NOK : Business Report for the 117th Term (Items subject to Electronic Provision Measures

BUSINESS REPORT for the 117th Term	(Translation)
April 1, 2022 to March 31, 2023

System for Ensuring Properness of Operations

(1) The details of the decisions on a system for ensuring properness of operations

Following are the details of the decisions regarding a system for ensuring the compliance of Directors' execution of their duties in line with the laws and regulations as well as with the Articles of Incorporation and a system for ensuring the properness of business operations of NOK CORPORATION (the "Company").

1. System for storing and managing information regarding the execution of duties by the Company's Directors
   In accordance with the relevant laws and regulations, the Articles of Incorporation and other rules established by the Company, departments in charge shall record and file minutes of meetings, including Annual Shareholders' Meetings and Board of Directors meetings, as well as approval documents and other authorizations. Directors and Corporate Auditors shall ensure a system that allows to inspect such documents.
2. Rules and other systems concerning loss risk management of the Company
   In accordance with the Risk Management Rules established by the Company, the Risk Management Committee shall take the initiative in identifying and analyzing underlying risks and promoting a cross-organizational risk management system. The Risk Management Committee shall report to Directors regarding the implementation status of said system on a regular basis and revise the system as necessary.
3. System for securing the efficiency of the execution of duties by the Company's Directors
   Directors shall hold Board of Directors meetings in accordance with Board of Directors Regulations. At these meetings, they shall determine allocation of their duties and important matters such as business strategies and management policy and appoint Operating Officers responsible for implementation of operations at individual divisions. Directors shall authorize them to execute operations at individual divisions, encourage them to execute operations quickly and accomplish objectives, and supervise them. The Directors shall clarify operational authorities and rules on decision-making in the Rules concerning the Operational Authorities of Upper Management. They shall ensure a system to execute their respective duties in an appropriate and efficient manner by monitoring the progress of business plans, managerial policies, and operational implementation plans at regular management meetings and through management reviews.
   In order to ensure the efficiency in the execution of duties by Directors, the Directors shall hold committee meetings including meetings of the Central Labor-Management Council consisting of the representatives of both the management team and employees, and explain and discuss business plans, important changes to organizational structures, and managerial policies.
4. ‌System for ensuring compliance in the execution of duties by the Company's Directors and employees with the relevant laws and regulations and the Articles of Incorporation
   Pursuant to the NOK Charter of Corporate Behavior, the Company shall clearly state that it places priority on compliance in its business activities. In accordance with compliance rules and Behavioral Guidelines Concerning Employee Compliance, the Company shall also provide training programs for its employees, thereby establishing and promoting a framework for compliance that conforms with the relevant laws and regulations, the Articles of Incorporation, and other rules established by the Company.
5. System for ensuring properness of operations of the Group consisting of the Company and its subsidiaries
   In accordance with the provisions of the Internal Control Rules, the Company shall establish the following systems for its subsidiaries to ensure the properness of operations of the Group as a whole.
   In addition, the Company, under the provisions of the Internal Control Rules regarding Financial Reporting, shall monitor the properness of operations based on Directors' instructions to ensure the credibility of the financial statements of the Company and its subsidiaries.
6. 1. System regarding reporting from subsidiaries to the Company regarding execution of duties by Directors, etc.
      In accordance with the provisions of the Internal Control Rules, the division responsible for supervising subsidiaries shall monitor the status of management of subsidiaries. The headquarters divisions shall give necessary instructions and support to subsidiaries regarding operations under their supervision and monitor the implementation status of the system.
   2. Rules and other system concerning loss risk management of subsidiaries
      In accordance with the Internal Control Rules, the headquarters divisions shall have subsidiaries establish a risk management system and report to the headquarters divisions and the divisions responsible for supervising subsidiaries regarding the implementation status of the system on a regular basis, and give instructions to subsidiaries to revise the system as necessary.
   3. System for securing the efficiency of the execution of duties by Directors, etc. of subsidiaries
      The management teams and managers of subsidiaries shall hold joint management meetings on a semiannual basis to share information and promote managerial transparency. At these meetings, attendees shall report on and discuss the progress of the Group's managerial policies and business plans, thereby ensuring efficiency in the management of the Group as a whole.
   4. System‌ for ensuring compliance in the execution of duties by Directors, etc. and employees of subsidiaries with the relevant laws and regulations and the Articles of Incorporation
      In accordance with the Internal Control Rules, the headquarters divisions shall require the subsidiaries to establish a charter of corporate behavior, compliance rules and behavioral guidelines concerning employee compliance to clearly state that they place priority on compliance in their business activities. In addition, the headquarters divisions shall also require the subsidiaries to establish and promote a framework for compliance that conforms with the relevant laws and regulations, the Articles of Incorporation, and other internal rules, and monitor the implementation status.
7. Matters concerning assistant employees in cases where the Company's Corporate Auditors request the Company to assign employees to assist them with their duties
   Regarding the employees who are required to assist Corporate Auditors with their duties, the Company shall assign personnel with expertise of laws and regulations who are capable of providing assistance to Corporate Auditors, upon discussions with the Corporate Auditors on the selection of assistant employees and the operational authorities thereof.
8. Matters regarding the independence of employees provided for in the preceding item from the Company's Directors and ensuring the effectiveness of instructions by the Company's Corporate Auditors to said employees
   Employees assigned to assist Corporate Auditors with their duties shall follow the directions and orders of Corporate Auditors in the execution of duties, attend the Board of Corporate Auditors meetings and other important meetings attended by Corporate Auditors to execute instructions from Corporate Auditors. The Company shall have discussions with Corporate Auditors regarding changes of said assistant employees.

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1. ‌System for reporting to the Company's Corporate Auditors by the Company's and its subsidiaries' Directors and employees and other system for reporting to the Company's Corporate Auditors
   The Auditing Committee for Internal Controls, an advisory body to the Board of Directors, shall, in accordance with the Internal Control Rules, conduct periodical internal audits on the state of the system to ensure the appropriateness of the Company's and its subsidiaries' operations, and report the results thereof to the Board of Corporate Auditors.
2. ‌System for ensuring that the person who made the report provided for in the preceding item shall not be subject to unfavorable treatment for reason of having made such report
   The Company shall prohibit unfavorable treatment of a person who made the report provided for in the preceding item for reason of having made such report, and communicate to that effect widely across the Company and its subsidiaries.
3. Matters‌ regarding the policy for handling expenses or payables in relation to execution of duties of the Company's Corporate Auditors, such as procedures for advance payment or reimbursement in relation to execution of such duties
   In accordance with the audit policy and audit plan formulated at the Board of Corporate Auditors meetings pursuant to the Board of Corporate Auditors Regulations, the Company shall secure expenses to enable Corporate Auditors to execute their duties appropriately.
4. Other systems for securing effective audits by the Company's Corporate Auditors
   In order to supervise the Directors' execution of their duties, in accordance with the audit policy and audit plan formulated at the Board of Corporate Auditors meetings pursuant to the Board of Corporate Auditors Regulations, the Company shall maintain a system that allows Corporate Auditors to attend the Board of Directors meetings and other important meetings and to investigate the Company's operational and financial conditions.
   The Independent Auditor and Corporate Auditors shall exchange opinions on a regular basis.
   In addition, joint meetings named "Management Supervision Meeting" with the participation of Representative Directors, Outside Directors and Corporate Auditors shall be held on a regular basis with a view to facilitating exchanges of opinions. 

(2) Overview of the operational status of the systems for ensuring the properness of operations

In accordance with "the details of the decisions on a system for ensuring properness of operations" described in (1) above, the Company strives to develop systems and operate such systems appropriately. An overview of the operational status of such systems is as follows.

1. Overview of the operational status of the system for storing and managing information
   Minutes of meetings, including Shareholders' Meetings and Board of Directors meetings, approval documents and other authorizations are prepared and drawn up by departments in charge or drafting departments without delay and are managed and stored appropriately.
2. Overview of the operational status of the risk management system
   In accordance with the Risk Management Rules, the headquarters divisions have established a cross-organizational risk management system. The Risk Management Committee identifies and analyzes underlying risks and reports to Directors regarding the implementation status of such system.
3. Overview of the operational status of the system for securing efficient execution of duties
   Operating Officers and Upper Management are executing their duties promptly and efficiently in accordance with operational authorities and rules on decision-making. Their execution of duties is supervised by Directors at management meetings (two times in the current period), etc. The Company monitors if Directors' duties are executed appropriately and efficiently at the Board of Directors meetings (13 times in the current period, including meetings conducted by document means), the Central Labor-Management Council (17 times in the current period) and various other committee meetings.
4. Overview of the operational status of the system for ensuring compliance
   The Company communicates and ensures compliance with the NOK Charter of Corporate Behavior, the compliance rules and Behavioral Guidelines Concerning Employee Compliance. In addition, the Company continuously makes efforts for compliance with the relevant laws and regulations, the Articles of Incorporation and other rules established by the Company by implementing the month for promoting compliance, providing training programs for its employees and establishing a whistleblowing hotline, etc.
5. Overview of the operational status of the system for ensuring the properness of operations of the Group
6. 1. The Company has received reports as necessary on the management status of its subsidiaries and the status of progress for instructions and support provided by the Company.
   2. The Company has required its subsidiaries to establish risk management systems, and the headquarters divisions have received reports on the status of implementation of the systems.
   3. The Company holds joint management meetings twice a year to ensure the management efficiency of the Group as a whole.
   4. ‌The Company has required its subsidiaries to establish Charters of Corporate Behavior, compliance rules and Behavioral Guidelines Concerning Employee Compliance, and monitors the status of compliance with the relevant laws and regulations, the Articles of Incorporations and other rules established by the Company on a regular basis.
   5. The Company monitors the properness of operations to ensure the credibility of the financial statements of the Company and its subsidiaries once a year.
7. Overview of the operational status of the system for audit by Corporate Auditors
8. 1. The‌ Company has assigned personnel with expertise in laws and regulations who are capable of providing assistance to Corporate Auditors, upon consultation with Corporate Auditors on the selection of assistant employees.
   2. Employees‌ who are assigned to assist Corporate Auditors with their duties attend the Board of Corporate Auditors meetings, etc. and follow the instructions from Corporate Auditors in executing their duties.
   3. ‌The Auditing Committee for Internal Controls conducts internal audits on the status of the system to ensure appropriateness of the Company's and its subsidiaries' operations annually, and reports the results thereof to the Board of Corporate Auditors.
   4. The‌ Company has included a provision in the compliance rules that prohibits unfavorable treatment of personnel for reason of having made a report to the whistleblowing hotline, and has communicated to that effect across the Company and its subsidiaries.
   5. ‌The Company secures expenses that allow Corporate Auditors to execute their duties appropriately in accordance with the audit policy and audit plans.
   6. ‌Corporate Auditors attend the Board of Directors meetings and other important meetings and investigate the Company's operational and financial conditions.
      In addition, Corporate Auditors exchange opinions with the Independent Auditor on a regular basis, and attends meetings named "Management Supervision Meeting" to be held four times a year to exchange opinions with Representative Directors and Outside Directors.

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Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (From April 1, 2022 to March 31, 2023)

													(Millions of yen)
					Shareholders' equity
	Capital stock					Retained				Total
		Capital surplus		Treasury stock	shareholders'
			earnings
										equity
Balance at the beginning of current period	23,335		23,591		365,880		(230)		412,577
Changes of items during the period
Dividends from surplus							(10,377)				(10,377)
Profit attributable to owners of parent							13,320				13,320
Purchase of treasury stock											(4,526)		(4,526)
Disposal of treasury stock											15		15
Change in ownership interest of parent due to					(1)								(1)
transactions with non-controlling interests
Net changes of items other than shareholders'
equity
Total changes of items during the period	-			(1)			2,942		(4,511)		(1,569)
Balance at the end of current period	23,335		23,590		368,823		(4,741)		411,008
	Accumulated other comprehensive income
											Non-	Total net
	Valuation			Foreign					Total accumulated
			Remeasurements		controlling
	difference on			currency	of defined		other	interests	assets
	available-for-		translation		comprehensive
		benefit plans
	sale securities		adjustment		income
Balance at the beginning of current period	60,663		34,263		(5,243)		89,684	52,092	554,355
Changes of items during the period
Dividends from surplus													(10,377)
Profit attributable to owners of parent													13,320
Purchase of treasury stock													(4,526)
Disposal of treasury stock													15
Change in ownership interest of parent due to													(1)
transactions with non-controlling interests
Net changes of items other than shareholders'	(1,477)		12,176		11,034		21,733	2,827	24,560
equity
Total changes of items during the period	(1,477)		12,176		11,034		21,733	2,827	22,991
Balance at the end of current period	59,186		46,440		5,790		111,417	54,920	577,346

Note: Figures are rounded down to the nearest million yen.

Reference: Consolidated Cash Flows (From April 1, 2022 to March 31, 2023)

(Millions of yen)

From operating activities	From investing activities	From financing activities	Cash and cash equivalent at
the end of period
46,030	(35,159)	(21,441)	104,117

Note: Figures are rounded down to the nearest million yen.

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Notes to Consolidated Financial Statements

1. Notes regarding the basis for preparing consolidated financial statements

1. Scope of consolidation

1. Consolidated subsidiaries
2. 1. Number of consolidated subsidiaries: 91
   2. Names of major consolidated subsidiaries:

Thai NOK Co., Ltd.

Unimatec Co., Ltd.

Nippon Mektron, Ltd.

Mektec Corporation (Taiwan)

SYNZTEC Co., Ltd.

1. Unconsolidated subsidiaries
2. 1. Name of major unconsolidated subsidiary: Mektec Automation Technology Corporation (Zhuhai) Ltd.
   2. Reasons for exclusion from scope of consolidation
      The respective totals of total assets, net sales, net income, retained earnings and the like of unconsolidated subsidiaries are all immaterial with respect to total assets, net sales, profit/loss attributable to owners of parent, retained earnings and the like on the consolidated financial statements. Therefore, they are not included in the scope of consolidation because they do not have a significant impact on the consolidated financial statements overall.

1. Application of the equity method of accounting

1. Unconsolidated subsidiaries and affiliates accounted for by the equity method
2. 1. Number of unconsolidated subsidiaries and affiliates accounted for by the equity method: 18
   2. Names of major unconsolidated subsidiaries and affiliates:

Eagle Industry Co., Ltd.

Pyung-Hwa Oilseal Industry Co., Ltd.

Freudenberg-NOK General Partnership

1. Unconsolidated subsidiaries and affiliates not accounted for by the equity method Names of major unconsolidated subsidiaries:
   Not applicable

1. Notes regarding changes of scope of consolidation and equity method affiliates

1. Change in scope of consolidation

Subsidiaries newly included in consolidation (1) UNIMATEC Chemicals India Pvt. Ltd.

(ii)Change in scope of the equity method

Companies excluded from application of the equity-method (1) UMEK GmbH

(4) Matters concerning the business term of consolidated subsidiaries

There are 39 consolidated subsidiaries whose accounting periods differ from the consolidated accounting period and have their fiscal year end on December 31. Of these, important transactions made by NOK Inc., between the said accounting date and the consolidated accounting date have been adjusted to the extent necessary for consolidation. Mektec Manufacturing Corporation (Zhuhai) Ltd. and 37 other consolidated subsidiaries carry out provisional settlements of account based on full-year business results on March 31, the consolidated accounting date.

1. Matters concerning accounting policies

1. Valuation criteria and methods for principal assets
2. 1. Available-for-salesecurities
      • Those other than shares and other securities without quoted market price

‌Stated at market value. (Valuation difference is reported as a component of net assets. Cost of sales is calculated using the moving average method.)

• Shares and other securities without quoted market price

They are stated at cost with the cost being determined by the moving average method.

(b) Derivatives

They are stated at market price.

(c) Inventories

Finished‌ goods and work in process of the Company and its domestic consolidated subsidiaries are mainly valued at cost based on the retail method (balance sheet amounts are determined by writing down the book value according to the decrease in profitability). Meanwhile, raw materials and supplies are valued at cost based on the periodic average method (balance sheet amounts are determined by writing down the book value according to the decrease in profitability). For overseas consolidated subsidiaries, those are mainly valued at the lower of cost or market based on the moving average method or the first-infirst-out method.

1. Method of depreciation of principal noncurrent assets

1. Property, plant and equipment (excluding lease assets) Depreciation is computed by the straight-line method.
   The useful lives of major items of property, plant and equipment are as follows: Buildings and structures: 5-50 years
   Machinery, equipment and vehicles: 4-10 years
2. Intangible assets (excluding lease assets) Amortization is computed by the straight-line method.
3. Lease assets
   Lease assets related to finance leases other than those deemed to transfer ownership of leased property to the lessee by the Company
   Depreciation is calculated on the straight-line method over the lease period as the useful life and assuming no residual value.
4. Long-termprepaid expenses
   Amortization is computed on a straight-line basis.

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1. Accounting policies for principal allowances

1. Allowance for doubtful accounts
   To prepare for losses on bad debt, general claims are accounted using the loan loss ratio and doubtful claims are accounted as the expected unrecoverable amount taking into consideration of the recoverability of individual claims.
   As for overseas subsidiaries, estimated amount of allowance for doubtful accounts has been recorded depending primarily on the condition of receivables.
2. Provision for bonuses
   In order to prepare for the payment of employee bonuses, accrued bonuses based primarily on estimated payment amounts have been entered into the accounts.
3. Provision for business restructuring
   To provide for losses due to business restructuring, the Company records the amounts it expects to incur.
4. Provision for share awards for directors (and other officers)
   In order to prepare for provision of shares of the Company's stock, etc. to directors and other officers of the Company and a portion of its subsidiaries, we have calculated the expected amount of provision.

1. Method for accounting for retirement benefits

1. Method for attributing expected retirement benefits to periods
   In the calculation of retirement benefit obligations, the method of attributing expected retirement benefits to periods up to the end of the current fiscal year is the benefit formula basis.
2. Method of expenses for actuarial differences
   Actuarial differences are treated as expenses in equal installments using the straight-line method over a prescribed period of time (10 years) that is within the average remaining period of employment for the employees in question, beginning in the year following the fiscal year in which such calculations are made.

1. Accounting policies for important revenue and expenses

Since the details of main performance obligations in main businesses related to revenue from contracts with customers of the Company and its consolidated subsidiaries in Japan and the timing when the performance obligations are typically satisfied (typical timing of revenue recognition) are described in "9. Notes regarding revenue recognition," this information has been omitted.

1. Method of hedge accounting

1. Method of hedge accounting
   Special treatment is applied as the interest rate swaps satisfy the requirements for special treatment.
2. Hedging instruments and hedged items

Hedging instruments:	Interest rate swaps
Hedged items:	Interest on borrowings

1. Hedging policy
   The interest rate swaps are made in order to hedge fluctuation risks in interest rates on borrowings.
2. Method of assessing hedge effectiveness
   Regarding the interest rate swaps, the Company assesses hedge effectiveness based upon the fulfillment of the requirements for special treatment.

1. Method and period of amortization of goodwill

Goodwill is amortized, in principle, over five years on a straight-line basis.

1. 1. Other significant Items for preparing consolidated financial statements Application of the group tax sharing system
      The Company applies the group tax sharing system.
2. Notes regarding changes in accounting policies
   (Application of the Implementation Guidance on Accounting Standard for Fair Value Measurement)
   The "Implementation Guidance on Accounting Standard for Fair Value Measurement" (ASBJ Guidance No. 31, June 17, 2021, hereafter "Fair Value Measurement Accounting Standard Implementation Guidance") has been applied from the beginning of the fiscal year under review. In accordance with the transitional treatment prescribed in paragraph 27-2 of the Fair Value Measurement Accounting Standard Implementation Guidance, the Company has decided to prospectively apply the new accounting policies set forth by the Fair Value Measurement Accounting Standard Implementation Guidance. These changes had no impact on the Company's consolidated financial statements.
3. Notes regarding accounting estimates
   The following is the information on accounting estimates recorded on the consolidated financial statements of the current fiscal year that may exert material effects on the consolidated financial statements of the next fiscal year.
   The Medium-term Management Plan in the text below is based on information accessible from the inside and outside of the Company at the time of preparation, etc., with the use of assumptions such as the growth rate of multiple markets in which the Company is participating and measures that the management has judged are feasible. Further, since it is difficult to predict when the novel coronavirus pandemic will come to an end and developments regarding the situation between Russia and Ukraine, a prolonged impact may significantly affect the business results and financial condition of the NOK Group.
4. 1. Deferred tax assets
   1. The amount recorded on the consolidated financial statements for the current fiscal year

(Millions of yen)

Deferred tax assets

Current fiscal year

4,965

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