Okumura : THE 86TH ANNUAL GENERAL MEETING OF SHAREHOLDERS OTHER MATTERS SUBJECT TO THE ELECTRONIC PROVISION MEASURES NEW!

Note: This document has been translated from the Japanese original for reference purposes only. In the event of any discrepancy between this translated document and the Japanese original, the original shall prevail. The Company assumes no responsibility for this translation or for direct, indirect or any other forms of damages arising from the translation.

THE 86TH ANNUAL GENERAL MEETING OF SHAREHOLDERS OTHER MATTERS SUBJECT TO THE ELECTRONIC PROVISION MEASURES

(MATTERS FOR WHICH DOCUMENT DELIVERY IS OMITTED)

Notes to the Consolidated Financial Statements

Notes to the Non-consolidated Financial Statements

(From April 1, 2022 to March 31, 2023)

OKUMURA CORPORATION

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Notes to the Consolidated Financial Statements

1. Notes on Significant Matters Serving as Basis for Preparation of Consolidated Financial Statements, etc.

(1) Scope of consolidation

(i) Number of consolidated subsidiaries:	4
Names of consolidated subsidiaries:

• Okumura Machinery Corporation
• Taihei Real Estate Corporation
• ISHIKARI BIO ENERGY GODO KAISHA
• HIRATA BIO ENERGY GODO KAISHA

(ⅱ) Number of non-consolidated subsidiaries:	9
Name of major non-consolidated subsidiaries:

1. • Kazo Agricultural Village Drainage PFI Corporation (Reason of exclusion from the scope of consolidation)
     Each non-consolidated subsidiary falls under a small company. The combined amounts of their total assets, net sales, profit or loss (proportional amount of equity), retained earnings (proportional amount of equity), and other items do not significantly affect the consolidated financial statements, respectively. Therefore, the Company excludes these subsidiaries from the scope of consolidation.
2. Application of equity method

(ⅰ) No non-consolidated subsidiaries or associates apply the equity method.

(ⅱ) Name of major non-consolidated subsidiaries not accounted for by the equity method

• Kazo Agricultural Village Drainage PFI Corporation Number of associates not accounted for by the equity method: 6 Name of primary associates not accounted for by the equity method:
• Swim City Kagoshima Corporation

(Reason for not applying the equity method)

Regarding each non-consolidated subsidiary and associate not accounted for by the equity method, their profit or loss (proportional amount of equity), retained earnings (proportional amount of equity), and other items have an immaterial impact on the consolidated financial statements and do not have significance as a whole. Therefore, the Company excludes these companies from the scope of the equity method.

1. Accounting policies
2. 1. Valuation basis and method for significant assets
      • Securities

Held-to-maturity bonds

Amortized cost method (straight-line method)

Available-for-sale securities

• • Securities other than shares, etc. that do not have a market price
    Market value method (net unrealized gains on available-for-sale securities are recognized directly in net assets, and cost of securities sold is calculated using the moving average method.)
  • Shares, etc. that do not have a market price Valuation at cost using the moving average method
  • Equity investment in investment limited partnerships and similar partnerships (items deemed as securities in accordance with Article 2, Paragraph 2 of the Financial Instruments and Exchange Act) Amounts corresponding to equity interests are recognized on a net basis based on the recent financial statements available according to the financial report date stipulated in partnership contracts.
• Derivatives

Market value method

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• Inventories
• • Real estate for sale
    Valuation at cost using the specific identification method (the consolidated balance sheet amount is calculated by writing down the carrying amount based on a decreased profitability.)
  • Costs on construction contracts in progress
    Valuation at cost using the specific identification method
  • Costs on real estate investment, development business and other
    Valuation at cost using the specific identification method (the consolidated balance sheet amount is calculated by writing down the carrying amount based on a decreased profitability.)
  • Work in process

Valuation at cost using the specific identification method

(ⅱ) Depreciation or amortization method for significant depreciable assets or amortizable assets

• Property, plant and equipment (excluding leased assets)
  Declining-balance method. However, the straight-line method is applied to buildings (excluding facilities attached to buildings) acquired on or after April 1, 1998, and facilities attached to buildings and structures acquired on or after April 1, 2016.
  Useful lives and residual values are calculated based on the same standards as prescribed in the Corporation Tax Act. In addition, the assets acquired before March 31, 2007 are depreciated using the straight-line method over five years beginning from the fiscal year subsequent to the fiscal year when their depreciable amount is depreciated.
• Intangible assets (excluding leased assets)
  Straight-line method. Useful lives are calculated based on the same standards as prescribed in the Corporation Tax Act.
  For internal-use software, however, the straight-line method is used based on the internally available period of five years.
• Leased assets

Leased assets related to finance lease transactions without transfer of ownership.

The straight-line method is used by setting lease periods as useful lives and residual values as zero. (ⅲ) Recognition of significant provisions

• Allowance for doubtful accounts
  To provide for bad debt expenses, estimated irrecoverable loan amount is calculated, based on the past loan loss ratio for normal loans, and considering recoverability of each loan for certain loans such as doubtful loans.
• Provision for warranties for completed construction
  To provide for expenses such as warranty costs for defects in completed work, the estimated future warranty costs are provided for net sales of completed construction contracts of the fiscal year under review.
• Provision for bonuses
  To provide for the future payments of employee bonuses, the estimated payment amount attributable to the fiscal year under review is provided.

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• Provision for bonuses for directors (and other officers)
  To provide for future payments of bonuses for directors and other officers, the estimated payment amount attributable to the fiscal year under review is provided.
• Provision for loss on construction contracts
  To provide for future losses on construction orders received, estimated losses are provided with

respect to construction projects for which eventual losses are expected and reasonably estimated among undelivered projects as of the end of the fiscal year under review.

(ⅳ) Recognition of significant revenues and expenses

Regarding the construction business, the primary business of the Group, the Company recognizes revenue when control of promised goods or services is transferred to a customer.

The performance obligations for construction contracts in the construction business are mainly construction and delivery of buildings, etc. When control of goods or services is transferred over time, the Company applies the method of recognizing revenue over time as the performance obligations for goods or services are satisfied. The progress toward complete satisfaction of a performance obligation is measured based on the proportion of construction costs incurred by the end of the reporting period to the total expected construction costs.

In some circumstances such as the first stage of a contract, the Company may not be able to reasonably measure the progress toward complete satisfaction of a performance obligation but expect to recover the costs. In those circumstances, the Company applies the cost recovery method.

Regarding construction contracts whose periods are very short from the initial transaction date of the contract to the expected date of completely satisfying performance obligations, the Company does not recognize revenue over time, but recognizes revenue when the performance obligations are satisfied completely (the time of completing and delivering constructions).

(ⅴ) Significant hedge accounting method

In principle, the Company adopts the deferred hedge accounting.

The Company adopts special treatment for interest rate swaps that meet the requirements for special treatment. (ⅵ) Other significant matters for preparation of the consolidated financial statements

1. • Accounting method for estimated retirement benefits
   • • Attribution method for estimated retirement benefits
       In calculating retirement benefit liabilities, the benefit formula basis is used as a method of attributing estimated retirement benefits to the period up to the end of the fiscal year under review.
     • Expensing method for actuarial gains (losses) and past service costs
       Actuarial gains (losses) are amortized using the straight-line method over certain years (ten years) within the average remaining service period for employees at the time of recognition, and expensed proportionally starting from the fiscal year following the respective fiscal year of recognition.
       Past service costs are amortized using the straight-line method over certain years (ten years) within the average remaining service period for employees at the time of recognition.
   • Amortization method and period for goodwill
     Goodwill is amortized over 17 years using the straight-line method.
   • Accounting policies and procedures adopted when the provisions of the relevant accounting standards are not clear
     Accounting for works by joint ventures formed in order to take orders and carry out the works jointly with several constructors are incorporated in the consolidated financial statements according to the proportion of investment equities.
2. Notes on changes in accounting policies
   Application of "Implementation Guidance on Accounting Standard for Fair Value Measurement"
   The Company has applied the "Implementation Guidance on Accounting Standard for Fair Value Measurement" (ASBJ Guidance No. 31, June 17, 2021; hereinafter "Implementation Guidance on Fair Value Measurement Standard") from the beginning of the fiscal year under review, and will prospectively apply the new accounting policies stipulated by the Implementation Guidance on Fair Value Measurement Standard in accordance with the transitional treatment provided in Paragraph 27-2 of the Implementation Guidance on Fair Value Measurement Standard. These changes do not affect the consolidated financial statements.
3. Notes on changes in presentation (Consolidated balance sheet)
   The account title related to sideline businesses, which was previously presented as "costs on real estate business," has been changed to "costs on real estate investment, development business and other" from the
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¥232,022 million ¥1,566 million

fiscal year under review to reflect the actual situation more accurately.

(Consolidated statement of income)

The account titles related to sideline businesses, which were previously presented as "net sales in real estate business and other," "cost of sales in real estate business and other," and "gross profit on real estate business and other," have been changed to "net sales of real estate investment, development business and other," "cost of real estate investment, development business and other," and "gross profit on real estate investment, development business and other" from the fiscal year under review to reflect the actual situation more accurately.

4. Notes on accounting estimates

Revenue recognition using the method to recognize revenue over time and provision for loss on construction contracts

(1) Amounts recorded in the consolidated financial statements for the fiscal year ended March 31, 2023

• Net sales of completed construction contracts using the

method to recognize revenue over time

･ Provision for loss on construction contracts

1. Information about the contents of significant accounting estimates on the identified items
2. 1. Calculation method
      Net sales of completed construction contracts under the method to recognize revenue over time are recorded by multiplying the total construction revenue by the percentage of completion. The progress is estimated based on the proportion of construction costs incurred by the end of the reporting period to the total expected construction costs.
      In addition, when it is probable that the total construction costs will exceed total construction revenue,

provision for loss on construction contracts will be recorded at the expected excess amount (loss on construction contracts) less the profit or loss already recognized.

(ⅱ) Major assumptions

In the event an agreement on consideration for changes in design or scope of a construction is not timely finalized in the contracts and other documents, the total construction revenue is obtained by estimating consideration based on the details of the change in works and other matters as instructed. Total construction costs are estimated mainly considering the market conditions of materials and outsourcing expenses and individual risk factors associated with the progress of works.

These estimates and underlying assumptions are continuously reviewed. (ⅲ) Impact on the consolidated financial statements for the following fiscal year

Any changes in major assumptions might affect net sales of completed construction contracts and provision for loss on construction contracts for the following fiscal year.

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