NHK SPRING CO., LTD.

Consolidated Financial Statements

NHK Spring Co., Ltd.

and Consolidated Subsidiaries

For the years ended March 31, 2023 and 2022

with Independent Auditor's Report

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NHK SPRING CO., LTD.

Independent Auditor's Report

The Board of Directors

NHK Spring Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of NHK Spring Co., Ltd. and its consolidated subsidiaries (the Group), which comprise the consolidated balance sheet as at March 31, 2023, and the consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the year then ended, and notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters.

Impairment of property, plant and equipment allocated to the Atsugi Plant and Ina Plant in the precision spring and components business of NHK Spring Co., Ltd.

Description of Key Audit Matter

Auditor's Response

Property, plant and equipment in the amount of

We mainly performed the following audit

¥166,270 million was recorded on the consolidated

procedures in considering the impairment of

balance sheet as of March 31, 2023, which

property, plant and equipment allocated to the

represented 27.43% of total assets.

Atsugi Plant and Ina Plant in the precision spring

and components business of NHK Spring Co.,

Ltd.:

・ We compared the cash flow projection period

with the remaining economic lives of major

assets.

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NHK SPRING CO., LTD.

As described in the notes to the consolidated financial statements (Significant Accounting Estimates), NHK Spring Co., Ltd. (the Company) assessed the impairment of fixed assets for the asset group corresponding to fixed assets in the Atsugi Plant and Ina Plant in its precision spring and components business. Operating losses have been continuously recorded for these plants due to a decline in automobile production resulting from the impact of the COVID-19 pandemic and the semiconductor shortage.

As a result, the carrying amount of the asset group corresponding to the plants was reduced to the recoverable amount because the aggregate undiscounted future net cash flows of the asset group fell below the carrying amount. This reduction was recorded as an impairment loss of ¥2,248 million for the Atsugi Plant and ¥3,004 million for the Ina Plant, and the balance of property, plant and equipment after impairment was ¥6,931 million for the Atsugi Plant and ¥1,939 million for the Ina Plant.

Estimates of future cash flows used in recognizing and measuring impairment loss of the plants are based on the business plan approved by the Board of Directors. The recoverable amounts for the plants are determined using the net realizable value based on real estate appraisal value.

Significant assumptions in estimating future cash flows are sales volume, sales prices, and gross margin ratio, which serve as the basis of the business plan.

Sales volume is based on the expected quantity of orders received from customers. Although demand is expected to rise for motor cores for electric vehicles, and such motor cores are the primary product manufactured at the Atsugi Plant, the Company takes a conservative approach to considering sales volume. Additionally, sales prices and gross margin ratio include sales price and manufacturing cost improvements planned for in the business plan.

Significant assumptions used in determining net realizable value are price per unit area in real estate appraisals as well as dismantling and removal costs.

Given that the significant assumptions used to estimate the future cash flows are subject to uncertainty and require management's judgement and, further, considering that estimates of net realizable value involve a high level of expertise, we determined impairment of property, plant and equipment allocated to the Atsugi Plant and Ina Plant in the precision spring and components business of the Company to be a key audit matter.

  • We evaluated the consistency of the estimated future cash flows with the business plan approved by the Board of Directors.
  • We compared the business plan for prior years with actual results to evaluate the effectiveness of management's estimation process used in formulating business plans.
  • In order to assess the reasonableness of sales volume, which is an assumption serving as the basis of the business plan, we held discussions with management.
  • We assessed the reasonableness of estimates of sales prices by discussing the estimates with management and comparing past estimates with actual results. Additionally, we performed sensitivity analysis considering future fluctuation risks.
  • We assessed the reasonableness of the gross margin ratio by discussing the ratio with management and performing trend analysis of the cost ratio as it relates to future cost forecasts.
  • With regard to determinations of whether to recognize impairment and measurements of impairment loss, which are based on real estate appraisals, we evaluated the reliability of specialists used by management.
  • In order to assess the reasonableness of estimates of net realizable value, we involved valuation specialists from our network firms to consider the consistency of the appraisal methods adopted with accounting standards by inspecting real estate appraisals, and the consistency of price per unit area and dismantling and removal costs, which are significant assumptions, with external information.

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NHK SPRING CO., LTD.

Other Information

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

We have concluded that other information does not exist. Accordingly, we have not performed any work related to other information.

Responsibilities of Management, the Audit and Supervisory Board Member and the Audit and Supervisory Board for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern.

The Audit and Supervisory Board Member and the Audit and Supervisory Board are responsible for overseeing the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
  • Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group's internal control.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

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NHK SPRING CO., LTD.

  • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
  • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan.
  • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

We also provide the Audit and Supervisory Board Member and the Audit and Supervisory Board with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Audit and Supervisory Board Member and the Audit and Supervisory Board, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan

Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.

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NHK Spring Co. Ltd. published this content on 06 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 October 2023 06:03:22 UTC.