Net Co., Ltd., and Rinnai Korea Corporation From the fiscal year under review, Brivis Climate Systems Pty Ltd. is included in the scope of consolidation, because the Corporation acquired additional shares, and RA Property No.1 Nominee Pty Ltd and RA Property No.2 Nominee Pty Ltd were newly established.
(2) Major unconsolidated subsidiaries: Nonconsolidated subsidiaries: Rinnai Italia S.r.l. Guangzhou Rinnai Gas and Electric Appliance Co., Ltd. Reason for exclusion: The above nonconsolidated subsidiaries are excluded from the scope of consolidation, because their activities have not been deemed material, and total assets, net sales, net income and retained earnings of the nonconsolidated company are not significant compared to the consolidated amounts.
2. Application of Equity Method (1) Number and names of affiliated companies for which the equity method is applied: Number of affiliated companies for which the equity method is applied.: One company Name of affiliated company: Gastar Co., Ltd. Note that during the fiscal year under review, the Corporation acquired additional shares in Gastar and Gastar itself purchased its own stock, causing the total number of voting rights to shrink, which together pushed the ratio of voting rights held by the Corporation higher. Consequently, the company has been included in the scope of affiliated companies for which the equity method is applied. (2) Major unconsolidated subsidiaries and affiliated companies for which the equity method is not applied: Names of major nonconsolidated subsidiaries: Rinnai Italia S.r.l. Guangzhou Rinnai Gas and Electric Appliance Co., Ltd. Name of affiliated company: Mikuni RK Precision Co., Ltd., Reason for exclusion: The above companies are excluded from application under the equity method because their net income and retained earnings are not significant compared with the consolidated amounts and their activities are not deemed material.
3. Fiscal Year-End of Consolidated Subsidiaries There are 20 subsidiaries for which the fiscal year-end date differs from the date of the consolidated term (fiscal year-end date: December 31): Rinnai Australia Pty., Ltd., Rinnai 24 America Corporation, Rinnai New Zealand Ltd., Rinnai Holdings (Pacific) Pte Ltd., Rinnai Hong Kong Ltd., Rinnai Taiwan Corporation, Rinnai Korea Corporation, Shanghai Rinnai Co., Ltd., Rinnai (Thailand) Co., Ltd., Rinnai Vietnam Co., Ltd., RB Korea Ltd., Rinnai Canada Holdings Ltd., Rinnai Brazil Heating Technology Ltd., Shanghai Rinnai Thermo Energy Engineering Co., Ltd., P.T. Rinnai Indonesia, Jordans NSW Corporation, Gas Appliance Services Corporation, Brivis Climate Systems Pty Ltd. and other two companies. In preparing its consolidated financial reports, the Corporation uses financial statements available as of the settlement date. However, the Corporation addresses adjustments necessary from a consolidated perspective should material transactions occur between January 1 and the consolidated fiscal year-end of March 31.
4. Significant Accounting Policies (1) Valuation standards and calculation methods for significant assets (a) Securities and investments in securities Available-for-sale securities with market value are stated at market value, based on the fair market value at the end of the period. (Unrealized gain or loss, net of income taxes is reported in net assets, while any cost of sales is calculated based on the moving-average cost method.) Securities without market value are stated at cost using the moving-average cost method.
(b) Inventories Finished goods: Valued at cost using the first-in, first-out method (balance sheet amount is written-down to net selling value in the case that profitability of assets has decreased). Raw materials and supplies: Valued at cost using the last purchase price method (balance sheet amount is written-down to net selling value in the case that profitability of assets has decreased).
(2) Depreciation of fixed assets Property, plant and equipment (excluding leased assets) The Corporation and its domestic consolidated subsidiaries use the declining-balance method (but the straight-line method for buildings, not including attachments, acquired on or after April 1, 2007). Overseas subsidiaries use the straight-line method. The estimated useful lives of principal items are as follows: Buildings: 7–50 years Machinery and delivery equipment: 7–17 years Tools, furniture, and fixtures: 2–15 years
Intangible fixed assets (excluding leased assets) The Corporations use the straight-line method. However, software for internal use is amortized over the useful period (5 years) of software used by each of the Corporations.
Leased assets Leased assets on finance lease transactions that do not transfer ownership are depreciated over the useful life of assets, equal to the lease term, by the straight-line method with zero residual value.
(3) Accounting for major accruals Allowance for doubtful accounts 25 The Corporations provide for possible loan losses and records on the books the amounts that are unlikely to be recovered. Primarily, this consists of an allowance for general claims, calculated according to historical loss ratios, and an allowance for specific claims, such as bankrupted or doubtful loans calculated based on the potential to recover respective credits.
Accrued employees’ bonuses Accrued employees’ bonuses are provided for at the estimated amounts, which are to be paid for services rendered prior to the term-end.
Allowance for product guarantee The Corporation and some of its consolidated subsidiaries, as contingency against outlays of free-of-charge repair costs for their products, have estimated a product guarantee expense amount based on past performance.
(4) Method and Period of Goodwill Amortization Amortization of goodwill is calculated by the straight-line method over a period of five years.
(5) Other Significant Accounting Policies Translation of major foreign-currency assets and liabilities Claims and credits denominated in foreign currencies are translated into yen at spot market exchange rates prevailing at the term-end, and gains or losses are credited or charged to income as incurred. The assets and liabilities of overseas subsidiaries are translated into yen at the spot rates prevailing at the term-end, while earnings and expenditures are translated into yen amounts at the average exchange rate for the term. Differences arising from translation are included in non-controlling interests and in the foreign exchange translation adjustment of net assets on the consolidated balance sheets.
Major hedge-accounting methods Hedge-accounting method The Corporation applies deferred hedge accounting. In addition, receivables and payables in foreign currencies are valued at historical rates when they are properly hedged under the hedge accounting rules. Exchange contracts on transactions undertaken among consolidated companies are accounted for at fair value and gains or losses are recognized as incurred. There were no applicable items at the end of the current fiscal year.
Hedging method and hedging objective Hedging methods and hedging targets for which hedge accounting was applied in the year under review are as summarized below. -Hedging method: Forward exchange contracts -Hedging targets: Anything with the potential for loss due to fluctuations in currency prices
Hedging policy The purpose is to avert risk prompted by fluctuating exchange rates, within the targeted claims and obligations. No speculative trading is conducted.
26 Method for effectively assessing hedge transactions The Corporations utilize exchange contract that ensure effective hedging.
Other The Corporations execute derivative transactions within limits determined by their corporate rules.
Accounting standard for assets and liabilities related to retirement benefits Assets and liabilities related to retirement benefits are booked according to projected retirement benefit obligations and pension plan assets at fiscal year-end. Note that, in calculating retirement benefit obligations, the Corporation applied the benefit formula standard for attributing projected retirement benefits to a period up to the fiscal year in review. Prior service costs are expensed using the straight-line method over a fixed period (5 years) within the average remaining service period of employees at the time the costs are incurred. Actuarial differences are proportional amounts calculated by the straight-line method over a fixed period (10 years) within the average remaining service period of employees at the time such gains or losses are realized in each fiscal year and expensed from the fiscal year following the one in which the difference occurred. Unrecognized actuarial differences and prior service costs are adjusted for tax effect and booked in the net assets section as a component of other accumulated comprehensive income with said amounts recorded as an accumulated retirement benefit adjustment increase or decrease (Remeasurements of defined benefit plans).
Accounting for consumption taxes Consumption taxes are not included in revenues and expenses.
5. Changes in Accounting Policy Application of accounting standard for business combinations Effective the current fiscal year ended March 31, 2016, the Corporation has applied “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, September 13, 2013), “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, September 13, 2013), and “Accounting Standard for Business Divestitures” (ASBJ Statement No. 7, September 13, 2013). Under the change, the difference arising from a change in the Corporation’s equity in a subsidiary (in cases where controlling interest of subsidiary continues) is now recorded as capital surplus, while acquisition-related expenses are recorded in the consolidated fiscal year in which they were incurred. For business combinations carried out on or after the beginning of the current fiscal year, the accounting method has changed to one in which the reviewed acquisition cost allocation, resulting from finalization of tentative accounting treatment, is reflected in the consolidated financial statements in which the business combination occurred. The Corporation has also changed its expression of net income, etc., and changed “minority interests” to “non-controlling interests.” The Accounting Standard for Business Combinations is being applied in accordance with the transitional treatment set forth in Paragraph 58-2 (4) of the Accounting Standard for Business Combinations, Paragraph 44-5 (4) of the Accounting Standard for Consolidated Financial Statements, and Paragraph 57-4 (4) of the Accounting Standard for Business Divestitures. It is being applied prospectively from the beginning of the current fiscal year. The aforementioned had no effect on the Corporation’s consolidated financial statements. 27
6. Changes in Presentation Methods Consolidated balance sheet Electronically recorded monetary claims were previously included in “Notes and accounts payable” (¥254 million in the previous fiscal year) on the consolidated balance sheets. However, due to increased materiality, the item is presented separately from the fiscal year under review, as “Electronically recorded monetary claims” (¥28,155 million in the fiscal year under review).
Notes to Financial Statements 1. Notes to Consolidated Balance Sheets (1) Assets pledged as collateral and related liabilities (Millions of yen) Pledged assets: Cash and deposits 183 Land 2,205 Total 2,388 Liabilities related to pledged assets: Notes and accounts payable 114
(2) Accumulated depreciation of property, plant, and equipment Accumulated depreciation of property, plant, and equipment amounted to ¥93,454 million.
(3) Liability for guarantees The Corporation guarantees loans for the following affiliated company: (Millions of yen) Tokai Denshi Kogyo Kojo Danchi* 192 Note: * Joint guarantee by 22 associate companies
(4) Trade notes receivable discounted Trade notes receivable discounted amounted to ¥91 million.
2. Notes to Consolidated Statements of Changes in Shareholders’ Equity (1) Number of shares issued at the fiscal year-end, March 31, 2016 Common stock: 52,216,463 shares
(2) Items Regarding Dividends (a) Dividends paid Type of Total Dividend Resolution Record date Effective date stock dividends per share General shareholders’ Common ¥1,976 March 31, meeting on ¥38.00 June 29, 2015 stock million 2015 June 26, 2015 Directors’ meeting on Common ¥2,080 September December 4, ¥40.00 November 5, 2015 stock million 30, 2015 2015 ¥4,056 Total ― ― ― ― million
28
(b) The effective date for dividends with a record date of March 31, 2016, shall be a date after the close of books for said consolidated period. Its resolution regarding dividends of common stock is scheduled at the general shareholders’ meeting at June 28, 2016, as follows: Type of Total Dividend Record Effective Resolution stock dividends per share date date General shareholders’ Common ¥2,184 March 31, June 29, meeting at ¥ 42.00 stock million 2016 2016 June 28, 2016
3. Notes to Financial Products (1) Status of Financial Products Fund management within the Rinnai Group is executed mainly by deposits, augmented by safe, short-term investments in securities. Partial funds are procured by borrowings from banks. The Corporation reduces its client credit risk with regard to notes and accounts receivable in accordance with its rules for sales credits. Investment securities held by the Corporation are mainly stocks or bonds, and the Corporation evaluates the fair value of marketable securities on a quarterly basis.
(2) Fair Values of Financial Products The stated values, fair values, and difference between stated and fair values of relevant items in the consolidated balance sheets for the year ended March 31, 2016, are shown below. (Millions of yen) Balance sheet Fair value Difference amount (*) (*) (1) Cash and deposits 100,528 100,528 ― (2) Notes and accounts receivable 66,208 66,208 ― (3) Marketable securities and investment
securities Other securities 65,808 65,808 ― (4) Notes and accounts payable (23,163) (23,163) ― (5) Electronically recorded monetary claims (28,155) (28,155) ― (6) Accrued payables (11,409) (11,409) ― (7) Accrued consumption taxes (1,412) (1,412) ― (8) Accrued income taxes (5,053) (5,053) ― (*) Among the above items, figures for liabilities are shown in parentheses. Notes: 1. Method for calculating fair values of financial products, items related to available-for-sale securities and derivatives (1) Cash and deposits and (2) Notes and accounts receivable are settled over short-term periods, their values mostly in line with book values, and so book values are used to state fair value. For (3) Marketable securities and investment securities, and other marketable securities, the prices of shares, etc., at the relevant securities exchanges are used to state fair value. For bonds, prices submitted by financial institutions, etc., are used. Because (4) Notes and accounts payable, (5) Electronically recorded monetary claims, (6) Accrued payables, (7) Accrued consumption taxes, and (8) Accrued income taxes are settled 29 over short-term periods, their values mostly in line with book values, and so book values are used to state fair value. 2. Because unlisted stocks (¥6,360 million in consolidated balance sheets) do not have market prices, it is considered extremely difficult to calculate their fair values. Therefore, they are not included in “Other securities under (3) Marketable securities and investment securities.”
4. Per Share Data (1) Net assets per share: ¥4,924.24 (2) Net income per share: ¥436.71
5. Subsequent Events Business Combination Based on a resolution by the Board of Directors on January 15, 2016, the Corporation purchased shares of Gastar Co., Ltd., on April 1, 2016. On the same day, Gastar purchased treasury stock and became a subsidiary of the Corporation. As of the last day of the year under review, Gastar was an equity-method affiliate of the Corporation.
1. Summary of Business Combination (1) Acquired company name and business Acquired company: Gastar Co., Ltd. Business: Manufacturing and sales of gas water heaters (2) Reason for business combination Seeking to further expand its water heater business, the Corporation purchased shares of Gastar which has considerable sales power and production bases in Japan’s Kanto region. (3) Date of business combination: April 1, 2016 (4) Classification of business combination: Purchase of shares by the Corporation using cash; purchase of treasury stock by Gastar (5) Company name after business combination: Gastar Co., Ltd. (no change) (6) Acquired ratio of voting rights: Ratio of voting rights before business combination: 22.0% Ratio of voting rights acquired on April 1, 2016: 68.0% (Share acquisition by the Corporation: 22.1%) (Own share acquisition by Gastar: 45.9%) Ratio of voting rights after business combination: 90.0% (7) Main reason leading to the decision to acquire the company: The Corporation the majority of voting rights in Gastar, so management decided to acquire the company.
2. Acquisition cost and the consideration of acquired company: Market value of ordinary shares on April 1, 2016, held before business combination: ¥4,590 million Additional acquisition price Cash and deposits ¥4,626 million Acquisition cost ¥9,216 million
3. Main acquisition-related expenses: This information is omitted because the effect is deemed minimal. 30
4. Difference between acquisition cost of the acquired company and the sum of transactions leading up to the acquisition: The acquisition in stages may cause losses of ¥139 million.
5. Amount of goodwill, cause of goodwill, and method/period of amortization: Currently under review.
6. Notes regarding Business Combination
1. Summary of Business Combination (1) Acquired company name and business Acquired company: Brivis Climate Systems Pty Ltd. Business: Manufacturing and sales of air conditioners (2) Reason for business combination In Australia, Rinnai Australia Pty., Ltd. is a leading company in the Australian market, having sold heaters since the 1970s and tankless water heaters since the 1990s. Through the acquisition of Brivis, which has strengths in air-conditioning and heating systems, Rinnai Australia aims to adding air-conditioning systems to its portfolio and further strengthen its business in Oceania, a key strategic markets for the Rinnai Group. (3) Date of business combination: February 2, 2015 (4) Classification of business combination: Acquisition of shares in return for cash (5) Company name after business combination: Brivis Climate Systems Pty Ltd. (no change) (6) Acquired ratio of voting rights:100% (7) Main source of acquisition: Acquisition of shares by Rinnai Australia Pty., Ltd. in return for cash
2. Results period of acquired company included in consolidated financial statements: February 2 - December 31, 2015
3. Breakdown of acquisition costs and the consideration of acquired company: Acquisition price Cash and deposits ¥4,543 million Acquisition cost ¥4,543 million
4. Main acquisition-related expenses: Advisory costs, etc. ¥125 million
5. Amount of goodwill, reason of goodwill, and method/period of amortization (1) Amount of goodwill: ¥1,214 million (2) Cause of goodwill: The acquisition cost exceeded the net of assets received and liabilities assumed, with the excess amount treated as goodwill. (3) Method/period of amortization: Amortized uniformly over five years
6. Assets received and liabilities assumed on date of business combination: 31 Current assets ¥1,785 million Fixed assets ¥2,860 million Total assets ¥4,646 million Current liabilities ¥945 million Long-term liabilities ¥371 million Total liabilities ¥1,317 million
7. Estimated amounts of impact on Consolidated Statements of Income for year under review assuming business combination was completed on first day of that year; and method of calculating such estimated amounts Net sales ¥548 million Operating income ¥53 million Income before income taxes ¥53 million Net income attributable to owners of the parent company ¥37 million Net income per share ¥0.73
(Calculation method of estimated amounts) The difference between sales and income information calculated on the assumption that the business combination was completed on the first day of the fiscal year under review and sales and income information on the Consolidated Statements of Income of the acquired company represents the estimated amounts of impact. Note: Fiscal year-end of Rinnai Australia is December 31.
7. Amounts less than one million yen Amounts less than one million yen are omitted from the financial statements.
32 Nonconsolidated Balance Sheets As of March 31, 2016 (Millions of yen) ASSETS LIABILITIES Current assets 119,122 Current liabilities 45,107 Cash and deposits 56,093 Accrued payable 13,789 Notes receivable 11,096 Electronically recorded 18,311 Accounts receivable 32,949 monetary claims Marketable securities 6,379 Lease obligations 92 Products 7,506 Other payables 3,960 Raw materials and stores 3,145 Accrued expenses 650 Deferred tax assets 1,568 Accrued income taxes 3,589 Other 407 Deposits payable 147 Less allowance for doubtful (24) Accrued employees’ bonus 2,357 accounts Allowance for product 857 Fixed assets 118,019 guarantees Property, plant and equipment 28,104 Other 1,352 Buildings 9,523 Long-term liabilities 7,208 Structures 315 Lease obligations 113 Machinery, equipment 3,925 Accrued employees’ 2,518 Vehicles and delivery equipment 23 retirement benefits Tools, furniture and fixtures 2,302 Other 4, 577 Land 9,408 Total liabilities 52,316 Leased assets 171 Construction in progress 2,434 NET ASSETS Intangible fixed assets 1,150 Shareholders’ equity 180,867 Software 901 Common stock 6,459 Lease assets 21 Capital surplus 8,719 Other 227 Capital reserve 8,719 Investments and advances 88,764 Earned surplus 166,682 Investments in securities 56,452 Legal reserve 1,614 Stocks of affiliated companies 18,408 Other legal reserve: 165,067 Investments in affiliated companies 1,870 Voluntary reserve 140,000 Prepaid pension expenses 10,893 Unappropriated 25,067 Other 1,166 retained earnings Less allowance for doubtful (27) accounts Treasury stock (993) Other adjustments 3,957 Unrealized gain on 3,957 marketable securities Total net assets 184,824 Total assets 237,141 Total liabilities and net assets 237,141
33 Nonconsolidated Statements of Income Year ended March 31, 2016 (Millions of yen) Net sales 197,592 Cost of sales 148,515 Gross profit 49,076 Selling, general and administrative expenses 28,885 Operating income 20,191 Other income Interest income and dividends received 1,654 Other 807 2,461 Other expenses 706 Ordinary income 21,946 Extraordinary income Gain on sales of fixed assets 271 271 Extraordinary losses Loss on reduction of fixed assets 182 182 Income before income taxes 22,035 Income taxes Current 5,578 Deferred 855 6,433 Net income 15,602
34 Nonconsolidated Statements of Changes in Shareholders’ Equity Year ended March 31, 2016 (Millions of yen)
Shareholders’ equity Capital surplus Earned surplus Voluntary reserve Common Total Capital Legal Unappropriated Total earned stock capital Other reserve reserve retained surplus surplus reserve earnings Balance at the 6,459 8,719 8,719 1,614 120,000 33,521 155,136 beginning of current term Net changes during the current term Dividends paid (4,056) (4,056) Net income 15,602 15,602 Transfer to other 20,000 (20,000) — reserve Acquisition of treasury stock Net changes other than shareholders’ equity during the current term Total net changes — — — — 20,000 (8,454) 11,545 during the current term Balance at the end of 6,459 8,719 8,719 1,614 140,000 25,067 166,682 current term
Shareholders’ equity Other adjustments Unrealized Total Total net Treasury gain on Total other shareholders’ assets stock marketable adjustments equity securities Balance at the beginning of current term (979) 169,335 5,804 5,804 175,140 Net changes during the current term Dividends paid (4,056) (4,056) Net income 15,602 15,602 Transfer to other reserve — — Acquisition of treasury stock (14) (14) (14) Net changes other than shareholders’ equity (1,847) (1,847) (1,847) during the current term Total net changes during the current term (14) 11,531 (1,847) (1,847) 9,684 Balance at the end of current term (993) 180,867 3,957 3,957 184,824
35 Significant Accounting Policies of Nonconsolidated Financial Statements
Valuation Standards and Calculation Methods for Significant Assets 1. Securities and investments in securities (1) Stocks of subsidiaries and affiliates are stated at cost using the moving-average cost method. Available-for-sale securities with market value are stated at market value, based on the fair market value at the end of the period. (Unrealized gain or loss, net of income taxes is reported in net assets, while any cost of sales is calculated based on a moving-average cost method.) Securities without market value are stated at cost using the moving-average cost method. (2) Inventories Finished goods: Valued at cost using the first-in, first-out method (balance sheet amount is written-down to net selling value in the case that profitability of assets has decreased). Raw materials and supplies: Valued at cost using the last purchase price method (balance sheet amount is written-down to net selling value in the case that profitability of assets has decreased).
2. Depreciation of fixed assets Property, plant and equipment (excluding leased assets) The Corporation uses the declining-balance method for depreciating tangible fixed assets (but the straight-line method for buildings, not including attachments, acquired on or after April 1, 2007). Estimated useful lives of principal items are as follows: Buildings: 7–50 years Machinery, equipment: 10–17 years Tools, furniture, and fixtures: 2–15 years Intangible fixed assets The Corporation uses the straight-line method. However, software for internal use is amortized over the useful period (5 years) of software used by the Corporation. Leased assets Leased assets on finance lease transactions that do not transfer ownership are depreciated over the useful life of assets, equal to the lease term, by the straight-line method with zero residual value.
3. Translation of Major Foreign-Currency Assets and Liabilities Claims and credits denominated in foreign currencies are translated into yen at spot market exchange rates prevailing at the term-end, and gains or losses are credited or charged to income as incurred.
4. Accounting for Major Accruals Allowance for doubtful accounts The Corporation provides for possible loan losses and records on the books the amounts that are unlikely to be recovered. Primarily, this consists of an allowance for general claims, calculated according to historical loss ratios, and an allowance for specific claims, such as bankrupted or doubtful loans calculated based on the potential to recover respective credits. 36 Accrued employees’ bonuses Accrued employees’ bonuses are provided for at the estimated amounts, which are to be paid for services rendered prior to the term-end.
Allowance for product guarantees The Corporation, as contingency against outlays of free-of-charge repair costs for its products, has estimated a product guarantee expense amount based on past performance.
Accrued employees’ retirement benefits Pension costs for employees are accrued based on the projected benefit obligations and pension assets at the term-end. The unrealized past employment obligation is expensed as incurred using the straight-line method, over a specified period (five years) within the average remaining employee work period. Actuarial losses are deferred and amortized, using the straight-line method, over a specified period (10 years) within the average remaining years of service for employees subsequent to the year of occurrence.
5. Major Hedge-Accounting Methods (1) Accounting for retirement benefits The accounting method for unrecognized prior service costs and unrecognized actuarial differences for retirement benefits is different from that applied in preparing the consolidated financial statements. (2) Accounting for consumption taxes Consumption taxes are not included in revenues and expenses.
Notes to Financial Statements 1. Notes to Balance Sheets (1) Accumulated depreciation of property, plant, and equipment Accumulated depreciation of property, plant, and equipment amounted to ¥46,664 million. (2) Monetary receivables for affiliates Short-term monetary receivables ¥9,375 million (3) Monetary payables for affiliates Short-term monetary payables ¥6,823 million (4) Monetary payables for directors and Audit & Supervisory Board Members ¥1,248 million (5) Contingent liabilities Liability for guarantees (Millions of yen) Rinnai Technica Co., Ltd. 2,466 RB Controls Co., Ltd. 1,584 Yanagisawa Manufacturing Co., Ltd. 484 Rinnai Precision Co., Ltd. 376 Noto Tech Co., Ltd. 11 Total 4,922 Export bills receivable discounted 91
37
2. Notes to Statements of Income Transaction with affiliates Operating transactions Net sales ¥58,069 million Cost of sales ¥48,779 million Other transactions ¥1,675 million
3. Notes to Statements of Changes in Shareholders’ Equity Treasury stock at the current fiscal year-end Common stock 213,899 shares
4. Notes to Tax-Effect Accounting Composition of assets of deferred income taxes (Millions of yen) Deferred income taxes (assets): Valuation decrease on taxable securities 933 Accrued business taxes 270 Allowance for employees’ bonuses 721 Allowance for product guarantees 262 Long-term payables 408 Other 572 Subtotal 3,167 Assessable reserves (1,191) Total deferred income taxes (assets) 1,975 Deferred income taxes (liabilities): Gain on contribution of securities to retirement benefit trust 1,509 Unrealized gain on marketable securities 1,407 Total deferred income taxes (liabilities) 2,917 Deferred income taxes (net) 941
5. Related Party Transactions Subsidiaries Percentage of Name of ownership Amount Year-end Relations Transactions Accounts balance company with voting (¥ millions) (¥ millions) rights Accounts Sale of 3,008 RG Co., Sale of receivable Ltd. Direct 51.0% products products 13,399 (Note 1) Notes receivable 741 Purchase of products, Rinnai directors Guarantee of holding Technica Direct 100% concurrent liabilities 2,466 — — Co., Ltd. positions, and (Note 2) guarantee of liabilities The above transaction figures do not include consumption taxes, while year-end balances include consumption taxes.
38 Transaction Conditions Notes: 1. As to the sale of products, transaction conditions are decided by negotiation after the Corporation has offered a price. 2. The Corporation has guaranteed debts regarding electronically recorded monetary claims, and figures indicate the guaranteed amount at the fiscal year-end. The Corporation does not receive a guarantee charge. 6. Per Share Data (1) Net assets per share: ¥3,554.15 (2) Net income per share: ¥300.02
7. Subsequent Events Business Combination Based on a resolution by the Board of Directors on January 15, 2016, the Corporation purchased shares in Gastar Co., Ltd., on April 1, 2016. On the same day, Gastar purchased treasury stock and became a subsidiary of the Corporation. For details on this business combination, please refer to “Notes to Consolidated Balance Sheets, 5. Subsequent Events”.
8. Other Amounts less than one million yen are omitted from the financial statements.
39 (Translation) INDEPENDENT AUDITOR'S REPORT May 10, 2016 To the Board of Directors of Rinnai Corporation: Deloitte Touche Tohmatsu LLC Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Seiji Harada Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Yuji Yamazaki
Pursuant to the fourth clause of Article 444 of the Corporate Law , we, Deloitte Touche Tohmatsu LLC (“the Auditor”) have audited the consolidated financial statements of Rinnai Corporation (the “Corporation”) and its consolidated subsidiaries, for the fiscal year ended March 31, 2016, namely, consolidated balance sheets, consolidated statements of income, consolidated statements of changes in shareholders’ equity, significant accounting policies applicable to the consolidated financial statements, and other notes.
Management’s Responsibility for Consolidated Financial Statements It is the responsibility of management to prepare and properly disclose consolidated financial statements, in accordance with corporate accounting standards generally accepted in Japan. This responsibility includes establishment and operation of an internal control system that management deems necessary to ensure preparation and proper disclosure of consolidated financial statements without material misstatement due to fraudulent activity or error.
Auditor’s Responsibility It is the responsibility of the Auditor to express an opinion on the consolidated statements from an independent perspective, based on its audit. The Auditor conducts its audit in accordance with auditing standards generally accepted in Japan. Those standards require that the Auditor formulates an auditing plan and then performs an audit based on the plan to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves procedures to obtain auditing evidence concerning amounts and disclosure in the consolidated financial statements. Auditing procedures are selected and applied, based on our judgment, to evaluate the risk of material misstatement in the consolidated financial statements due to fraudulent activity or error. The purpose of an audit is not to express an opinion on the effectiveness of the internal control system, and when evaluating risk, the Auditor examines the internal control system pertaining to the preparation and proper disclosure of consolidated financial statements so that auditing procedures appropriate to the situation may be formulated. An audit also covers an examination of the overall presentation of consolidated financial statements, including an evaluation of the accounting principles used and their method of use as well as estimates made by management. The Auditor believes the audit it has performed provides an adequate and reasonable basis for opinion.
Auditor’s Opinion In the Auditor’s opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation and its consolidated subsidiaries as of March 31, 2016, and the results of their operations for the year then ended, in conformity with accounting principles generally accepted in Japan.
Financial Interest Neither the firm nor its engagement partners have any financial interest in Rinnai for which disclosure is required under the provisions of the Certified Public Accountants Law.
The above represents a translation, for convenience only, of the original report issued in Japanese.
40 (Translation) INDEPENDENT AUDITOR'S REPORT May 10, 2016 To the Board of Directors of Rinnai Corporation: Deloitte Touche Tohmatsu LLC Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Seiji Harada Designated Unlimited Liability Partner, Engagement Partner, Certified Public Accountant: Yuji Yamazaki
Pursuant to the first item, second clause of Article 436 of the Corporate Law, we, Deloitte Touche Tohmatsu LLC (“the Auditor”) have audited the financial statements of Rinnai Corporation (the “Corporation”), for the fiscal year ended March 31, 2016, namely, balance sheets, statements of income, statements of changes in shareholders’ equity, significant accounting policies of nonconsolidated financial statements, and other notes and attachments.
Management’s Responsibility for Financial Statements It is the responsibility of management to prepare and properly disclose financial statements and attachments, in accordance with corporate accounting standards generally accepted in Japan. This responsibility includes establishment and operation of an internal control system that management deems necessary to ensure preparation and proper disclosure of financial statements and attachments without material misstatement due to fraudulent activity or error.
Auditor’s Responsibility It is the responsibility of the Auditor to express an opinion on the financial statements and attachments from an independent perspective, based on its audit. The Auditor conducts its audit in accordance with auditing standards generally accepted in Japan. Those standards require that the Auditor formulates an auditing plan and then performs an audit based on the plan to obtain reasonable assurance about whether the financial statements and attachments are free of material misstatement. An audit involves procedures to obtain auditing evidence concerning amounts and disclosure in the financial statements and attachments. Auditing procedures are selected and applied, based on our judgment, to evaluate the risk of material misstatement in the financial statements and attachments due to fraudulent activity or error. The purpose of an audit is not to express an opinion on the effectiveness of the internal control system, and when evaluating risk, the Auditor examines the internal control system pertaining to the preparation and proper disclosure of financial statements and attachments so that auditing procedures appropriate to the situation may be formulated. An audit also covers an examination of the overall presentation of financial statements and attachments, including an evaluation of the accounting principles used and their method of use as well as estimates made by management. The Auditor believes the audit it has performed provides an adequate and reasonable basis for opinion.
Auditor’s Opinion In the Auditor’s opinion, the financial statements and attachments referred to above present fairly, in all material respects, the financial position of the Corporation as of March 31, 2016, and the results of their operations for the year then ended, in conformity with accounting principles generally accepted in Japan.
Financial Interest Neither the firm nor its engagement partners have any financial interest in Rinnai for which disclosure is required under the provisions of the Certified Public Accountants Law.
The above represents a translation, for convenience only, of the original report issued in Japanese.
41 (Translation)
Report of the Audit & Supervisory Board
The Board of Auditors reviewed each auditor’s report regarding the directors’ execution of their duties, obligations and responsibilities for the 66th financial period, from April 1, 2015, through March 31, 2016. Upon deliberation , we created the auditor’s report and would like to report as follows:
1. Methods and contents of audits by auditors and the Board of Auditors (1) The Board of Auditors determined the policies of audits and duties of auditors, and received reports on the status of the implementation of audits and the results from auditors. In addition, the Board of Auditors received reports on execution of duties from directors and accounting auditors, and received explanations when necessary. (2) According to the policies of audits and duties of auditors, determined by the Board of Auditors, auditors develop the environment for audit, collecting information through communication with directors and employees at the internal auditing division and other divisions, and have audited procedures as follows. (a) Auditors also attended important meetings including Board of Directors’ meeting, and constantly received reports on execution of duties from directors and other employees, and received explanations when necessary. In addition, auditors reviewed important documents about closing the books and investigated the state of operations and assets of the headquarters and major offices. For subsidiary companies, auditors received business reports, sharing information with directors and auditors of subsidiaries when necessary. (b) The internal control system of the Corporation, which is based on the content of resolutions by the Board of Directors and relevant resolutions in accordance with the first and third clauses of Article 100 of the Corporate Law, is necessary for systems to ensure that execution of business by directors conforms to legal regulations and the Articles of Incorporation and systems to ensure appropriateness of the business activities of the Corporation and subsidiary companies described in this business report. Auditors reviewed regular reports about formulation and effectiveness of the internal control system, and received explanation when necessary from directors and employees, to declare opinion. (c) Auditors examined basic policy and measures pertaining to the third item of Article 118 of the Corporate Law, as presented in the Business Report, based on deliberations by the Board of Directors and at other meetings. (d) Auditors monitored and inspected the independence of accounting auditors and execution of adequate audits, and received the report and explanation on execution of duties from accounting auditors when necessary. We also received notice from accounting auditors that they conducted their audits in accordance with the “System to secure adequate execution of duties” (Article 131, accounting and computation rule of the Corporate Law) and the “Quality control standard regarding audits” (October 28, 2005, Business Accounting Council), and received explanation when necessary. Based on measures as stated above, we reviewed the business reports and attachments, nonconsolidated financial statements (nonconsolidated balance sheets, nonconsolidated statements of income, nonconsolidated statements of changes in shareholders’ equity, and notes to nonconsolidated financial statements) and attachments, and consolidated financial statements (consolidated balance sheets, consolidated statements of income, consolidated statements of changes in shareholders’ equity), for the fiscal year ended March 31, 2016.
42 2. Audit results (1) Audit results of business report and attachments a. The business report and the attachments fairly reflect the state of the Corporation, in accordance with legal requirements or the Corporation’s charter. b. There are no exceptions to be made, regarding the overlapping of director duties, and there are no violations of relevant legal requirements or the Corporation’s charter. c. We recognize the appropriateness of resolutions by the Board of Directors’ meetings is regarding the internal control system. And, as to the description in this business report and the execution of directors’ duties regarding said internal control system, there are no exceptions to be made. d. There are no issues to be highlighted regarding the basic policy on people who control decisions on the Corporation’s financial and business policies. The Corporation’s measures, in accordance with the third item of Article 118 of the Corporate Law, do not compromise corporate value or the common interests of the Corporation’s shareholders and, in our opinion, their purpose is not to maintain the status of the directors of the Corporation.
(2) Audit results of nonconsolidated financial statements and attachments In our opinion, the auditing methods applied by Deloitte Touche Tohmatsu LLC, independent auditors and their results are appropriate.
(3) Audit results of consolidated financial statements and attachments In our opinion, the auditing methods applied by Deloitte Touche Tohmatsu LLC, independent auditors and their results are appropriate.
May 13, 2016
The Audit & Supervisory Board, Rinnai Corporation.
Yasuhiko Goto, Standing Audit & Supervisory Board Member Toshinori Tsutsumi, Standing Audit & Supervisory Board Member Kiyoakira Fukui, Outside Audit & Supervisory Board Member Kinya Nankan, Outside Audit & Supervisory Board Member
Note: Kiyoakira Fukui and Kinya Nankan (Audit & Supervisory Board Members) serve as outside auditors, in accordance with the 16th item of Article 2 and the third clause of Article 335 of the Corporate Law.
The above represents a translation, for convenience only, of the original report issued in Japanese.
43 Guide to Voting
Agenda and referenced items
First Item on the Agenda -- Approval of the proposed appropriation of retained earnings Appropriation of retained earnings shall be applied as follows:
1. Year-End Dividends The Corporation regards stable return of profits to shareholders as an important management policy, based on extensive consideration of various factors, including consolidated business performance and payout ratio. Consequently, management has decided to reward shareholders for their support by distributing total annual dividends to ¥82 per share, which includes the interim dividend (¥40 per share). (1) Type of dividend assets Cash (2) Allocation of dividend assets and sum total The Corporation intends to pay ¥42 per share of common stock, which will generate a sum total of ¥2,184,107,688. (3) Effective date for dividends from retained earnings June 29, 2016
2. Matters regarding other appropriation of surplus The Corporation, taking a long-term view, effectively applies internal reserves to finance R&D, capital investment, strategic business investments at home and abroad and other measures aimed at enhancing corporate value. (1) Item and amount of surplus to be decreased Retained earnings carried forward: ¥10,000,000,000 (2) Item and amount of surplus to be increased General reserve: ¥10,000,000,000
44 Second Item on the Agenda -- Election of eight (8) directors The Corporation’s seven (7) directors will conclude their respective terms in office at the end of the General Meeting of Shareholders. The Corporation has opted to increase the number of outside directors by one (1) to reinforce the management supervisory function and asks shareholders to elect eight (8) directors to said positions. The Corporation proposes the following candidates for election. No. of Candida te Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr.1948 Joined Rinnai Shokai (original company of Rinnai Corporation) Sep.1950 First vice president of newly established Rinnai Corporation May 1966 President of the Corporation Susumu Naito 530,006 1 Jun. 2001 Chairman of the Corporation (current) (Mar. 29, 1926) shares Representation in other companies Chairman of RB Controls Co., Ltd. Chairman of Rinnai Precision Co., Ltd. Chairman of Rinnai cKorea Corporation Chairman of Rinnai Vietnam Co., Ltd. Apr.1972 Joined Rinnai Corporation Sep.1978 Director, and General Manager of Corporate Planning Division Jun.1983 Managing Director, and General Manager of Production Technology Division Kenji Hayashi Jul. 1992 Managing Director, and General Manager 2,502,024 2 (Jun. 27, 1949) of Related Business Division shares Jun.2005 Director, Managing Executive Officer, and General Manager of Related Business Division Jun.2006 Vice Chairman of the Corporation (current) Apr.1983 Joined Rinnai Corporation Jun.1991 Director, Deputy General Manager of Technology Research Headquarters, and concurrently General Manager of New Technology Development Division Jul.1998 Director, General Manager of Technology Research Headquarters Jul.2001 Director, General Manager of Corporate Planning Division and concurrently, General Manager of Administration Hiroyasu Naito 510,180 3 Division (Apr. 20, 1955) shares Jun.2003 Managing Director, General Manager of Corporate Planning Division and concurrently General Manager of Administration Division Jun.2005 Director, Managing Executive Officer, General Manager of Corporate Planning Division and concurrently General Manager of Administration Division Nov.2005 President and Executive Officer of the Corporation (current) 45
No. of Candidate Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr.1967 Joined Rinnai Corporation Jun.1988 Director, General Manager of Technology Research Headquarters and concurrently General Manager of Quality Guarantee Division Jun.2001 Managing Director, General Manager of Production Headquarters Jun.2005 Director, Managing Executive Officer, and General Manager of Production Headquarters Nov.2005 Director, Managing Executive Officer, in charge of domestic business, and concurrently General Manager of Marketing & Sales Headquarters Apr.2006 Director, Senior Executive Officer, in charge of domestic business, and concurrently General Manager of Marketing & Sales Headquarters Apr.2009 Director, Executive Vice President; responsible for Research & Development Headquarters, Production Headquarters, Tsunenori Narita 7,422 4 Overseas Business Headquarters and (Jun. 15, 1948) shares Customer Division, and General Manager of Marketing & Sales Headquarters Apr.2010 Representative Director, Executive Vice President; responsible for Research & Development Headquarters, Production Headquarters, Overseas Business Headquarters and Customer Division, and General Manager of Marketing & Sales Headquarters Oct.2010 Representative Director, Executive Vice President; responsible for Research & Development Headquarters, Production Headquarters, Overseas Business Headquarters, and General Manager of Marketing & Sales Headquarters Apr.2016 Executive Vice President, President's Assistant, In charge of Production Headquarters and Overseas Business Headquarters (current) Representation in other companies President of Rinnai Net Co., Ltd.
46
No. of Candidate Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr.1979 Joined Rinnai Corporation Jun.1999 General Manager of Information System Division Jun.2005 Executive Officer, General Manager of Information System Division and Distribution Control Division Nov.2005 Executive Officer, Deputy General Manager of Administration Headquarters and concurrently, General Manager of Corporate Planning Division, Information System Division, and Distribution Control Division Apr.2007 Executive Officer, General Manager of Administration Headquarters and concurrently General Manager of Corporate Planning Division Masao Kosugi Jun.2007 Director, Executive Officer, General 1,652 5 (Nov. 2, 1955) Manager of Administration Headquarters, shares and concurrently, General Manager of Corporate Planning Division Apr.2010 Director, Managing Executive Officer, General Manager of Administration Headquarters, and concurrently, General Manager of Corporate Planning Division and Information System Division Apr. 2016 Director, Senior Managing Executive Officer, General Manager of Corporate Planning Headquarters, and concurrently, General Manager of Corporate Planning Division, Information System Division, In charge of Administration Headquarters (current) Representation in other companies President, Rinnai Enterprises
47
No. of Candidate Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr.1979 Joined Rinnai Corporation Jul. 2001 Deputy General Manager of Research & Development Headquarters, and concurrently General Manager of Electronic Research & Development Division Nov.2005 Executive Officer, General Manager of Research & Development Headquarters and concurrently, General Manager of Technology Development Division Jul. 2007 Executive Officer, General Manager in charge of Research & Development Headquarters Apr.2008 Executive Officer, General Manager of Research & Development Headquarters and concurrently, General Manager of Technology Administration Division Jun.2009 Director, Executive Officer, General Manager of Research & Development Yuji Kondo Headquarters and concurrently General 1,046 6 (Feb. 6, 1956) Manager of Technology Administration shares Division Apr.2010 Director, Managing Executive Officer, General Manager of Research & Development Headquarters and concurrently General Manager of Technology Administration Division May 2011 Director, Managing Executive Officer, General Manager of Research & Development Headquarters and concurrently General Manager of Electronics Development Division Apr.2013 Director, Managing Executive Officer, General Manager of Research & Development Headquarters Apr. 2016 Director, Senior Managing Executive Officer, General Manager of Marketing & Sales Headquarters, In charge of Research & Development Headquarters (current)
48
No. of Candidate Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr.1985 Professor at Department of Electrical Engineering in Nagoya Institute of Technology Jan.2004 President at Nagoya Institute of Technology Apr.2010 Auditor at Aichi University of Education, Nobuyuki Matsui Adviser of Aichi Prefectural Government 0 7 (May 7, 1943) Office (Industrial Labor Section) shares Apr.2012 Professor at Chubu University Jun.2014 Outside director, Rinnai Corporation (current) Representation in other companies Outside director at Fuji Machine MFG. Co., Ltd. Outside director at Aichi Tokei Denki Co., Ltd Apr. 1965 Joined Toyota Motor Co., Ltd. Jun. 1996 Director at Toyota Motor Corporation Jun. 1999 Managing Director at Toyota Motor Corporation Jun. 2001 Senior Managing Director at Toyota Motor Corporation Jun. 2005 Senior Advisor at Toyota Motor Corporation Takashi Kamio* Jun. 2005 President at Towa Real Estate Co., Ltd. 0 8 (Nov. 27, 1942) Jun. 2006 Director at Nakanihon Kogyo Co., Ltd. shares May 2010 Advisor at Toyota Motor Corporation Jun. 2010 Senior Advisor at Towa Real Estate Co., Ltd. Jun. 2011 Audit & Supervisory Board Member at Central Nippon Expressway Company Limited Nov. 2011 Chairman of Sasaeai, specified nonprofit corporation (current)
49 Notes: 1. The * notation in the Name column indicates new candidate for position of director. 2. No candidate has any particular interest in the Corporation. 3. Nobuyuki Matsui and Takashi Kamio are candidates for the position of outside director. 4. (1) Candidates for the position of director, excluding those for outside director, have been involved in the Corporation’s business operations for many years, as indicated in the career summaries, and they have extensive experience as well as ample knowledge and insights regarding business direction, business content and issues requiring attention. They are talented individuals who can contribute to higher corporate value, and management asks that they be allowed to continue to serve as directors of the Corporation. (2) Mr. Matsui has not been involved in the management of a company except as an outside director, but he has been a professor at Nagoya Institute of Technology as well as its president and has great knowledge as a scholar. Management believes this background will enable him to suitably execute his duties as an outside director. For this reason, management asks shareholders to elect him to this position. (3) Mr. Kamio served as a senior managing director at Toyota Motor Corporation and as president at Towa Real Estate Co., Ltd., which allowed him to accumulate extensive experience and wide-ranging knowledge. Management believes this background will enable him to suitably execute his duties as an outside director. For this reason, management asks shareholders to elect him to this position. 5. Mr. Matsui is currently an outside director of the Corporation and his term in office will be two years at the end of this year’s General Meeting of Shareholders. 6. The Corporation concluded an agreement with Mr. Matsui in accordance with the first paragraph of Article 427 of the Corporate Law that limits liability for damages caused by failure of duties to an amount determined by legal provisions. If Mr. Matsui is reelected and appointed as an outside director, the Corporation will keep this agreement with him in force. If Mr. Kamio is elected and appointed as an outside director, the Corporation will conclude the same agreement with him. 7. The Corporation has notified the Tokyo Stock Exchange and the Nagoya Stock Exchange that Mr. Matsui fulfills the required position of an independent officer. If Mr. Matsui is reelected and appointed as an outside director; the Corporation will maintain him as an independent officer. Also, the Corporation will notify the Tokyo Stock Exchange and the Nagoya Stock Exchange that Mr. Kamio fulfills the requirements of an independent officer if he is elected and appointed as an outside director. The Corporation’s criteria for determining the independence of its outside directors is described on page 52.
50 Third Item on the Agenda -- Election of four (4) audit & supervisory board members The Corporation’s four (4) Audit & Supervisory Board members will conclude their respective terms in office at the end of the General Meeting of Shareholders. Shareholders will therefore be asked to elect four (4) Audit & Supervisory Board members to said positions. This item has already been agreed upon by the Audit & Supervisory Board. Candidates for election as members of the Audit & Supervisory Board are presented below.
No. of Candidate Name Career Summary and Shares Number (Date of Birth) Current Representation in Other Companies Owned Apr. 1977 Joined Rinnai Corporation Jun. 1999 Director, General Manager of Logistics and Management Division, and concurrently, General Manager of System Living Office. Jun. 2004 Director, President of RB Controls Co., Ltd., and concurrently, President of Noto Tech Co., Ltd. Takashi Sonoda* 2,400 1 Jun. 2005 Executive Officer, President of RB (Jun. 10, 1953) shares Controls Co., Ltd., and concurrently, President of Noto Tech Co., Ltd. Apr. 2008 Executive Officer, President of RB Controls Co., Ltd. Jun. 2012 Executive Officer, President of Rinnai America Corporation Mar. 2015 President of Rinnai America Corporation (current) Apr. 1980 Joined Rinnai Corporation Nov. 2005 General Manager of Administration Haruhiko Ishikawa* Division, Administration Headquarters 1,689 2 (Mar. 12, 1958) Apr. 2014 Executive Officer, General Manager of shares Administration Division, Administration Headquarters (current) Sep. 1976 Registration of a certified public accountant Jul. 1988 Regular employee at Deloitte Tohmatsu LLC (Now, Deloitte Touche Tohmatsu LLC) Jun. 2014 Retired from Deloitte Touche Tohmatsu Masaaki Matsuoka* 0 3 LLC (Jun. 25, 1949) shares Jul. 2014 Established Masaaki Matsuoka CPA office (current) Representation in other companies Outside director at Kanemi Co., Ltd. Outside audit & supervisory board member at Mitachi Co., Ltd. Apr.1978 Registration of attorneys Joined Saji & Ohta Law firm Ippei Watanabe* Jun.1991 Established Ohta & Watanabe Law firm 0 4 (Dec. 7, 1949) (current) shares Representation in other companies Outside director at Howa Machinery, Ltd. (Audit and supervisory committee member) 51 Notes: 1. The * notation in the Name column indicates new candidate for position of audit & supervisory board members. 2. No candidate has any particular interest in the Corporation. 3. Masaaki Matsuoka and Ippei Watanabe are candidates for Audit & Supervisory Board members. 4. (1) The candidate for the position of full-time member of the Audit & Supervisory Board have been involved in the Corporation’s business operations for many years, as indicated in the career summaries, and they have extensive experience as well as ample knowledge and insights regarding business direction, business content and issues requiring attention. Management feels they will be able to suitable execute their duties as members of the Audit & Supervisory Board and therefore asks shareholders to elect them to this position. (2) Masaaki Matsuoka has not been involved in the management of a company except as an outside director and an outside auditor, but he has ample knowledge of corporate management based on experience and insights gained as a certified public accountant. Management believes this background will enable him to suitably execute his duties as an outside member of the Audit & Supervisory Board. For this reason, we ask shareholders to elect him to the position of Audit & Supervisory Board member. (3) Ippei Watanabe has not been involved in the management of a company except as an outside director, but he has acquired specialized knowledge and extensive experience as a lawyer. Management believes this background will enable him to suitably execute his duties as an outside member of the Audit & Supervisory Board. For this reason, management asks shareholders to elect him to this position. 5. If Mr. Matsuoka and Mr. Watanabe are elected and appointed as Audit & Supervisory Board members, the Corporation will conclude agreements with them in accordance with the Paragraph 1 of Article 427 of the Corporate Law that limits liability for damages caused by failure of duties to an amount determined by legal provisions. 6. If Mr. Matsuoka and Mr. Watanabe are elected and appointed as Audit & Supervisory Board members, the Corporation will notify the Tokyo Stock Exchange and the Nagoya Stock Exchange that they fulfill the requirements of independent officers.
52 Fourth Item on the Agenda -- Election of one (1) substitute audit & supervisory board member
In case of a vacancy on the Audit & Supervisory Board, which is required by law to maintain a specific number of members, the Corporation will ask shareholders to elect one (1) substitute audit & supervisory board member. This item has already been agreed upon by members of the Audit & Supervisory Board. The Corporation proposes the following candidate for election as the substitute audit & supervisory board member. No. of Name Career Summary and Shares (Date of Birth) Current Representation in Other Companies Owned Jul. 2001 Commissioner's Secretariat at National Tax Agency, Internal Inspector at Nagoya Regional Taxation Bureau Jul. 2005 Special Examiner, Large Enterprise Examination
Department at Nagoya Regional Taxation Bureau Yoshirou Jul.2008 Appeals Judge at Nagoya National Tax Tribunal 0 Ishikawa Jul.2009 District Director at Gifu-minami Tax Office shares (Mar. 22, 1951) Aug. 2011 Established Yoshirou Ishikawa certified tax accountant
office (current) Oct. 2011 Executive director, General incorporated association Nakagawa houjinkai (current) Notes: 1. Yoshirou Ishikawa has no particular interest in the Corporation. 2. Mr. Ishikawa is a candidate for the position of substitute outside member of the Audit & Supervisory Board. 3. Mr. Ishikawa has not been involved in the management of a company, but he has experience and has acquired significant knowledge as an accountant. Management believes this background will enable him to suitably execute his duties as an outside member of the Audit & Supervisory Board. 4. If Mr. Ishikawa is elected and appointed as an member of the Audit & Supervisory Board, the Corporation will conclude an agreement with him in accordance with the Paragraph 1 of Article 427 of the Corporate Law that limits liability for damages caused by failure of duties to an amount determined by legal provisions.
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Rinnai Corporation Notice of Convocation of the 66th Ordinary General Shareholders’ Meeting
PLACE “Tsubaki-no-ma” Room, 7th Floor, Meitetsu New Grand Hotel (next to the Bic Camera store) 6-9, Tsubaki-cho, Nakamura-ku, Nagoya
DIRECTIONS A five-minute walk from Nagoya Station, reached by JR, Meitetsu Railway, Kintetsu Railway, and Subway
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