Medlive Technology Co., Ltd. - Proxy Solicitation & Information Statement 2021

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer or registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Hisense Home Appliances Group Co., Ltd. , you should hand this circular at once to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

海信家電

HISENSE HOME APPLIANCES GROUP CO., LTD. 海信家電集團股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00921)

(1) MAJOR TRANSACTION – SUBSCRIPTION FOR SHARES IN SANDEN HOLDINGS CORPORATION; AND

(2) NOTICE OF 2021 SECOND EXTRAORDINARY GENERAL MEETING

Capitalised terms used in this cover page have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 5 to 26 of this circular.

A notice of the EGM to be held on Tuesday, 25 May 2021 at 3 p.m. at the conference room of the Company’s head office, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the PRC, is set out on pages EGM-1 to EGM-2 of this circular. A proxy form for use at the EGM and a reply slip are enclosed and are also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://hxjd.hisense.cn). Whether or not you intend to attend the EGM, you are requested to complete and return the proxy form in accordance with the instructions printed on it and return it to the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for holding the EGM or any adjournment of such meeting (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment of such meeting (as the case may be) should you so wish and, in such event, the proxy form previously submitted shall be deemed to be revoked.

7 May 2021

		Page
DEFINITIONS	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
APPENDIX I	– FINANCIAL INFORMATION OF THE GROUP. . . . . . . . . . . .	I-1
APPENDIX II	– FINANCIAL INFORMATION OF THE SANDEN GROUP . . .	II-1
APPENDIX III	– UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE ENLARGED GROUP. . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	– MANAGEMENT DISCUSSION AND ANALYSIS
	OF THE SANDEN GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	– GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
NOTICE OF 2021 SECOND EXTRAORDINARY
GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		EGM-1

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“ADR Creditors”
the financial creditors participating in the Turnaround ADR Proceedings;
“ADR Debts”

the total funded debts owed by Sanden and its subsidiaries to the ADR Creditors in the amount of approximately JPY98.25 billion (equivalent to approximately HK$7.2 billion) if calculated based on the amount of total funded debts owed by the Sanden and its subsidiaries which are subject to the Turnaround ADR Proceedings and using foreign exchange rates as of December 31, 2020;

“Board” the board of Directors;
“Business Day”

a day which is not a Saturday, Sunday, or any day on which banking institutions in Japan or the PRC are generally authorized or obligated by law or executive order to close;

“CASBE”

China Accounting Standards for Business Enterprise;

“close associates”

has the meaning ascribed to it under the Listing Rules;

“Closing” closing of the Subscription;
“Closing Date”

the 5th Business Day immediately after the satisfaction or, to the extent permitted under the Share Purchase Agreement, waiver of all conditions precedent set forth in the Share Purchase Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted under the Share Purchase Agreement, waiver of all such conditions), unless the Share Purchase Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the Parties;

“Company”

Hisense Home Appliances Group Co., Ltd., a joint stock limited company incorporated in the PRC with limited liability, whose shares are listed on the main board of the Stock Exchange and the main board of the Shenzhen Stock Exchange;

“connected person”

has the meaning ascribed to it in the Listing Rules;

– 1 –

DEFINITIONS

“Directors” the directors of the Company; “EDINET” the Electronic Disclosure for Investors’ NETwork System, a public disclosure system for securities documents in Japan; “EGM” the 2021 second extraordinary general meeting of the Company to be held on Tuesday, 25 May 2021 at 3 p.m. at the conference room of the Company’s head office, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the PRC, for the Shareholders to consider and if thought fit, approve the Share Purchase Agreement and the transactions contemplated thereunder;

“Enlarged Group” the Group and the Sanden Group;
“Group” the Company and its subsidiaries;
“H Shares” the overseas listed foreign shares of the Company with a nominal value of RMB1.00 each which are listed on the Stock Exchange;

“Independent Third Party” a person, or in the case of a company, the company or its ultimate beneficial owner(s), who is independent of and not connected with the Company and its subsidiaries and its connected persons and its ultimate beneficial owner(s) or their respective associate;

“JGAAP” the accounting principles generally accepted in Japan;
“JGAAS” the auditing standards generally accepted in Japan;
“Latest Practicable Date” 30 April 2021, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained this circular;
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“Long Stop Date” 31 July 2021;

– 2 –

DEFINITIONS

“Material Adverse Effect” any event, occurrence, fact, condition or change that is materially adverse to (i) the assets, properties, operations, business, or condition (financial or otherwise) of either Sanden, its affiliate or important joint ventures invested (but not controlled) by Sanden individually, or Sanden and its affiliates taken as a whole, or (ii) the ability of Sanden to consummate the transactions contemplated by the Share Purchase Agreement;
“PRC” the People’s Republic of China;
“Remaining ADR Debts” the remaining debts owed by Sanden and its subsidiaries to the ADR Creditors after the debt forgiveness under the Turnaround Plan;
“Sanden” Sanden Holdings Corporation, a joint stock corporation organized under the laws of Japan, whose shares are listed on the First Section of the Tokyo Stock Exchange;
“Sanden Group” Sanden and its subsidiaries;
“Share Purchase Agreement” the Share Purchase Agreement entered into between Sanden and the Company dated 1 March 2021 in respect of the Subscription;
“Shareholders” the shareholders of the Company;
“SPV”
Hisense Japan Automotive Air-Conditioning Systems Corporation（海信日本汽車空調系統合同會社）, the special purpose vehicle organized under the laws of Japan formed by the Company as a directly wholly-owned subsidiary of the Company’s directly wholly-owned subsidiary Kelon Development Company Limited, which is also an indirectly wholly-owned subsidiary of the Company;
“Stock Exchange” The Stock Exchange of Hong Kong Limited;
“Subscription”
the subscription by the Company for 83,627,000 shares of common stock of Sanden under the terms and conditions of the Share Purchase Agreement;
“Subscription Amount” the consideration for the Subscription Shares;
“Subscription Price”

the subscription price of the Subscription Shares;

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DEFINITIONS

“Subscription Shares” the 83,627,000 shares of common stock of Sanden to be subscribed by the Company pursuant to the Share Purchase Agreement;
“Tokyo Stock Exchange” Tokyo Stock Exchange, Inc.;
“Turnaround ADR Proceedings” the specified certified dispute resolution proceedings for which Sanden and certain of its subsidiaries submitted filings to the Japanese Association of Turnaround Professionals (JATP) on 30 June 2020, under the Act on Strengthening Industrial Competitiveness (Act No. 98 of 11 December 2013);
“Turnaround Plan” the business turnaround plan with respect to the Turnaround ADR Proceedings that shall be presented to the financial institutions participating in the Turnaround ADR Proceedings under Article 28 of the Regulation for Enforcement of the Act on Strengthening Industrial Competitiveness Relating to the Ministry of Economy, Trade and Industry;
“HK$” Hong Kong dollars, the lawful currency of Hong Kong;
“JPY” Japanese Yen, the lawful currency of Japan;
“RMB” Renminbi, the lawful currency of the PRC; and “%” per cent.

For the purpose of illustration only, the amount denominated in JPY has been translated into HK$ at the exchange rate of HK$1.00 to JPY13.7.

English translations of names in Chinese or another language in this circular which are marked with “*” are for identification purposes only.

References to time and dates in this circular are to Hong Kong time and dates.

– 4 –

LETTER FROM THE BOARD

海信家電

HISENSE HOME APPLIANCES GROUP CO., LTD. 海信家電集團股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00921)

Executive Directors: Mr. Tang Ye Guo Mr. Jia Shao Qian Mr. Lin Lan Mr. Dai Hui Zhong Mr. Duan Yue Bin Mr. Fei Li Cheng

Independent non-executive Directors: Mr. Ma Jin Quan Mr. Zhong Geng Shen Mr. Cheung Sai Kit

Registered Office: No. 8 Ronggang Road Ronggui Street Shunde District Foshan City Guangdong Province PRC Principal place of business in Hong Kong: Room 3101-05 Singga Commercial Centre No. 148 Connaught Road West Hong Kong 7 May 2021

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION SUBSCRIPTION FOR SHARES IN SANDEN HOLDINGS CORPORATION

Reference is made to the announcement of the Company dated 1 March 2021 in relation to the Subscription.

The purpose of this circular is to provide you with, among other things, (i) information of the Subscription; (ii) financial information of the Group; (iii) financial information of the Sanden Group; (iv) unaudited pro forma financial information of the Enlarged Group; and (v) other information as required under the Listing Rules.

THE SUBSCRIPTION

On 1 March 2021 (after trading hours), the Company entered into the Share Purchase Agreement with Sanden, pursuant to which Sanden has conditionally agreed to issue and the Company has conditionally agreed to subscribe for 83,627,000 shares of common stock of Sanden, representing approximately 75% of the total voting rights of Sanden as enlarged by the issue of the Subscription Shares, at the Subscription Price of JPY256 (equivalent to approximately HK$19) per Subscription Share for a total Subscription Amount of JPY21,408,512,000 (equivalent to approximately HK$1,562,665,109).

– 5 –

LETTER FROM THE BOARD

BACKGROUND

Sanden is the world’s leading first-class manufacturer and supplier of automotive air-conditioning compressors and automotive air-conditioning systems. Its capital chain is strained in light of the global pandemic of COVID-19 and other severe circumstances. In order to seek a business turnaround, it made use of the Turnaround ADR Proceedings to obtain funds for operation and development, through the open sponsor selection process, the issuance of shares to the sponsor and the seeking of debt forgiveness from creditors and joint and several guarantee from the sponsor, thus stabilizing the continuous operation of the enterprise and improving the current financial position while enhancing the profitability of the enterprise and achieving fundamental reform by leveraging the industrial synergy with and the complementary advantage of the sponsor.

THE SHARE PURCHASE AGREEMENT

Date: 1 March 2021

Parties: (1) Sanden; and (2) the Company. (each a “ Party ” and collectively the “ Parties ”)

As at the date of this announcement, to the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, Sanden is an Independent Third Party and Sanden has no controlling shareholders.

Subscription Shares

Pursuant to the Share Purchase Agreement, Sanden has conditionally agreed to issue and the Company has conditionally agreed to subscribe for 83,627,000 shares of common stock of Sanden, representing approximately 75% of the total voting rights of Sanden as enlarged by the issue of the Subscription Shares.

Upon Closing, Sanden will become a non-wholly owned subsidiary of the Company.

Subscription Price and Subscription Amount

The Subscription Price of JPY256 (equivalent to approximately HK$19) per Subscription Share represents:

(a) a discount of approximately 44.0% to the closing price of JPY457 (rounded to nearest JPY) (equivalent to approximately HK$33) of Sanden’s stock as quoted on the Tokyo Stock Exchange on 26 February 2021, which is the business day immediately preceding the date of the Share Purchase Agreement;

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LETTER FROM THE BOARD

(b) a discount of approximately 40.3% to the average closing price of JPY429 (rounded to nearest JPY) (equivalent to approximately HK$31) of Sanden’s stock as quoted on the Tokyo Stock Exchange for the one month preceding 26 February 2021;
(c) a discount of approximately 34.2% to the average closing price of JPY389 (rounded to nearest JPY) (equivalent to approximately HK$28) of Sanden’s stock as quoted on the Tokyo Stock Exchange for the three months preceding 26 February 2021; and
(d) a discount of approximately 29.1% to the average closing price of JPY361 (rounded to nearest JPY) (equivalent to approximately HK$26) of Sanden’s stock as quoted on the Tokyo Stock Exchange for the six months preceding 26 February 2021.

The Subscription Amount for the 83,627,000 Subscription Shares in the sum of JPY21,408,512,000 (equivalent to approximately HK$1,562,665,109) shall be settled by cash on the Closing Date and will be funded by internal resources.

The Subscription Price was determined through Sanden’s open sponsor selection process and after arm’s length negotiations between the Parties taking into full account of the following factors:

(a) the amount of debt to be forgiven by the ADR Creditors

The Share Purchase Agreement was entered into on the basis that JPY63 billion shall be cancelled and waived with consents from the ADR Creditors with effect from the Closing Date.

(b) the funds required by Sanden for reform and development

The Company was informed by Sanden that it required a total of approximately JPY20.87 billion for reform and development, of which approximately JPY14.14 billion and approximately JPY6.73 billion would be required for structural reform and growth investment respectively. Please refer to the section headed “Use of Proceeds by Sanden” below for details.

(c) the amount of the joint and several guarantee to be provided by the Company for Sanden

Under the Share Purchase Agreement, the Company shall on or before the Closing Date, either (i) provide a joint and several guarantee for the benefit of the ADR Creditors with respect to the entire amount of the Remaining ADR Debts, or (ii) implement other possible alternatives to such joint and several guarantee which are satisfactory to the ADR Creditors based on good faith discussions among the Company, Sanden and the ADR Creditors. Based on the amount of the debt forgiveness agreed in the Share Purchase Agreement, the Remaining ADR Debts shall be approximately JPY35,252 million (using the foreign exchange rates as of 31 December 2020).

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LETTER FROM THE BOARD

The need for the Company to provide the joint and several guarantee was due to the deal structure of the Subscription which requires the approval of the Turnaround Plan by the ADR Creditors as a condition precedent. Given the fact that the ADR Creditors will need to grant debt forgiveness for a total amount of JPY63 billion under the Turnaround Plan, representing approximately 64% of the ADR Debts, the ADR Creditors strongly required the assurance of the full repayment of the Remaining ADR Debts. As such, the ADR Creditors, during the sponsor selection and negotiation process, requested the guarantee as a precondition to approve the Turnaround Plan.

In order to save finance cost, it has subsequently been agreed that instead of providing such joint and several guarantee to the ADR Creditors, the Remaining ADR Debts shall be repaid promptly, and no later than three months at the latest after the Closing Date. The repayment of the Remaining ADR Debts will be financed by new loan(s) to be obtained by Sanden, the SPV or Kelon Development Company Limited from financial institutions (the “ New Loan(s) ”) and the New Loan(s) will be guaranteed by the Company provided that the maximum liability of the Company under such guarantee will not exceed the entire amount of the Remaining ADR Debts.

Sanden is the world leading first-class manufacturer and supplier of automotive air-conditioning compressors and automotive air-conditioning systems with a high level of global brand awareness and comparative advantages in technology, market and client base. After Closing, it is expected that Sanden can quickly achieve business turnaround and increase its profitability through synergy and sharing of resources with the Group. Further, the Company has conducted legal and financial due diligence on Sanden Group and reviewed the financial position (taking into account the debt forgiveness under the Turnaround Plan) and the business development plan of Sanden and the Company is satisfied that the credit risk involved in on-lending the New Loan(s) to Sanden or guaranteeing the New Loan(s) is extremely low.

(d) the past stock price performance of Sanden

The Subscription Price represents a significant discount to the latest closing price or the average closing price of Sanden’s stock as quoted on the Tokyo Stock Exchange as set out above.

(e) that the common stock of Sanden will continue to be listed on the Tokyo Stock Exchange

The Subscription is made on the basis that the shares of common stock of the Sanden will continue to be listed on the Tokyo Stock Exchange.

After payment of the Subscription Amount by the Company to Sanden, Sanden shall take necessary steps to cause all Subscription Shares that are being subscribed by the Company pursuant to the Share Purchase Agreement to be credited to the securities account designated by the Company through the book-entry system of JASDEC (Japan Securities Depository Center). The Company has formed the SPV to subscribe for the Subscription Shares.

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LETTER FROM THE BOARD

Conditions Precedent

The major conditions precedent to the obligations of the Company to subscribe for the Subscription Shares include the following:

(i) the governmental authorizations set forth in the Share Purchase Agreement (including but not limited to merger control approval in Japan) shall have been received and shall not be subject to any condition imposed by any governmental authority which is unacceptable to the Company, acting reasonably;
(ii) in accordance with the Turnaround ADR Proceedings, the Turnaround Plan shall have been duly approved by all the ADR Creditors at a duly convened creditors meeting of the Turnaround ADR Proceedings;
(iii) the passing of a resolution by the shareholders of the Company at a general meeting of the Company approving the entering into and performance of the Share Purchase Agreement and the transactions contemplated thereunder in accordance with the applicable laws and listing rules governing the listed shares of the Company;
(iv) an extraordinary general meeting of shareholders of Sanden (the “ Extraordinary General Meeting of Shareholders of Sanden ”) shall have approved, to the extent required under applicable law (i) the issuance of the Subscription Shares and (ii) the amendment to the articles of incorporation of Sanden in order to increase the number of authorized shares;
(v) a shelf registration statement (the “ Shelf Registration Statement ”) in respect of the issue and sale of the Subscription Shares and any necessary amendments thereto (if any) shall have been duly filed by Sanden with the Kanto Local Finance Bureau of the Ministry of Finance of Japan and have become and remain effective under the Financial Instruments and Exchange Act of Japan, as amended and a shelf registration supplement to the Shelf Registration Statement shall have been duly filed by Sanden with the Kanto Local Finance Bureau of the Ministry of Finance of Japan;
(vi) conditions precedent in relation to material customers and key employees of Sanden and its affiliates;
(vii) since the date of the Share Purchase Agreement, nothing has occurred that would, or would be likely to have after the Closing, a Material Adverse Effect;
(viii) it is reasonably expected that the common shares of Sanden will continue to be traded on the Tokyo Stock Exchange after the Closing; and
(ix) the resumption of visa issuance to Chinese nationals for new entry into Japan.

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LETTER FROM THE BOARD

The major conditions precedent to the obligations of Sanden to issue the Subscription Shares include the following:

(a) the Extraordinary General Meeting of Shareholders of Sanden shall have approved, to the extent required under applicable law (i) the issuance of the Subscription Shares and (ii) the amendment to the articles of incorporation of Sanden in order to increase the number of authorized shares;
(b) the Shelf Registration Statement in respect of the issue and sale of the Subscription Shares and any necessary amendments thereto (if any) shall have been duly filed by Sanden with the Kanto Local Finance Bureau of the Ministry of Finance of Japan and have become and remain effective under the Financial Instruments and Exchange Act of Japan, as amended and a shelf registration supplement to the Shelf Registration Statement shall have been duly filed by Sanden with the Kanto Local Finance Bureau of the Ministry of Finance of Japan; and
(c) it is reasonably expected that the common shares of Sanden will continue to be traded on the Tokyo Stock Exchange after the Closing.

The Company will use its best efforts to procure the passing of the resolution of the Company referred to above.

Completion

Upon the terms and subject to the conditions set forth in the Share Purchase Agreement, the closing of the Subscription will take place on the 5th Business Day immediately after the satisfaction or, to the extent permitted under the Share Purchase Agreement, waiver of all conditions precedent set forth in the Share Purchase Agreement (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted under the Share Purchase Agreement, waiver of all such conditions), unless the Share Purchase Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the Parties.

Guarantee to be provided by the Company

Under the Share Purchase Agreement, the Company shall on or before the Closing Date, either (i) provide a joint and several guarantee which shall (A) be for the benefit of the ADR Creditors with respect to the entire amount of the Remaining ADR Debts, (B) be governed by Japanese law and (C) become effective as of the Closing, or (ii) implement other possible alternatives to such joint and several guarantee which are satisfactory to the ADR Creditors based on good faith discussions among the Company, Sanden and the ADR Creditors, it being understood that the Parties shall discuss this matter intensively before Sanden proposes the Turnaround Plan to the ADR Creditors.

After further discussion, it is finally confirmed by the Company and Sanden that as the alternative to and in substitution for the original proposal of the provision of a joint and several guarantee by the Company for the Remaining ADR Debts mentioned in (i) above,

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LETTER FROM THE BOARD

the Remaining ADR Debts shall be repaid promptly, and no later than three months at the latest after the Closing Date. The repayment of the Remaining ADR Debts will be financed by new loan(s) to be obtained by Sanden, the SPV or Kelon Development Company Limited from financial institutions and such new loan(s) will be guaranteed by the Company provided that the maximum liability of the Company under such guarantee will not exceed the entire amount of the Remaining ADR Debts.

Indemnity

The Company agrees and undertakes to indemnify Sanden for all damages, reasonable out-of-pocket costs and expenses which may be suffered by Sanden solely attributed to the Company’s failing to make or obtain any filing or notification with, or authorization, approval, consent, license, order, registration, qualification or decree of, any governmental authority which is required to be obtained before the Closing for the consummation of transactions contemplated by the Share Purchase Agreement (“ Damages ”) provided that such Damages shall not include any special, incidental, indirect or consequential damages, and shall be determined according to the permanent order, judgment, decision, verdict, award or other determination put into effect by any court, arbitration body, administrative agency or other governmental authority.

Use of Proceeds by Sanden

Under the Share Purchase Agreement, Sanden shall use all of the proceeds of the issuance of Subscription Shares to restructure the business and operations of Sanden and its affiliates in accordance with the Turnaround Plan. The Company has been informed by Sanden that it intends to use the proceeds to free itself from the difficult business situations through structural reform and growth investment, thereby establishing a strong profit foundation, improving its financial position and achieving business turnaround.

Allocation of proceeds

(Unit: JPY’ 000)

Specific Usage	Specific Usage	Amount
(i)	Funds for structural reform	14,140,000
(ii)	Funds for growth investment	6,733,512

Note: The proceeds will be managed in a bank account until they are spent for the above usage.

Sanden will appropriate the proceeds for (i) structural reform and (ii) growth investment as follows.

(i) Structural reform

Sanden intends to improve its market competitiveness through global production sharing according to the product life cycle and sales volume, and centralized parts procurement, and establish an optimal personnel structure through by consolidating its

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LETTER FROM THE BOARD

footprints and related headcount reductions. To cover these expenses, Sanden will appropriate approximately JPY14.14 billion from the proceeds of the Subscription. The followings are specific actions to be taken in each major region:

Europe

In Europe, Sanden mainly manufactures and sells compressors for automotive air-conditioning. However, since the number of electric vehicles is expected to increase, the number of conventional vehicles with internal combustion engine is on the decrease. To adapt to the market characteristics, Sanden intends to improve the plant utilization rate by improving the production system of products for compressors for internal combustion engines with mature product life cycles, and improve market competitiveness by consolidating parts procurement and improving production efficiency and reducing costs.

America

In America, Sanden mainly manufactures and sells conventional compressors. However, as for products of which sales are expected to decrease, Sanden intends to drastically improve its production system and optimize the scale of factories including personnel system. Sanden also aims to improve its profitability by rationalizing procurement and improving productivity simultaneously.

China

In China, Sanden mainly manufactures and sells automobile air-conditioning and its joint venture company manufactures and sells automobile compressors. China has become the world’s biggest market of electric vehicles and the market is expected to grow continuously. To adapt to the market characteristics, Sanden intends to scale down the production of air-conditionings for vehicles with internal combustion engine and improve its productivity. Sanden also aims to establish the system to expand the thermal management products for electric vehicles and achieve mid-to-long term growth as well as earnings structure reform and earnings recovery.

Please also refer to the section headed “The Turnaround Plan” below for further details of the measures for the structural reform under the Turnaround Plan.

(ii) Growth investment

In addition to drastically improving its production system and improving its core profitability through structural reforms, Sanden believes that it is essential to improve profitability and generate stable cash flows for medium-to long-term growth so that Sanden can achieve the turnaround of its business. Therefore, Sanden plans to make growth investment in integrated thermal management for electric vehicles in addition to conventional air-conditioning systems. For this reason, the remaining proceeds of the Subscription (approximately JPY6.73 billion) will be used for investment in production facilities related to integrated thermal management systems using electric compressors, heat pumps, etc. and R&D investment related to the integrated thermal management systems.

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LETTER FROM THE BOARD

Since appropriate thermal management can help reduce battery consumption and improve vehicle range, Sanden expects the higher demand for the automobile thermal management with the electrification of vehicles. Such growth investment will be made to meet the demand for products that can achieve thermal management for electric vehicles, and Sanden believes such investment is essential for Sanden’s mid-to-long term growth.

Termination

The Share Purchase Agreement may be terminated at any time only prior to the Closing:

(a) by the mutual written consent of the Parties;
(b) by either Party by written notice to the other Party if:
(i) such Party is not then in material breach of any provision of the Share Purchase Agreement and there has been a material breach, inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by the other Party pursuant to the Share Purchase Agreement that would give rise to the failure of any of the conditions specified in the Share Purchase Agreement and such breach, inaccuracy or failure cannot be cured by the other Party by the Long Stop Date; or
(ii) any of the conditions for such Party’s obligations set forth in the Share Purchase Agreement shall not have been fulfilled by the Long Stop Date, unless such failure shall be due to the failure of such Party to perform or comply with any of the covenants, agreements or conditions of the Share Purchase Agreement to be performed or complied with by it prior to the Closing; or
(c) by either Party in the event that:
(i) there shall be any law that makes consummation of the transactions contemplated by the Share Purchase Agreement illegal or otherwise prohibited; or
(ii) any governmental authority shall have issued a governmental order restraining or enjoining the transactions contemplated by the Share Purchase Agreement, and such governmental order shall have become final and non-appealable.

In the event of the termination of the Share Purchase Agreement in accordance with the terms thereof, the Share Purchase Agreement shall forthwith become void and there shall be no liability on the part of any Party except as set forth in certain provisions of the Share Purchase Agreement (such as confidentiality provisions) or in connection with any past breach that has arisen before termination or for any intentional breach of any provision of the Share Purchase Agreement.

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LETTER FROM THE BOARD

Assignability

The Company shall have the right to assign all (but not less than all) of the Share Purchase Agreement, and its rights and obligations thereunder (other than the Company’s obligations to provide the joint and several guarantee referred to above, to use its best efforts to procure the passing of the shareholders’ resolution of the Company referred to above and to notify Sanden in writing immediately upon completion of the procedures for formation of the SPV pursuant to the Share Purchase Agreement) to the SPV, provided that (a) notice of such assignment shall be executed by the Company and the SPV and delivered to the Sanden on the date of such assignment and (b) with respect to any obligations of the Company under the Share Purchase Agreement (including any breach of such representations and warranties), such obligations shall be performed by the SPV and the Company shall provide a joint and several guarantee of such obligations of the SPV.

The Company has formed the SPV and assigned such of its rights and obligations under the Share Purchase Agreement as referred to in the preceding paragraph to the SPV.

The Turnaround Plan

At the creditors’ meeting held on 7 May 2021, the Turnaround Plan was approved by the ADR Creditors and each of the ADR Creditors submitted a consent letter certifying its consent. The Turnaround ADR Proceedings therefore have been completed as of 7 May 2021.

A summary of the Turnaround Plan is as follows:–

1. Adjusted consolidated net assets as of 30 September 2020

The consolidated net assets of Sanden of approximately JPY11 billion on a statutory basis were adjusted to the consolidated net assets of approximately negative JPY63.1 billion in accordance with the asset evaluation standards set forth in the standards for the Turnaround ADR Proceedings. The adjustments primarily include impairment losses on fixed assets, restructuring costs and asset devaluation of real estates, inventories and other assets.

2. Investment by sponsor

Sanden will implement the capital increase through third party allotment to the SPV in the manner described below:–

Payment period: 10 May 2021 to 31 December 2021 (of this period, the payment will be made on the fifth (5th) business day immediately after all of the conditions precedent are satisfied or waived unless otherwise agreed upon). Number and type of shares: 83,627,000 shares (common stock of Sanden)

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LETTER FROM THE BOARD

Amount to be paid in: JPY256 per share Aggregate amount to be paid in: JPY21,408,512,000 Planned allottee: the SPV

3. Measures for Structural Reform

accelerating restructuring on a global and regional basis based on the concept of an optimal production structure. For mature products for internal combustion engines, production bases will be consolidated, and for products for electric vehicles, which are growing products, an optimal production system will be established to demonstrate its strengths. To this end, Sanden will undertake a fundamental review of its production system.
reducing variable costs thorough joint purchasing, expanding sales with focus on major customers, reducing development costs with focus on major customers and application development, enhancing account receivables management, switching to fill-up production to reduce inventories, reducing cost through integration of domestic companies/offices and business improvement and strengthening management control.

4. Management Numerical Plans (Profit/Loss and Balance Sheet Plans)

The management numerical plans (profit/loss and balance sheet plans) for the financial year ended 31 March 2021 are stated below. Please note that such numerical plans are projected accounts prepared based on the requirements for the Turnaround ADR Proceedings and asset evaluation standards set forth in the standards for the Turnaround ADR Proceedings, and such standards differ from general corporate accounting standards.

(i) Profit/Loss Plan

Unit: hundred millions of JPY

	Financial
	year ended
	31 March
	2020	Financial
	(audited	year ended
	actual	31 March
	result)	2021 (plan)
Operating revenue	2,049	1,304_(Note)_
Operating profits	-34	-107
Profit before income taxes	23	-928
Net profits (before adjusting profit
attributable to minority)	10	-952

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LETTER FROM THE BOARD

Note: The projected revenue for the year ended 31 March 2021 was mainly based on the actual revenue for the nine months ended 31 December 2020, which was JPY94,496 million, and the projected revenue for the three months ended 31 March 2021 based on the purchase orders from automotive vehicles manufacturers.

(ii) Balance Sheet Plan

Unit: hundred millions of JPY

		Six months
		ended 30	Financial
		September	year ended
		2020	31 March
		(Actual)	2021 (plan)
		(Note 1)
Total	assets	1,142	1,133
Total	liabilities	1,773	1,811
Total	net assets	-631	-678_(Note 2)_

Notes:

1. These are the balance sheet figures based on the requirements for the Turnaround ADR Proceedings and asset evaluation standards set forth in the standards for the Turnaround ADR Proceedings. The total net assets under GAAP reviewed by auditors were approximately JPY11 billion which were adjusted to be negative JPY63.1 billion in accordance with the asset evaluation standards set forth in the standards for the Turnaround ADR Proceedings. The adjustments primarily include impairment losses on fixed assets, restructuring costs and asset devaluation of real estates, inventories, and other assets.

2. Negative JPY678 hundred millions is the total of actual net assets as of 30 September 2020 at negative JPY631 hundred millions and estimated net income for the second half of the financial year ended 31 March 2021 at negative JPY46 hundred millions.

The above Profit/Loss Plan was prepared to reflect the adjustments to the above Balance Sheet Plan, including but not limited to a decrease in depreciation expense as a result of the devaluation of fixed assets, leading to an increase in operating profits for the projected periods, and would also be on a different basis from those to be prepared in accordance with generally accepted accounting principles in Japan.

It is unlikely that the asset impairment reflected in the consolidated financial statements of Sanden for the financial year ended 31 March 2021 will be higher than the adjustment as shown in the above Balance Sheet Plan.

The effect of the debt forgiveness under the Turnaround Plan, which will only become effective on the Closing Date, has not been reflected in the above Balance Sheet Plan. Please refer to paragraph 6 (Amount of Debt Forgiveness) below for details of such debt forgiveness.

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LETTER FROM THE BOARD

5. Details of the ADR Debts

(a) ADR Creditors

20 financial institutions

(b) Type of ADR Debts

Loan claims, corporate bonds, and rights to demand performance under guarantees which the ADR Creditors hold against Sanden and some of its subsidiaries who are the debtors (the “ ADR Debtors ”) as of 30 June 2020 (the “ Base Date ”) (including the loan (including change of the debtor due to parent-subsidiary loan) in order to maintain the outstanding balance of the ADR Debts as the creditor group as of the Base Date), as well as any interest, damages, expenses and any other claims arising after the Base Date relating to these claims.

Loan claims, corporate bonds and rights to demand performance under guarantees based on new financing subsequent to the Base Date (excluding the loan (including change of the debtor due to parent-subsidiary loan) in order to maintain the outstanding balance of the ADR Debts as the creditor group as of the Base Date) are not included in the ADR Debts.

(c) Total amount of ADR Debts

Approximately JPY97,790 million

(Note: borrowings denominated in foreign currencies are converted into JPY at telegraphic transfer middle rate as of the Base Date)

6. Amount of Debt Forgiveness

JPY63 billion shall be cancelled and waived with consents from the ADR Creditors (the “ Debt Forgiveness ”). The Debt Forgiveness shall become effective on the Closing Date.

7. Repayment of Remaining ADR Debts

The Remaining ADR Debts shall be approximately JPY34,790 million. The ADR Debtors shall repay the principal of the Remaining ADR Debts promptly, and no later than three months at the latest after the Closing Date.

(Note: borrowings denominated in foreign currencies are converted into JPY at telegraphic transfer middle rate as of the Base Date)

The repayment of the Remaining ADR Debts will be financed by new loan(s) to be obtained by Sanden, the SPV or Kelon Development Company Limited from financial institutions and such new loan(s) will be guaranteed by the Company.

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LETTER FROM THE BOARD

8. Interest

Until (and including) the effective date of the Debt Forgiveness, the ADR Debtors will continue to pay interest on the ADR Debts as stipulated as of the Base Date. If a new agreement has been concluded subsequent to the Base Date in order to respond to the standstill, the interest will be as stipulated therein.

In addition, if there are late payment charges, interest for delay, or other penalty charges occurring subsequent to the Base Date, any portion which exceeds the amount equivalent to the interest stipulated as of the Base Date will be fully forgiven on the effective date of the Debt Forgiveness.

From the day following the effective date of the Debt Forgiveness, the ADR Debtors will pay interest on the Remaining ADR Debts on the early repayment date of each principal at the rate stipulated as of the Base Date in regard to the Remaining ADR Debts (or, if a new agreement has been concluded subsequent to the Base Date in order to respond to the standstill, as stipulated in such agreement).

REASONS FOR AND BENEFITS OF THE SUBSCRIPTION

The Company notes that Sanden has a decreasing revenue trend since 2018, which was mainly due to the disposal of Sanden Retail Systems Corporation, the Commercial Store Systems Business segment, as Sanden decided to reallocate its resources to concentrate on and strengthen the Automotive Systems Business, and the impact of the COVID-19 pandemic on the Automotive Systems Business segment. The loss position for the year ended 31 March 2019 was mainly due to the posting of provision for bad debts (extraordinary loss) related to trade receivables and structure reform cost. The loss position for the nine months ended 31 December 2020 was mainly due to the COVID-19 pandemic.

Though there were extraordinary matters that caused Sanden’s revenue decrease and loss position, the Company believes that Sanden is the world’s leading Tier 1 supplier of automotive air-conditioning compressors and automotive air-conditioning systems, with high brand awareness, leading-edge technology and high-quality products in the world. The Company is one of China’s leading and world-famous manufacturers of home appliance products. The Company has been strengthening its presence in the intelligent home appliances industry for many years and has accumulated advanced technologies for improving user experience. It has a mature global supplier system and stronger procurement bargaining power, as well as high quality talents and manufacturing resources. Upon

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LETTER FROM THE BOARD

completion of the Subscription, the Company will use Sanden as the core company to expand into the automotive air-conditioning compressor and automotive air-conditioning industries. The Company is of the view that it can generate synergies to Sanden through, among other things, sharing complementary technologies to improve advantages of the automotive air-conditioning products and sharing its own supply chain, talents and manufacturing resources with Sanden, which can further enhance the core competitiveness of Sanden, save cost and improve profitability.

The Directors consider that the terms and conditions of the Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

FINANCIAL EFFECTS OF THE SUBSCRIPTION

Upon Closing, Sanden will become a non-wholly owned subsidiary of the Company. The financial results, assets and liabilities of the Sanden Group will be consolidated into those of the Group. Approximately 75% of the total voting rights of Sanden as enlarged by the issue of the Subscription Shares will be held indirectly by the Company upon Closing. Please refer to Appendix II to this circular for the financial information of the Sanden Group.

The unaudited pro forma financial information of the Enlarged Group set out in Appendix III to this circular was prepared based on the unaudited pro forma statement of assets and liabilities of the Enlarged Group as if the Subscription had been completed on 31 December 2020 and is for the purposes of illustration only.

As set out in Appendix III to this circular, had the Subscription been completed on 31 December 2020:

(i) the total assets of the Group as at 31 December 2020 would have increased from approximately RMB41,812 million to approximately RMB52,899 million for the Enlarged Group; and
(ii) the total liabilities of the Group as at 31 December 2020 would have increased from approximately RMB27,405 million to approximately RMB37,817 million for the Enlarged Group.

The Sanden Group recorded an audited consolidated profit after income taxes of approximately JPY966 million for the year ended 31 March 2020 and an unaudited consolidated loss after income taxes of approximately JPY17,251 million for the nine months ended 31 December 2020. In light of the factors stated in the section headed “Reasons for and Benefits of the Subscription” above, the Directors are of the view that the Subscription will have a positive future impact on the Enlarged Group. However, the actual effect on earnings will depend on the future financial performance of the Sanden Group.

Please also refer to the section headed “Turnaround Plan” above for details of the Turnaround Plan.

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LETTER FROM THE BOARD

INFORMATION ON THE COMPANY

The Group is principally engaged in research and development, manufacturing and marketing of electrical products such as refrigerators, household air-conditioners, central air-conditioners, freezers, washing machines, kitchen appliances, etc.

INFORMATION ON THE SANDEN GROUP

The Sanden Group

Sanden was founded in 1943. It is listed on the Tokyo Stock Exchange with the stock code of 6444. It is headquartered at 20 Kotobuki-cho, Isesaki-shi, Gunma, Japan, with Tokyo headquarter at Akihabara Daibiru Building, 1-18-13 Soto Kanda, Chiyoda-ku, Tokyo. Katsuya Nishi is its Representative Director and President. Its share capital is JPY11,037 million. The main business of the Sanden Group is the manufacture and sale of automobile equipment such as automotive compressors and automotive air-conditioning systems. Sanden has no controlling shareholders and ultimate controlling parties.

The Turnaround ADR Proceedings

In response to this difficult business situation, on 30 June 2020, Sanden and its certain subsidiaries (the “ Filing Companies ”) filed formal applications for the Turnaround ADR Proceedings with the Japanese Association of Turnaround Professionals and the applications were accepted on the same day.

On 14 July 2020, the Filing Companies held a creditors’ meeting (the first creditors’ meeting) to explain the outline of the Turnaround Plan based on the Turnaround ADR Proceedings with the presence of the ADR Creditors and obtained the consent from the ADR Creditors regarding a standstill notice. At the second creditors’ meeting (creditors’ meeting for discussing the Turnaround Plan) and the third creditors’ meeting (creditors’ meeting for resolving the Turnaround Plan), both of which were held on 11 December 2020, Sanden reported to the ADR Creditors on the progress of developing the Turnaround Plan, and presented a new extended schedule to the ADR Creditors and obtained their consent on it on the assumption that Sanden would take some more time to develop the Turnaround Plan due to the continuing impact of COVID-19, etc.

Sanden concluded that, in order to free Sanden from the above-stated difficult business situations, turnaround its business, it is essential that Sanden establish a strong profit foundation and thoroughly improve its financial position as early as possible by securing equity capital from new sponsor successfully to obtain the funds necessary for structural reform and future growth investment, as well as by obtaining the ADR Creditors’ agreement on the financial support.

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LETTER FROM THE BOARD

Financial Information

Set out below is a summary of the key financial information of the Sanden Group:

	For the year	For the year
	ended 31	ended 31
	March 2019	March 2020
	(audited)	(audited)
	JPY’million	JPY’million
Operating revenue	273,934	204,880
Profits (loss) before income taxes	(20,568)	2,326
Profits (loss) after income taxes	(23,639)	966

According to the unaudited consolidated financial statements of the Sanden Group as of 31 December 2020, the total assets and net assets of the Sanden Group were approximately JPY172,401 million and approximately JPY8,653 million respectively and the net current liabilities of the Sanden Group were approximately JPY30,175 million.

The key financial information of the Sanden Group as set out above is derived from the Sanden Group’s financial statements prepared in conformity with JGAAP as extracted from published financial information of Sanden disclosed on its website.

Further financial information of the Sanden Group is set out in Appendix II to this circular.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio in respect of the Subscription is more than 25% but less than 100%, the Subscription constitutes a major transaction of the Company and is therefore subject to the reporting, announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

EGM

The EGM will be held at the conference room of the Company’s head office, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the PRC on Tuesday, 25 May 2021 at 3 p.m. at which resolutions will be proposed for the Shareholders to consider and if thought fit, approve the Share Purchase Agreement and the transactions contemplated thereunder.

A notice of the EGM is set out on pages EGM-1 to EGM-2 of this circular. A proxy form for use at the EGM and a reply slip are enclosed and are also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http:// hxjd.hisense.cn). Whether or not you intend to attend the EGM, you are requested to complete and return the proxy form in accordance with the instructions printed on it and return it to the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road

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LETTER FROM THE BOARD

East, Wanchai, Hong Kong, as soon as possible and in any event not less than 24 hours before the time appointed for holding the EGM or any adjournment of such meeting (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment of such meeting (as the case may be) should you so wish and, in such event, the proxy form previously submitted shall be deemed to be revoked.

If you intend to attend the EGM in person or by proxy, you are required to complete and return the reply slip to The Securities Department, Hisense Home Appliances Group Co., Ltd. by personal delivery, post or fax during hours between 8:30 a.m. and 11:00 a.m., and between 1:30 p.m. and 4:30 p.m. on every business day on or before Thursday, 20 May 2021. Failure to complete or return the reply slip will not preclude eligible Shareholders from attending the EGM should they so wish.

The vote of the Shareholders at the EGM will be taken by poll in accordance with Rule 13.39(4) of the Listing Rules and the Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

Any shareholder with a material interest in the Subscription and his/her close associates shall abstain from voting on the resolutions to be proposed at the EGM approving the Share Purchase Agreement and the transactions contemplated thereunder. As at the Latest Practicable Date, to the extent that the Company is aware having made all reasonable enquiries, no Shareholder had a material interest in the Subscription who will be required to abstain from voting at the EGM.

In order to determine the holders of Shares who are eligible to attend and vote at the EGM, the register of members of the Company will be closed from Tuesday, 18 May 2021 to Tuesday, 25 May 2021 (both days inclusive). In order to qualify for attending the EGM, all transfer documents of H Shares together with the relevant share certificates must have been lodged with the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Monday, 17 May 2021 for registration.

WAIVER FROM STRICT COMPLIANCE WITH RULE 14.67(6)(A)(I) OF THE LISTING RULES

Under Rule 14.67(6)(a)(i) of the Listing Rules, the Company is required to include in this circular for an accountants’ report on Sanden in accordance with Chapter 4 of the Listing Rules. The accounts on which the report is based must relate to a financial period ended 6 months or less before this circular is issued. The financial information on Sanden as contained in the accountants’ report must be prepared using accounting policies which should be materially consistent with those of the Company. In this regard, the Company is required under Chapter 4 of the Listing Rules to include an accountants’ report on Sanden with Sanden’s financial information for the three financial years ended 31 March 2020 and a stub period of nine months ended 31 December 2020 under CASBE.

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LETTER FROM THE BOARD

The Company has applied for a waiver from strict compliance with the requirement for an accountants’ report on Sanden under Rule 14.67(6)(a)(i) of the Listing Rules on the following grounds:–

Sanden is a corporation organized under the laws of Japan whose shares are listed on the Tokyo Stock Exchange (stock code: 6444). As a company listed on the Tokyo Stock Exchange, Sanden has been publishing its financial information to the market on a regular basis to enable investors to assess its activities and financial position and its financial disclosures were subject to supervision by the regulatory authorities in Japan;
Sanden has published consolidated financial statements for each financial year prepared in accordance with JGAAP. Such consolidated financial statements have been audited by Sanden’s auditors, KPMG AZSA LLC., in accordance with JGAAS;
Sanden has also published quarterly consolidated financial statements prepared in accordance with JGAAP, which have been reviewed by Sanden’s auditors, KPMG AZSA LLC, in accordance with JGAAS;
KPMG AZSA LLC is a firm of accountants with international name and reputation and registered with a recognized body of accountants. It is incorporated under the Japanese Certified Public Accountants Law and is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, an international accounting firm with a highly reputable name and extensive experience in auditing financial information of listed companies. It is also a member of the Japanese Institute of Certified Public Accountants and is registered as an audit corporation with the Financial Services Agency of Japan;
it would be unduly burdensome for the Company to engage professional accountants to prepare an accountants’ report on Sanden as required by the Listing Rules in light of the time and costs required and the time and effort to be incurred may not add much value to the Shareholders in understanding the financial position of Sanden; and
the alternative disclosure described below will provide sufficient information to the Shareholders to assess Sanden’s business. As such, it is unlikely that the granting of the waiver sought would result in undue risks to the Shareholders.

The following information has been included in this circular as an alternative disclosure to an accountants’ report under Chapter 4 of the Listing Rules for the Shareholders to assess Sanden’s financial performance:–

(1) the audited consolidated financial statements of Sanden for the financial years ended 31 March 2018, 2019 and 2020 prepared in accordance with JGAAP as extracted from its annual securities reports filed to the Kanto Local Finance

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LETTER FROM THE BOARD

Bureau in Japan and made public on EDINET. Such audited consolidated financial statements were prepared in Japanese but will be translated into English and Chinese in this circular (see Section A.1 of Appendix II to this circular);

(2) the unaudited consolidated financial statements of Sanden for the nine months ended 31 December 2020 prepared in accordance with JGAAP which have been reviewed by KPMG AZSA LLC in accordance with JGAAS as extracted from its quarterly securities report for the third quarter of the financial year ended 31 March 2021 filed to the Kanto Local Finance Bureau in Japan and made public on EDINET. Such unaudited but reviewed consolidated financial statements were prepared in Japanese but will be translated into English and Chinese in this circular (see Section A.2 of Appendix II to this circular);
(3) a line-by-line reconciliation of Sanden’s financial information for the differences between its accounting policies under JGAAP and the Company’s accounting policies under CASBE prepared by ShineWing Japan LLC in accordance with the requirements of “Standards for Other Assurance Engagements of PRC Certified Public Accountants No. 3101 – Assurance Engagements Other Than Audit or Review of Historical Financial Information”（《中國註冊會計師其他鑒證業務準則第31 01號– 歷史財務信息審計或審閱以外的鑒證業務》）and reviewed by the Company’s auditors, ShineWing Certified Public Accountants LLP, to facilitate the Shareholders’ assessment of Sanden’s performance and financial position. ShineWing Japan LLC is the Japanese member firm of the ShineWing network and is a member of the Japanese Institute of Certified Public Accountants and a member of Praxity, an alliance of independent accounting firms (see Section C of Appendix II to this circular); and
(4) supplemental financial information of Sanden for the three years ended 31 March 2020 and the nine months ended 31 December 2020 which is required for an accountants’ report under Chapter 4 of the Listing Rules but not disclosed in Sanden’s published consolidated financial statements (see Section B of Appendix II to circular).

The Stock Exchange has granted the Company a waiver from strict compliance with Rule 14.67(6)(a)(i) of the Listing Rules such that the Company is not required to include an accountants’ report on Sanden in this circular.

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LETTER FROM THE BOARD

WAIVER FROM STRICT COMPLIANCE WITH RULE 14.66(2) AND PARAGRAPH 29(2) OF APPENDIX 1B OF THE LISTING RULES

The key items of the Profit/Loss Plan and Balance Sheet Plan of Sanden for the financial year ended 31 March 2021 set out in the section headed “Turnaround Plan” at pages 15 and 16 of this circular may be regarded as a “profit forecast” within the meaning of Rule 14.61 and Paragraph 29(2) of Appendix 1B. Accordingly the Company is required to comply with the profit forecast requirement under Rule 14.66(2) and Paragraph 29(2) of Appendix 1B to the Listing Rules.

The Company has applied for a waiver from strict compliance with the profit forecast requirement under Rule 14.66(2) and Paragraph 29(2) of Appendix 1B to the Listing Rules on the following grounds:–

(1) Sanden is currently subject to the Turnaround ADR Proceedings and the Management Numerical Plans have been prepared by Sanden to comply with the legal requirements for the Turnaround ADR Proceedings. There is no equivalent requirement under the Listing Rules requiring the Company to prepare a profit forecast on Sanden.
(2) the Management Numerical Plans are prepared by Sanden and the Company is not involved in such preparation;
(3) there are practical difficulties for the Company’s auditors to confirm on the accounting policies and calculations of the Management Numerical Plans as they are prepared based on the requirements for the Turnaround ADR Proceedings and asset evaluation standards set forth in the standards for the Turnaround ADR Proceedings and such standards differ from JGAAP and differ from the accounting standards (CASBE) adopted by the Company;
(4) there are practical difficulties for the Company’s financial adviser to render a requisite opinion under the Listing Rules because the directors of the Company did not prepare the Management Numerical Plans; and
(5) in view of the above, it will be unduly burdensome for the Company to comply with the profit forecast requirements under Rule 14.66(2) and Paragraph 29(2) of Appendix 1B of the Listing Rules.

The Stock Exchange has granted the Company a waiver from strict compliance with the profit forecast requirement under Rule 14.66(2) and Paragraph 29(2) of Appendix 1B of the Listing Rules.

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LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider that the Share Purchase Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are fair and reasonable. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the same.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendices to this circular.

Yours faithfully, By Order of the Board of Hisense Home Appliances Group Co., Ltd. Tang Ye Guo Chairman

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Financial information of the Group for each of the three financial years ended 31 December 2018, 2019 and 2020 are disclosed in the following documents which have been published on the websites of the Stock Exchange (www.hkexnews.com.hk) and the Company (hxjd.hisense.cn):

(a) on pages 64 to 205 of the annual report of the Company for the year ended 31 December 2018 published on 26 April 2019
(https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0426/ltn201904261930.pdf);
(b) on pages 78 to 219 of the annual report of the Company for the year ended 31 December 2019 published on 15 May 2020
(https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0515/2020051501158.pdf); and
(c) on pages 72 to 208 of the annual report of the Company for the year ended 31 December 2020 published on 30 April 2021
(https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0430/2021043000979.pdf).

2. INDEBTEDNESS

The Group

As at the close of business on 31 March 2021, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of RMB500 million, which were unguaranteed and unsecured bank loans.

The Group may be involved in lawsuits and other proceedings in its ordinary course of business from time to time. The Group believes that no liabilities resulting from these proceedings will have a material and adverse effect on its business, financial condition or operating results. Save as disclosed in this circular, the Group had no other material contingent liabilities.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables in the ordinary course of business of the Group, at the close of business on 31 March 2021, the Group did not have any other debt securities issued and outstanding, or authorised or otherwise created but unissued, any other term loans, any other borrowings or indebtedness in the nature of borrowing (including but not limited to bank overdrafts and liabilities under acceptances (other than normal trade bills)), acceptance credits, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured or unsecured, any other mortgages and charges or any other material contingent liabilities or guarantees.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Sanden Group

Borrowings

As at 31 December 2020, the total amount of outstanding borrowings (excluding leases), all being interest bearing debts, was approximately JPY100,282 million (equivalent to approximately HK$7,320 million). The ADR Debts of approximately JPY98,251 million (using the exchange rate as of 31 December 2020) accounted for approximately 98.0% of the total outstanding borrowings of Sanden. Sanden has confirmed that in accordance with the Turnaround ADR Proceedings, all of the ADR Creditors have agreed on a standstill until the resolution of the Turnaround Plan, which prohibits them from collecting on their claims during that period. The agreed standstill has allowed the outstanding debt balance owed by Sanden to the ADR Creditors to remain unchanged since the application of the Turnaround ADR Proceedings.

Apart from the ADR Debts, the Sanden Group had both new borrowings and repayment for other debts during the 3 months from 1 January 2021 to 31 March 2021, resulting in a decrease of total amount of outstanding borrowings (all being interest bearing debts) of approximately JPY11.8 million using the exchange rate as of 31 March 2021.

Therefore, the total outstanding borrowings of the Sanden Group as of 31 March 2021 will not exceed the amount as of 31 December 2020 set out below, save for the difference due to exchange rate, which is considered immaterial.

	(Millions of JPY)
Total outstanding borrowings as of 31 December 2020
unsecured, unguaranteed	87,430
secured, unguaranteed	7,911
unsecured, guaranteed	4,940
Total	100,282
	(Millions of JPY)
Change in interest bearing debts from 31 December 2020
to 31 March 2021
unsecured, unguaranteed	-82.8
secured, unguaranteed	71.0
secured, guaranteed	–
Total	-11.8

Lease liabilities

As at 31 December 2020, the Sanden Group had lease liabilities of approximately JPY9,929 million (equivalent to approximately HK$725 million). There was no increase in the lease liabilities during the 3 months from 1 January 2021 to 31 March 2021.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent liabilities

As at 31 March 2021, the Sanden Group had contingent liabilities amounting to approximately JPY375 million (equivalent to approximately HK$27 million) arising from the provision of debt guarantees for borrowings and other debt from financial institutions of non-consolidated companies.

3. WORKING CAPITAL

The Directors are of the opinion that, after due and careful enquiry, taking into account the effect of the transactions contemplated under the Share Purchase Agreement, the Debt Forgiveness and the repayment schedule of the Remaining ADR Debts under the Turnaround Plan, the cash flow generated from the operating activities and the financial resources available to the Enlarged Group, including internally generated funds and the available credit financing, the Enlarged Group has sufficient working capital to meet its requirements for at least the next 12 months from the date of this circular, in the absence of unforeseeable circumstances.

4. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in the research and development, manufacturing and marketing business of electrical appliance products such as refrigerators, residential air-conditioners, central air-conditioners, freezers, washing machines, commercial cold chain and kitchen appliances. The Company is a major manufacturer of electrical appliances in China and the products are widely sold in more than 130 countries. In 2020, the Group achieved operating revenue of RMB48.393 billion. As for product types, operating revenue of the refrigerator and washing machine business amounted to RMB18.709 billion, while the operating revenue of the air-conditioner business amounted to RMB23.386 billion. Meanwhile, the Group’s domestic sales business recorded operating revenue of RMB29.205 billion and the export sales business recorded operating revenue of RMB14.639 billion. Net profits attributable to shareholders of the Company reached RMB1.579 billion.

Refrigerator business: According to the statistics from third party, the total respectively market share of “Hisense refrigerator” and “Ronshen refrigerator” under the Group ranked second in the industry in terms of online and offline cumulative retail sales in China in 2020.

Air-conditioner business: The Company’s subsidiary, Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd., has strong competitiveness in the central air-conditioner market, and its “Hitachi”, “Hisense” and “York” brand multi-split central air-conditioners products with leading technology level and excellent product quality are well-known in the market, are the domestic multi-split central air-conditioners market leader. Under its well-known “Hisense” and “Kelon” air-conditioner brands, the Company was the first to commit to the research and development, production and promotion of inverter air-conditioners in China. The Company has maintained a consistent focus on developing technological innovations, product quality improvement, and industrial capabilities upgrading and achieved rapid conversion and deep plowing niche markets.

– I-3 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

With the current development of automobiles towards “electrification”, “intellectualization”, “networking” and “sharing”, new energy electric vehicle heat pump air-conditioning and battery fast charging technology are getting popular rapidly. Sanden is the world’s leading first-class manufacturer and supplier of automotive air-conditioning compressors and automotive air-conditioning systems with a high level of global brand awareness. The new generation electric compressors, integrated thermal management systems and automotive air-conditioning products developed by it have been extensively used in new energy electric vehicles. The Group has been strengthening its presence in the intelligent home appliances industry for many years and has accumulated advanced technologies for improving user experience. It has a mature global supplier system and stronger procurement bargaining power, as well as high quality talents and manufacturing resources. Upon completion of the Subscription, the Group will use Sanden as the core company to expand into the automotive air-conditioning compressor and automotive air-conditioning industries, so as to achieve the Group’s expansion in different industries and enhance the profitability of Sanden through the sharing of technologies, supply chains, talents and manufacturing resources.

Upon completion of the Subscription, the Company will indirectly hold 75% of the total voting rights of Sanden and Sanden will be consolidated into the Company’s financial accounts thereby increasing the Company’s operating profits significantly. In addition, Sanden possesses good technologies, channels and customer resources, and its market share for the global sales of automotive air-conditioning compressors ranked the second in 2019. The Subscription is conducive to the Group’s expansion into the automotive air-conditioning compressors and automotive air-conditioning industries and the enhancement of Sanden’s profitability, building a growth foundation for the Group’s future sustainable development.

The Directors consider that the Subscription is an important milestone for the Group’s future development and will benefit the operation of the Enlarged Group in the long run.

– I-4 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

A. FINANCIAL INFORMATION OF THE SANDEN GROUP FOR EACH OF THE THREE YEARS ENDED 31 MARCH 2018, 2019 AND 2020 AND THE NINE MONTHS ENDED 31 DECEMBER 2020

For the purpose of this section only, unless the context requires otherwise, references to the “Company” are to Sanden and references to the “Group” are to the Sanden Group , and references to “we”, “us” and “our” shall be construed accordingly.

A.1 AUDITED FINANCIAL INFORMATION OF THE SANDEN GROUP FOR EACH OF THE THREE YEARS ENDED 31 MARCH 2018, 2019 AND 2020

The following is the English translation of the audited consolidated and non-consolidated financial statements of the Sanden Group for the financial years ended 31 March 2018, 2019 and 2020 prepared in accordance with JGAAP which have been audited by Sanden’s auditors, KPMG AZSA LLC., in accordance with JGAAS as extracted from its annual securities reports filed to the Kanto Local Finance Bureau in Japan and made public on EDINET.

The English translation of such audited financial statements has been certified by an independent translator.

(1) The following is the audited consolidated and non-consolidated financial statements of the Sanden Group for the financial year ended 31 March 2018 and 2019 prepared in accordance with JGAAP.

Financial Information

1. Basis of preparation of the consolidated financial statements and the non-consolidated financial statements

(1) The consolidated financial statements of the Company are prepared in accordance with the Ministry of Finance Ordinance No. 28, 1976 Regulations Concerning the Terminology, Forms and Preparation Methods of Consolidated Financial Statements (hereinafter the “Regulations for Consolidated Financial Statements”).

Of comparative information in the consolidated financial statements for the fiscal year ended 31 March 2019 from 1 April 2018 to 31 March 2019, information related to Article 15-5, Paragraph 2 and Paragraph 3 of the post-revision Regulations for Consolidated Financial Statements due to the establishment of the Cabinet Office Ordinance Partially Amending the Terminology, Forms and Preparation Methods of Financial Statements (Cabinet Office Ordinance No. 7 of 23 March 2018; hereinafter the “Revised Cabinet Office Ordinance”) was prepared in accordance with the pre-revision Regulations for Consolidated Financial Statements pursuant to Article 3, Paragraph 2 of the Supplementary Provisions of the Revised Cabinet Office Ordinance.

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) The non-consolidated financial statements of the Company are prepared in accordance with the Ministry of Finance Ordinance No. 59, 1963 “Regulations Concerning the Terminology, Forms and Preparation Methods of Non-Consolidated Financial Statements” (hereinafter the “Regulations for Non-Consolidated Financial Statements”).

Of comparative information in the non-consolidated financial statements for the fiscal year ended 31 March 2019 from 1 April 2018 to 31 March 2019, information related to Article 8-12, Paragraph 2, Item 2 and Paragraph 3 of the post-revision Regulations for Non-Consolidated Financial Statements due to the establishment of the Revised Cabinet Office Ordinance was prepared in accordance with the pre-revision Regulations for Non-Consolidated Financial Statements pursuant to Article 2, Paragraph 2 of the Supplementary Provisions of the Revised Cabinet Office Ordinance.

As the Company falls under the category of a company filing financial statements prepared in accordance with special provisions, the non-consolidated financial statements of the Company are prepared in accordance with Article 127 of the Regulations for Non-Consolidated Financial Statements.

2. Auditing and attestation

The original Japanese consolidated and the non-consolidated financial statements for the fiscal year ended 31 March 2019 (from 1 April 2018 to 31 March 2019) were audited by KPMG AZSA LLC, in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act.

3. Particular efforts to secure the appropriateness of the consolidated financial statements

The Company takes particular efforts to secure the appropriateness of the consolidated financial statements. Specifically, to ensure correct understanding of the accounting standards, and to establish a system that can be reflected appropriately in the consolidated financial statements, the Company acquires membership in the Financial Accounting Standards Foundation and receives e-mail regularly to ensure the changes in the accounting standards. The Company also endeavors to understand the changes in accounting standards by participating in seminars on changes in accounting standards conducted by auditing firm and other institutions.

– II-2 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

1. Consolidated financial statements

(1) Consolidated financial statements

1) Consolidated balance sheets

(Millions of yen)

Assets Current assets Cash at bank and on hand Notes and accounts receivable Finished goods Works in process Raw materials Other inventories Other receivables Consumption taxes receivable Other current assets Provision for bad debts Total current assets Non-current assets Fixed assets Buildings and structures, net Machinery, equipment and vehicles, net Tools, furniture and fixtures, net Land Leased assets, net Construction in progress Total fixed assets	FY2017 (As of March 31, 2018) 1 18,776 2 74,204 3 21,895 4 12,089 5 10,065 3,438 5,876 6 4,527 9,167 (678) 159,363 21,351 23,642 5,019 16,883 8,144 6,699 *7 81,741	FY2018 (As of March 31, 2019) 1 13,030 2 73,591 3 24,142 4 11,685 5 9,249 3,194 5,975 6 4,575 9,531 (16,562) 138,412 20,767 20,873 5,217 16,776 7,615 6,187 *7 77,436

– II-3 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Intangible assets Goodwill Leased assets Other intangible assets Total intangible assets Investments and other assets Long-term equity investments Retirement benefit asset Deferred tax assets Other non-current assets Provision for bad debts Total investments and other assets Total non-current assets Total assets	FY2017 (As of March 31, 2018) 73 177 3,618 3,869 *8 22,960 118 4,641 6,018 (3,064) 30,674 116,285 275,649	FY2018 (As of March 31, 2019) 27 351 3,699 4,078 *8 21,873 110 2,240 5,856 (3,606) 26,473 107,988 246,401

– II-4 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Liabilities Current liabilities Notes and accounts payable Short-term borrowings Bonds payable due within one year Long-term borrowings due within one year Other payables Lease liabilities Taxes payable Provision for bonuses Provision for sales rebates Provision for product warranties Provision for outstanding claims Other current liabilities Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Lease liabilities Deferred tax liabilities Retirement benefit liability Provision for environmental measures Provision for stock compensation Other non-current liabilities Total non-current liabilities Total liabilities	FY2017 (As of March 31, 2018) 53,483 9 45,011 712 10 18,299 11,039 2,018 699 3,759 935 3,253 986 10,027 150,227 5,987 *11 56,134 6,113 205 3,376 273 187 2,185 74,464 224,691	FY2018 (As of March 31, 2019) 50,000 9 51,513 1,505 10 23,704 7,553 2,175 478 3,347 426 2,782 432 12,789
		156,710
		5,832 *11 47,939 5,974 245 3,653 243 255 2,005
		66,151
		222,862

– II-5 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Net assets Shareholders’ equity Share capital Capital reserves Retained earnings Treasury share Total shareholders’ equity Other comprehensive income Valuation difference on other securities Deferred gains or losses on hedges Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits Total other comprehensive income Minority interests Total net assets Total liabilities and net assets	FY2017 (As of March 31, 2018) 11,037 3,731 33,703 (1,126) 47,346 292 (16) (1,484) (954) (2,161) 5,772 50,957 275,649	FY2018 (As of March 31, 2019) 11,037 3,579 10,484 (877) 24,225 257 (84) (4,297) (1,140) (5,265) 4,579 23,538 246,401

– II-6 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2) Consolidated statements of income and consolidated statements of comprehensive income

Consolidated statements of income

Operating revenue Operating costs Gross profit Selling, general and administrative expenses Operating profits (loss) Non-operating income Interest income Dividend income Share of profit of associates and joint ventures Foreign exchange gains Other non-operating income Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Other non-operating expenses Total non-operating expenses Ordinary profits (loss)	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 1 287,609 1 273,934 2 234,955 2 227,011 52,654 46,922 3 47,185 3 46,033 5,469 889 54 54 191 41 2,667 2,148 – 397 1,064 666 3,978 3,308 2,180 2,482 1,437 – 1,419 1,150 5,036 3,633 4,411 564	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 1 287,609 1 273,934 2 234,955 2 227,011 52,654 46,922 3 47,185 3 46,033 5,469 889 54 54 191 41 2,667 2,148 – 397 1,064 666 3,978 3,308 2,180 2,482 1,437 – 1,419 1,150 5,036 3,633 4,411 564
		46,922
		*3 46,033
		889
		54 41 2,148 397 666
		3,308
		2,482 – 1,150
		3,633
		564

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Extraordinary income Gain on disposal of non-current assets Insurance claim income Gain on sales of investment securities Gain on sales of investments in capital of subsidiaries and affiliates Other extraordinary income Total extraordinary income Extraordinary losses Loss on disposal of non-current assets Provision for bad debts Structure reform cost Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses Total extraordinary losses Profits (loss) before income taxes Current income tax expenses Deferred income tax expenses Total income tax expenses Net profits (loss) Profits (loss) of minority interests Net profits (loss) attributable to shareholders of the parent company	FY2017 (April 1, 2017 to March 31, 2018) 4 690 106 5,488 572 163 7,020 5 557 – 7,8 2,884 – *9 1,901 221 5,564 5,867 1,269 139 1,409 4,458 202 4,255	FY2018 (April 1, 2018 to March 31, 2019) 4 337 – 63 – 137 538 5 257 6 16,244 7,8 4,461 109 9 432 165 21,672 (20,568) 686 2,384 3,071 (23,639) (579) (23,060)

– II-8 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated statements of comprehensive income

Net profits (loss)
Other comprehensive income
Valuation difference on other securities
Deferred gains or losses on hedges
Differences on translation of foreign currency
financial statements
Adjustment for retirement benefits
Share of other comprehensive income of affiliates
accounted for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Shareholders of the parent company
Minority interests

(Millions of yen)
FY2017
(April 1,
2017 to
March 31,
2018)
FY2018
(April 1,
2018 to
March 31,
2019)
4,458
(23,639)
(3,323)
(26)
0
(68)
1,001
(1,014)
78
(186)
(331)
(2,134)
1 (2,573)
1 (3,430)
1,884
(27,070)
1,574
(26,164)
310
(906)

– II-9 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3) Consolidated statements of changes in net assets

FY2017 (April 1, 2017 to March 31, 2018)

(Millions of yen)

Shareholders’ equity

Share capital Capital reserves Retained earnings Treasury share Total shareholders’ equity Balance at the beginning of period 11,037 3,747 29,447 (1,203) 43,028 Changes during period Net profit (loss) attributable to shareholders of the parent company 4,255 4,255 Purchase of treasury share (6) (6) Disposal of treasury share (15) 83 67 Net changes in items other than shareholders’ equity Total changes during period – (15) 4,255 76 4,317 Balance at the end of period 11,037 3,731 33,703 (1,126) 47,346 Other comprehensive income Minority interests Total net assets Valuation difference on other securities Deferred gains or losses on hedges Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits Total other comprehensive income Balance at the beginning of period 3,618 (16) (2,048) (1,032) 520 5,610 49,159 Changes during period Net profit (loss) attributable to shareholders of the parent company 4,255 Purchase of treasury share (6) Disposal of treasury share 67 Net changes in items other than shareholders’ equity (3,325) 0 564 78 (2,681) 161 (2,520) Total changes during period (3,325) 0 564 78 (2,681) 161 1,797 Balance at the end of period 292 (16) (1,484) (954) (2,161) 5,772 50,957	Total shareholders’ equity 43,028 4,255 (6) 67 4,317	Total shareholders’ equity 43,028 4,255 (6) 67 4,317
		47,346

		Total net assets 49,159 4,255 (6) 67 (2,520) 1,797
		50,957

– II-10 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Shareholders’ equity

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Share capital 11,037 – 11,037	Capital reserves 3,731 (24) (127) (151) 3,579	Retained earnings 33,703 (23,060) (158) (23,218) 10,484	Treasury share (1,126) (235) 484 249 (877)	Total shareholders’ equity 47,346 (23,060) (235) 301 (127) (23,121)
					24,225

– II-11 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Valuation difference on other securities 292 (35) (35) 257	Other comprehensive income Deferred gains or losses on hedges Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits Total other comprehensive income (16) (1,484) (954) (2,161) (68) (2,813) (186) (3,104) (68) (2,813) (186) (3,104) (84) (4,297) (1,140) (5,265)	Minority interests 5,772 (1,192) (1,192) 4,579	Total net assets 50,957 (23,060) (235) 301 (127) (4,297) (27,418) 23,538

4) Consolidated statements of cash flows

	(Millions of yen)	(Millions of yen)
	FY2017	FY2018
	(April 1,	(April 1,
	2017 to	2018 to
	March 31,	March 31,
	2018)	2019)
Cash flows from operating activities
Profits (loss) before income taxes	5,867	(20,568)
Depreciation	11,079	10,914
Amortization of goodwill	71	46
Increase (decrease) in provision for bonuses	(34)	(396)
Increase (decrease) in retirement benefit liability	226	280
Increase (decrease) in provision for bad debts	(221)	16,177
Increase (decrease) in provision for product
warranties	(1,516)	(447)
Increase (decrease) in provision for environmental
measures	(71)	(42)
Increase (decrease) in provision for outstanding
claims	986	(553)
Interest and dividend income	(246)	(96)
Insurance claim income	(106)	–
Interest expenses	2,180	2,482
Share of loss(gain) of associates and joint ventures	(2,667)	(2,148)

– II-12 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Gain on disposal of non-current assets Loss on disposal of non-current assets Loss (gain) on sales of investment securities Loss (gain) on sales of investments in capital of subsidiaries and affiliates Structure reform cost Decrease (increase) in notes and accounts receivable Decrease (increase) in inventories Decrease (increase) in other receivables Decrease (increase) in consumption taxes receivable Increase (decrease) in other non-current liabilities Increase (decrease) in notes and accounts payable Increase (decrease) in other payables Increase (decrease) in accrued expenses Decrease (increase) in other current assets Increase (decrease) in other current liabilities Other Subtotal	FY2017 (April 1, 2017 to March 31, 2018) – (690) 557 (5,478) (572) 2,884 6,092 (213) (558) (1,556) (729) (1) (5,674) (618) (311) 1,449 847 10,974	FY2018 (April 1, 2018 to March 31, 2019) 109 (337) 257 (63) – 4,461 200 (2,635) (558) (123) (154) (2,603) (1,357) 841 (100) 1,547 (64) 5,066

– II-13 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Interest and dividends received Interest paid Income taxes paid Net cash flows from operating activities Cash flows from investing activities Purchase of fixed assets Proceeds from sales of fixed assets Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Purchase of shares of subsidiaries Proceeds from sales of investments in capital of subsidiaries and affiliates Other, net Net cash flows from investing activities Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayment of long-term borrowings Proceeds from issuance of bonds Redemption of bonds Repayments of lease liabilities Purchase of treasury share Proceeds from sales of treasury share Dividends paid to minority interests Proceeds from share issuance to minority interests Net cash flows from financing activities Effects of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Balance of cash and cash equivalents at the beginning of the period Balance of cash and cash equivalents at the end of the period	FY2017 (April 1, 2017 to March 31, 2018) 1,187 (2,187) (2,833) 7,140 (8,859) 4,028 (374) (22) 8,725 (99) 1,054 (359) 4,093 (10,294) 29,814 (30,382) 6,554 – (2,065) (6) 48 (210) 6 (6,536) 37 4,736 14,040 *1 18,776	FY2018 (April 1, 2018 to March 31, 2019) 1,418 (2,428) (1,013) 3,043 (14,196) 2,948 (683) (146) 807 (23) – (68) (11,362) 7,055 17,368 (19,590) 1,466 (862) (2,537) (235) 301 (286) – 2,679 (107) (5,746) 18,776 *1 13,030

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Notes

(Major notes to consolidated financial statements)

1. Scope of consolidation

(1) Number of consolidated subsidiaries: 50

Consolidated subsidiaries are omitted as these are presented in “7. List of consolidated subsidiaries and affiliated companies” under “Appendix II B. Supplemental Information” of this circular.

During the fiscal year ended March 31, 2019, Sanden Retail Systems Taiwan Corporation, SANDEN AUTOMOTIVE SYSTEMS (SINGAPORE) PTE. LTD., SANDEN INTERNATIONAL (EUROPE) GMBH, SANDEN VENDO GMBH, and Yik Cheng (Singapore) Pte Ltd. were newly established and included in the scope of consolidation.

In addition, PT. SANDEN JAYA INDONESIA was excluded from the scope of consolidation in the fiscal year ended March 31, 2019 as it was liquidated.

(2) Major non-consolidated subsidiaries: Sanden Bright Partner Corporation

(Reason for exclusion from the scope of consolidation)

Total assets, operating revenue, net profits or loss (as calculated by the equity method) and retained earnings (as calculated by the equity method) of unconsolidated subsidiaries do not have a material impact on the consolidated financial statements.

2. Equity method

(1) Number of companies accounted for by the equity method: 8

Main company names SANDEN INTERCOOL (THAILAND) PUBLIC CO., LTD. Sanden Huayu Automotive Air-Conditioning Co., Ltd. Shenyang Sanden Automotive Air-Conditioning Co. Ltd.

In the consolidated fiscal year ended March 31, 2019, Sanden Hefei Refrigeration Co., Ltd. was newly established and included in the scope of application of the equity method.

(2) Of the non-consolidated subsidiaries and affiliates not accounted for by the equity method, the major one is Sanpak Engineering Industries (Pvt) Ltd. Non-equity-method companies are excluded from the scope of application of the equity method because their net income or loss (as calculated by the equity method) and retained earnings (as calculated by the equity method) would not have a material impact on the consolidated financial statements if they were excluded from the scope of application of the equity method, and their overall importance would not be significant.
(3) For those companies accounted for under the equity method whose fiscal year end differs from the consolidated fiscal year end, the financial statements of these companies for their respective fiscal years are used.

– II-15 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Accounting period of consolidated subsidiaries

The fiscal year-end of the following consolidated subsidiaries is December 31: Tianjin Sanden Auto Air-Conditioning CO., LTD., Sanden Shanghai Refrigeration Co., Ltd., Sanden (Suzhou) Precision Parts Co., Ltd., Sanden Chongqing Automotive Air Conditioning Co., Ltd., Sanden Shanghai Thermal Environmental System Co., Ltd., Sanden Manufacturing Mexico SA de CV.

In preparing the consolidated financial statements, the financial statements as of that date are used, and necessary adjustments are made for consolidation purposes to account for significant transactions that occurred between that date and the consolidated closing date.

The fiscal year end of Choon Tian International Trading (Shanghai) Co., Ltd. is the last day of December, and the consolidated financial statements were prepared based on the provisional financial statements as of the end of March.

4. Accounting policies

(1) Valuation criteria and methods for significant assets

A. Securities

Other securities

Marketable securities:

Marketable securities are carried at fair value based on quoted market prices as of the end of the fiscal year.

Any changes in unrealized gain or loss are directly included in net assets and the costs of securities sold are generally calculated by the moving average method.

Non-marketable securities:

Non-marketable securities are carried at cost determined by the moving average method.

For those securities whose real value has been significantly reduced, a substantial reduction has been made.

B. Derivative financial instruments

Derivative financial instruments are stated at fair value.

C. Inventories

Inventories are primarily stated at cost method determined by the weighted average method (values on the balance sheet are subject to the book value reduction method based on decreased profitability.)

– II-16 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Depreciation method for significant depreciable assets

A. Fixed assets (excluding leased assets)

The straight-line method is adopted.

The main useful lives are as follows.

Buildings and structure 2-50 years Machinery, equipment and vehicles 2-18 years

The Company and its consolidated subsidiaries in Japan have adopted a method in which small amounts of depreciable assets with an acquisition cost of JPY100,000 or more but less than JPY200,000 are depreciated in equal amounts over three years.

B. Intangible assets (excluding leased assets)

The straight-line method is adopted.

Depreciation of software for internal use is calculated by the straight-line method based on its useful life in the Company.

C. Leased assets

Leased assets related to the finance lease transactions other than those where the ownership of the lease assets is deemed to be transferred to the lessee is amortized by the straight-line method, assuming the lease period as the useful life and no residual value.

(3) Basis for accounting for significant provisions

A. Provision for bad debts

To prepare for losses due to the credit loss of monetary claims, the Company and its domestic consolidated subsidiaries consider the actual loan loss rate for general claims and the collectability of specific claims such as doubtful debts individually and record the estimated uncollectible amount. Overseas consolidated subsidiaries have provided an provision for bad debts at the estimated amounts of possible losses mainly for specific receivables.

B. Provision for bonuses

To provide for the payment of bonuses to employees, an estimated amount of bonus payments corresponding to the consolidated fiscal year ended March 31, 2019.

C. Provision for sales rebates

To provide for sales rebates for automotive system equipment and commercial store system products, an estimated amount of such rebates is recorded.

D. Provision for product warranties

To cover the free post-sales service costs of products, the Company records a provision for costs that can be estimated individually in addition to the amount by the accrual rate in the past fiscal years for sales.

– II-17 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

E. Provision for outstanding claims

To provide for the payment of settlements and other payments related to antitrust violations and other matters related to past transactions of certain automotive parts, the Company records an estimated amount for future losses.

F. Provision for environmental measures

Costs related to soil and water contamination at the location and neighboring areas of former plants of The Vendo Company, a consolidated subsidiary in the U.S., are recorded based on estimated amount of future costs.

G. Provision for stock compensation

To prepare for the issuance of the Company’s shares by the Executive Compensation BIP Trust, the Company records the estimated amounts of shares to be paid out based on the points allocated to the executives and others in accordance with the stock issuance regulations.

(4) Accounting method for retirement benefits

Method of attributing expected retirement benefits to periods

In calculating retirement benefit obligations, the method of attributing expected retirement benefits to the period until the end of the consolidated fiscal year ended March 31, 2019 is based on the benefit formula standard.

Expense processing method for actuarial differences and past service costs

Past service cost is amortized by the straight-line method over a certain number of years within the average remaining service period of employees at the time of occurrence.

Actuarial differences are amortized by the straight-line method over a certain number of years within the average remaining service period of employees at the time of occurrence in each consolidated fiscal year. Actuarial differences are treated as a lump-sum expense in the fiscal year of occurrence.

(5) Basis for translating significant foreign currency denominated assets and liabilities into Japanese currency

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot rates of exchange in effect on a consolidated balance sheet date and the translation differences are treated as profit or loss. Assets and liabilities of overseas consolidated subsidiaries are translated into Japanese yen based on a spot exchange rate on a consolidated balance sheet date, and revenue and expenses are translated into Japanese yen by using an average exchange rate during the fiscal year. Any difference arising from the translation is recorded under differences on translation of foreign currency financial statements and minority interests under net assets.

(6) Significant hedge accounting method

A. Hedge accounting method

Deferred hedge accounting is adopted.

However, exceptional method is applied to interest rate swaps that meet the requirements for exceptional method.

– II-18 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

B. Hedging instruments and hedged items

Hedging instruments

Foreign exchange forward contracts, interest rate swaps and commodity derivatives

Hedged items

Foreign currency denominated receivables and forecasted foreign currency transactions, interest on floating rate borrowings and raw materials purchase price

C. Hedging policy

In principle, the Company enters into foreign exchange forward contracts for the purpose of hedging foreign exchange fluctuation risk for sales from Japan, among foreign exchange fluctuation risk categories for foreign currency-denominated receivables.

The Company also enters into interest rate swap transactions for the purpose of hedging interest rate fluctuation risk for payment interest and enters into commodity derivatives transactions for the purpose of hedging price fluctuation risk for raw materials.

D. Assessment of hedge effectiveness

Hedging is applied on the condition that the change in the fair value of the hedged item and the change in the fair value of the hedging instrument do not deviate by 20% or more, and the assessment of the effectiveness of the hedge is confirmed.

However, the Company does not evaluate the effectiveness of interest rate swaps for which exceptional method is used.

(7) Amortization method and amortization period for goodwill

Goodwill is amortized using the straight-line method over five years.

(8) Scope of cash and cash equivalents in consolidated statements of cash flows

Cash and cash equivalents consist of cash on hand, deposits that can be withdrawn from time to time, and short-term investments that are easily converted to cash and that mature within three months of the date of acquisition and are subject to insignificant risk of change in value.

(9) Other important matters for the preparation of consolidated financial statements

A. Accounting method for consumption tax, etc.

Consumption tax and local consumption tax are accounted for by the tax exclusion method.

B. Accounting treatment for overseas subsidiaries

Revisions required for preparing the consolidated financial statements were made by applying the “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries, etc. for Consolidated Financial Statements” (Practical Issues Task Force No. 18, March 29, 2017).

– II-19 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

C. Application of the consolidated taxation system

The consolidated taxation system is applied.

(Accounting standards not to be adopted)

“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29, March 30, 2018)
“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 30, 2018)
a. Overview

A comprehensive accounting standard for revenue recognition. Revenue is recognized by applying the following five steps.

Step 1: Identify the contract with the customer. Step 2: Identify the performance obligations in the contract. Step 3: Calculate the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when or as performance obligations are met.

b. Scheduled date of adoption

To be applied from the beginning of the fiscal year ending March 2022.

c. Effect of adoption

The effect of adoption of the aforementioned standards on the Company’s consolidated financial statements is under evaluation.

(Changes in presentation)

Changes resulting from the application of the “Partial Amendments to Accounting Standard for Tax Effect Accounting”

The Company changed to a method in which to present deferred tax assets under investments and other assets and to present deferred tax liabilities under non-current liabilities while revising notes on tax effect accounting. This was by applying the “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018; hereinafter “Partial Amendments to Tax Effect Accounting Standard”) from the beginning of the consolidated fiscal year ended March 31, 2019.

As a result, deferred tax assets of JPY4,641 million under investments and other assets in the consolidated balance sheet for the previous fiscal year included the following amounts: i) JPY2,575 million in deferred tax assets under current assets; ii) JPY18 million in deferred tax liabilities under current liabilities; and iii) JPY606 million in deferred tax liabilities under non-current liabilities. Deferred tax liabilities of JPY205 million under non-current liabilities included JPY15 million in deferred tax assets under current assets and JPY11 million in deferred tax liabilities under non-current liabilities.

The notes for tax effect accounting also included a note described in Note 8 (excluding total valuation allowance) and Note 9 of the “Accounting Standard for Tax Effect Accounting” as presented in Paragraph 3 through Paragraph 5 of the Partial Amendments to Tax Effect Accounting Standard. However, of the notes above, items for the previous consolidated fiscal year are not stated in accordance with transitional treatment stipulated in Paragraph 7 of the Partial Amendments to Tax Effect Accounting Standard.

– II-20 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Additional information)

Transaction related to the executive compensation Board Incentive Plan (BIP) Trust

The Company has introduced the executive compensation Board Incentive Plan (BIP) Trust (hereinafter referred to as the “Plan”) for directors and for corporate officers and counselors having entered into a delegation agreement with us (excluding expatriates, outside directors and part-time directors, hereinafter referred to as “directors, etc.”) for the purpose of raising their awareness of helping improve the Company’s medium- to long-term financial results and increase its corporate value.

The 92nd Annual General Meeting of Shareholders held on June 21, 2018 approved the proposal for the continuation of the Plan, and the Board of Directors resolved to dispose of treasury share through a private placement at the Board of Directors meeting held on August 8, 2018.

The accounting treatment for trusts conforms to the “Practical Solution on Transactions to Deliver the Company’s Shares to Employees through Trusts” (Practical Issues Task Force No. 30, March 26, 2015).

(1) Outline of the transaction

Under the plan, shares of the Company’s stock are acquired through a trust as the source of compensation for directors, etc. contributed by the Company, and the Company’s shares are delivered to the subject directors, etc. in accordance with the degree of achievement of performance targets and their positions in each fiscal year. However, in principle, directors, etc. will receive the Company’s shares at the time of their retirement.

(2) Treasury share remaining in the trust

The Company’s shares remaining in the trust are recorded as treasury share in net assets at the book value of the trust (excluding incidental expenses). The book value and number of shares of treasury share were JPY408 million and 142,695 shares for the previous fiscal year, and JPY574 million and 273,961 shares for the fiscal year ended March 31, 2019.

(Consolidated balance sheets)

Note 1: *7

Accumulated depreciation of fixed assets	FY2017 (As of March 31, 2018) 175,536	(Millions of yen) FY2018 (As of March 31, 2019) 180,408

Note: Accumulated depreciation of fixed assets includes the accumulated impairment loss.

Note 2: *8

Items related to non-consolidated subsidiaries and affiliates are as follows.

				(Millions of yen)
			FY2017	FY2018
		(As	of March	(As of March
			31, 2018)	31, 2019)
Investment	securities		21,774	20,815

– II-21 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Note 3: 1, 2, 3, 4, 5, 7, 9, 10, 11*

Assets pledged as collateral and secured debt are as follows.

(Millions of yen)

Assets pledged as collateral Buildings and structures Machinery and equipment Finished goods, works in process, raw materials Land Accounts receivable Other Total Secured debt Short-term borrowings Long-term borrowings due within one year Long-term borrowings Total	FY2017 (As of March 31, 2018) 721 1,558 1,915 152 1,787 1,715 7,852 1,564 340 1,885 3,790	FY2018 (As of March 31, 2019) 705 2,201 2,198 151 1,720 997
		7,975
		1,787 257 227
		2,272

Note 4: Contingent liabilities

a. The Company provides debt guarantee for borrowings and other debt from financial institutions of non-consolidated companies as follows.

FY2017 (As of March 31, 2018)

			(Millions of yen)	(Millions of yen)
Classification		Amount
Debt guarantee	Shenyang Sanden Automotive	(RMB11,865	thousand)	200
	Air-Conditioning Co. Ltd.
	SANPAK ENGINEERING	(PKR434,596	thousand)	399
	INDUSTRIES (PVT) LTD.
	Total			600

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification Amount Debt guarantee SANPAK ENGINEERING INDUSTRIES (PVT) LTD. (PKR452,611 thousand) Total	357
	357

b. Other

FY2017 (As of March 31, 2018)

– II-22 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

FY2018 (As of March 31, 2019)

In connection with the plea agreement with the U.S. Department of Justice, civil lawsuits (class action lawsuits) and other lawsuits have been filed in North America seeking damages. Some of these lawsuits have already been settled. For those cases in which it is possible to reasonably estimate future losses, an allowance for outstanding claims is provided. The outcome of other pending lawsuits could have an impact on the Group’s business results, but it is difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

Note 5: 2 and* 6*

The balances of securitized receivables were accounted for as financial transactions as follows.

		(Millions of yen)
	FY2017	FY2018
	(As of March	(As of March
	31, 2018)	31, 2019)
Notes and accounts receivable	825	1,076
Consumption taxes receivable	636	553

The liabilities corresponding to securitization of the above-mentioned receivables were recorded in “Other current liabilities” in the amount of JPY1,461 million for the previous fiscal year and JPY1,630 million for the fiscal year ended March 31, 2019.

Of the above notes and accounts receivable, the balance of securitization associated with proprietary trusts was JPY568 million for the previous fiscal year, and JPY1,076 million for the fiscal year ended March 31, 2019.

– II-23 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 6: *2

The accounting treatment for notes maturing at the end of the fiscal year is to be set settled at the clearance date.

As the last day of the fiscal year ended March 31, 2019 fell on a holiday for financial institutions, the following matured notes at the end of the fiscal year were included in the balance at the end of the fiscal year.

						(Millions of yen)
					FY2017	FY2018
				(As	of March	(As of March
					31, 2018)	31, 2019)
Notes	and	accounts	receivable		284	249

(Consolidated statements of income)

Note 1: *1

Provision for sales rebates:

Provision for sales rebates is accounted for as a deduction from operating revenue and the amounts are as follows.

(Millions of yen)

				FY2017	FY2018
				(April 1, 2017	(April 1, 2018
				to March 31,	to March 31,
				2018)	2019)
Provision	for	sales	rebates	935	426

Note 2: *3

Selling, general and administrative expenses:

The main items in selling, general and administrative expenses are as follows.

(Millions of yen)

Salary Fare Depreciation Provision for bonuses Provision for product warranties Retirement benefit expenses	FY2017 (April 1, 2017 to March 31, 2018) 17,446 3,537 2,265 1,702 1,830 833	FY2018 (April 1, 2018 to March 31, 2019) 17,209 3,379 2,263 1,366 2,530 870

– II-24 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 3: 2 and 3

Research and development expenses

Research and development expenses included in general and administrative expenses and total manufacturing costs for the fiscal year Note 4: 4_ Gain on disposal of non-current assets Buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Land Other Total Note 5: _5 Loss on disposal of non-current assets Buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Land Other Total	FY2017 (April 1, 2017 to March 31, 2018) 7,860 FY2017 (April 1, 2017 to March 31, 2018) 190 77 27 368 27 690 FY2017 (April 1, 2017 to March 31, 2018) 126 170 27 229 4 557	(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019) 8,818

		(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019) 60 173 17 81 4
		337

		(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019) 18 214 18 1 3
		257

– II-25 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 6: *6

Provision for bad debts

There was a significant delay in the collection of accounts receivable from the Automotive Systems Business in relation to sales of products to the Iranian market due to the economic sanctions against Iran and the subsequent tightening of financial transactions in response to the financial sanctions. For this reason, an provision for bad debts is recorded except for the amount that is reasonably estimated to be recoverable within a reasonably foreseeable period of time, in light of the current feasibility of the means of recovery.

Note 7: *7

Structure reform cost

FY2017 (April 1, 2017 to March 31, 2018)

In order to achieve the goals of the Group’s mid-term management plan announced on May 11, 2017, the Company has been working on four priority items. For selection and concentration of business portfolios, which are part of the priority items, we at a Board of Directors’ meeting held on March 23, 2018 resolved to terminate manufacture of products mainly in the residential environment system area. Thus, the Company recorded extraordinary losses (structure reform cost). In the fiscal year ended March 31, 2019, the Company recorded a loss on valuation of inventories of JPY969 million and an impairment loss of JPY1,076 million in the Automotive Systems Business, Commercial Store Systems Business, and Other Business.

FY2018 (April 1, 2018 to March 31, 2019)

The Group has recorded an extraordinary loss (structure reform cost) in connection with the selection and concentration of its business portfolio, which is one of the priority items of the mid-term management plan. In the fiscal year ended March 31, 2019, the Company recorded a loss on valuation of inventories of JPY895 million and an impairment loss of JPY3,403 million in the Automotive Systems Business, Commercial Store Systems Business, and Other Business.

Note 8: *8

Impairment loss

FY2017 (April 1, 2017 to March 31, 2018)

The Group has recorded an impairment loss for the following asset groups, which is included in structure reform cost under extraordinary losses.

a. Main description of impairment loss

Location Use Classification Isesaki-shi, Gunma Other Businesses Machinery and equipment, etc. TINTENIAC FRANCE Automotive Systems Business Machinery and equipment, etc. and Other Business Shanghai, the People’s Commercial Store Systems Machinery and equipment, etc. Republic of China Business and Other Business

– II-26 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Grouping methods

The Group’s grouping assets are mainly grouped based on management accounting categories that are continuously monitored for income and expenditure. In addition, each property of leased assets and idle assets is grouped as the smallest unit. The land and buildings of the headquarters and welfare facilities are classified as shared assets because they do not generate independent cash flows.

c. Background to the recognition of the impairment loss

In order to achieve the goals of the Group’s mid-term management plan announced on May 11, 2017, the Company has been working on four priority items. For selection and concentration of business portfolios, which are part of the priority items, the Board of Directors resolved at a meeting held on March 23, 2018 to terminate manufacture of products mainly in the residential environment system area. Accordingly, among other business assets, the book values of production facilities that became redundant and were unlikely to recover investments within a residual useful life of main equipment were reduced to recoverable amounts. This was as a result of a revamp of production systems, a consolidation of bases and organizations, and an overhaul of investments through selection and concentration of investments.

d. Method of calculating recoverable amount

The recoverable amount is measured at the higher of value in use or net sales value. The net sales value is mainly evaluated by the appraisal value by a real estate appraiser.

Business assets that are not expected to generate future cash flows from use and are not expected to be sold at a price that exceeds the cost of disposal are valued at memorandum value.

e. Amount of impairment loss

	(Millions of yen)
Classification	Amount
Buildings and structures	12
Machinery, equipment and vehicles	900
Tools, furniture and fixtures	6
Other	157
Total impairment loss	1,076

FY2018 (April 1, 2018 to March 31, 2019)

The Group has recorded an impairment loss for the following asset groups, which is included in structure reform cost under extraordinary losses.

a. Main description of impairment loss

Location	Use	Classification
WYLIE TEXAS U.S.A.	Automotive Systems Business	Machinery and equipment, etc.
TINTENIAC FRANCE	Automotive Systems Business	Machinery and equipment, etc.

– II-27 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Grouping methods

c. Background to the recognition of the impairment loss

In light of changes in the environment surrounding the automotive market, including trade friction between the U.S. and China, the slowdown of the Chinese economy, and environmental regulations in Europe, the Company has drastically reviewed its production system in the Automotive Systems Business by changing the global production location and optimizing personnel. As a result, at the end of the fiscal year ended March 31, 2019, the Company reduced the book value of production facilities and surplus production facilities to their recoverable amounts for which the recovery of investment in the remaining useful lives of major equipment was not probable.

d. Method of calculating recoverable amount

The recoverable amount is measured at the higher of value in use or net sales value. The net sales value is mainly evaluated by the appraisal value by a real estate appraiser.

Business assets that are not expected to generate future cash flows from use and are not expected to be sold at a price that exceeds the cost of disposal are valued at memorandum value.

e. Amount of impairment loss

	(Millions of yen)
Classification	Amount
Buildings and structures	33
Machinery, equipment and vehicles	3,169
Tools, furniture and fixtures	0
Other	200
Total impairment loss	3,403

Note 9: *9

Provision for outstanding claims

To prepare for the payment of settlements and other payments related to antitrust violations in connection with past transactions of certain automotive parts, the Company records an estimated amount for future losses.

– II-28 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Consolidated statements of comprehensive income)

*1 Reclassification adjustments and tax effects concerning other comprehensive income

Valuation difference on other securities:
Amount arising during period
Reclassification adjustments
Before tax-effect adjustment
Amount of tax effect
Valuation difference on other securities
Deferred gains or losses on hedges:
Amount arising during period
Reclassification adjustments
Before tax-effect adjustment
Amount of tax effect
Deferred gains or losses on hedges
Differences on translation of foreign currency financial
statements:
Amount arising during period
Reclassification adjustments
Differences on translation of foreign currency
financial statements

(Millions of yen)
FY2017
(April 1,
2017 to
March 31,
2018)
FY2018
(April 1,
2018 to
March 31,
2019)
1,000
29
(5,427)
(63)
(4,426)
(34)
1,102
7
(3,323)
(26)
(435)
106
393
(214)
(41)
(108)
42
39
0
(68)
1,001
(1,124)
–
109
1,001
(1,014)

– II-29 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Adjustment for retirement benefits: Amount arising during period Reclassification adjustments Before tax-effect adjustment Amount of tax effect Adjustment for retirement benefits Share of other comprehensive income of affiliates accounted for using the equity method Amount arising during period Reclassification adjustments Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income	FY2017 (April 1, 2017 to March 31, 2018) (29) 111 81 (3) 78 (57) (274) (331) (2,573)	FY2018 (April 1, 2018 to March 31, 2019) (317) 131 (186) (0) (186) (2,134) – (2,134) (3,430)

– II-30 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Consolidated statements of changes in shareholders’ equity)

FY2017 (April 1, 2017 to March 31, 2018)

1. Shares issued and outstanding/Treasury share

(Thousands of shares)

Shares issued Common stock (Note 1) Total Treasury share Common stock (Notes 2, 3, and 4) Total Notes:	At the beginning of period 140,331 140,331 2,197 2,197	Increase during period – – 10 10	Decrease during period 112,265 112,265 1,794 1,794	At the end of period 28,066
				28,066

				413
				413

On October 1, 2017, the Company carried out a five-for-one reverse stock split for common stock. As a result, the number of shares issued decreased by 112,265,000 to 28,066,000.
The portion of common stock held as treasury share includes the Company’s shares held by the executive compensation Board Incentive Plan (BIP) Trust (797,000 shares at the beginning of period and 142,000 shares at the end of period).
An increase of 10,000 shares in treasury share of common stock was due to an increase of 8,000 shares less than a standard unit purchased prior to the reverse stock split and an increase of 1,000 shares less than a standard unit purchased after the reverse stock split.
A decrease of 1,794 thousand shares in the number of treasury share of common stock consisted of the following: i) a decrease of 84 thousand shares caused by a grant of shares prior to the reverse stock split to officers who withdrew from the “executive compensation BIP Trust” when retired; ii) a decrease of 0 thousand shares less than a standard unit sold prior to the reverse stock split; iii) a decrease of 0 thousand shares less than a standard unit sold after the reverse stock split; iv) a decrease of 1,697 thousand shares due to the reverse stock split; and v) a decrease of 12 thousand shares, a treasury share block (shares in the Company) attributable to the Company that was sold by equity method affiliates after the reverse stock split.

– II-31 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Dividends

(1) Dividends paid

Not applicable

(2) Dividends, which the record date is in the fiscal year ended March 31, 2019 and the effective date of which is in the following fiscal year.

Not applicable

FY2018 (April 1, 2018 to March 31, 2019)

1. Shares issued and outstanding/Treasury share

(Thousands of shares)

Shares issued Common stock Total Treasury share Common stock (Notes 1, 2, and 3) Total	At the beginning of period 28,066 28,066 413 413	Increase during period – – 156 156	Decrease during period – – 180 180	At the end of period 28,066
				28,066

				389
				389

Notes:

The portion of common stock held as treasury share includes the Company’s shares held by the executive compensation Board Incentive Plan (BIP) Trust (142,000 shares at the beginning of period and 273,000 shares at the end of period).
The increase in treasury share of 156,000 shares of common stock was due to an increase of 156,000 shares of the Company’s shares purchased by the executive compensation Board Incentive Plan (BIP) Trust and an increase of 0 shares of less than a standard unit purchased.
The decrease in treasury share of 180,000 shares of common stock was due to a decrease of 156,000 shares of the Company’s shares transferred to the executive compensation Board Incentive Plan (BIP) Trust and a decrease of 24,000 shares for payment to the retired directors and others.

– II-32 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Dividends

(1) Dividends paid

Not applicable

(2) Dividends, which the record date is in the fiscal year ended March 31, 2019 and the effective date of which is in the following fiscal year.

Not applicable

(Consolidated statements of cash flows)

*1 Cash and cash equivalents as of the end of the period are reconciled to the accounts reported in the consolidated balance sheets as follows.

	(Millions of yen)	(Millions of yen)
	FY2017	FY2018
	(As of	(As of
	March 31,	March 31,
Classification	2018)	2019)
Cash at bank and on hand	18,776	13,030
Cash and cash equivalents	18,776	13,030

Note: There was a significant delay in the collection of accounts receivable in relation to sales of products to the Iranian market due to the financial sanctions against Iran and the Company is recovering a portion of these in Iran. Cash and cash equivalents at the end of the fiscal year ended March 31,2019 include foreign currency ordinary deposits held by the Group in Iran.

(Lease transactions)

1. Finance lease transactions

(Lessees’ accounting)

Finance lease transactions that do not transfer ownership

1) Leased assets

Fixed assets

The main items are production facilities and computer terminals (buildings and structures, machinery, equipment and vehicles, and tools, furniture and fixtures) in the Automotive Systems Business and the Commercial Store Systems Business.

– II-33 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Intangible assets

Is composed of software.

2) Depreciation of leased assets

As described in “4. Accounting policies, (2) Depreciation method for significant depreciable assets” in “Major notes to consolidated financial statements”.

(Financial instruments)

1. Financial instruments

(1) Policies on financial instruments

The Group raises the necessary long-term funds (mainly through bank loans and the issuance of bonds) and short-term working capital through bank loans and other means in light of its medium-term capital plan, which is based on the capital expenditure plan.

Temporary surplus funds are mainly invested in highly liquid financial assets and derivatives are used to avoid the risks described later, and it is the Group’s policy not to engage in speculative transactions.

(2) Description of financial instruments and related risks

Notes and accounts receivable, which are trade receivables, are exposed to the credit risk of customers. In addition, trade receivables denominated in foreign currencies arising in the course of doing business overseas are exposed to the risk of exchange rate fluctuations, but are generally hedged through the use of forward exchange contracts, except to the extent that they are within the balance of accounts payable in the same foreign currency.

Marketable securities and investment securities are primarily stocks of companies with which the Group has business relationships and are exposed to market price volatility risk.

Notes and accounts payable, which are trade payables, are mostly due within four months. Certain trade payables denominated in foreign currencies are exposed to the risk of exchange rate fluctuations, but are generally hedged through the use of forward exchange contracts, except to the extent that they are within the balance of accounts receivable in the same foreign currency.

Corporate bonds, long-term borrowings, and lease liabilities related to finance leases are mainly for the purpose of procuring funds for capital investment, with the longest repayment date being nine years from the date of account settlement. Most of these are fixed rate and therefore not subject to interest rate volatility risk. Debt with variable rate terms is exposed to the risk of interest rate fluctuations, but is partially hedged through the use of derivative instruments (interest rate swaps).

– II-34 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Derivative transactions consist of forward foreign exchange contracts to hedge the risk of foreign exchange rate fluctuations on foreign currency-denominated trade receivables and payables, interest rate swaps to hedge the risk of interest rate fluctuations on borrowings, and currency and interest rate swaps to hedge the risk of foreign exchange and interest rate fluctuations on foreign currency-denominated borrowings. For information on hedge accounting, including hedging instruments, hedged items, hedging policy, and methods of evaluating hedge effectiveness, please refer to “(6) Significant hedge accounting methods, 4. Accounting policies” under “Major notes to consolidated financial statements”.

(3) Supplemental explanation on the fair value of financial instruments

The fair value of financial instruments includes values based on market prices and, if no market price is available, reasonably calculated values. Since variable factors are taken into account in the calculation of such values, such values may vary depending on the adoption of different assumptions and other factors.

In addition, the contract amounts of derivative transactions in the notes “Derivative transactions” do not in themselves represent the market risk associated with the derivative transactions.

2. Fair value of financial instruments

The following tables indicate the amount recorded in the consolidated balance sheets, the fair value and the difference. Items for which it is deemed extremely difficult to measure the fair value are not included in the tables below. (Refer to Note 2.)

FY2017 (As of March 31, 2018)

(Millions of yen)

Amount

recorded in the consolidated balance sheets (1) Cash at bank and on hand 18,776 (2) Notes and accounts receivable _(1)_ 73,525 (3) Other receivables 5,876 (4) Consumption taxes receivable 4,527 (5) Investment securities 973 Total assets* 103,679	Fair value 18,776 73,525 5,876 4,527 973 103,679	Difference – – – – –
		–

– II-35 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Notes and accounts payable 53,483 (2) Short-term borrowings 45,011 (3) Other payables 11,039 (4) Lease liabilities (current liabilities) 2,018 (5) Taxes payable 699 (6) Bonds payable (including bonds payable due within one year) 6,700 (7) Long-term borrowings (including long-term borrowings due within one year) 74,433 (8) Lease liabilities (non-current liabilities) 6,113 Total liabilities 199,500 Derivative transaction (2)* 122	Fair value 53,483 45,011 11,039 2,029 699 6,733 74,138 6,150 199,287 122	Difference – – – 11 – 33 (295) 37
		(213)
		–

*1. General and specific provision for bad debts corresponding to notes and accounts receivable have been deducted.

*2. Net receivables and payables arising from derivative transactions are shown on a net basis and items that are net liabilities in total are shown in parentheses.

– II-36 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Cash at bank and on hand 13,030 (2) Notes and accounts receivable (1) 60,119 (3) Other receivables (2) 4,822 (4) Consumption taxes receivable 4,575 (5) Investment securities 721 Total assets 83,269	Fair value Difference 13,030 – 60,119 – 4,822 – 4,575 – 721 – 83,269 – (Millions of yen)	Difference – – – – –
		–

Amount recorded in the consolidated balance sheets (1) Notes and accounts payable 50,000 (2) Short-term borrowings 51,513 (3) Other payables 7,553 (4) Lease liabilities (current liabilities) 2,175 (5) Taxes payable 478 (6) Bonds payable (including bonds payable due within one year) 7,337 (7) Long-term borrowings (including long-term borrowings due within one year) 71,644 (8) Lease liabilities (non-current liabilities) 5,974 Total liabilities 196,678 Derivative transactions (3)* 70	Fair value 50,000 51,513 7,553 2,246 478 7,357 71,742 6,182 197,074 70	Difference – – – 70 – 19 97 207
		396
		–

– II-37 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

*1. General and specific provision for bad debts corresponding to notes and accounts receivable have been deducted.
*2. Individual provision for bad debts corresponding to other receivables is deducted.
*3. Net receivables and payables arising from derivative transactions are shown on a net basis and items that are net liabilities in total are shown in parentheses.

Notes:

1. Calculation method of the fair value of financial instruments and matters relating to securities and derivative transactions

Assets

(1) Cash at bank and on hand, (2) Notes and accounts receivable, (3) Other receivables and (4) Consumption taxes receivable

Fair value is calculated based on the book value as these assets are settled within a short time and the fair value is almost equal to the book value.

(5) Investment securities

Stocks and other securities are based on the prices of the stock exchange, and bonds are based on the prices of the stock exchange or the prices provided by the financial institutions with which the Group does business. For information on securities by purpose of holding, please refer to notes on “Securities”.

Liabilities

(1) Notes and accounts payable, (2) Short-term borrowings, (3) Other payables, (5) Taxes payable

Fair value is calculated based on the book value as these assets are settled within a short time and the fair value is almost equal to the book value.

(4) Lease liabilities (current liabilities), (6) Bonds payable (including bonds payable due within one year), (7) Long-term borrowings (including long-term borrowings due within one year, (8) Lease liabilities (Non-current liabilities)

The fair value of these items is based on the present value of the total principal and interest discounted at the interest rate expected to be paid for a similar new loan, bond issue or lease transaction.

Derivative transactions:

Please refer to the notes on “Derivative transactions”.

2. The amounts of financial instruments for which it is deemed extremely difficult to measure the fair value

		(Millions of yen)
	FY2017	FY2018
	(As of March	(As of March
Classification	31, 2018)	31, 2019)
Unlisted stocks	212	336
Stock of subsidiaries and affiliates	21,774	20,815

– II-38 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

These are not included in “(5) Investment securities” because they do not have a market price and it is deemed extremely difficult to measure the fair value.

3. Redemption schedule after the consolidated closing date for monetary receivables and securities with maturities

FY2017 (As of March 31, 2018)

(Millions of yen)

Cash at bank and on hand Notes and accounts receivable Other receivables Consumption taxes receivable Securities Other securities with maturities (1) Bonds (Other) (2) Other Total	Due within one year 18,776 73,525 5,876 4,527 – – 102,705	Due after one year but within five years – – – – – – –	Due after five years but within ten years – – – – – – –	Due after ten years – – – – – –
				–

FY2018 (As of March 31, 2019)

(Millions of yen)

Cash at bank and on hand Notes and accounts receivable Other receivables Consumption taxes receivable Securities Other securities with maturities (1) Bonds (Other) (2) Other Total	Due within one year 13,030 60,119 4,822 4,575 – – 82,547	Due after one year but within five years – – – – – – –	Due after five years but within ten years – – – – – – –	Due after ten years – – – – – –
				–

– II-39 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

4. Redemption schedule after the consolidated closing date for long-term borrowings and lease liabilities

FY2017 (As of March 31, 2018)

(Millions of yen)

Short-term borrowings Bonds payable Long-term borrowings Lease liabilities Total	Due within one year 45,011 712 18,299 2,018 66,041	Due after one year but within two years – 1,205 20,649 1,877 23,731	Due after two years but within three years – 1,685 17,743 1,514 20,942	Due after three years but within four years – 1,885 10,778 1,315 13,978	Due after four years but within five years – 1,212 4,504 920 6,637	Due after five years – – 2,459 485
						2,945

FY2018 (As of March 31, 2019)

(Millions of yen)

Short-term borrowings Bonds payable Long-term borrowings Lease liabilities Total	Due within one year 51,513 1,505 23,704 2,175 78,898	Due after one year but within two years – 1,985 21,480 1,898 25,364	Due after two years but within three years – 2,185 14,803 1,690 18,679	Due after three years but within four years – 1,512 8,401 1,254 11,168	Due after four years but within five years – 150 2,839 786 3,775	Due after five years – – 413 344
						758

– II-40 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Securities)

1. Other securities

FY2017 (As of March 31, 2018)

(Millions of yen)

Classification Amount recorded in the consolidated balance sheets Securities whose carrying value exceeds their acquisition cost (1) Stocks 973 (2) Bonds – (3) Other – Subtotal 973 Securities whose carrying value does not exceeds their acquisition cost (1) Stocks – (2) Bonds – (3) Other – Subtotal – Total 973	Acquisition cost 552 – – 552 – – – – 552	Difference 421 – –
		421
		– – –
		–
		421

Note: Unlisted stocks (consolidated financial statements reporting amount: JPY212 million) are not included in “Other securities” in the table above because they do not have a market price and it is deemed extremely difficult to measure the fair value.

– II-41 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification Amount recorded in the consolidated balance sheets Securities whose carrying value exceeds their acquisition cost (1) Stocks 585 (2) Bonds – (3) Other – Subtotal 585 Securities whose carrying value does not exceeds their acquisition cost (1) Stocks 135 (2) Bonds – (3) Other – Subtotal 135 Total 721	Acquisition cost 190 – – 190 144 – – 144 334	Difference 395 – – 395 (8) – – (8) 386

Note: Unlisted stocks (consolidated financial statements reporting amount: JPY336 million) are not included in “Other securities” in the table above because they do not have a market price and it is deemed extremely difficult to measure the fair value.

– II-42 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Other securities sold during the fiscal year

FY2017 (April 1, 2017 to March 31, 2018)

(Millions of yen)

Classification (1) Stocks (2) Bonds a. Government and municipal bonds, etc. b. Corporate bonds c. Other (3) Other Total	Amount of sale 9,187 – – – – 9,187	Total profit on sale 5,488 – – – – 5,488	Total loss on sale 9 – – – –
			9

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Classification (1) Stocks (2) Bonds a. Government and municipal bonds, etc. b. Corporate bonds c. Other (3) Other Total	Amount of sale 304 – – – – 304	Total profit on sale 63 – – – – 63	Total loss on sale – – – – –
			–

– II-43 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Derivative transactions)

1. Derivative transactions for which hedge accounting is not adopted

Currency-related transactions

FY2017 (As of March 31, 2018)

(Millions of yen)

Classification Type of transactions Non-market transactions Forward foreign exchange contracts: Sell: USD EUR RMB Buy: USD JPY THB Total	Contract amounts – 5,924 1,269 42 27 57 7,321	Portion due after one year included herein – – – – – – –	Fair value – 110 3 (0) (0) (0) 113	Valuation gain or loss – 110 3 (0) (0) (0)
				113

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2019.

– II-44 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification Type of transactions Non-market transactions Forward foreign exchange contracts: Sell: USD EUR MYR Buy: USD JPY THB Total	Contract amounts 690 2,125 237 – – – 3,053	Portion due after one year included herein – – – – – – –	Fair value 6 27 (0) – – – 33	Valuation gain or loss 6 27 (0) – – –
				33

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2019.

– II-45 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Derivative transactions for which hedge accounting is adopted

(1) Currency-related transactions

FY2017 (As of March 31, 2018)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Deferral hedge accounting for forward exchange contracts, etc. Forward foreign exchange contracts: Sell: USD Accounts receivable – trade EUR Accounts payable – trade Accounts receivable – trade Other Accounts payable – trade Total	Contract amounts – 102 2,997 – 3,099	Portion due after one year included herein – 30 – – 30	Fair value – (2) 121 –
			118

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2019.

– II-46 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Deferral hedge accounting for forward exchange contracts, etc. Forward foreign exchange contracts: Sell: USD Accounts receivable – trade EUR Accounts payable – trade INR Accounts payable – trade Currency swaps: Fixed U.S. dollar receipt and variable Indian rupee payments Borrowings Total	Contract amounts – 60 75 1,756 1,892	Portion due after one year included herein – – – 1,658 1,658	Fair value – 1 (1) 131
			131

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2019.

Currency swaps are calculated based on prices provided by financial institutions with which we do business.

– II-47 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Interest-related transactions

FY2017 (As of March 31, 2018)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Exceptional method for interest swap Interest rate swaps: Receiving floating rate and paying fixed rate Long-term borrowings Deferral hedge accounting Receiving floating rate and paying fixed rate Long-term borrowings Total	Contract amounts 3,030 9,789 12,819	Portion due after one year included herein 1,604 4,542 6,146	Fair value (Note) (108)
			(108)

Note: Calculation of fair value:

Interest rate swaps that are subject to the exceptional method are calculated based on the prices provided by the financial institutions with which we do business.

The fair value of interest rate swaps that are subject to the exceptional method is included in the fair value of the borrowings because the interest rate swaps are accounted for as an integral part of long-term borrowings, which are hedged items.

– II-48 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Exceptional method for interest swap Interest rate swaps: Receiving floating rate and paying fixed rate Long-term borrowings Deferral hedge accounting Receiving floating rate and paying fixed rate Long-term borrowings Total	Contract amounts 2,864 7,473 10,337	Portion due after one year included herein 1,788 2,839 4,627	Fair value (Note) (94)
			(94)

Note: Calculation of fair value:

Interest rate swaps that are subject to the exceptional method are calculated based on the prices provided by the financial institutions with which we do business.

(Retirement benefits)

1. Description of retirement benefit plans

Effective March 1, 2014, the Company has adopted a defined contribution pension plan for its enrolled employees. Pension beneficiaries are recorded based on the estimated amount of retirement benefit obligations and pension plan assets at the end of the fiscal year ended March 31, 2019. As of the end of the fiscal year ended March 31, 2019, the estimated amount of pension plan assets exceeded the balance of the retirement benefit obligation, and the excess amount was recorded as “retirement benefit asset” in assets.

Domestic consolidated subsidiaries have their own lump-sum retirement benefit plans, and some of them have a defined contribution pension plan and Smaller Enterprise Retirement Allowance Mutual Aid Plan. In addition, some overseas consolidated subsidiaries have adopted a retirement benefit plan. The retirement benefit plans of the consolidated overseas subsidiaries include a defined benefit lump-sum retirement plan, a retirement pension plan and a post-retirement medical care plan, a defined contribution retirement plan, and a public plan in the country where the company is located, which is used by some companies in combination.

– II-49 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Defined benefit plans (including plans to which the simplified method is applied)

(1) Adjustments between the beginning and ending balances of retirement benefit obligation

(Millions of yen)

Retirement benefit obligation at the beginning of the year Service cost Interest cost Actuarial gain and loss generated Retirement benefits paid Effect of foreign exchange translation Retirement benefit obligation at the end of the year	FY2017 (April 1, 2017 to March 31, 2018) 7,496 236 205 0 (318) 31 7,652	FY2018 (April 1, 2018 to March 31, 2019) 7,652 260 220 314 (441) 284 8,290

(2) Adjustments between the beginning and ending balances of pension plan assets

Pension plan assets at the beginning of the year Expected return on plan assets Actuarial gain and loss generated Contribution from employers Retirement benefits paid Effect of foreign exchange translation Plan assets at the end of the year	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 4,329 4,394 257 254 29 (3) 189 195 (208) (257) (203) 163 4,394 4,747

– II-50 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(3) The balance of retirement benefit obligation and pension plan assets as of the closing date and the adjustment on the consolidated balance sheets of the liability and assets related to the retirement benefits

Retirement benefit obligation for funded plans Pension plan assets Retirement benefit obligation for unfunded plans Net retirement benefit liability and assets reported on the consolidated balance sheets Retirement benefit liability Retirement benefit asset Net retirement benefit liability and assets reported on the consolidated balance sheets	(Millions of yen) FY2017 (As of March 31, 2018) FY2018 (As of March 31, 2019) 6,227 6,858 (4,394) (4,747) 1,833 2,111 1,424 1,432 3,257 3,543 3,376 3,653 (118) (110) 3,257 3,543

(4) Breakdown of retirement benefit expenses

Service cost Interest cost Expected return Expenses on actuarial gain or loss Retirement benefit expenses related to defined benefit plans	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 236 260 205 220 (257) (254) 111 131 295 358

– II-51 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(5) Adjustment for retirement benefits

A breakdown of the items recorded as adjustment for retirement benefits (before tax effect deductions) is as follows.

Actuarial differences Total	(Millions of yen) FY2017 (As of March 31, 2018) FY2018 (As of March 31, 2019) 81 (186) 81 (186)

(6) Accumulated adjustment for retirement benefits

A breakdown of the items recorded as accumulated adjustment for retirement benefits (before tax effect deductions) is as follows.

Unrecognized actuarial differences Total	(Millions of yen) FY2017 (As of March 31, 2018) FY2018 (As of March 31, 2019) (937) (1,123) (937) (1,123)

– II-52 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(7) Matters regarding pension plan assets

1) Major components of plan assets

Pension plan assets consist of the following.

Bonds Stocks Cash at bank and on hand Other Total	FY2017 (As of March 31, 2018) 42% 51% 3% 4% 100%	FY2018 (As of March 31, 2019) 33% 64% 3% 0%
		100%

2) Method for determining the long-term expected rate of return

To determine the long-term expected rate of return on pension plan assets, the current and expected allocation of plan assets and the current and expected long-term rate of return from the various assets that make up the plan assets are considered.

(8) Assumptions used in actuarial calculations

Major assumptions used in actuarial calculations

	FY2017	FY2018
	(As of	(As of
	March 31,	March 31,
	2018)	2019)
Discount rate	0.3%-4.0%	0.3%-4.0%
Long-term expected rate of return on plan assets	0.3%-7.5%	0.3%-7.5%

3. Defined-contribution pension plans

The required amounts of contribution to the defined-contribution pension plans for the Company and its consolidated subsidiaries were JPY980 million for the previous fiscal year and JPY908 million for the fiscal year ended March 31, 2019.

– II-53 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Tax effect accounting)

1. Breakdown of the main causes of deferred tax assets and deferred tax liabilities

Deferred tax assets
Net operating loss carryforward for
tax purpose (Note 2)
Unrealized gains or losses on inventories
Accounts payable and accrued expenses
Provision for product warranties
Provision for bad debts
Bad debts written-off
Loss on valuation of inventories
Provision for bonuses
Taxation of investment privileges
Unrealized gain on fixed assets
Depreciable assets, etc.
Retirement benefit liability
Provision for environmental measures
Impairment loss
Other
Subtotal of deferred tax assets
Valuation allowance for net operating loss
carryforward for tax purpose (Note 2)
Valuation allowance for the sum of deductible
temporary differences
Subtotal of valuation allowance (Note 1)
Offsetting deferred tax assets and liabilities of the
same taxpayer
Total deferred tax assets

(Millions of yen)
FY2017
(As of
March 31,
2018)
FY2018
(As of
March 31,
2019)
13,082
13,040
149
134
1,047
563
641
435
630
3,019
648
677
806
907
756
720
2,110
1,384
70
17
802
705
515
520
73
65
394
736
2,193
1,506
23,922
24,434
–
(12,810)
–
(8,044)
(17,305)
(20,854)
(1,974)
(1,340)
4,641
2,240

– II-54 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Deferred tax liabilities Depreciable assets, etc. Valuation difference on other securities Retained earnings of foreign affiliates Other Subtotal of deferred tax liabilities Offsetting deferred tax assets and liabilities of the same taxpayer Total deferred tax liabilities Net deferred tax assets	FY2017 (As of March 31, 2018) 854 125 682 516 2,179 (1,974) 205 4,436	FY2018 (As of March 31, 2019) 419 120 587 458 1,586 (1,340) 245 1,994

Notes:

An amount of valuation allowance increased by JPY3,548 million. This increase was mainly due to an increase of JPY3,849 million in the Group’s valuation allowance for net operating loss carryforward for tax purpose.
The amounts of net operating loss carryforward for tax purpose and corresponding deferred tax assets by due period.

FY2018 (As of March 31, 2019)

(Millions of yen)

		Due after	Due after	Due after	Due after
		one year	two years	three years	four years
	Due within	but within	but within	but within	but within	Due after
	one year	two years	three years	four years	five years	five years	Total
Net operating loss
carryforward for tax
purpose (a)	1,791	1,069	21	30	41	10,085	13,040
Valuation allowance	(1,791)	(1,069)	(21)	(30)	(41)	(9,855)	(12,810)
Deferred tax assets	–	–	–	–	–	230	230

(a) Net operating loss carryforward for tax purpose was multiplied by the effective statutory tax rate.

– II-55 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Breakdown of the main items that caused the difference between the effective statutory tax rate and the effective income tax rate after the application of tax effect accounting.

Effective statutory tax rate
(Reconciliation)
Entertainment expenses and other
permanently non-deductible items
Non-deductible portion of foreign tax
credit
Difference in tax rates of overseas
consolidated subsidiaries
Amortization of goodwill
Equity in income or loss of affiliates
Amount exceeding the tax effect
recording limit for unrealized gains on
inventories
Tax deductibles
Taxation of investment privileges
Valuation allowance
Other
Income tax rate after the application of tax
effect accounting

FY2017
(As of
March 31,
2018)
FY2018
(As of March 31, 2019)
30.7%
Because loss before
income taxes was
recorded for the fiscal
year, there is no
information to be
disclosed here.
2.3
1.9
(3.5)
0.4
(14.3)
2.3
(1.0)
(9.1)
14.6
(0.2)
24.0

(Asset retirement obligations)

FY2017 (As of March 31, 2018)

Notes are omitted due to lack of materiality.

FY2018 (As of March 31, 2019)

Notes are omitted due to lack of materiality.

– II-56 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Rental and other real estate)

FY2017 (April 1, 2017 to March 31, 2018)

Notes are omitted as the total amount of rental and other real estate was insignificant.

FY2018 (April 1, 2018 to March 31, 2019)

Notes are omitted as the total amount of rental and other real estate was insignificant.

(Segments of the Company and related information)

Segment information

1. Overview of reportable segments

The reportable segments of the Company are components for which separate financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decision about resource allocation and to assess their performance.

The Company formulate comprehensive strategies in Japan and overseas based on the products, systems and services it handles and develops business activities. Therefore, the Company consists of product, system and service segments, with the Automotive Systems Business and the Commercial Store Systems Business as the reporting segments.

Segment	Main products, systems and services
Automotive Systems	Automotive air-conditioning systems,		air-conditioner
Business	compressors and various automotive parts
Commercial Store	Various vending machines, freezing	and	refrigerating
Systems Business	showcases and large open showcase

2. Calculation method of operating revenue, profits or losses, assets and liabilities and other items by reportable segment

The accounting method for the reportable segments is generally the same as the items stated in the “Major notes to consolidated financial statements”.

The segment profits is based on operating profits.

– II-57 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Operating revenue, profits or losses, assets and liabilities and other items by reportable segments

FY2017 (April 1, 2017 to March 31, 2018)

(Millions of yen)

	Reportable segment	Reportable segment
		Commercial					Consolidated
	Automotive	Store					financial
	Systems Business	Systems Business	Total	Other(Note 1)	Total	Adjustment	statements amount (Note 2)
Operating revenue
Sales to third parties	208,855	68,147	277,003	10,605	287,609	–	287,609
Inter-segment sales
or transfers	–	–	–	–	–	–	–
Total	208,855	68,147	277,003	10,605	287,609	–	287,609
Segment profits (loss)	6,610	285	6,895	(1,426)	5,469	–	5,469
Segment assets	210,216	55,419	265,636	10,013	275,649	–	275,649
Other items
Depreciation	9,246	1,434	10,681	397	11,079	–	11,079
Amortization of
goodwill	71	–	71	–	71	–	71
Share of profit of
associates and joint
ventures	2,417	250	2,667	–	2,667	–	2,667
Impairment loss	230	708	938	137	1,076	–	1,076
Investment in
equity-method
companies	16,491	4,914	21,406	–	21,406	–	21,406
Increase in fixed
assets and
intangible assets	10,812	1,023	11,836	701	12,537	–	12,537

Notes:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business. etc.
The total amount of segment profits (loss) is the same as the operating profits in the consolidated financial statements.
Starting from the consolidated fiscal year ended March 31, 2019, the Company applied the “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018), so figures for the previous consolidated fiscal year are ones applied to retroactively.

– II-58 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Reportable segment

		Commercial					Consolidated
	Automotive	Store					financial
	Systems Business	Systems Business	Total	Other(Note 1)	Total	Adjustment	statements amount (Note 2)
Operating revenue
Sales to third parties	193,465	69,423	262,888	11,045	273,934	–	273,934
Inter-segment sales
or transfers	–	–	–	–	–	–	–
Total	193,465	69,423	262,888	11,045	273,934	–	273,934
Segment profits (loss)	560	773	1,334	(445)	889	–	889
Segment assets	175,234	61,931	237,165	9,235	246,401	–	246,401
Other items
Depreciation	9,203	1,339	10,543	371	10,914	–	10,914
Amortization of
goodwill	46	–	46	–	46	–	46
Share of profit of
associates and joint
ventures	1,824	324	2,148	–	2,148	–	2,148
Impairment loss	3,403	–	3,403	–	3,403	–	3,403
Investment in
equity-method
companies	15,051	5,395	20,447	–	20,447	–	20,447
Increase in fixed
assets and
intangible assets	10,843	2,212	13,055	1,067	14,122	–	14,122

Notes:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business. etc.
The total amount of segment profits (loss) is the same as the operating profits in the consolidated financial statements.

– II-59 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Related information

FY2017 (April 1, 2017 to March 31, 2018)

1. Information by product and service

This information is omitted because the product and service categories are the same as those of the reportable segments.

2. Information by region

(1) Operating revenue

(Millions of yen)

==> picture [473 x 72] intentionally omitted <==

----- Start of picture text -----

Asia
Contributed
Japan by China Europe Americas Total
87,199 95,910 58,029 80,926 23,572 287,609
----- End of picture text -----

(2) Fixed assets

(Millions of yen)

	Japan	Asia Europe Americas Total Contributed by China Contributed by Poland 19,000 11,729 19,130 11,357 5,093 81,741
	38,516

3. Information by major customer

This information is omitted because there is no sales to a specific customer account for more than 10% of the operating revenue in the consolidated statements of income.

FY2018 (April 1, 2018 to March 31, 2019)

1. Information by product and service

This information is omitted because the product and service categories are the same as those of the reportable segments.

– II-60 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Information by region

(1) Operating revenue

(Millions of yen)

==> picture [487 x 86] intentionally omitted <==

----- Start of picture text -----

Asia Europe
Contributed
Contributed by
Japan by China Germany Americas Total
90,564 78,151 47,152 83,809 29,251 21,408 273,934
----- End of picture text -----

(2) Fixed assets

(Millions of yen)

	Japan	Asia Europe Americas Total Contributed by China Contributed by Poland 17,997 10,896 15,846 10,178 3,725 77,436
	39,866

3. Information by major customer

This information is omitted because there is no sales to a specific customer account for more than 10% of the operating revenue in the consolidated statements of income.

Information on impairment losses on non-current assets by reportable segment

FY2017 (April 1, 2017 to March 31, 2018)

This information is omitted because the same information is disclosed in the segment information.

FY2018 (April 1, 2018 to March 31, 2019)

This information is omitted because the same information is disclosed in the segment information.

– II-61 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Information on amortization of goodwill and unamortized balance by reportable segment

FY2017 (April 1, 2017 to March 31, 2018)

(Millions of yen)

Reportable segment

		Commercial
	Automotive	Store
	Systems	Systems
	Business	Business	Total	Other(Note 1)	Total
(Goodwill)
Amortization amount during
period	71	–	71	–	71
Balance at the end of period	73	–	73	–	73
(Negative goodwill)
Amortization amount during
period	–	–	–	–	–
Balance at the end of period	–	–	–	–	–

Note:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business. etc.

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

	Reportable segment	Reportable segment
		Commercial
	Automotive	Store
	Systems	Systems
	Business	Business	Total	Other(Note 1)	Total
(Goodwill)
Amortization amount during
period	46	–	46	–	46
Balance at the end of period	27	–	27	–	27
(Negative goodwill)
Amortization amount during
period	–	–	–	–	–
Balance at the end of period	–	–	–	–	–

Note:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business. etc.

– II-62 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Gain on negative goodwill by reporting segment

FY2017 (April 1, 2017 to March 31, 2018)

Not applicable

FY2018 (April 1, 2018 to March 31, 2019)

Not applicable

Related Party Information

1. Transactions with related parties

(1) Transactions between the Company submitting the consolidated financial statements and related parties

Directors and major shareholders of the parent company submitting the consolidated financial statements

FY2017 (April 1, 2017 to March 31, 2018)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the		the end of
Type	Name	Location	investment	occupation	(owned)	parties	Transaction	transaction	Account	period
			(Millions of					(Millions of		(Millions of
			yen)					yen)		yen)
Foundation with	Sanden Kankyo	Isesaki-shi,	–	(Note 1)	–	–	Donation	20	–	–
a board	Mirai Zaidan	Gunma
member
serving as a
director

Notes:

The purpose of the foundation’s activities is to support human resource development and the creation of new industries with a focus on the environment.
The amount of donations to the Foundation is decided upon with the approval of the Board of Directors.

– II-63 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (April 1, 2018 to March 31, 2019)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the		the end of
Type	Name	Location	investment	occupation	(owned)	parties	Transaction	transaction	Account	period
			(Millions of					(Millions of		(Millions of
			yen)					yen)		yen)
Foundation with	Sanden Kankyo	Isesaki-shi,	–	(Note 1)	–	–	Donation	21	–	–
a board	Mirai Zaidan	Gunma
member
serving as a
director

Notes:

The purpose of the foundation’s activities is to support human resource development and the creation of new industries with a focus on the environment.
The amount of donations to the Foundation is decided upon with the approval of the Board of Directors.
(2) Transactions between consolidated subsidiaries of the Company submitting consolidated financial statements and related parties

Affiliates of the Company submitting consolidated financial statements, etc.

FY2017 (April 1, 2017 to March 31, 2018)

								Ratio of
								ownership	Relationships			Amount of				Balance at
				Capital		or Business	or	voting rights	with related				the			the end of
Type		Name	Location	investment occupation				(owned)	parties		Transaction	transaction		Account		period
												(Millions of				(Millions of
													yen)			yen)
Affiliated		SANDEN AL	DUBAI	USD1,000 Sale of				(Ownership)	Manufacture and		Sales		6,446	Accounts		13,883
	company	SALAM LLC	UNITED		thousand automotive			Indirect	sale of	the				receivable
			ARAB			systems		43%	Company’s					–	trade
			EMIRATES						products in the
									Middle	East
											–		–	Other		3,633
														investment
Affiliated		Sanden Huayu	Shanghai,	RMB834,090 Manufacture				(Ownership)	Manufacture and		Sales		25,159	Accounts		9,164
	company	Automotive	the		thousand and sale of			Direct	sale of	the				receivable
		Air-Conditioning	People’s			automotive		43%	Company’s					–	trade
		Co., Ltd.	Republic			systems			products in
			of China						China,
									concurrent
									officers
											Proceeds from		1,141	–			–
											sales of
											investments in
											capital of
											subsidiaries and
											affiliates

– II-64 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

==> picture [550 x 142] intentionally omitted <==

----- Start of picture text -----

Ratio of
ownership Relationships Amount of Balance at
Capital or Business or voting rights with related the the end of
Type Name Location investment occupation (owned) parties Transaction transaction Account period
(Millions of (Millions of
yen) yen)
Gain on sales of 572 – –
investments in
capital of
subsidiaries and
affiliates
Notes:
----- End of picture text -----

The transaction amount above does not include consumption tax.
Terms and conditions of transactions and the policy for determining terms and conditions are determined in the same way as for general transactions.
Provision for bad debts of JPY2,941 million is provided for other investments in affiliated companies.
The sale price of investments in affiliates is discussed and determined based on the asset valuation report prepared by an independent third party, and the payment is made in cash in a lump sum.

FY2018 (April 1, 2018 to March 31, 2019)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the		the end of
Type	Name	Location	investment	occupation	(owned)	parties	Transaction	transaction	Account	period
								(Millions of		(Millions of
								yen)		yen)
Affiliated	SANDEN AL	DUBAI	USD1,000	Sale of	(Ownership)	Manufacture and	Sales	2,574	Accounts	13,134
company	SALAM LLC	UNITED	thousand	automotive	Indirect	sale of the			receivable
		ARAB		systems	43%	Company’s			– trade
		EMIRATES				products in the
						Middle East
							–	–	Other	3,795
									investment
Affiliated	Sanden Huayu	Shanghai,	RMB834,090	Manufacture	(Ownership)	Manufacture and	Sales	19,981	Accounts	9,377
company	Automotive	the	thousand	and sale of	Direct	sale of the			receivable
	Air-Conditioning	People’s		automotive	43%	Company’s			– trade
	Co., Ltd.	Republic		systems		products in
		of China				China,
						concurrent
						officers

Notes:

The transaction amount above does not include consumption tax.
Terms and conditions of transactions and the policy for determining terms and conditions are determined in the same way as for general transactions.
Provision for bad debts of JPY13,811 million was provided for accounts receivable and other investments in affiliated companies.

– II-65 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Summary financial statements of significant affiliates

For the fiscal year ended March 31, 2019, significant affiliates were Sanden Al Salam LLC and Sanden Huayu Automotive Air-Conditioning Co., Ltd. and their summary financial statements are as follows.

(Millions of yen)

			Sanden	Huayu
			Automotive
	SANDEN AL		Air-Conditioning
	SALAM LLC		Co.,	Ltd.
	FY2017	FY2018	FY2017	FY2018
Total current assets	40,229	26,016	61,393	54,264
Total non-current assets	4,363	1,681	26,575	33,082
Total current liabilities	39,876	28,364	52,208	51,097
Total non-current liabilities	450	–	737	735
Total net assets	4,266	(666)	35,022	35,514
Operating revenue	31,155	18,979	85,122	97,475
Profits (loss) before income taxes	(1,420)	(4,239)	7,626	7,833
Net profits (loss)	(1,422)	(4,239)	6,285	6,873

(Per share information)

			FY2017	FY2018
			(April 1,	(April 1,
			2017 to	2018 to
			March 31,	March 31,
			2018)	2019)
Net	assets	per share	1,633.99 yen	685.04 yen
Net	profit	(loss) per share	154.00 yen	(833.58) yen

Notes:

Diluted net profits per share for the previous fiscal year is not shown in the table above as no dilutive shares existed. Diluted net profits per share for the fiscal year ended March 31, 2019 is not shown in the above table because the Company recorded a net loss per share and no dilutive shares existed.
The Company’s shares held in the Executive Compensation BIP Trust are included in the treasury share to be deducted from the average number of shares for the purpose of calculating net profits or loss per share, and are also included in the number of treasury share to be deducted from the total number of shares issued at the end of the fiscal year for the purpose of calculating net assets per share.

– II-66 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The average number of shares held by the trust for the previous fiscal year was 149,662 shares for the previous fiscal year and 227,189 in the fiscal year ended March 31, 2019. The number of shares held by the trust was 142,695 shares at the end of the previous fiscal year and 273,961 shares at the end of the fiscal year ended March 31, 2019.

On October 1, 2017, the Company carried out a five-for-one reverse stock split. Net assets per share and net profit (loss) per share were calculated as if the reverse stock split had been done at the beginning of the previous fiscal year.
The basis for calculating net profit (loss) per share is as follows.

		FY2017		FY2018
	(April 1, 2017		(April 1, 2018
	to March 31,		to March 31,
		2018)		2019)
Net profit (loss) attributable to shareholders of the parent
company (Millions of yen)		4,255		(23,060)
Amount not attributable to shareholders on common stock
(Millions of yen)		–		–
Net profit (loss) attributable to shareholders of the parent
company related to common stock (Millions of yen)		4,255		(23,060)
Average number of shares during the period (Shares)		27,635,774		27,664,077

(Significant subsequent events)

By resolution of the Board of Directors meeting on February 7, 2019, the Company conducted a corporate split on April 1, 2019 in which to let wholly-owned subsidiaries succeed to shares in subsidiaries engaging in Automotive Systems Business and Commercial Store Systems Business as well to rights and obligations held in relation to the supervision operations.

For details, refer to “2. Status of Business, (4) Important management contracts”.

– II-67 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

5) Consolidated Supplementary Schedules

Schedule of corporate bonds

Company name Brand Date of issue Sanden Holdings Corporation 1st unsecured (Bank guaranteed and limited to qualified institutional investors) (Note 1) May 31, 2017 Sanden Holdings Corporation 2nd unsecured (Bank guaranteed and limited to qualified institutional investors) (Note 1) September 21, 2017 Sanden Holdings Corporation 3rd unsecured (Bank guaranteed and limited to qualified institutional investors) March 26, 2018 Sanden Holdings Corporation 4th unsecured (Bank guaranteed and limited to qualified institutional investors) (Note 1) March 30, 2018 Sanden Holdings Corporation 5th unsecured (Bank guaranteed and limited to qualified institutional investors) (Note 1) September 28, 2018 Total – –	Balance at the beginning of period (Millions of yen) 2,000 (500) 1,700 (212) 1,000 2,000 – 6,700 (712)	Balance at the end of period (Millions of yen) 1,500 (500) 1,487 (425) 1,000 2,000 (280) 1,350 (300) 7,337 (1,505)	Interest rate Collateral Redemption deadline (%) 0.17 Unsecured corporate bonds March 31, 2022 0.17 Unsecured corporate bonds September 21, 2022 0.86 Unsecured corporate bonds March 24, 2023 0.20 Unsecured corporate bonds March 31, 2023 0.25 Unsecured corporate bonds September 29, 2023 – – –

Notes:

The figures in parentheses in the “Balance at the end of period” column are the amounts to be redeemed within one year.

– II-68 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Total amount to be redeemed per year within 5 years after the consolidated closing date.

(Millions of yen)

	Due after	Due after	one	Due after two Due	Due after two Due	after three	Due after four
Due within one	year but within			years but within years		but within	years but within
year	two	years		three years		four years	five years
1,505		1,985			2,185	1,512	150
Details of borrowings
				Balance	Balance
				at the	at the	Average
			beginning		end of	interest	Repayment
Classification			of period		period	rate	deadline
				(Millions	(Millions
				of yen)	of yen)	(%)
Short-term borrowings				45,011	51,513	1.94	–
Long-term borrowings due				18,299	23,704	1.35	–
within one year
Lease liabilities due within one				2,018	2,175	1.67	–
year
Long-term borrowings				56,134	47,939	1.59	From 2020
(excluding long-term							to 2025
borrowings due within one
year)
Lease liabilities (excluding lease				6,113	5,974	1.34	From 2020
liabilities due within	one						to 2029
year)
Other interesting-bearing debt				–	–	–	–
Total				127,577	131,308	–	–

Notes:

The average interest rate is the weighted average rate of interest on the outstanding borrowings at the end of the fiscal year.
Amounts for long-term borrowings and lease liabilities (excluding lease liabilities due within one year) to be redeemed within 5 years from the consolidated balance sheet date is as follows.

			(Millions of yen)	(Millions of yen)
	Due after	Due after	Due after	Due after
	one year	two years	three years	four years
	but within	but within	but within	but within
Classification	two years	three years	four years	five years
Long-term borrowings	21,480	14,803	8,401	2,839
Lease liabilities	1,898	1,690	1,254	786

– II-69 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Details of asset retirement obligations

Notes are omitted due to lack of materiality.

(2) Other

Quarterly information for the fiscal year ended March 31, 2019

	1st	2nd	3rd
Accumulated period	quarter	quarter	quarter	FY2018
Operating revenue (Millions of
yen)	70,894	137,474	201,310	273,934
Profit (loss) before income taxes
(Millions of yen)	2,285	(562)	(1,564)	(20,568)
Net profit (loss) attributable to
shareholders of the parent
company (Millions of yen)	1,641	(1,184)	(1,887)	(23,060)
Net profit (loss) per share (Yen)	59.37	(42.82)	(68.23)	(833.58)
	1st	2nd	3rd	4th
Accounting period	quarter	quarter	quarter	quarter
Quarterly net profit (loss) per
share (Yen)	59.37	(102.17)	(25.41)	(765.00)

– II-70 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Non-consolidated financial statements

(1) Non-consolidated financial statements

1) Balance sheets

(Millions of yen)

Assets Current assets Cash at bank and on hand Notes and accounts receivable Accounts receivable Works in process Prepayments Short-term borrowings receivable from subsidiaries and affiliates Other current assets Provision for bad debts Total current assets Non-current assets Fixed assets Buildings Structures Machinery and equipment Vehicles Tools, furniture and fixtures Land Leased assets Construction in progress Total fixed assets	FY2017 (As of March 31, 2018) 7,486 1 5,910 2 0 17 219 35,357 818 (10,052) 39,758 7,930 982 32 0 229 14,039 42 255 23,512	FY2018 (As of March 31, 2019) 2,154 1 4,931 – 14 – 41,313 3 1,374 (10,292) 39,495 8,521 921 38 0 193 13,829 40 233 23,779

– II-71 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Intangible assets Leasehold interests in land Software Other intangible assets Total intangible assets Investments and other assets Investment securities Shares of subsidiaries and affiliates Investments in capital Investments in capital of subsidiaries and affiliates Claims provable in bankruptcy, claims provable in rehabilitation and other Long-term prepayments Prepaid pension costs Deferred tax assets Other non-current assets Provision for bad debts Total investments and other assets Total non-current assets Total assets	FY2017 (As of March 31, 2018) 8 2,250 41 2,300 1,165 17,609 74 14,569 5 283 118 280 637 (107) 34,635 60,448 100,207	FY2018 (As of March 31, 2019) 8 2,265 102 2,376 915 22,155 – 15,354 – – 110 48 891 (107) 39,367 65,524 105,019

– II-72 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Liabilities Current liabilities Operating accounts payable Electronically recorded obligations Short-term borrowings Bonds payable due within one year Long-term borrowings due within one year Lease liabilities Accrued expenses Advances from customers Deposits received Provision for outstanding claims Provision for loss on business of subsidiaries and affiliates Provision for bonuses Other current liabilities Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Lease liabilities Provision for stock compensation Other non-current liabilities Total non-current liabilities Total liabilities	FY2017 (As of March 31, 2018) 4 6,320 5 5 15,180 712 13,780 38 72 38 233 986 145 128 9 37,651 5,987 41,830 158 187 56 48,221 85,873	FY2018 (As of March 31, 2019) 4 1,954 – 5 23,569 1,505 17,162 50 95 – – 432 – 90 238
		45,099
		5,832 36,702 192 255 52
		43,036
		88,136

– II-73 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Net assets Shareholders’ equity Share capital Capital reserves Legal capital reserves Other capital reserves Total capital reserves Retained earnings Other retained earnings Retained earnings carryforward Total retained earnings Treasury share Total shareholders’ equity Valuation and translation adjustments Valuation difference on other securities Total valuation and translation adjustments Total net assets Total liabilities and net assets	FY2017 (As of March 31, 2018) 11,037 4,453 24 4,478 (613) (613) (854) 14,047 286 286 14,333 100,207	FY2018 (As of March 31, 2019) 11,037 4,453 – 4,453 1,734 1,734 (605) 16,620 263 263 16,883 105,019

– II-74 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2) Income statement

Operating revenue Group operating revenue Real estate lease revenue Dividend income from affiliated companies Other operating revenue Total operating revenue Operating expenses Operating profits Non-operating income Interest income Dividend income Foreign exchange gains Miscellaneous income Total non-operating income Non-operating expenses Interest expenses Taxes and dues Provision for bad debts Provision for loss on business of subsidiaries and affiliates Miscellaneous loss Total non-operating expenses	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 6,448 5,943 1,656 1,879 7,311 5,209 166 10 1 15,583 1 13,043 2 8,763 2 8,135 6,819 4,908 3 420 3 551 4 183 4 31 198 9 80 82 882 675 702 806 215 84 3,078 95 145 – 685 580 4,826 1,566	(Millions of yen) FY2017 (April 1, 2017 to March 31, 2018) FY2018 (April 1, 2018 to March 31, 2019) 6,448 5,943 1,656 1,879 7,311 5,209 166 10 1 15,583 1 13,043 2 8,763 2 8,135 6,819 4,908 3 420 3 551 4 183 4 31 198 9 80 82 882 675 702 806 215 84 3,078 95 145 – 685 580 4,826 1,566
		*1 13,043
		*2 8,135
		4,908
		3 551 4 31 9 82
		675
		806 84 95 – 580
		1,566

– II-75 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Ordinary profits Extraordinary income Gain on disposal of non-current assets Gain on sales of investment securities Gain on sales of investments in capital of subsidiaries and affiliates Other Total extraordinary income Extraordinary losses Loss on disposal of non-current assets Loss on valuation of shares of subsidiaries and affiliates Loss on valuation of investments in capital of subsidiaries and affiliates Transfer price tax adjustment Provision for outstanding claims Other Total extraordinary losses Profits (loss) before income taxes Current income tax expenses Deferred income tax expenses Total income tax expenses Net profits	FY2017 (April 1, 2017 to March 31, 2018) 2,876 5 47 5,484 874 12 6,419 6 74 – 1,790 7 799 8 1,901 31 4,596 4,699 946 61 1,007 3,692	FY2018 (April 1, 2018 to March 31, 2019) 4,017 5 24 63 – 70 158 6 23 867 127 – *8 432 84 1,535 2,639 (104) 238 133 2,506

– II-76 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3) Statements of changes in shareholders’ equity

FY2017 (April 1, 2017 to March 31, 2018)

(Millions of yen)

Shareholders’ equity

Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period		Share capital Capital reserves Retained earnings Legal capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (4,305) (4,305) 3,692 3,692 (0) (0) – – (0) (0) 3,692 3,692 11,037 4,453 24 4,478 (613) (613) Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (897) 10,312 3,609 3,609 13,922 3,692 3,692 (6) (6) (6) 48 48 48 (3,322) (3,322) (3,322) 42 3,734 (3,322) (3,322) 411 (854) 14,047 286 286 14,333	Share capital Capital reserves Retained earnings Legal capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (4,305) (4,305) 3,692 3,692 (0) (0) – – (0) (0) 3,692 3,692 11,037 4,453 24 4,478 (613) (613) Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (897) 10,312 3,609 3,609 13,922 3,692 3,692 (6) (6) (6) 48 48 48 (3,322) (3,322) (3,322) 42 3,734 (3,322) (3,322) 411 (854) 14,047 286 286 14,333	Share capital Capital reserves Retained earnings Legal capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (4,305) (4,305) 3,692 3,692 (0) (0) – – (0) (0) 3,692 3,692 11,037 4,453 24 4,478 (613) (613) Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (897) 10,312 3,609 3,609 13,922 3,692 3,692 (6) (6) (6) 48 48 48 (3,322) (3,322) (3,322) 42 3,734 (3,322) (3,322) 411 (854) 14,047 286 286 14,333
				3,692
				(613)

				Total net assets 13,922 3,692 (6) 48 (3,322)
				411
				14,333

– II-77 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (from April 1, 2018 to March 31, 2019)

(Millions of yen)

Shareholders’ equity

	Shareholders’ equity	Shareholders’ equity
Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Share capital Capital reserves Retained earnings Legal capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (613) (613) 2,506 2,506 (24) (24) (158) (158) – – (24) (24) 2,347 2,347 11,037 4,453 – 4,453 1,734 1,734 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (854) 14,047 286 286 14,333 2,506 2,506 (235) (235) (235) 484 301 301 (23) (23) (23) 249 2,573 (23) (23) 2,549 (605) 16,620 263 263 16,883
		2,347
		1,734

		Total net assets 14,333 2,506 (235) 301 (23)
		2,549
		16,883

– II-78 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Notes

(Significant accounting policies)

1. Valuation standards and methods for securities

(1) Stock of subsidiaries and affiliates

Non-marketable securities are carried at cost determined by the moving average method.

(2) Other securities

Marketable securities:

Marketable securities are carried at fair value based on quoted market prices as of the end of the fiscal year.

Any changes in unrealized gain or loss are directly included in net assets and the costs of securities sold are generally calculated by the moving average method.

Non-marketable securities:

Non-marketable securities are carried at cost determined by the moving average method.

For those securities whose real value has been significantly reduced, a substantial reduction has been made.

2. Valuation standards and methods for derivative

Derivative financial instruments are stated at fair value.

3. Valuation standards and methods for inventories

4. Depreciation method for non-current assets

(1) Fixed assets (excluding leased assets)

The straight-line method is adopted.

The main useful lives are as follows.

Buildings and structures: 2-50 years

– II-79 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The Company has adopted a method in which small amounts of depreciable assets with an acquisition cost of JPY100,000 or more but less than JPY200,000 are depreciated in equal amounts over three years.

(2) Intangible assets (excluding leased assets)

The straight-line method is adopted.

Depreciation of software for internal use is calculated by the straight-line method based on its useful life in the Company.

(3) Leased assets

5. Basis for translating foreign currency-denominated assets and liabilities into Japanese currency

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot rates of exchange in effect at the balance sheet date and the translation differences are treated as profit or loss.

6. Basis for accounting for provisions

(1) Provision for bad debts

To prepare for losses due to the credit loss of monetary claims, the Company considers the actual loan loss rate for general claims and the collectability of specific claims such as doubtful debts individually and record the estimated uncollectible amount.

(2) Provision for bonuses

To provide for the payment of bonuses to employees, an estimated amount of bonus payments corresponding to the consolidated fiscal year ended March 31, 2019.

(3) Provision for outstanding claims

(4) Provision for loss on business of subsidiaries and affiliates

To provide for loss on the business of subsidiaries and affiliates, an amount expected to be borne by the Company in excess of investments in them is recorded.

– II-80 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(5) Provision for stock compensation

(6) Provision for retirement benefits

To prepare for retirement benefits for pension beneficiaries, provision for retirement benefits are recorded based on the estimated amount of retirement benefit obligations and plan assets at the end of the fiscal year ended March 31, 2019. When the amount of plan assets exceeds the amount of retirement benefit obligations, it is recorded under “prepaid pension costs”.

7. Hedge accounting method

(1) Hedge accounting method

Deferred hedge accounting is adopted.

However, exceptional method is applied to interest rate swaps that meet the requirements for exceptional method.

(2) Hedging instruments and hedged items

Hedging instruments

Foreign exchange forward contracts, interest rate swaps

Hedged items

Foreign currency denominated receivables and forecasted foreign currency transactions, interest on floating rate borrowings

(3) Hedging policy

In principle, the Company enters into forward foreign exchange contracts to hedge the foreign exchange fluctuation risk associated with foreign currency-denominated receivables.

In addition, the Company enters into interest rate swaps to hedge the risk of interest rate fluctuations on interest payments.

(4) Assessment of hedge effectiveness

– II-81 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

However, the Company does not evaluate the effectiveness of interest rate swaps for which exceptional method is used.

8. Other important matters for preparation of non-consolidated financial statements

(1) Accounting treatment for consumption tax

Consumption tax and local consumption tax are accounted for by the tax exclusion method.

(2) Application of the consolidated taxation system

The consolidated taxation system is applied.

(3) Accounting treatment for retirement benefits

The accounting method for unrecognized actuarial gains and losses on retirement benefits is different from the accounting method in the consolidated financial statements.

(Changes in presentation)

Changes resulting from the application of the “Partial Amendments to Accounting Standard for Tax Effect Accounting”

As a result, in the balance sheet for the previous fiscal year, JPY406 million in deferred tax assets under current assets and JPY125 million in deferred tax liabilities under non-current liabilities are included in JPY280 million in deferred tax assets under investments and other assets.

The notes for tax effect accounting also included a note described in Note 8 (1) (excluding total valuation allowance) of the “Accounting Standard for Tax Effect Accounting” as presented in Paragraph 4 of the Partial Amendments to Tax Effect Accounting Standard. However, of the notes above, items for the previous fiscal year are not stated in accordance with transitional treatment stipulated in Paragraph 7 of the Partial Amendments to Tax Effect Accounting Standard.

– II-82 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Additional information)

Transaction related to the Executive Compensation BIP Trust

Notes on the Executive Compensation BIP Trust were omitted as the same information is presented in the note “Additional information” in the consolidated financial statements.

(Non-consolidated balance sheets)

Note 1: 1, 2, 3, 4, *5

Monetary claims and liabilities to subsidiaries and affiliates (excluding those presented separately) are as follows.

Short-term monetary claims Short-term monetary liabilities	FY2017 (As of March 31, 2018) 7,454 5,951	(Millions of yen) FY2018 (As of March 31, 2019) 7,485 1,494

Note 2: Contingent liabilities

(1) The Company provides debt guarantee for borrowings and electronically recorded obligations of subsidiaries and affiliates from financial institutions.

(Millions of yen)

Applicable debt Guarantee description Borrowings Debt guarantee Electronically recorded obligations Joint and several guarantee	FY2017 (As of March 31, 2018) 10,530 24,544	FY2018 (As of March 31, 2019) 13,104 14,666

(2) Other

FY2017 (As of March 31, 2018)

In connection with the plea agreement with the U.S. Department of Justice, civil lawsuits (class action lawsuits) and other lawsuits have been filed in North America seeking damages. The outcome of lawsuits could have an impact on the Group’s business results, but it is difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

– II-83 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2018 (As of March 31, 2019)

(Non-consolidated statements of income)

Note 1: 1, 2, 3, 4

Major transactions with affiliated companies are as follows.

(Millions of yen)

Operating revenue Operating expenses Amount of transactions other than operating transactions	FY2017 (April 1, 2017 to March 31, 2018) 8,263 2,659 2,822	FY2018 (April 1, 2018 to March 31, 2019) 7,829 2,741 932

Note 2: *2

Operating expenses

The major components of operating expenses are as follows.

(Millions of yen)

	FY2017	FY2018
	(April 1, 2017	(April 1, 2018
	to March 31,	to March 31,
	2018)	2019)
Salaries and allowances	1,179	991
Bonus	277	200
Welfare fee	305	284
Rent	192	255
Depreciation	1,134	1,183
Retirement benefit expenses	155	178
Fees	3,380	3,297
Research and development expenses	110	96

– II-84 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 3: *5

Gain on disposal of non-current assets

			(Millions of yen)
		FY2017	FY2018
	(April 1, 2017		(April 1, 2018
	to	March 31,	to March 31,
		2018)	2019)
Land		47	24
Total		47	24

Note 4: *6

Loss on disposal of non-current assets

			(Millions of yen)
		FY2017	FY2018
	(April 1, 2017		(April 1, 2018
	to	March 31,	to March 31,
		2018)	2019)
Buildings		74	23
Total		74	23

Note 5: *7

Transfer price tax adjustment

Transfer price tax adjustment is an adjustment paid by the Company to its overseas subsidiaries under an agreement on an application for prior confirmation of transfer price.

Note 6: *8

Provision for outstanding claims

(Securities)

FY2017 (As of March 31, 2018)

Notes to shares of subsidiaries and affiliates (balance sheet amount: JPY19,328 million for shares of subsidiaries and investments in capital; and JPY12,850 million for shares of affiliates and investments in capital) are omitted because they do not have market prices and it is extremely difficult to determine their fair value.

– II-85 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

FY2018 (As of March 31, 2019)

Notes to shares of subsidiaries and affiliates (balance sheet amount: JPY24,659 million for shares of subsidiaries and investments in capital; and JPY12,850 million for shares of affiliates and investments in capital) are omitted because they do not have market prices and it is extremely difficult to determine their fair value.

(Tax effect accounting)

1. Breakdown of the main causes of deferred tax assets and deferred tax liabilities

Deferred tax assets
Net operating loss carryforward
Provision for bonuses
Provision for bad debts
Bad debts written-off
Provision for retirement benefits
Loss on valuation of securities
Shares of subsidiaries and affiliates
Depreciable assets, etc.
Impairment loss
Other
Subtotal of deferred tax assets
Valuation allowance for net operating loss
carryforward
Valuation allowance for the sum of deductible
temporary differences
Subtotal of valuation allowance
Total deferred tax assets
Deferred tax liabilities
Valuation difference on other securities
Other
Total deferred tax liabilities
Net deferred tax assets

(Millions of yen)
FY2017
(As of
March 31,
2018)
FY2018
(As of
March 31,
2019)
6,135
5,901
39
27
3,098
3,127
648
677
218
207
9,608
9,911
863
863
345
338
216
95
1,002
652
22,175
21,801
–
(5,901)
–
(15,704)
(21,769)
(21,605)
406
196
125
119
–
28
125
147
280
48

– II-86 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Breakdown of the main items that caused the difference between the effective statutory tax rate and the effective income tax rate after the application of tax effect accounting.

Effective statutory tax rate (Reconciliation) Entertainment expenses and other permanently non-deductible items Non-deductible foreign tax credit Resident tax per capita rate Dividends received and other items not permanently included in taxable income Increase (decrease) in valuation allowance Other Income tax rate after the application of tax effect accounting	FY2017 (As of March 31, 2018) 30.7% 0.1 1.3 0.2 (45.2) 34.0 0.3 21.4	FY2018 (As of March 31, 2019) 30.5% 0.2 6.6 0.3 (59.0) 26.4 (0.0) 5.0

(Significant subsequent events)

Based on the absorption-type company split agreement dated February 7, 2019, the Company implemented a company split whereby the Company’s wholly-owned subsidiaries, Sanden Automotive Components Corporation (hereinafter referred to as “SDAC”), Sanden Automotive Climate System Corporation (hereinafter referred to as “SDAS”) and Sanden Retail System Corporation (hereinafter referred to as “SDRS”), took over part of the rights and obligations associated with the shares, etc. and their administration business of subsidiaries engaged in the Automotive Systems Business and the Commercial Store Systems Business, with April 1, 2019 as the effective date.

1. Purpose of the company split

The purpose is to further strengthen and improve global management functions, business competitiveness, new product development capabilities, and group management efficiency by further unifying and streamlining the command system of operating companies in line with their business activities.

– II-87 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Outline of the company split

(1) Rights and obligations to be succeeded to

(i) SDAC: Shares and interests of subsidiaries engaged in automotive air conditioning compressor business and a portion of their rights and obligations related to their management business
(ii) SDAS: Shares and interests of subsidiaries engaged in automotive air conditioning systems business and a portion of their rights and obligations related to their management business
(iii) SDRS: Shares, interests and loan receivables of subsidiaries engaged in the Commercial Store Systems Business and a portion of their rights and obligations related to their management business

(2) Amounts of assets and liabilities to be succeeded to

(i) SDAC: JPY8,534 million in assets and JPY0 in liabilities
(ii) SDAS: JPY356 million in assets and JPY0 in liabilities
(iii) SDRS: JPY4,912 million in assets and JPY0 in liabilities

(3) Likelihood of obligation fulfillment

At SDAC, SDAS and SDRS, post-corporate split assets exceed liabilities in value and, as regards their post-corporate split earnings prospect, these firms are now unlikely to have difficulty in fulfilling obligations to be borne by each of them. Consequently, the Company believes that there is no problem the prospect for the fulfillment of the obligations to be borne by each company after the corporate split.

– II-88 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

4) Non-consolidated schedules

Details of fixed assets

(Millions of yen)

Classification Type of assets Fixed assets Buildings Structures Machinery and equipment Vehicles Tools, furniture and fixtures Land Leased assets Construction in progress Total Intangible assets Leasehold interests in land Software Other intangible assets Total	Balance at the beginning of period 7,930 982 32 0 229 14,039 42 255 23,512 8 2,250 41 2,300	Increase during the period 1,230 39 13 – 10 – 29 1,283 2,606 – 370 76 446	Decrease during the period Depreciation during the period 3 635 – 100 0 7 – 0 1 44 209 – 6 24 1,305 – 1,527 812 – – – 354 – 15 – 370	Balance at the end of period Accumulated depreciation 8,521 19,769 921 5,418 38 751 0 5 193 302 13,829 – 40 63 233 – 23,779 26,310 8 – 2,265 – 102 – 2,376 –	Balance at the end of period Accumulated depreciation 8,521 19,769 921 5,418 38 751 0 5 193 302 13,829 – 40 63 233 – 23,779 26,310 8 – 2,265 – 102 – 2,376 –
					26,310
					– – –
					–

Note:

Details of major increases in the fiscal year ended March 31, 2019 are as follows.

Buildings: Equipment for Yattajima Plant JPY352 million

– II-89 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Details of provisions

(Millions of yen)

	Balance	Increase	Decrease	Balance
	at the	during	during	at the
	beginning	the	the	end of
Classification	of period	period	period	period
Provision for bad debts	10,159	2,580	2,340	10,399
Provision for outstanding claims	986	432	986	432
Provision for loss on business of
subsidiaries and affiliates	145	–	145	–
Provision for bonuses	128	90	128	90
Provision for stock compensation	187	136	69	255

Note: The reason for the appropriation and the method of calculating the amount are described in the “Significant accounting policies” section of this report.

(2) Assets and liabilities

Since the consolidated financial statements are prepared, this information is omitted.

(3) Other

Not applicable.

– II-90 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT AND INTERNAL CONTROL AUDIT REPORT

(Translation)

June 27, 2019

To the Board of Directors, Sanden Holdings Corporation

KPMG AZSA LLC

Designated Limited Liability Partner Certified Public Accountant Masahiro Sasaki Engagement Partner (Seal) Designated Limited Liability Partner Certified Public Accountant Koji Aida (Seal) Engagement Partner

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, we have audited the accompanying consolidated financial statements of Sanden Holdings Corporation for the fiscal year from April 1, 2018 to March 31, 2019, as shown in the “Financial Information” section, which comprise the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity, consolidated statements of cash flows, major notes to consolidated financial statements, other notes and consolidated supplementary schedules.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in our country. This includes the development and operation of internal controls that management considers necessary for the preparation and fair presentation of consolidated financial statements free of material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to independently express an opinion on the consolidated financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in our country. Those standards require that we formulate an audit plan and perform an audit based on the plan in order to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the

– II-91 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation and its consolidated subsidiaries as of March 31, 2018 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in our country.

We have audited the internal control report of Sanden Holdings Corporation as of March 31, 2019 in order to provide audit certification in accordance with Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act.

MANAGEMENT’S RESPONSIBILITY FOR INTERNAL CONTROL REPORTS

Management is responsible for developing and operating internal control over financial reporting and for preparing and properly presenting internal control reports in accordance with evaluation standards for internal control over financial reporting generally accepted in our country.

The internal control over financial reporting may not completely prevent or detect false statements in financial reporting.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on the internal control report from an independent standpoint, based on the internal control audit conducted by us. We conducted an audit of internal control in accordance with auditing standards for internal control over financial reporting generally accepted in our country. Those standards require that we formulate an audit plan and perform an internal control audit based on the plan in order to obtain reasonable assurance about whether the internal control report is free of material misstatement.

In the internal control audit, procedures are implemented to obtain audit evidence regarding the evaluation results of internal control over financial reporting in the internal control report. Auditing procedures for internal control audits are selected and applied at our

– II-92 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

discretion based on the importance of the impact on the reliability of financial reporting. Internal control audits also include a review of the overall presentation of the internal control report, including statements made by management of the scope, procedures, and results of the assessment of internal control over financial reporting.

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

In our opinion, the internal control report referred to above, in which Sanden Holdings Corporation indicated that the internal control over financial reporting was effective as of March 31, 2019, presents fairly, in all material respects, the evaluation results of the internal control over financial reporting in conformity with the evaluation standards for internal control over financial reporting generally accepted in our country.

INTEREST

We have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

(Note)

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).
XBRL data is not included in the scope of audit.

– II-93 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT

(Translation)

June 27, 2019

To the Board of Directors, Sanden Holdings Corporation

KPMG AZSA LLC

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the non-consolidated financial statements of Sanden Holdings Corporation for the 92nd fiscal year from April 1, 2018 to March 31, 2019, as shown in the “Financial Information” section, which comprise the balance sheet, income statement, statement of changes in shareholders’ equity, significant accounting policies, other notes and supplementary schedules.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of financial statements in accordance with accounting principles generally accepted in our country. This includes the development and operation of internal controls that management considers necessary for the preparation and fair presentation of financial statements free of material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to independently express an opinion on the financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in our country. Those standards require that we formulate an audit plan and perform an audit based on the plan in order to obtain reasonable assurance about whether the financial statements are free of material misstatement.

– II-94 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation as of March 31, 2019 and the results of their operations for the year then ended in conformity with the corporate accounting principles generally accepted in our country.

INTEREST

We have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

(Note)

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).
XBRL data is not included in the scope of audit.

– II-95 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT AND INTERNAL CONTROL AUDIT REPORT

(Translation)

June 21, 2018

To the Board of Directors, Sanden Holdings Corporation

KPMG AZSA LLC

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the consolidated financial statements of Sanden Holdings Corporation included in “Financial Information” for the fiscal year from April 1, 2017 to March 31, 2018, including the consolidated balance sheets, the consolidated statements of income, the consolidated statements of comprehensive income, the consolidated statements of changes in shareholders’ equity, the consolidated statements of cash flows, major notes to consolidated financial statements, other notes and consolidated supplementary schedules.

MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

AUDITOR’S RESPONSIBILITY

– II-96 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

We have audited the internal control report of Sanden Holdings Corporation as of March 31, 2018 in order to provide audit certification in accordance with Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act.

MANAGEMENT’S RESPONSIBILITY FOR INTERNAL CONTROL REPORT

Management is responsible for developing and operating internal control over financial reporting and for preparing and properly presenting internal control report in accordance with evaluation standards for internal control over financial reporting generally accepted in our country.

The internal control over financial reporting may not completely prevent or detect false statements in financial reporting.

AUDITOR’S RESPONSIBILITY

– II-97 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

In our opinion, the internal control report referred to above, in which Sanden Holdings Corporation indicated that internal control over financial reporting was effective as of March 31, 2018, presents fairly, in all material respects, the evaluation results of internal control over financial reporting in conformity with the evaluation standards for internal control over financial reporting generally accepted in our country.

INTEREST

We have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

Notes:

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).
XBRL data is not included in the scope of audit.

– II-98 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT

(Translation)

June 21, 2018

To the Board of Directors, Sanden Holdings Corporation

KPMG AZSA LLC

Designated Limited Liability Partner	Certified Public Accountant	Masahiro Sasaki
Engagement Partner		(Seal)
Designated Limited Liability Partner	Certified Public Accountant	Takahiro Kajima
Engagement Partner		(Seal)

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the non-consolidated financial statements, including the balance sheet, income statement, statement of changes in shareholders’ equity, significant accounting policies, other notes and supplementary schedules, of Sanden Holdings Corporation listed in “Financial Information” for the 93rd fiscal year from April 1, 2017 to March 31, 2018.

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

AUDITOR’S RESPONSIBILITY

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

– II-99 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

AUDIT OPINION

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation as of March 31, 2018 and the results of their operations for the year then ended in conformity with accounting principles generally accepted in our country.

INTEREST

We have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

Notes:

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).
XBRL data is not included in the scope of audit.

– II-100 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) The following is the audited consolidated and non-consolidated financial statements of the Sanden Group for the financial year ended 31 March 2020 prepared in accordance with JGAAP.

FINANCIAL INFORMATION

1. Basis of preparation of the consolidated financial statements and the non-consolidated financial statements

(1) The consolidated financial statements of the Company are prepared in accordance with the Ministry of Finance Ordinance No. 28, 1976 “Regulations Concerning the Terminology, Forms and Preparation Methods of Consolidated Financial Statements” (hereinafter the “Regulations for Consolidated Financial Statements”).
(2) The non-consolidated financial statements of the Company are prepared in accordance with the Ministry of Finance Ordinance No. 59, 1963 “Regulations Concerning the Terminology, Forms and Preparation Methods of Non-Consolidated Financial Statements” (hereinafter the “Regulations for Non-Consolidated Financial Statements”).

2. Auditing and attestation

The original Japanese consolidated and the non-consolidated financial statements for the fiscal year ended March 31, 2020 (from April 1, 2019 to March 31, 2020) were audited by KPMG AZSA LLC, in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Law.

3. Particular efforts to secure the appropriateness of the consolidated financial statements

The Company takes particular efforts to secure the appropriateness of the consolidated financial statements. Specifically, to ensure correct understanding of the accounting standards, etc., and to establish a system that can be reflected appropriately in the consolidated financial statements, the Company acquires membership in the Financial Accounting Standards Foundation and receives e-mail regularly to ensure the changes in the accounting standards. The Company also endeavors to understand the changes in accounting standards, etc. by participating in seminars on changes in accounting standards conducted by auditing firm and other institutions.

– II-101 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

1. Consolidated financial statements

(1) Consolidated financial statements

1) Consolidated balance sheets

Assets
Current assets
Cash at bank and on hand
Notes and accounts receivable
Finished goods
Works in process
Raw materials
Other inventories
Other receivables
Consumption taxes receivable
Other current assets
Provision for bad debts
Total current assets
Non-current assets
Fixed assets
Buildings and structures, net
Machinery, equipment and vehicles, net
Tools, furniture and fixtures, net
Land
Leased assets, net
Construction in progress
Total fixed assets

(Millions of yen)
FY2018
(As of
March 31,
2019)
FY2019
(As of
March 31,
2020)
1 13,030
1 26,440
2 73,591
2 45,344
3 24,142
3 16,193
4 11,685
4 8,699
5 9,249
5 7,514
3,194
2,932
5,975
4,570
6 4,575
6 3,780
9,531
8,153
(16,562)
(17,842)
138,412
105,787
20,767
16,144
20,873
16,671
5,217
3,359
16,776
10,610
7,615
6,764
6,187
4,971
7 77,436
7 58,522

– II-102 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Intangible assets Goodwill Leased assets Other intangible assets Total intangible assets Investments and other assets Long-term equity investments Retirement benefit asset Deferred tax assets Other non-current assets Provision for bad debts Total investments and other assets Total non-current assets Total assets	FY2018 (As of March 31, 2019) 27 351 3,699 4,078 *8 21,873 110 2,240 5,856 (3,606) 26,473 107,988 246,401	FY2019 (As of March 31, 2020) 13 141 3,956 4,111 *8 15,903 99 1,743 3,165 (1,774) 19,138 81,772 187,559

– II-103 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Liabilities Current liabilities Notes and accounts payable Short-term borrowings Bonds payable due within one year Long-term borrowings due within one year Other payables Lease liabilities Taxes payable Provision for bonuses Provision for sales rebates Provision for product warranties Provision for outstanding claims Other current liabilities Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Lease liabilities Deferred tax liabilities Retirement benefit liability Provision for environmental measures Provision for stock compensation Other non-current liabilities Total non-current liabilities Total liabilities	FY2018 (As of March 31, 2019) 50,000 9 51,513 1,505 10 23,704 7,553 2,175 478 3,347 426 2,782 432 12,789 156,710 5,832 *11 47,939 5,974 245 3,653 243 255 2,005 66,151 222,862	FY2019 (As of March 31, 2020) 29,983 9 47,497 1,985 10 20,984 6,341 2,627 238 1,475 169 1,736 – 8,131
		121,170
		3,847 *11 25,938 7,610 476 3,491 198 153 1,972
		43,689
		164,859

– II-104 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Net assets Shareholders’ equity Share capital Capital reserves Retained earnings Treasury share Total shareholders’ equity Other comprehensive income Valuation difference on other securities Deferred gains or losses on hedges Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits Total other comprehensive income Minority interests Total net assets Total liabilities and net assets	FY2018 (As of March 31, 2019) 11,037 3,579 10,484 (877) 24,225 257 (84) (4,297) (1,140) (5,265) 4,579 23,538 246,401	FY2019 (As of March 31, 2020) 11,037 3,377 12,772 (704) 26,482 (46) (50) (3,986) (1,648) (5,732) 1,949 22,699 187,559

– II-105 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2) Consolidated statements of income and consolidated statements of comprehensive income

Consolidated statements of income

Operating revenue
Operating costs
Gross profit
Selling, general and administrative expenses
Operating profits (loss)
Non-operating income
Interest income
Dividend income
Share of profit of associates and joint ventures
Foreign exchange gains
Other non-operating income
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Commission expenses
Other non-operating expenses
Total non-operating expenses
Ordinary profits (loss)

(Millions of yen)
FY2018
(April 1,
2018 to
March 31,
2019)
FY2019
(April 1,
2019 to
March 31,
2020)
1 273,934
1 204,880
2 227,011
2 173,052
46,922
31,827
3 46,033
3 35,229
889
(3,401)
54
587
41
19
2,148
71
397
–
666
1,067
3,308
1,745
2,482
2,400
–
2,997
4 50
4 775
1,100
1,905
3,633
8,079
564
(9,735)

– II-106 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Extraordinary income Gain on disposal of non-current assets Gain on sales of shares of subsidiaries and affiliates Gain on sale of investment securities Other extraordinary income Total extraordinary income Extraordinary losses Loss on disposal of non-current assets Provision for bad debts Structure reform cost Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses Total extraordinary losses Profits (loss) before income taxes Current income tax expenses Deferred income tax expenses Total income tax expenses Net profits (loss) Profits (loss) of minority interests Net profits (loss) attributable to shareholders of the parent company	FY2018 (April 1, 2018 to March 31, 2019) 5 337 – 63 137 538 6 257 7 16,244 8,9 4,461 109 10 432 165 21,672 (20,568) 686 2,384 3,071 (23,639) (579) (23,060)	FY2019 (April 1, 2019 to March 31, 2020) 5 1,364 25,403 9 30 26,808 6 733 – 8,9 13,395 96 – 521 14,746 2,326 1,031 328 1,360 966 (1,321) 2,287

– II-107 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated statements of comprehensive income

Net profits (loss)
Other comprehensive income
Valuation difference on other securities
Deferred gains or losses on hedges
Differences on translation of foreign currency
financial statements
Adjustment for retirement benefits
Share of other comprehensive income of affiliates
accounted for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Shareholders of the parent company
Minority interests

(Millions of yen)
FY2018
(April 1,
2018 to
March 31,
2019)
FY2019
(April 1,
2019 to
March 31,
2020)
(23,639)
966
(26)
(301)
(68)
34
(1,014)
622
(186)
(507)
(2,134)
(479)
1 (3,430)
1 (631)
(27,070)
335
(26,164)
1,821
(906)
(1,485)

– II-108 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3) Consolidated statements of changes in shareholders’ equity

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Share capital 11,037 – 11,037	Shareholders’ equity Capital reserves Retained earnings Treasury share 3,731 33,703 (1,126) (23,060) (235) (24) (158) 484 (127) (151) (23,218) 249 3,579 10,484 (877)	Total shareholders’ equity 47,346 (23,060) (235) 301 (127) (23,121)
			24,225

– II-109 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Valuation difference on other securities 292 (35) (35) 257	Other Deferred gains or losses on hedges (16) (68) (68) (84)	comprehensive income Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits (1,484) (954) (2,813) (186) (2,813) (186) (4,297) (1,140)	Total other comprehensive income (2,161) (3,104) (3,104) (5,265)	Non- controlling interests 5,772 (1,192) (1,192) 4,579	Total net assets 50,957 (23,060) (235) 301 (127) (4,297) (27,418)
						23,538

– II-110 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

(Millions of yen)

Shareholders’ equity

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Share capital 11,037 – 11,037	Capital reserves 3,579 (202) (202) 3,377	Retained earnings 10,484 2,287 (0) 2,287 12,772	Treasury share (877) (0) 172 172 (704)	Total shareholders’ equity 24,225 2,287 (0) 172 (202) 2,257
					26,482

– II-111 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Balance at the beginning of period Changes during period Net profit (loss) attributable to shareholders of the parent company Purchase of treasury share Disposal of treasury share Change in ownership interest of parent due to transactions with minority interests Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period	Valuation difference on other securities 257 (304) (304) (46)	Other Deferred gains or losses on hedges (84) 34 34 (50)	comprehensive income Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits (4,297) (1,140) 311 (507) 311 (507) (3,986) (1,648)	Total other comprehensive income (5,265) (466) (466) (5,732)	Non- controlling interests 4,579 (2,629) (2,629) 1,949	Total net assets 23,538 2,287 (0) 172 (202) (3,096) (839)
						22,699

– II-112 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

4) Consolidated statements of cash flows

Cash flows from operating activities
Profit (loss) before income taxes
Depreciation
Amortization of goodwill
Increase (decrease) in provision for bonuses
Increase (decrease) in retirement benefit liability
Increase (decrease) in provision for bad debts
Increase (decrease) in provision for product
warranties
Increase (decrease) in provision for environmental
measures
Increase (decrease) in provision for outstanding
claims
Interest and dividend income
Interest expenses
Share of loss(gain) of associates and joint ventures
Loss on reversal of differences on translation of
foreign currency financial statements incurred from
liquidation of foreign subsidiaries
Gain on disposal of non-current assets
Loss on disposal of non-current assets
Loss (gain) on sales of shares of subsidiaries and
associates
Loss (gain) on sales of investment securities
Structure reform cost
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Decrease (increase) in other receivables
Decrease (increase) in consumption taxes receivable
Increase (decrease) in other non-current liabilities
Increase (decrease) in notes and accounts payable
Increase (decrease) in other payables
Increase (decrease) in accrued expenses
Decrease (increase) in other current assets
Increase (decrease) in other current liabilities
Other
Subtotal

(Millions of yen)
FY2018
(April 1,
2018 to
March 31,
2019)
FY2019
(April 1,
2019 to
March 31,
2020)
(20,568)
2,326
10,914
10,088
46
13
(396)
(892)
280
422
16,177
170
(447)
(451)
(42)
(40)
(553)
(432)
(96)
(606)
2,482
2,400
(2,148)
(71)
109
96
(337)
(1,364)
257
733
–
(25,403)
(63)
(9)
4,461
13,395
200
13,187
(2,635)
(1,231)
(558)
861
(123)
334
(154)
85
(2,603)
(3,839)
(1,357)
(435)
841
372
(100)
98
1,547
(575)
(64)
(34)
5,066
9,197

– II-113 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Interest and dividends received Interest paid Income taxes (paid) refund Extra retirement payments Net cash flows from operating activities Cash flows from investing activities Proceeds from collection of short-term borrowings Purchase of fixed assets Proceeds from sales of fixed assets Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Payments into time deposits Purchase of shares of subsidiaries Proceeds from sales of shares of subsidiaries and associates Other, net Net cash flows from investing activities	FY2018 (April 1, 2018 to March 31, 2019) 1,418 (2,428) (1,013) – 3,043 3 (14,196) 2,948 (683) (146) 807 – (23) – (71) (11,362)	FY2019 (April 1, 2019 to March 31, 2020) 2,308 (2,451) 14 (1,849) 7,219 2,300 (9,821) 5,395 (1,633) (115) 19 (3,480) – 35,604 183 28,452

– II-114 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Cash flows from financing activities Net increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayment of long-term borrowings Proceeds from issuance of bonds Redemption of bonds Repayments of lease liabilities Purchase of treasury share Proceeds from sales of treasury share Dividends paid to minority interests Payments for the acquisition of shares of subsidiaries without changing the scope of consolidation Net cash flows from financing activities Effects of foreign exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Balance of cash and cash equivalents at the beginning of the period Balance of cash and cash equivalents at the end of the period	FY2018 (April 1, 2018 to March 31, 2019) 7,055 17,368 (19,590) 1,466 (862) (2,537) (235) 301 (286) – 2,679 (107) (5,746) 18,776 *1 13,030	FY2019 (April 1, 2019 to March 31, 2020) 2,697 840 (23,418) – (1,505) (2,397) (0) 172 (183) (882) (24,677) (312) 10,681 13,030 *1 23,711

– II-115 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Notes

(Going concern assumption)

In the fiscal year ended March 31, 2020, the Group recorded net income attributable to shareholders of the parent company of JPY2,287 million, reflecting an extraordinary income of JPY25,403 million due to the sale of all shares held in Sanden Retail Systems Corporation, which is a major subsidiary of the Commercial Store Systems Business, and other shares. As a result of the sale of Sanden Retail Systems Corporation, operating revenue declined 25% to JPY204,880 million compared with the previous fiscal year, and the Group posted an operating loss of JPY3,401 million (compared to operating profits of JPY889 million in the previous fiscal year) and an ordinary loss of JPY9,735 million (compared to ordinary profits of JPY564 million in the previous fiscal year).

In the Group’s core business, the Automotive Systems Business, vehicle sales have declined from second half of 2019, amid a general decline business environment of the Automotive Systems Business, particularly in the European and Chinese markets. In addition, in 2020, due to the impact of the COVID-19 pandemic, the Group’s main plants were closed chiefly in China, Europe and Asia. As a result, the Group reported a 21% decrease in segment revenue from the previous fiscal year to JPY153,776 million and a segment loss of JPY5,303 million (segment profits of JPY560 million in the previous fiscal year).

The total amount of borrowings and corporate bonds of the Group at the end of the fiscal year ended March 31, 2020 was JPY100,252 million (JPY130,495 million at the end of the previous fiscal year) and it is at higher level than cash on hand of JPY23,711 million (JPY13,030 million at the end of the previous fiscal year) and cash flows from operating activities of JPY7,219 million for the fiscal year ended March 31, 2020 (JPY3,043 million for the previous fiscal year), and current liabilities exceeded current assets.

As a result of the above, there are circumstances that may cast significant doubt on the Company’s ability to continue as a going concern.

In light of these difficult business conditions, the Company and some of its subsidiaries (hereinafter collectively, the “Companies”) submitted a formal application to the Japanese Association of Turnaround Professionals, which is an organization certified by the Minister of Justice as an Alternative Dispute Resolution Business Operator and by the Minister of Economy, Trade and Industry as a Specified Alternative Dispute Resolution Business Operator, for the business revitalization ADR procedures on June 30, 2020, which was accepted on the same day, with the aim of establishing a strong earnings structure and fundamentally improving their financial strength in preparation for future regrowth.

Subsequently on July 14, 2020, in the presence of all financial institutions that will be subject to the business revitalization ADR procedures, the Companies held a meeting of creditors (the 1st creditors’ meeting) to explain the outline of the proposed business revitalization plan under the said procedures, and obtained the consent of all the financial institutions that would be ADR creditors of the Companies to the temporary suspension notice. In addition, the Companies have received an extension of this temporary suspension

– II-116 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

until the end of the creditors’ meeting for the resolution of the business revitalization plan (In the case of a postponement or continuance, the suspension is up to the date of the postponement or continuance).

The Company plans to receive financial support from its main financial institutions, including bridge financing and has obtained the approval of all financial institutions that would be ADR creditors of the Companies to receive such financial support and to allow the Companies to prioritize the treatment of claims related to such financial support over those of the ADR creditors.

As part of the business revitalization ADR procedure, the Companies will formulate a business revitalization plan based on research, guidance and advice from the Japanese Association of Turnaround Professionals from a fair and neutral perspective, while consulting with the financial institutions. With respect to the details of the proposed plan, in addition to management improvement measures based on the Companies’ self-help efforts, the Companies are keenly considering capital and business alliances with a number of sponsors, and will aim to conclude the plan with the consent of all of the financial institutions that will be ADR creditors of the plan.

The future schedule for the turnaround ADR procedure is as follows:

The 2nd creditors’ meeting (creditors’ meeting to discuss the business revitalization plan), scheduled for November 6, 2020

The 3rd creditors’ meeting (creditors’ meeting to discuss the business revitalization plan), scheduled for December 11, 2020

However, these measures are still in the process of being implemented, and the aforementioned measures could have a significant impact on the future cash flows of the Group, depending on the future business conditions of the Group and the progress of the business revitalization ADR procedures. The Company recognizes that there are currently significant uncertainties regarding its ability to continue as a going concern.

Note that the consolidated financial statements have been prepared on a going concern basis and the consolidated financial statements do not reflect the effect of significant uncertainties related to the going concern assumption.

(Major notes to consolidated financial statements)

1. Scope of consolidation

(1) Number of consolidated subsidiaries: 36

– II-117 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

In the fiscal year ended March 31, 2020, Sanden International (Europe) Ltd., a consolidated subsidiary, was dissolved as a result of an absorption-type merger with its consolidated subsidiary Sanden International (Europe) GmbH as the surviving company. In addition, Sankyo Kosan Co., Ltd. and Sanden Business Expert Co., Ltd. were dissolved as a result of an absorption-type merger with the consolidated subsidiary Sanden Facility Co. Ltd. as the surviving company. Note that Sanden Facility Co., Ltd. has changed its name to Sanden Business Associate Corporation.

Sanden of America, Inc. has been excluded from the scope of consolidation due to the completion of liquidation procedures. As a result of the sale of all outstanding shares of Sanden Retail Systems Corporation, which was a consolidated subsidiary, Sanden Retail Systems Corporation and its eight subsidiaries (including sub-subsidiaries) were excluded from the scope of consolidation. In addition, Honda Cars Takasaki Co., Ltd. was excluded from the scope of consolidation due to the transfer of all outstanding shares.

(2) Major non-consolidated subsidiaries: Sanden Bright Partner Corporation

(Reason for exclusion from the scope of consolidation)

2. Equity method

(1) Number of companies accounted for by the equity method: 6

Main company names

Sanden Huayu Automotive Air-Conditioning Co., Ltd.

Shenyang Sanden Automotive Air-Conditioning Co. Ltd.

As a result of the sale of all outstanding shares of Sanden Retail Systems Corporation, which was a consolidated subsidiary, Sanden Retail Systems Corporation’s two affiliates (including sub-affiliates) were excluded from the scope of application of the equity method.

(2) Of the non-consolidated subsidiaries and affiliates not accounted for by the equity method, the major one is Sanpak Engineering Industries (Pvt) Ltd. Non-equity-method companies are excluded from the scope of application of the equity method because their net income or loss (as calculated by the equity method) and retained earnings (as calculated by the equity method), etc., would not have a material impact on the consolidated financial statements if they were excluded from the scope of application of the equity method, and their overall importance would not be significant.
(3) The Company owns 20% of the voting rights in Sanden Retail Systems Corporation (the former of SDRS Holdings Corporation) however, under the terms of the shareholders’ agreement with its parent company, it is required to exercise the voting

– II-118 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

rights in accordance with the instructions of the parent company. The Company does not substantially hold voting rights in Sanden Retail Systems Corporation and it is clear that the Company is not able to have a significant influence on decisions on finance, sales or business policies and therefore does not consider the company an affiliate.

(4) For those companies accounted for under the equity method whose fiscal year end differs from the consolidated fiscal year end, the financial statements of these companies for their respective fiscal years are used.

3. Accounting period of consolidated subsidiaries

The fiscal year-end of the following consolidated subsidiaries is December 31: Tianjin Sanden Auto Air-Conditioning CO., LTD., Sanden (Suzhou) Precision Parts Co., Ltd., Sanden Chongqing Automotive Air Conditioning Co., Ltd., Sanden Automotive Technology (Shanghai) Co., Ltd., Sanden Shanghai Thermal Environmental System Co., Ltd., Sanden Manufacturing Mexico SA de CV.

4. Accounting policies

(1) Valuation criteria and methods for significant assets

A. Securities

Other securities

Marketable securities:

Marketable securities are carried at fair value based on quoted market prices as of the end of the fiscal year.

Any changes in unrealized gain or loss are directly included in net assets and the costs of securities sold are generally calculated by the moving average method.

Non-marketable securities:

Non-marketable securities are carried at cost determined by the moving average method.

– II-119 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

For those securities whose real value has been significantly reduced, a substantial reduction has been made.

B. Derivative financial instruments

Derivative financial instruments are stated at fair value.

C. Inventories

(2) Depreciation method for significant depreciable assets

A. Fixed assets (excluding leased assets)

The straight-line method is adopted.

The main useful lives are as follows.

Buildings and structures 2-50 years

Machinery, equipment and vehicles 2-15 years

B. Intangible assets (excluding leased assets)

The straight-line method is adopted.

Depreciation of software for internal use is calculated by the straight-line method based on its useful life in the Company.

C. Leased assets

Leased assets related to finance lease transactions other than those where the ownership of the lease assets is deemed to be transferred to the lessee is amortized by the straight-line method, assuming the lease period as the useful life and no residual value.

The financial statements of overseas consolidated subsidiaries are prepared in accordance with International Financial Reporting Standards. However, the Company has applied International Financial Reporting Standards No. 16, “Leases” (“IFRS 16”) from the fiscal year ended March 31, 2020 as described in “Changes in accounting policies”. Under IFRS 16, as a general rule, all leases are capitalized as assets and liabilities on the

– II-120 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

consolidated balance sheet for lessees and capitalized right-of-use assets are depreciated on a straight-line basis. In the “Lease transaction”, leases in accordance with IFRS 16 are classified as 1. Finance lease transactions.

(3) Basis for accounting for significant provisions

A. Provision for bad debts

B. Provision for bonuses

To provide for the payment of bonuses to employees, an estimated amount of bonus payments corresponding to the consolidated fiscal year ended March 31, 2020.

C. Provision for sales rebates

To provide for sales rebates for automotive system equipment products, etc., the estimated amount of such rebates is recorded.

D. Provision for product warranties

To cover the cost of free services after the sale of products, in addition to the amount based on the rate of occurrence in the previous years as a percentage of operating revenue, the amount of the cost that can be individually estimated is recorded.

E. Provision for outstanding claims

F. Provision for environmental measures

– II-121 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

G. Provision for stock compensation

To prepare for the issuance of the Company’s shares by the executive compensation Board Incentive Plan (BIP) Trust, the Company records the estimated amount of shares to be paid out based on the points allocated to the executives and others in accordance with the stock issuance regulations.

(4) Accounting method for retirement benefits

Method of attributing the estimated amount of retirement benefits to the period

In calculating the retirement benefit obligations, the estimated amount of retirement benefits attributed to the end of the fiscal year ended March 31, 2020 is based on the benefit calculation formula.

Amortization of actuarial differences and past service costs

Past service costs are amortized on a straight-line method over a fixed number of years within the average remaining service period of employees at the time they are incurred.

Actuarial differences are amortized on a straight-line method over a fixed number of years within the average remaining service period of employees at the time of recognition of each fiscal year. The Company amortizes them in a lump sum in the year of occurrence.

(5) Basis for translating significant foreign currency-denominated assets and liabilities into Japanese currency

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot rates of exchange in effect at the consolidated closing date and the translation differences are treated as profit or loss. Assets and liabilities of foreign consolidated subsidiaries are translated into Japanese yen at the spot rate of exchange on the consolidated closing date. Revenues and expenses are translated into Japanese yen at the average exchange rate for the period, with translation differences included in differences on translation of foreign currency financial statements and minority interests in net assets.

(6) Significant hedge accounting methods

A. Hedge accounting method

Deferred hedge accounting is adopted.

However, the exceptional method is applied to interest rate swaps where the requirements for the exceptional method are met.

– II-122 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

B. Hedging instruments and hedged items
Hedging instruments

Foreign exchange forward contracts, interest rate swaps and commodity derivatives

Hedged items

Foreign currency denominated receivables and forecasted foreign currency transactions, interest on floating rate borrowings, and cost of raw materials purchased

C. Hedging policy

In principle, the Company enters into forward foreign exchange contracts to hedge the foreign exchange fluctuation risk associated with foreign currency-denominated receivables, which corresponds to the portion of sales from Japan.

In addition, the Company enters into interest rate swaps to hedge the risk of interest rate fluctuations on interest payments and commodity derivatives to hedge the risk of price fluctuations on raw materials.

D. Assessment of hedge effectiveness

Hedging is applied on the condition that the change in the market value of the hedged item and the change in the market value of the hedging instrument do not deviate by 20% or more, and the assessment of the effectiveness of the hedge is confirmed.

However, the Company does not evaluate the effectiveness of interest rate swaps for which the exceptional method is used.

(7) Method and period of amortization of goodwill

Goodwill is amortized using the straight-line method over five years.

(8) Scope of cash and cash equivalents in the consolidated statements of cash flows

(9) Other important matters for the preparation of consolidated financial statements

A. Accounting method for consumption tax, etc.

Consumption tax and local consumption tax are accounted for by the tax exclusion method.

– II-123 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

B. Accounting treatment of overseas subsidiaries

The Company has applied the “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Practical Issues Task Force No. 18, June 28, 2019) and has made the necessary adjustments to its consolidated accounts.

C. Application of the consolidated taxation system

The consolidated tax payment system is applied.

D. Application of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system

For the transition to the group tax sharing system established under the “Act for Partial Amendment of the Income Tax Act, etc. (Law No. 8, 2020) and for items that were reviewed in the non-consolidated taxation system in conjunction with the transition to the group tax sharing system, subject to the treatment of paragraph 3 of the “Application of tax effect accounting for the transition from the consolidated taxation system to group tax sharing system” (Practical Issues Task Force No. 39, March 31, 2020), the Company and certain of its domestic consolidated subsidiaries do not apply the provisions of paragraph 44 of the “Guidance on Accounting Standards for Tax Effect Accounting” (ASBJ Guidance No. 28, February 16, 2018) and calculate the amount of deferred tax assets and deferred tax liabilities in accordance with the provisions of pre-revision tax laws.

(Changes in accounting policies)

From the year ended March 31, 2020, subsidiaries that apply International Financial Reporting Standards (IFRS) have applied International Financial Reporting Standards (IFRS) 16 “Leases” (“IFRS 16”). As a consequence, the lessee of a lease is required to record all leases as assets and liabilities on the balance sheet in principle. The adoption of IFRS 16 is treated as a transitional measure and the cumulative effect of the change in accounting policy is recorded in retained earnings at the beginning of the year.

As a result, “Fixed assets” increased by JPY1,434 million, “Lease liabilities” in current liabilities increased by JPY476 million and “Lease liabilities” in non-current liabilities increased by JPY1,088 million as of March 31, 2020. The impact on the consolidated statements of income and per share information for the fiscal year ended March 31, 2020 was immaterial. The consolidated statements of cash flows for the fiscal year ended March 31, 2020 show a decrease in cash flow used in operating activities of JPY294 million and an increase in cash flow used in financing activities of the same amount.

(Accounting standards not to be adopted)

“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29, March 31, 2020)

– II-124 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 31, 2020)
a. Overview

These are the comprehensive accounting standards for revenue recognition and revenue is recognized by applying the following five steps.

Step 1: Identify the contract with the customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Calculate the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when or as performance obligations are met.

b. Scheduled date of adoption

To be applied from the beginning of the fiscal year ending March 2022.

c. Effect of adoption

The effect of adoption of the aforementioned standards on the Company’s consolidated financial statements is under evaluation.

“Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, July 4, 2019)
“Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31, July 4, 2019)
“Accounting Standard for Measurement of Inventories” (ASBJ Statement No. 9, July 4, 2019)
“Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, July 4, 2019)
“Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, March 31, 2020)
a. Overview

In order to improve comparability with international accounting standards’ provisions, the “Accounting Standard for Fair Value Measurement” and the “Implementation Guidance on Accounting Standard for Fair Value Measurement”

– II-125 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(hereinafter referred to as the “Accounting Standard for Fair Value Measurement”) were developed, and the guidance on calculation of fair value was established. The Accounting Standard for Fair Value Measurement” is applied to the fair value in the following items.

Financial instruments in the “Accounting Standard for Financial Instruments”
Inventories held for trading purposes under the “Accounting Standard for Measurement of Inventories”

The “Implementation Guidance on Disclosures about Fair Value of Financial Instruments” has been revised and notes such as the breakdown of each level of fair value of financial instruments have been defined.

b. Scheduled date of adoption

To be applied from the beginning of the fiscal year ending March 2022.

c. Effect of adoption

The effect of adoption of the aforementioned standards on the Company’s consolidated financial statements is under evaluation.

“Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, March 31, 2020)
a. Overview

Paragraph 125 of International Accounting Standard (IAS) 1 “Presentation of Financial Statements” (hereinafter referred to as IAS 1), which was published by the International Accounting Standards Board (IASB) in 2003, requires disclosure of “Factors causing estimation uncertainty” as information highly useful to users of financial statements. In response to a request to consider requiring the disclosure of information in the notes to the financial statements, the Accounting Standards Board of Japan (“ASBJ”) developed and released the Accounting Standard for Disclosure of Accounting Estimates.

As a basic policy of the ASBJ, in developing this accounting standard, instead of expanding the number of individual notes, the principle (the purpose of disclosure) is presented and the specific content of disclosure should be determined by the entity in light of the purpose of disclosure. In developing the standard, the ASBJ decided to refer to the provisions of IAS 1, paragraph 125.

b. Scheduled date of adoption

To be applied from the end of the fiscal year ending March 2021.

– II-126 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

“Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections” (ASBJ Statement No. 24, March 31, 2020)
a. Overview

In response to the recommendation to consider the enhancement of note information regarding the “accounting principles and procedures adopted in the case where the provisions of related accounting standards are unclear”, the Accounting Standards Board of Japan (ASBJ) released the revised standards as the Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections.

In addition, in order to enhance the note information regarding the “accounting principles and procedures adopted in the case where the provisions of related accounting standards are unclear, the “Commentary on Business Accounting Principles (Note 1-2) is to be succeeded to so as not to affect the practice in the case where the related accounting standards are clearly defined.

b. Scheduled date of adoption

To be applied from the end of the fiscal year ending March 2021.

(Changes in presentation)

Consolidated statements of income

“Commission expenses”, which was included in “Other non-operating expenses” in the previous fiscal year, has been presented as a separate item in the fiscal year ended March 31, 2020 due to its increased significance. To reflect this change in presentation, the consolidated financial statements for the previous fiscal year have been reclassified.

As a result, JPY1,150 million included in “Other non-operating expenses” in the consolidated statements of income for the previous fiscal year has been reclassified as “Commission expenses” of JPY50 million and “Other non-operating expenses” of JPY1,100 million.

Consolidated statement of cash flows

“Proceeds from collection of short-term borrowings”, which was included in “Other” under “Cash flows from investing activities” in the previous fiscal year, has been presented as a separate item in the fiscal year ended March 31, 2020 due to its increased significance. To reflect this change in presentation, the consolidated financial statements for the previous fiscal year have been reclassified.

As a result, JPY(68) million included under “Other” in “Cash flows from investing activities” in the consolidated statements of cash flows for the previous fiscal year has been reclassified as “Proceeds from collection of short-term borrowings” of JPY3 million and “Other” of JPY(71) million.

– II-127 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Additional information)

The impact of the spread of COVID-19

The impact of the spread of COVID-19 has had a significant impact on the Group, with production sites in Europe and Asia shutting down from April to June 2020, and production sites in Japan and the United States temporarily taking a leave from operations. Currently, production sites in Europe and Asia have also resumed their production activities. However, there is no unified forecast on the spread of the COVID-19 infection and when it will end, and it is difficult to reasonably estimate the impact of these events at this time.

Under these circumstances, based on the information available at the time of the preparation of the financial statements, the Group assumes that the impact of the spread of COVID-19 will continue for a certain period of time in the future, and makes accounting estimates, such as the cash flow related to the assumptions of a going concern, impairment of non-current assets, and the possibility of recovering deferred tax assets.

If the spread of the COVID-19 infection is prolonged, it could have a significant impact on the Group’s business results and financial position.

Transaction related to the executive compensation Board Incentive Plan (BIP) Trust

The Company has introduced the executive compensation Board Incentive Plan (BIP) Trust (hereinafter referred to as the “Plan”) for directors, and corporate officers and counselors who have entered into a delegation agreement with the Company (excluding expatriates, outside directors and part-time directors, hereinafter referred to as “directors, etc.”), with the purpose of raising awareness of their contribution to improving the Company’s medium- to long-term performance and increasing corporate value.

The accounting treatment for trusts conforms to the “Practical Solution on Transactions to Deliver the Company’s Shares to Employees, etc. through Trusts” (Practical Issues Task Force No. 30, March 26, 2006).

a. Outline of the transaction

Under the Plan, shares of the Company’s stock are acquired through a trust as the source of compensation for directors, etc. contributed by the Company, and the Company’s shares are delivered to the subject directors, etc. in accordance with the degree of achievement of performance targets and their positions in each fiscal year. However, in principle, directors, etc. will receive the Company’s shares at the time of their retirement.

– II-128 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Treasury share remaining in the trust

The Company’s shares remaining in the trust are recorded as treasury share in net assets at the book value of the trust (excluding incidental expenses). The book value and number of shares of treasury share were JPY574 million and 273,961 shares for the previous fiscal year, and JPY450 million and 206,494 shares for the fiscal year ended March 31, 2020.

(Notes to the consolidated balance sheets)

Note 1: *7

							(Millions of yen)
						FY2018	FY2019
					(As	of March	(As of March
						31, 2019)	31, 2020)
Accumulated	depreciation	of	fixed	assets		180,408	166,296

Note: Accumulated depreciation of fixed assets includes the accumulated impairment loss.

Note 2: *8

Items related to non-consolidated subsidiaries and affiliates are as follows.

				(Millions of yen)
			FY2018	FY2019
		(As	of March	(As of March
			31, 2019)	31, 2020)
Investment	securities		20,815	15,619

– II-129 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 3: 1, 2, 3, 4, 5, 7, 9, 10, 11*

Assets pledged as collateral and secured debt are as follows.

Assets pledged as collateral Buildings and structures Machinery and equipment Finished goods, works in process, raw materials Land Accounts receivable Other Total Secured debt Short-term borrowings Long-term borrowings due within one year Long-term borrowings Total	FY2018 (As of March 31, 2019) 705 2,201 2,198 151 1,720 997 7,975 1,787 257 227 2,272	(Millions of yen) FY2019 (As of March 31, 2020) 2,333 1,895 1,688 1,364 1,339 824
		9,445
		5,619 8 141
		5,769

Note 4: Contingent labilities

a. The Company provides debt guarantees for borrowings and other debt from financial institutions of non-consolidated companies as follows.

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification		Amount
Debt guarantee	Sanpak Engineering Industries	(PKR452,611	thousand)	357
	(Pvt) Ltd.
	Total			357

FY2019 (As of March 31, 2020)
			(Millions of yen)

Classification Amount Debt guarantee Sanpak Engineering Industries (Pvt) Ltd. (PKR650,000 thousand) Total	429
	429

– II-130 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Other

FY2018 (As of March 31, 2019)

FY2019 (As of March 31, 2020)

In connection with the plea agreement with the U.S. Department of Justice, civil lawsuits (class action lawsuits) and other lawsuits have been filed in North America seeking damages. Some of these lawsuits have already been settled. The outcome of other pending lawsuits could have an impact on the Group’s business results, but it is difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

Note 5: 2 and 6*

The balances of securitized receivables were accounted for as financial transactions as follows.

		(Millions of yen)
	FY2018	FY2019
	(As of March	(As of March
	31, 2019)	31, 2020)
Notes and accounts receivable	1,076	–
Consumption taxes receivable	553	570

The liabilities corresponding to securitization of the above-mentioned receivables are recorded in other current liabilities in the amount of JPY1,630 million for the fiscal year ended March 31, 2019 and JPY570 million for the fiscal year ended March 31, 2020.

Of the above notes and accounts receivable, the balance of securitization associated with proprietary trusts was JPY1,076 million in the previous fiscal year, and there was none in the fiscal year ended March 31, 2020.

Note 6: 2*

The accounting treatment for notes maturing at the end of the fiscal year is to be set settled at the clearance date.

As the last day of the fiscal year was a holiday for financial institutions, the following matured notes at the end of the fiscal year were included in the balance at the end of the fiscal year.

						(Millions of yen)
					FY2018	FY2019
				(As	of March	(As of March
					31, 2019)	31, 2020)
Notes	and	accounts	receivable		249	–

– II-131 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(NOTES TO THE CONSOLIDATED STATEMENTS OF INCOME)

Note 1: 1*

Provision for sales rebates: Provision for sales rebates is accounted for as a deduction from Operating revenue and the amounts are as follows.

(Millions of yen)

				FY2018	FY2019
				(April 1, 2018	(April 1, 2019
				to March 31,	to March 31,
				2019)	2020)
Provision	for	sales	rebates	426	169

Note 2: *3

Selling, general and administrative expenses: The main items in selling, general and administrative expenses are as follows.

			(Millions of yen)
		FY2018	FY2019
	(April 1, 2018		(April 1, 2019
	to	March 31,	to March 31,
		2019)	2020)
Salary		17,209	13,257
Fare		3,379	2,253
Depreciation		2,263	2,374
Provision for bonuses		1,366	1,597
Provision for product warranties		2,530	2,279
Retirement benefit expenses		870	636

Note 3: *2 and 3

Research and development expenses

			(Millions of yen)
		FY2018	FY2019
	(April 1, 2018		(April 1, 2019
	to	March 31,	to March 31,
		2019)	2020)
Research and development expenses included in general and
administrative expenses and total manufacturing costs for the
fiscal year		8,818	7,811

– II-132 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 4: *4

Non-operating commission expenses

FY2019 (April 1, 2019 to March 31, 2020)

Advisory fees related to the sale of shares are recorded.

Note 5: *5

Gain on disposal of non-current assets

(Millions of yen)

Buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Land Other Total	FY2018 (April 1, 2018 to March 31, 2019) 60 173 17 81 4 337	FY2019 (April 1, 2019 to March 31, 2020) 0 22 52 1,279 9
		1,364

Note 6: *6

Loss on disposal of non-current assets

Buildings and structures Machinery, equipment and vehicles Tools, furniture and fixtures Land Other Total	FY2018 (April 1, 2018 to March 31, 2019) 18 214 18 1 3 257	(Millions of yen) FY2019 (April 1, 2019 to March 31, 2020) 93 74 8 99 457
		733

Note 7: *7

Provision for bad debts

FY2018 (April 1, 2018 to March 31, 2019)

– II-133 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

Not applicable.

Note 8: *8

Structure reform cost

FY2018 (April 1, 2018 to March 31, 2019)

The Group has recorded an extraordinary loss (structure reform cost) in connection with the selection and concentration of its business portfolio, which is one of the priority items of the mid-term management plan. In the fiscal year ended March 31, 2019, the Group recorded a loss on valuation of inventories of JPY895 million and an impairment loss of JPY3,403 million in the Automotive Systems Business, Commercial Store Systems Business, and Other Business.

FY2019 (April 1, 2019 to March 31, 2020)

To achieve the goals of its mid-term management plan, which will conclude in fiscal year 2023, the Company is working on the following five key strategies, namely; Comprehensive reorganization of production system; Enhancement of basic earning power; Growth by actively promoting “collaborative creation”; Cash flow generation through reform in assets structure; Reform in system for implementation. As a result, in the fiscal year ended March 31, 2020, the Company recorded early premium retirement payments of JPY1,863 million, and impairment losses on non-current assets of JPY11,110 million as structure reform cost in conjunction with a fundamental review of its production system in the Automotive Systems Business and Other Business.

Note 9: *9

Impairment loss

FY2018 (April 1, 2018 to March 31, 2019)

The Group has recorded an impairment loss of JPY3,403 million for the following asset groups, which is included in structure reform cost under extraordinary losses.

a. Details and amount of impairment losses

			(Millions of yen)
Location	Use	Classification	Amount
Wylie, Texas, U.S.A.	Automotive Systems	Machinery, equipment	2,034
	Business	and vehicles, etc.
Tinteniac, France	Automotive Systems	Machinery, equipment	1,368
	Business	and vehicles, etc.

Breakdown of major impairment losses by location
Wylie, Texas, U.S.A.: JPY1,817 million of machinery, equipment and vehicles, JPY33 million of buildings and structures, and others
Tinteniac, France: JPY1,351 million of machinery, equipment and vehicles, and others

– II-134 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Grouping methods

The Group’s grouping of assets is based primarily on management accounting categories that are monitored on an ongoing basis for income and expenditure. In addition, each property of leased assets and idle assets is grouped as the smallest unit. The land and buildings of the headquarters and the welfare facilities are treated as common assets because they do not generate independent cash flows.

c. Background to the recognition of the impairment loss

In light of changes in the environment surrounding the automotive market, including trade friction between the U.S. and China, the slowdown of the Chinese economy, and environmental regulations in Europe, the Company has drastically reviewed its production system in the Automotive Systems Business by changing the global production location and optimizing personnel. As a result, at the end of the fiscal year ended March 31, 2020, the Company reduced the book value of production facilities and surplus production facilities, etc., to their recoverable amounts for which the recovery of investment in the remaining useful lives of major equipment was not probable.

d. Method of calculating the recoverable amount

The recoverable amount is measured at the higher of value in use or net sales value. The net sales value is mainly evaluated by the appraisal value by a real estate appraiser.

Business assets that are not expected to generate future cash flows from use and are not expected to be sold at a price that exceeds the cost of disposal are valued at memorandum value.

FY2019 (April 1, 2019 to March 31, 2020)

For the fiscal year ended March 31, 2020, the Group recorded an impairment loss of JPY11,110 million on the following asset groups, which is included in structure reform cost under extraordinary losses.

a. Details and amount of impairment losses

(Millions of yen)

Location	Use	Classification	Amount
Isesaki-shi, Gunma	Automotive Systems	Machinery, equipment	4,003
	Business	and vehicles (including
		leased assets), etc.
Maebashi-shi, Gunma	Other Business	Land	4,570
Tianjin, People’s Republic	Automotive Systems	Machinery, equipment	1,409
of China	Business	and vehicles, etc.
Ayutthaya, Thailand	Automotive Systems	Machinery, equipment	1,014
	Business	and vehicles, etc.
Tinteniac, France	Automotive Systems	Machinery, equipment	112
	Business	and vehicles

Breakdown of major impairment losses by location
Isesaki-shi, Gunma: JPY3,352 million of leased assets, JPY308 million of buildings and structures, JPY114 million of machinery, equipment and vehicles, and others
Tianjin, People’s Republic of China: JPY667 million of machinery, equipment and vehicles, JPY201 million of tools, furniture and fixtures, and others
Ayutthaya, Thailand: JPY785 million of machinery, equipment and vehicles, JPY229 million of tools, furniture and fixtures

– II-135 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

b. Grouping methods

c. Background to the recognition of the impairment loss

In the midst of once-in-a-century economic transformation in the automotive industry, the Group comprehensively reorganized the production system as a key strategy in the Mid-Term Plan SCOPE 2023, and also sold the outstanding shares of Sanden Retail Systems Corporation. Accordingly, the use of the related properties has been changed to rental purposes. As a result, at the end of the fiscal year ended March 31, 2020, the book value of production facilities, buildings and land, and surplus production facilities that are not expected to be recovered over the remaining useful life of the main buildings and equipment were written down to their recoverable amounts.

d. Method of calculating the recoverable amount

The recoverable amount is measured at the higher of value in use or net sales value. The net sales value is mainly evaluated by the appraisal value by a real estate appraiser.

Business assets that are not expected to generate future cash flows from use and are not expected to be sold at a price that exceeds the cost of disposal are valued at memorandum value.

Note 10: *10

Provision for outstanding claims

FY2018 (April 1, 2018 to March 31, 2019)

FY2019 (April 1, 2019 to March 31, 2020)

Not applicable.

– II-136 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Consolidated statements of comprehensive income)

*1 Reclassification adjustments and tax effects concerning other comprehensive income

Valuation difference on other securities:
Amount arising during period
Reclassification adjustments
Before tax-effect adjustment
Amount of tax effects
Valuation difference on other securities
Deferred gains or losses on hedges:
Amount arising during period
Reclassification adjustments
Before tax-effect adjustment
Amount of tax effects
Deferred gains or losses on hedges
Differences on translation of foreign currency financial
statements
Amount arising during period
Reclassification adjustments
Differences on translation of foreign currency
financial statements

(Millions of yen)
FY2018
(April 1,
2018 to
March 31,
2019
FY2019
(April 1,
2019 to
March 31,
2020)
29
(239)
(63)
(182)
(34)
(421)
7
120
(26)
(301)
106
8
(214)
17
(108)
26
39
8
(68)
34
(1,124)
526
109
96
(1,014)
622

– II-137 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Adjustment for retirement benefits: Amount arising during period Reclassification adjustments Before tax-effect adjustment Amount of tax effects Adjustment for retirement benefits Share of other comprehensive income of affiliates accounted for using equity method: Amount arising during period Reclassification adjustments Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income	FY2018 (April 1, 2018 to March 31, 2019 (317) 131 (186) (0) (186) (2,134) – (2,134) (3,430)	FY2019 (April 1, 2019 to March 31, 2020) (654) 146 (507) – (507) (479) – (479) (631)

– II-138 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Consolidated statements of changes in shareholders’ equity)

FY2018 (April 1, 2018 to March 31, 2019)

1. Shares issued and outstanding/Treasury share

(Thousands of shares)

Shares issued: Common stock Total Treasury share Common stock (Notes 1, 2, and 3) Total Notes:	At the beginning of period 28,066 28,066 413 413	Increase during period – – 156 156	Decrease during period – – 180 180	At the end of period 28,066
				28,066

				389
				389

The number of shares of treasury share of common stock includes the Company’s shares held by the executive compensation Board Incentive Plan (BIP) Trust (142,000 shares at the beginning of period and 273,000 shares at the end of period).
The increase in treasury share of 156,000 shares of common stock was due to an increase of 156,000 shares of the Company’s shares purchased by the executive compensation Board Incentive Plan (BIP) Trust and an increase of 0 shares of less than a standard unit purchased.
The decrease in treasury share of 180,000 shares of common stock was due to a decrease of 156,000 shares of the Company’s shares transferred to the executive compensation Board Incentive Plan (BIP) Trust and a decrease of 24,000 shares for payment to the retired directors and others.

– II-139 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Dividends

a. Dividends paid

Not applicable.

b. Dividends, which the record date is in the fiscal year ended March 31, 2020 and the effective date of which is in the following fiscal year

Not applicable.

FY2019 (April 1, 2019 to March 31, 2020)

1. Shares issued and outstanding/Treasury share

(Thousands of shares)

Shares issued Common stock Total Treasury share Common stock (Notes 1, 2, and 3) Total	At the beginning of period 28,066 28,066 389 389	Increase during period – – 0 0	Decrease during period – – 67 67	At the end of period 28,066
				28,066

				322
				322

Notes:

The number of shares of treasury share of common stock includes the Company’s shares held by the executive compensation Board Incentive Plan (BIP) Trust (273,000 shares at the beginning of period and 206,000 shares at the end of period).
The increase in treasury share of 0 shares of common stock was due to an increase of 0 shares of less than a standard unit purchased.
The decrease in treasury share of 67,000 shares of common stock was due to a decrease of 0 shares of less than a standard unit sold and a decrease of 67,000 shares for payment to the retired directors and others.

– II-140 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Dividends

a. Dividends paid

Not applicable.

b. Dividends, which the record date is in the fiscal year ended March 31, 2020 and the effective date of which is in the following fiscal year

Not applicable.

(Consolidated statements of cash flows)

*1 Cash and cash equivalents as of the end of the period are reconciled to the accounts reported in the consolidated balance sheets as follows.

	(Millions of yen)	(Millions of yen)
	FY2018	FY2019
	(April 1,	(April 1,
	2018 to	2019 to
	March 31,	March 31,
	2019	2020
Cash at bank and on hand	13,030	26,440
Time deposits with maturities of more than three
months	–	(2,728)
Cash and cash equivalents	13,030	23,711

Note: There was a significant delay in the collection of accounts receivable in relation to sales of products to the Iranian market due to the financial sanctions against Iran and the Group is collecting a portion of these in Iran. Cash and cash equivalents at the end of fiscal 2018 and fiscal 2019 include foreign currency ordinary deposits held by the Group in Iran.
*2. Breakdown of assets and liabilities of companies which were de-consolidated due to sale of shares.

– II-141 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

Breakdown of assets and liabilities, the sales value of shares and proceeds from the sale of shares at the time of de-consolidation of Sanden Retail Systems Corporation and its affiliates due to sale of their stocks are as follows.

	(Millions of yen)
Current assets	30,353
Non-current assets	13,034
Current liabilities	(29,495)
Non-current liabilities	(1,547)
Other comprehensive income	704
Gain on sale of shares	24,564
Sale value of shares	37,614
Receivables relating to sale proceeds	(1,000)
Cash and cash equivalents	(2,669)
Balance: Proceeds from the sale	33,945

(Lease transactions)

1. Finance lease transactions

(Lessees’ accounting)

Finance lease transactions that do not transfer ownership

1) Leased assets

Fixed assets

Intangible assets

Includes software.

2) Depreciation of leased assets

As described in “4. Accounting policies, (2) Depreciation method for significant depreciable assets” in “Major notes to consolidated financial statements”.

– II-142 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Financial instruments)

1. Financial instruments

(1) Policies on financial instruments

(2) Description of financial instruments and related risks

Marketable securities and investment securities are primarily stocks of companies with which the Group has business relationships and are exposed to market price volatility risk; however, the risk is limited due to the reduction of holdings.

Corporate bonds, long-term borrowings, and lease liabilities related to finance leases are mainly for the purpose of procuring funds for capital investment, with the longest repayment date being eight years from the date of account settlement. Most of these are fixed rate and therefore not subject to interest rate volatility risk. Debt with variable rate terms is exposed to the risk of interest rate fluctuations, but is partially hedged through the use of derivative instruments (interest rate swaps).

– II-143 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(3) Supplemental explanation on the fair value of financial instruments

In addition, the contract amounts of derivative transactions in the notes “Derivative transactions” do not in themselves represent the market risk associated with the derivative transactions.

2. Fair value of financial instruments

The following tables indicate the amount recorded in the consolidated balance sheets, the fair value and the difference as of March 31, 2019 and March 31, 2020 for various financial instruments. Items for which it is deemed extremely difficult to measure the fair value are not included in the tables below. (Refer to Note 2.)

FY2018 (As of March 31, 2019)

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Cash at bank and on hand 13,030 (2) Notes and accounts receivable (1) 60,119 (3) Other receivables (2) 4,822 (4) Consumption taxes receivable 4,575 (5) Investment securities 721 Total assets 83,269	Fair value 13,030 60,119 4,822 4,575 721 83,269	Difference – – – – –
		–

– II-144 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Notes and accounts payable 50,000 (2) Short-term borrowings 51,513 (3) Other payables 7,553 (4) Lease liabilities (Current liabilities) 2,175 (5) Taxes payable 478 (6) Bonds payable (including bonds payable due within one year) 7,337 (7) Long-term borrowings (including long-term borrowings due within one year) 71,644 (8) Lease liabilities (Non-current liabilities) 5,974 Total liabilities 196,678 *Derivative transactions (3)** 70	Fair value 50,000 51,513 7,553 2,246 478 7,357 71,742 6,182 197,074 70	Difference – – – 70 – 19 97 207
		396
		–

*1. General and specific provision for bad debts corresponding to notes and accounts receivable have been deducted.

*2. Individual provision for bad debts corresponding to other receivables is deducted.

*3. Net receivables and payables arising from derivative transactions are shown on a net basis and items that are net liabilities in total are shown in parentheses.

– II-145 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March 31, 2020)

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Cash at bank and on hand 26,440 (2) Notes and accounts receivable (1) 30,785 (3) Other receivables (2) 3,661 (4) Consumption taxes receivable 3,780 (5) Investment securities 119 Total assets 64,787	Fair value 26,440 30,785 3,661 3,780 119 64,787	Difference – – – – –
		–

(Millions of yen)

Amount recorded in the consolidated balance sheets (1) Notes and accounts payable 29,983 (2) Short-term borrowings 47,497 (3) Other payables 6,341 (4) Lease liabilities (Current liabilities) 2,627 (5) Taxes payable 238 (6) Bonds payable (including bonds payable due within one year) 5,832 (7) Long-term borrowings (including long-term borrowings due within one year) 46,922 (8) Lease liabilities (Non-current liabilities) 7,610 Total liabilities 147,054 *Derivative transactions (3)** 164	Fair value 29,983 47,497 6,341 2,590 238 5,837 47,108 7,493 147,091 164	Difference – – – (36) – 4 185 (116)
		36
		–

– II-146 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

*1. General and specific provision for bad debts corresponding to notes and accounts receivable have been deducted.
*2. Individual provision for bad debts corresponding to other receivables is deducted.
*3. Net receivables and payables arising from derivative transactions are shown on a net basis and items that are net liabilities in total are shown in parentheses.

Note:

1. Calculation method of the fair value of financial instruments and matters relating to securities and derivative transactions

Assets:

(1) Cash at bank and on hand, (2) Notes and accounts receivable, (3) Other receivables and
(4) Consumption taxes receivable

Fair value is calculated based on the book value as these assets are settled within a short time and the fair value is almost equal to the book value.

(5) Investment securities

Stocks and other securities are based on the prices of the stock exchange, and bonds are based on the prices of the stock exchange or the prices provided by the financial institutions with which the Company does business. For information on securities by purpose of holding, please refer to notes on “Securities”.

Liabilities:

(1) Notes and accounts payable, (2) Short-term borrowings, (3) Other payables, (5) Taxes payable

Fair value is calculated based on the book value as these assets are settled within a short time and the fair value is almost equal to the book value.

(4) Lease liabilities (Current liabilities), (6) Bonds payable (including bonds payable due within one year), (7) Long-term borrowings (including long-term borrowings due within one year), (8) Lease liabilities (Non-current liabilities)

Derivative transactions:

Please refer to the notes on “Derivative transactions”.

– II-147 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. The amounts of financial instruments for which it is deemed extremely difficult to measure the fair value

(Millions of yen)

	FY2018	FY2019
	(As of March	(As of March
Classification	31, 2019)	31, 2020)
Unlisted stocks	336	164
Stocks of subsidiaries and affiliates	20,815	15,619

These are not included in “(5) Investment securities” because they do not have a market price and it is deemed extremely difficult to measure the fair value.

3. Redemption schedule after the consolidated closing date for monetary receivables and securities with maturities

FY2018 (As of March 31, 2019)

(Millions of yen)

Cash at bank and on hand Notes and accounts receivable Other receivables Consumption taxes receivable Securities Other securities with maturities (1) Bonds (Other) (2) Other Total	Due within one year 13,030 60,119 4,822 4,575 – – 82,547	Due after one year but within five years – – – – – – –	Due after five years but within ten years – – – – – – –	Due after ten years – – – – – –
				–

FY2019 (As of March 31, 2020)

(Millions of yen)

Cash at bank and on hand Notes and accounts receivable Other receivables Consumption taxes receivable Securities Other securities with maturities (1) Bonds (other) (2) Other Total	Due within one year 26,440 30,785 3,661 3,780 – – 64,667	Due after one year but within five years – – – – – – –	Due after five years but within ten years – – – – – – –	Due after ten years – – – – – –
				–

– II-148 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

4. Redemption schedule after the consolidated closing date for long-term borrowings and lease liabilities

FY2018 (As of March 31, 2019)

(Millions of yen)

Short-term borrowings Bonds payable Long-term borrowings Lease liabilities Total	Due within one year 51,513 1,505 23,704 2,175 78,898	Due after one year but within two years – 1,985 21,480 1,898 25,364	Due after two years but within three years – 2,185 14,803 1,690 18,679	Due after three years but within four years – 1,512 8,401 1,254 11,168	Due after four years but within five years – 150 2,839 786 3,775	Due after five years – – 413 344
						758

FY2019 (As of March 31, 2020)

(Millions of yen)

Short-term borrowings Bonds payable Long-term borrowings Lease liabilities Total	Due within one year 47,497 1,985 20,984 2,627 73,094	Due after one year but within two years – 2,185 14,587 2,347 19,120	Due after two years but within three years – 1,512 8,221 1,815 11,549	Due after three years but within four years – 150 2,752 1,285 4,188	Due after four years but within five years – – 349 771 1,121	Due after five years – – 26 1,388
						1,415

– II-149 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Securities)

1. Other securities

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification
Amount
recorded
in the
consolidated
balance
sheets
Acquisition
cost
Securities whose carrying value exceeds their
acquisition cost
(1) Stocks
585
190
(2) Bonds
–
–
(3) Other
–
–
Subtotal
585
190
Securities whose carrying value does not
exceeds their acquisition cost
(1) Stocks
135
144
(2) Bonds
–
–
(3) Other
–
–
Subtotal
135
144
Total
721
334

Difference
395
–
–
395
(8)
–
–
(8)
386

– II-150 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March 31, 2020)

(Millions of yen)

Classification
Amount
recorded
in the
consolidated
balance
sheets
Acquisition
cost
Securities whose carrying value exceeds their
acquisition cost
(1) Stocks
0
0
(2) Bonds
–
–
(3) Other
–
–
Subtotal
0
0
Securities whose carrying value does not
exceeds their acquisition cost
(1) Stocks
119
154
(2) Bonds
–
–
(3) Other
–
–
Subtotal
119
154
Total
119
154

Difference
0
–
–
0
(35)
–
–
(35)
(34)

Note: Unlisted stocks (consolidated financial statements reporting amount: JPY164 million) are not included in “Other securities” in the table above because they do not have a market price and it is deemed extremely difficult to measure the fair value.

– II-151 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Other securities sold during the fiscal year

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Type (1) Stocks (2) Bonds a. Government and municipal bonds, etc. b. Corporate bonds c. Other (3) Other Total	Amount of sale 304 – – – – 304	Total profit on sale 63 – – – – 63	Total loss on sale – – – – –
			–

FY2019 (April 1, 2019 to March 31, 2020)

(Millions of yen)

Type (1) Stocks (2) Bonds a. Government and municipal bonds, etc. b. Corporate bonds c. Other (3) Other Total	Amount of sale 22 – – – – 22	Total profit on sale 11 – – – – 11	Total loss on sale (1) – – – –
			(1)

– II-152 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Derivative transactions)

1. Derivative transactions for which hedge accounting is not adopted

Currency-related transactions

FY2018 (As of March 31, 2019)

(Millions of yen)

Classification Type Non-market transactions Forward foreign exchange contracts Sell: USD EUR MYR Buy: USD JPY THB Total	Contract amounts 690 2,125 237 – – – 3,053	Portion due after one year included herein – – – – – – –	Fair value 6 27 (0) – – – 33	Valuation gain or loss 6 27 (0) – – – 33

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2020.

– II-153 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March 31, 2020)

(Millions of yen)

Classification Type Non-market transactions Forward foreign exchange contracts: Sell: USD EUR MYR Buy: USD JPY THB Total	Contract amounts – – 41 – – – 41	Portion due after one year included herein – – – – – – –	Fair value – – (0) – – – (0)	Valuation gain or loss – – (0) – – – (0)

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2020.

– II-154 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Derivative transactions for which hedge accounting is adopted

(1) Currency-related transactions

FY2018 (As of March 31, 2019)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Deferral hedge accounting for forward exchange contracts, etc. Forward foreign exchange contracts: Sell: USD Accounts receivable – trade EUR Accounts payable – trade INR Accounts payable – trade Currency swaps: Fixed U.S. dollar receipt and variable Indian rupee payments Borrowings Total	Contract amounts – 60 75 1,756 1,892	Portion due after one year included herein – – – 1,658 1,658	Fair value – 1 (1) 131
			131

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2020.

Currency swaps are calculated based on prices provided by financial institutions with which the Group do business.

– II-155 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March 31, 2020)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Deferral hedge accounting for forward exchange contracts, etc. Forward foreign exchange contracts: Sell: USD Accounts receivable – trade EUR Accounts payable – trade INR Accounts payable – trade Currency swaps: Fixed U.S. dollar receipt and variable Indian rupee payments Borrowings Total	Contract amounts – – – 1,528 1,528	Portion due after one year included herein – – – 1,224 1,224	Fair value – – – 216
			216

Note: Calculation of fair value:

Forward exchange contracts are based on the forward exchange rate at the end of the fiscal year ended March 31, 2020.

Currency swaps are calculated based on prices provided by financial institutions with which the Group do business.

– II-156 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Interest-related transactions

FY2018 (As of March 31, 2019)

(Millions of yen)

Method of hedge accounting Type of transactions Major hedged items Exceptional method for interest swap Interest rate swaps: Receiving floating rate and paying fixed rate Long-term borrowings Deferral hedge accounting Receiving floating rate and paying fixed rate Long-term borrowings Total	Contract amounts 2,864 7,473 10,337	Portion due after one year included herein 1,788 2,839 4,627	Fair value (Note) (94)
			(94)

Note: Calculation of fair value:

Interest rate swaps are calculated based on the prices provided by the financial institutions with which the Group do business.

– II-157 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March 31, 2020)

(Millions of yen)

Hedge accounting method Type of transactions Major hedged items Exceptional method for interest swap Interest rate swaps: Receiving floating rate and paying fixed rate Long-term borrowings Deferral hedge accounting Receiving floating rate and paying fixed rate Long-term borrowings Total	Contract amounts 1,788 5,021 6,809	Portion due after one year included herein 858 1,578 2,436	Fair value (Note) (51)
			(51)

Note: Calculation of fair value:

Interest rate swaps are calculated based on the prices provided by the financial institutions with which the Group do business.

– II-158 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

(Retirement benefits)

1. Description of retirement benefit plans

Effective March 1, 2014, the Company has adopted a defined contribution pension plan for its enrolled employees. Pension beneficiaries are recorded based on the estimated amount of retirement benefit obligations and pension plan assets at the end of the fiscal year ended March 31, 2020. As of the end of the fiscal year ended March 31, 2020, the estimated amount of pension plan assets exceeded the balance of the retirement benefit obligation, and the excess amount was recorded as “retirement benefit asset” in assets.

2. Defined benefit plans (including plans to which the simplified method is applied)

(1) Adjustments between the beginning and ending balances of retirement benefit obligation

Retirement benefit obligation at the beginning of the year Service cost Interest cost Actuarial gain and loss generated Retirement benefits paid Decrease due to deconsolidation Effect of foreign exchange translation Retirement benefit obligation at the end of the year	(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019) FY2019 (April 1, 2019 to March 31, 2020) 7,652 8,290 260 147 220 241 314 644 (441) (480) – (639) 284 (426) 8,290 7,777

– II-159 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Adjustments between the beginning and ending balances of pension plan assets

Pension plan assets at the beginning of the year Expected return on plan assets Actuarial gain and loss generated Contribution from employers Retirement benefits paid Decrease due to deconsolidation Effect of foreign exchange translation Plan assets at the end of the year	(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019) FY2019 (April 1, 2019 to March 31, 2020) 4,394 4,747 254 (196) (3) (10) 195 208 (257) (281) – – 163 (81) 4,747 4,386

(3) The balance of retirement benefit obligation and pension plan assets as of the closing date and the adjustment on the consolidated balance sheets of the liability and assets related to the retirement benefits.

Retirement benefit obligation for funded plans Pension plan assets Retirement benefit obligation for unfunded plans Net retirement benefit liability and assets reported on the consolidated balance sheets Retirement benefit liability Retirement benefit asset Net retirement benefit liability and assets reported on the consolidated balance sheets	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) 6,858 7,055 (4,747) (4,386) 2,111 2,669 1,432 722 3,543 3,391 3,653 3,491 (110) (99) 3,543 3,391

– II-160 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(4) Breakdown of retirement benefit expenses

Service cost Interest cost Expected return Expenses on actuarial differences Retirement benefit expenses related to defined benefit plans	(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019 FY2019 (April 1, 2019 to March 31, 2020) 260 156 220 241 (254) 196 131 146 358 741	(Millions of yen) FY2018 (April 1, 2018 to March 31, 2019 FY2019 (April 1, 2019 to March 31, 2020) 260 156 220 241 (254) 196 131 146 358 741
		741

(5) Adjustment for retirement benefits

A breakdown of the items recorded as adjustment for retirement benefits (before tax effect deductions) is as follows.

Actuarial differences Total	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) (186) (507) (186) (507)	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) (186) (507) (186) (507)
		(507)

– II-161 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(6) Accumulated adjustment for retirement benefits

A breakdown of the items recorded as accumulated adjustment for retirement benefits (before tax effect deductions) is as follows.

Unrecognized actuarial differences Total	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) (1,123) (1,631) (1,123) (1,631)	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) (1,123) (1,631) (1,123) (1,631)
		(1,631)

(7) Matters regarding pension plan assets

1) Major components of plan assets

Pension plan assets consist of the following.

Bonds Stocks Cash at bank and on hand Other Total	FY2018 (As of March 31, 2019) 33% 64% 3% –% 100%	FY2019 (As of March 31, 2020) 33% 65% 2% 0%
		100%

2) Method for determining the long-term expected rate of return

– II-162 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(8) Assumptions used in actuarial calculations

Major assumptions used in actuarial calculations

	FY2018	FY2019
	(As of	(As of
	March 31,	March 31,
	2019)	2020)
Discount rate	0.3%-4.0%	0.3%-3.0%
Long-term expected rate of return on plan assets	0.3%-7.5%	0.3%-7.0%

3. Defined-contribution pension plans

The required amounts of contribution to the defined-contribution pension plans for the Company and its consolidated subsidiaries were JPY908 million for the previous fiscal year and JPY756 million for the fiscal year ended March 31, 2020.

(Tax-effect accounting)

1. Significant components of deferred tax assets and liabilities

Deferred tax assets: Net operating loss carryforward for tax purpose (Note 2) Unrealized gains or losses on inventories Accounts payable and accrued expenses Provision for product warranties Provision for bad debts Bad debts written-off Loss on valuation of inventories Provision for bonuses Taxation of investment privileges Unrealized gain on fixed assets Depreciable assets, etc. Retirement benefit liabilities Provision for environmental measures Impairment loss Other Subtotal of deferred tax assets	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) 13,040 20,375 134 20 563 276 435 232 3,019 2,957 677 – 907 201 720 306 1,384 1,327 17 15 705 561 520 298 65 53 736 3,314 1,506 1,286 24,434 31,228	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) 13,040 20,375 134 20 563 276 435 232 3,019 2,957 677 – 907 201 720 306 1,384 1,327 17 15 705 561 520 298 65 53 736 3,314 1,506 1,286 24,434 31,228
		31,228

– II-163 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Valuation allowance for net operating loss carryforward for tax purpose (Note 2) Valuation allowance for the sum of deductible temporary differences Subtotal of valuation allowance (Note 1) Offsetting deferred tax assets and liabilities of the same taxpayer Total deferred tax assets	FY2018 (As of March 31, 2019) (12,810) (8,044) (20,854) (1,340) 2,240	FY2019 (As of March 31, 2020) (20,096) (8,947) (29,044) (441) 1,743

– II-164 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Total deferred tax liabilities Depreciable assets, etc. Valuation difference on other securities Retained earnings of foreign affiliates Other Subtotal of deferred tax liabilities Offsetting deferred tax assets and liabilities of the same taxpayer Total deferred tax liabilities Net deferred tax assets	FY2018 (As of March 31, 2019) 419 120 587 458 1,586 (1,340) 245 1,994	FY2019 (As of March 31, 2020) 401 0 308 207 917 (441) 476 1,266

Notes:

The valuation allowance increased by JPY8,190 million. This increase was mainly due to an increase of JPY7,286 million in the Group’s valuation allowance for tax loss carryforward.
The amounts of net operating loss carryforward for tax purpose and corresponding deferred tax assets by due period.

FY2018 (As of March 31, 2019)

(Millions of yen)

		Due after	Due after	Due after	Due after
		one year	two years	three years	four years
	Due within	but within	but within	but within	but within	Due after
	one year	two years	three years	four years	five years	five years	Total
Net operating loss
carryforward for tax
purpose (a)	1,791	1,069	21	30	41	10,085	13,040
Valuation allowance	(1,791)	(1,069)	(21)	(30)	(41)	(9,855)	(12,810)
Deferred tax assets	–	–	–	–	–	230	230

(a) Net operating loss carryforward for tax purpose was multiplied by the effective statutory tax rate.

– II-165 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (As of March	31, 2020)					_(Millions _	of yen)
		Due after	Due after	Due after	Due after
		one year	two years	three years	four years
	Due within	but within	but within	but within	but within	Due after
	one year	two years	three years	four years	five years	five years	Total
Net operating loss
carryforward for tax
purpose (a)	1,042	6	11	19	1,106	18,188	20,375
Valuation allowance	(1,042)	(6)	(11)	(19)	(1,106)	(17,909)	(20,096)
Deferred tax assets	–	–	–	–	–	279	279

(a) Net operating loss carryforward for tax purpose was multiplied by the effective statutory tax rate.

– II-166 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The reconciliation between the income tax rate reflected in the consolidated financial statements and the effective statutory tax rate is summarized as follows:

FY2018 (As of March
31, 2019)
Effective statutory tax rate
Because loss before
income taxes was
recorded for the fiscal
year, there is no
information to be
disclosed here.
(Reconciliation)
Entertainment expenses and other
permanently non-deductible items
Dividends received and other items
permanently not included in taxable
income
Non-deductible portion of foreign tax
credit
Difference in tax rates of overseas
consolidated subsidiaries
Amortization of goodwill
Investment gain or loss on equity method
Consolidated adjustment of gains or losses
on sales of stocks of affiliated
companies
Amount exceeding the tax effect recording
limit for unrealized gains on inventories
Tax deductibles
Taxation of investment privileges
Valuation allowance
Other
Income tax rate after the application of tax
effect accounting

FY2019 (As
of March
31, 2020)
30.5%
1.5
(11.6)
2.2
(1.5)
0.1
2.6
(19.7)
(35.1)
(3.9)
(2.5)
95.3
0.6
58.4

(Business combinations)

Transactions under common control, etc.

– II-167 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Merger of consolidated subsidiaries)

1. Outline of the transaction

(1) Name of the combined company and its business

Combined company (surviving company) Name: Sanden International (Europe) GmbH (a consolidated subsidiary of the Company)

Business: Sales, development and management/control company of automotive system equipment products

Combined company (dissolved company) Name: Sanden International (Europe) Ltd. (a consolidated subsidiary of the Company) Business: Sales, development and management/control company of automotive system equipment products

(2) Date of business combination

September 1, 2019

(3) Legal form of business combination

Sanden International (Europe) GmbH will be the surviving company and Sanden International (Europe) Ltd. will be dissolved in an absorption-type merger.

(4) Name of the company after the combination

Sanden International (Europe) GmbH

(5) Other matters related to the outline of the transaction

In order to further strengthen its global business competitiveness, the Company aims to consolidate its management resources and strengthen its business competitiveness.

2. Summary of accounting treatment performed

In accordance with the “Accounting Standard for Business Combinations” and the “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”, the merger is treated as a transaction under common control.

(Acquisition of additional shares of a subsidiary)

1. Outline of the transaction

(1) Name of the combined company and its business

Sanden Chongqing Automotive Air Conditioning Co., Ltd

– II-168 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Date of business combination

October 1, 2019 (Deemed acquisition date)

(3) Legal form of business combination

Acquisition of shares from non-controlling shareholders

(4) Name of the company after the combination

No change

(5) Other matters related to the outline of the transaction

The voting rights of the additional shares acquired are 49.0% and the transaction will increase the Company’s shareholding to 100.0%. This additional acquisition was made in order to build a foundation for manufacturing and efficient management in the Chinese automotive system equipment market.

2. Summary of accounting treatment performed

In accordance with the “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, January 16, 2019) and the “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10, January 16, 2019), the merger is treated as a transaction with non-controlling shareholders among the transactions under common control.

3. Additional acquisition of subsidiary stock

Acquisition cost and breakdown by type of consideration

Cash JPY1,280 million

4. Changes in the Company’s equity in transactions with non-controlling shareholders

(1) Major factors in changes in capital reserves

Acquisition of additional shares of a subsidiary

(2) Decrease in capital reserves due to transactions with non-controlling shareholders

JPY202 million

– II-169 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Business divestitures

(Sale of shares in subsidiaries)

1. Outline of the business divestitures

(1) Name of the company to which the business was divested

SDRS Holdings Corporation

(2) Details of the divested business

Company name: (Consolidated subsidiaries excluded from the scope of consolidation) Sanden Retail Systems Corporation SD Maintenance Co. Ltd. Sanwa Fabtech Co., Ltd. Sanden Logistics Co., Ltd. Sanden Vendo America Inc. Sanden Vendo GmbH Sanden Vendo Europe S.P.A. Sanden Retail Systems Taiwan Corporation Sanden Shanghai Refrigeration Co., Ltd. (Affiliates excluded from the scope of application of the equity method) Sanden Intercool (Thailand) Public Co., Ltd. and one other company

Business: Manufacturing, sales, etc. of freezing and refrigerating showcases for commercial use and vending machines for beverage and merchandise sale

(3) Reasons for business divestitures

In April 2019, we formulated the Mid-Term Plan SCOPE 2023 with the aim of realizing our vision of “Open up a new era and become a company that is trusted by all the people so that we will be able to create an enriched society in which environment and comfort are harmonized”.

The Group’s main businesses are the Automotive Systems Business and the Commercial Store Systems Business, but considering the current resources of the Group, it was difficult to allocate sufficient management resources to accelerate the growth of both businesses.

– II-170 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Accordingly, the Company has determined that it will be able to further accelerate the future growth of our Commercial Store Systems Business by operating flexibly as an independent corporate group, through transferring the shares of Sanden Retail Systems Corporation that manages the Commercial Store Systems Business to SDRS Holdings Corporation.

Furthermore, because this sale will contribute to the improvement of the Company’s financial position by strengthening its capital and obtaining funds, the Company has concluded this agreement with the expectation that it will be able to focus its management resources on the Automotive Systems Business and ensure growth by investing for the next era of growth in the midst of the once-in-a-century period of change in the automotive industry.

(4) Date of business divestitures

October 1, 2019

(5) Other matters related to the outline of the transaction, including the legal form

Transfer of shares in which the consideration received is cash or other property only

2. Summary of accounting treatment performed

(1) Amount of gain or loss on transfer

Gain on sales of shares of subsidiaries and affiliates: JPY24,564 million

(2) Appropriate book value of assets and liabilities related to the transferred business and its main breakdown

	(Millions of yen)
Current assets	30,353
Non-current assets	13,034
Total assets	43,388
Current liabilities	29,495
Non-current liabilities	1,547
Total liabilities	31,043

(3) Accounting treatment

The difference between the consolidated book value of the transferred shares and the sale price of the shares is recorded as “Gain on sales of shares of subsidiaries and affiliates” in extraordinary income.

– II-171 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Reportable segments that included the divested businesses

Commercial Store Systems Business

4. Estimated amount of profit or loss related to the divested businesses reported in the consolidated statement of income for the fiscal year ended March 31, 2020

(Millions of yen)

Operating revenue 42,712 Operating profits 2,638

(Asset retirement obligations)

FY2018 (As of March 31, 2019)

Notes are omitted due to lack of materiality.

FY2019 (As of March 31, 2020)

Notes are omitted due to lack of materiality.

(Rental and other real estate)

FY2018 (April 1, 2018 to March 31, 2019)

Notes are omitted as the total amount of rental and other real estate was insignificant.

FY2019 (April 1, 2019 to March 31, 2020)

In the fiscal year ended March 31, 2020, net rental income from these rental and other real estate is JPY73 million (major rental expenses are recorded as non-operating expenses).

– II-172 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The carrying amount of rental and other real estate on the consolidated balance sheet, changes during the period, and their fair value are as follows.

		(Millions of yen)	(Millions of yen)
		FY2018	FY2019
		(April 1,	(April 1,
		2018 to	2019 to
		March 31,	March 31,
		2019)	2020)
Consolidated balance sheet	Balance at the
amount	beginning of period	–	–
	Changes during the
	period	–	6,741
	Balance at the end of
	period	–	6,741
Fair value at the end of
period		–	6,741

Notes:

The consolidated balance sheet amount is calculated by subtracting accumulated depreciation and accumulated impairment loss from the acquisition cost.
Of the amount of changes during the period, the increase is mainly due to the leasing of factory and warehouse buildings and land (JPY6,741 million).
The fair value at the end of the fiscal year is primarily the amount calculated by the Company based on the Real Estate Appraisal Standards (including those adjusted by using indices).

– II-173 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Segments of the Company and related information)

Segment information

1. Overview of reportable segments

Segment Main products, systems and services Automotive Systems Automotive air-conditioning systems, air-conditioner Business compressors and various automotive parts Commercial Store Various vending machines, freezing and refrigerating Systems Business showcases and large open showcase

2. Calculation method of operating revenue, profits or losses, assets and liabilities and other items by reportable segment

The accounting method for the reportable segments is generally the same as the items stated in the “Major notes to consolidated financial statements”.

The segment profits is based on operating profits.

– II-174 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Operating revenue, profits or losses, assets and liabilities and other items by reportable segment

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

	Reportable segment	Reportable segment					Consolidated
		Commercial					financial
	Automotive	Store					statements
	Systems	Systems	Total	Other(Note 1)	Total	Adjustment	amount (Note 2)
Operating revenue
Sales to third parties	193,465	69,423	262,888	11,045	273,934	–	273,934
Inter-segment sales
or transfers	–	–	–	–	–	–	–
Total	193,465	69,423	262,888	11,045	273,934	–	273,934
Segment profits (loss)	560	773	1,334	(445)	889	–	889
Segment assets	175,234	61,931	237,165	9,235	246,401	–	246,401
Other items
Depreciation and
amortization
expense	9,203	1,339	10,543	371	10,914	–	10,914
Amortization of
goodwill	46	–	46	–	46	–	46
Share of profit of
associates and joint
ventures	1,824	324	2,148	–	2,148	–	2,148
Impairment loss	3,403	–	3,403	–	3,403	–	3,403
Investment in
equity-method
companies	15,051	5,395	20,447	–	20,447	–	20,447
Increase in fixed
assets and
intangible assets	10,843	2,212	13,055	1,067	14,122	–	14,122

Notes:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business, etc.
The total amount of segment profits (loss) is the same as the operating profits in the consolidated financial statements.

– II-175 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

(Millions of yen)

	Reportable segment	Reportable segment					Consolidated
		Commercial					financial
	Automotive	Store					statements
	Systems	Systems	Total	Other(Note 1)	Total	Adjustment	amount (Note 2)
Operating revenue
Sales to third parties	153,776	43,275	197,052	7,827	204,880	–	204,880
Inter-segment sales
or transfers	–	–	–	–	–	–	–
Total	153,776	43,275	197,052	7,827	204,880	–	204,880
Segment profits (loss)	(5,303)	2,297	(3,006)	(395)	(3,401)	–	(3,401)
Segment assets	170,765	1,276	172,042	15,517	187,559	–	187,559
Other items
Depreciation and
amortization
expenses	8,944	744	9,689	399	10,088	–	10,088
Amortization of
goodwill	13	–	13	–	13	–	13
Share of profit of
associates and joint
ventures	(26)	98	71	–	71	–	71
Impairment loss	6,540	–	6,540	4,570	11,110	–	11,110
Investment in
equity-method
companies	15,201	129	15,330	–	15,330	–	15,330
Increase in fixed
assets and
intangible assets	12,070	1,253	13,324	640	13,965	–	13,965

Notes:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business, etc.
The total amount of segment profits (loss) is the same as the operating loss in the consolidated financial statements.
Sanden Retail Systems Corporation and its eight subsidiaries, which were the Company’s consolidated subsidiaries and the core of the Commercial Store Systems Business, have been excluded from the scope of consolidation. As a result, the operating revenue and segment profits of the Commercial Store Systems segment for the fiscal year ended March 31, 2020 do not include the operating revenue and operating profits of the company and its subsidiaries after October 1, 2019.

– II-176 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Related information

FY2018 (April 1, 2018 to March 31, 2019)

1. Information by product and service

This information is omitted because the product and service categories are the same as those of the reportable segments.

2. Information by region

(1) Operating revenue

(Millions of yen)

	Japan	Asia Europe Americas Total Contributed by China Contributed by Germany 78,151 47,152 83,809 29,251 21,408 273,934
	90,564

(2) Fixed assets

(Millions of yen)

	Japan	Asia Europe Americas Total Contributed by China Contributed by Poland 17,997 10,896 15,846 10,178 3,725 77,436
	39,866

3. Information by major customer

This information is omitted because there is no sales to a specific customer account for more than 10% of the operating revenue in the consolidated statements of income.

– II-177 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

1. Information by product and service

This information is omitted because the product and service categories are the same as those of the reportable segments.

2. Information by region

(1) Operating revenue

(Millions of yen)

==> picture [487 x 86] intentionally omitted <==

----- Start of picture text -----

Asia Europe
Contributed
Contributed by
Japan by China Germany Americas Total
63,177 53,796 28,290 71,370 24,666 16,535 204,880
----- End of picture text -----

(2) Fixed assets

(Millions of yen)

	Japan	Asia Europe Americas Total Contributed by China Contributed by Poland 12,562 7,180 14,641 9,537 3,220 58,522
	28,096

3. Information by major customer

(Millions of yen)

Name Sales Related segment Volkswagen Group 21,592 Automotive Systems Business

– II-178 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Information on impairment losses on non-current assets by reportable segment

FY2018 (April 1, 2018 to March 31, 2019)

This information is omitted because the same information is disclosed in the segment information.

FY2019 (April 1, 2019 to March 31, 2020)

This information is omitted because the same information is disclosed in the segment information.

Information on amortization of goodwill and unamortized balance by reportable segment

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

	Reportable segment	Reportable segment
		Commercial
	Automotive	Store
	Systems	Systems	Total	Other(Note 1)	Total
(Goodwill)
Amortization amount during
period	46	–	46	–	46
Balance at the end of period	27	–	27	–	27
(Negative goodwill)
Amortization amount during
period	–	–	–	–	–
Balance at the end of period	–	–	–	–	–

Note:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business, etc.

– II-179 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

FY2019 (April 1, 2019 to March 31, 2020)

(Millions of yen)

	Reportable segment	Reportable segment
		Commercial
	Automotive	Store
	Systems	Systems	Total	Other(Note 1)	Total
(Goodwill)
Amortization amount during
period	13	–	13	–	13
Balance at the end of period	13	–	13	–	13
(Negative goodwill)
Amortization amount during
period	–	–	–	–	–
Balance at the end of period	–	–	–	–	–

Note:

The “Other” category includes the vehicle sales business, the living & environmental business and the electronics business, etc.

Gain on negative goodwill by reporting segment

FY2018 (April 1, 2018 to March 31, 2019)

Not applicable.

FY2019 (April 1, 2019 to March 31, 2020)

Not applicable.

– II-180 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Related party information

1. Transactions with related parties

(1) Transactions between the Company submitting the consolidated financial statements and related parties

Directors and major shareholders of the parent company submitting the consolidated financial statements

FY2018 (April 1, 2018 to March 31, 2019)

==> picture [403 x 119] intentionally omitted <==

----- Start of picture text -----

Ratio of
ownership Relationships Amount of Balance at
Capital or Business or voting rights with related the Accounting the end of
Type Name Location investment occupation (owned) parties Trans-action transaction item period
(Millions of (Millions of (Millions of
yen) yen) yen)
Foundation with Sanden Kankyo Isesaki-shi, – (Note 1) – – Donation 21 – –
a board Mirai Zaidan Gunma
member
serving as a
director
----- End of picture text -----

Notes:

The purpose of the foundation’s activities is to support human resource development and the creation of new industries with a focus on the environment.
The amount of donations to the Foundation is decided upon with the approval of the Board of Directors.

FY2019 (April 1, 2019 to March 31, 2020)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the	Accounting	the end of
Type	Name	Location	investment	occupation	(owned)	parties	Trans-action	transaction	item	period
			(Millions of					(Millions of		(Millions of
			yen)					yen)		yen)
Foundation with	Sanden Kankyo	Isesaki-shi,	–	(Note 1)	–	–	Donation	21	–	–
a board	Mirai Zaidan	Gunma
member
serving as a
director

Notes:

The purpose of the foundation’s activities is to support human resource development and the creation of new industries with a focus on the environment.
The amount of donations to the Foundation is decided upon with the approval of the Board of Directors.

– II-181 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Transactions between consolidated subsidiaries of the Company submitting consolidated financial statements and related parties

Affiliates of the Company submitting consolidated financial statements, etc.

FY2018 (April 1, 2018 to March 31, 2019)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the	Accounting	the end of
Type	Name	Location	investment	occupation	(owned)	parties	Trans-action	transaction	item	period
			(Millions of					(Millions of		(Millions of
			yen)					yen)		yen)
Affiliated	Sanden Al Salam	Dubai,	USD1,000	Sale of	(Ownership)	Manufacture and	Sales	2,574	Accounts	13,134
company	LLC	United	thousand	automotive	Indirect	sale of the			receivable
		Arab		systems	43%	Company’s			– trade
		Emirates				products in the
						Middle East
							–	–	Other	3,795
									investment
Affiliated	Sanden Huayu	Shanghai,	RMB834,090	Manufacture	(Ownership)	Manufacture and	Sales	19,981	Accounts	9,377
company	Automotive	the	thousand	and sale of	Direct	sale of the			receivable
	Air-Conditioning	People’s		automotive	43%	Company’s			– trade
	Co., Ltd.	Republic		systems		products in
		of China				China,
						concurrent
						officers

Notes:

The transaction amount above does not include consumption tax.
Terms and conditions of transactions and the policy for determining terms and conditions, etc., are determined in the same way as for general transactions.
Provision for bad debts of JPY13,811 million is provided for accounts receivable and other investments in affiliated companies.

– II-182 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

					Ratio of
					ownership	Relationships		Amount of		Balance at
			Capital or	Business or	voting rights	with related		the	Accounting	the end of
Type	Name	Location	investment	occupation	(owned)	parties	Trans-action	transaction	item	period
			(Millions of					(Millions of		(Millions of
			yen)					yen)		yen)
Affiliated	Sanden Al Salam	Dubai,	USD1,000	Sale of	(Ownership)	Manufacture and	Sales	239	Accounts	9,858
company	LLC	United	thousand	automotive	Indirect	sale of the			receivable
		Arab		systems	43%	Company’s			–trade
		Emirates				products in the
						Middle East
							–	–	Other	3,721
									investment
Affiliated	Sanden Huayu	Shanghai,	RMB834,090	Manufacture	(Ownership)	Manufacture and	Sales	9,291	Accounts	6,191
company	Automotive	the	thousand	and sale of	Direct	sale of the			receivable
	Air-Conditioning	People’s		automotive	43%	Company’s			–trade
	Co., Ltd.	Republic		systems		products in
		of China				China,
						concurrent
						officers

Notes:

The transaction amount above does not include consumption tax.
Terms and conditions of transactions and the policy for determining terms and conditions, etc., are determined in the same way as for general transactions.
Provision for bad debts of JPY13,580 million is provided for accounts receivable and other investments in affiliated companies.

– II-183 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Summary financial statements of significant affiliates

For the fiscal year ended March 31, 2020, the significant affiliates were Sanden Al Salam LLC and Sanden Huayu Automotive Air-Conditioning Co., Ltd.

(Millions of yen)

			Sanden Huayu	Sanden Huayu
			Automotive
			Air-Conditioning Co.,
	Sanden Al	Salam LLC	Ltd.
	FY2018	FY2019	FY2018	FY2019
	(April 1,	(April 1,	(April 1,	(April 1,
	2018 to	2019 to	2018 to	2019 to
	March	March	March	March
	31, 2019)	31, 2020)	31, 2019)	31, 2020)
Total current assets	26,016	27,322	54,264	55,300
Total non-current assets	1,681	1,082	33,082	33,872
Total current liabilities	28,364	32,992	51,097	52,247
Total non-current liabilities	–	–	735	691
Total net assets	(666)	(4,587)	35,514	36,234
Operating revenue	18,979	16,257	97,475	87,705
Profit (loss) before income taxes	(4,239)	(5,347)	7,833	6,242
Net profit (loss)	(4,239)	(5,347)	6,873	5,478

(Per share information)

				(Yen)
			FY2018	FY2019
			(April 1,	(April 1,
			2018 to	2019 to
			March 31,	March 31,
			2019)	2020)
Net	assets	per share	685.04	747.92
Net	profit	(loss) per share	(833.58)	82.54

Notes:

Diluted net profits per share for the fiscal year ended March 31, 2019 is not shown in the above table, because the Company recorded a net loss per share and there were no latent shares. Diluted net profits per share for the fiscal year ended March 31, 2020 is not shown in the above table, as there are no latent shares.

– II-184 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The Company’s shares held in the Executive Compensation BIP Trust are included in the treasury share to be deducted from the average number of shares for the purpose of calculating net profits or loss per share, and are also included in the number of treasury share to be deducted from the total number of shares issued at the end of the fiscal year for the purpose of calculating net assets per share.

The average number of shares held by the trust during the year was 227,189 in the previous fiscal year and 230,747 in the fiscal year ended March 31, 2020. The number of shares held by the trust at the end of the fiscal year was 273,961 in the previous fiscal year and 206,494 in the fiscal year ended March 31, 2020.

The basis for calculating net profit (loss) per share is as follows.

		FY2018		FY2019
	(April 1, 2018		(April 1, 2019
	to March 31,		to March 31,
		2019)		2020)
Net profit (loss) attributable to shareholders of the parent
company (Millions of yen)		(23,060)		2,287
Amount not attributable to shareholders on common stock
(Millions of yen)		–		–
Net profit (loss) attributable to shareholders of the parent
company related to common stock (Millions of yen)		(23,060)		2,287
Average number of shares during the period (Shares)		27,664,077		27,719,909

(Significant subsequent events)

On June 30, 2020, the Company and some of its subsidiaries formally applied for the business revitalization alternative dispute resolution (ADR) procedure to the Japanese Association of Turnaround Professionals, an organization certified by the Minister of Justice as an Alternative Dispute Resolution Business Operator and by the Minister of Economy, Trade and Industry as a Specified Alternative Dispute Resolution Business Operator, and the application was accepted on the same date. For details of the business revitalization ADR procedures, please refer to the note “Going concern assumption” in 1. Consolidated financial statements of 5. Financial Information.

5) Consolidated Supplementary Schedules

Schedule of corporate bonds

			Balance at
			the	Balance at
		Date of	beginning of	the end of			Redemption
Company name	Bonds issued	issue	period	period	Interest rate	Collateral	deadline
			(Millions of	(Millions of	(%)
			yen)	yen)
Sanden Holdings	1st unsecured (Bank	May 31,	1,500 (500)	1,000 (500)	0.17	Unsecured	March 31,
Corporation	guaranteed and	2017				corporate	2022
	limited to					bonds
	qualified
	institutional
	investors)(Note 1)

– II-185 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Company name Bonds issued Date of issue Sanden Holdings Corporation 2nd unsecured (Bank guaranteed and limited to qualified institutional investors)(Note 1) September 21, 2017 Sanden Holdings Corporation 3rd unsecured (Bank guaranteed and limited to qualified institutional investors)(Note 1) March 26, 2018 Sanden Holdings Corporation 4th unsecured (Bank guaranteed and limited to qualified institutional investors)(Note 1) March 30, 2018 Sanden Holdings Corporation 5th unsecured (Bank guaranteed and limited to qualified institutional investors)(Note 1) September 28, 2018 Total – – Notes:	Balance at the beginning of period (Millions of yen) 1,487 (425) 1,000 2,000 (280) 1,350 (300) 7,337 (1,505)	Balance at the end of period Interest rate Collateral Redemption deadline (Millions of yen) (%) 1,062 (425) 0.17 Unsecured corporate bonds September 21, 2022 1,000 (200) 0.86 Unsecured corporate bonds March 24, 2023 1,720 (560) 0.20 Unsecured corporate bonds March 31, 2023 1,050 (300) 0.25 Unsecured corporate bonds September 29, 2023 5,832 (1,985) – – –

The figures in parentheses in the “Balance at the end of period” column are the amounts to be redeemed within one year.
Total amount to be redeemed per year within 5 years after the consolidated closing date.

(Millions of yen)

Due after one Due after two Due after three Due after four Due within one year but within years but within years but within years but within year two years three years four years five years 1,985 2,185 1,512 150 –

– II-186 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Details of borrowings

Classification Short-term borrowings Long-term borrowings due within one year Lease liabilities due within one year Long-term borrowings (excluding long-term borrowings due within one year) Lease liabilities (excluding lease liabilities due within one year) Other interesting-bearing debt Total	Balance at the beginning of period (Millions of yen) 51,513 23,704 2,175 47,939 5,974 – 131,308	Balance at the end of period (Millions of yen) 47,497 20,984 2,627 25,938 7,610 – 104,657	Average interest rate Repayment deadline (%) 2.40 – 1.43 – 1.78 – 1.67 From 2021 to 2026 1.48 From 2021 to 2029 – – – –

Notes:

The average interest rate is the weighted average rate of interest on the outstanding borrowings at the end of the fiscal year.
Amounts for long-term borrowings and lease liabilities (excluding lease liabilities due within one year) to be redeemed within 5 years from the consolidated balance sheet date is as follows.

(Millions of yen)

	Due after	Due after	Due after	Due after
	one year	two years	three years	four years
	but within	but within	but within	but within
Classification	two years	three years	four years	five years
Long-term borrowings	14,587	8,221	2,752	349
Lease liabilities	2,347	1,815	1,285	771

Details of asset retirement obligations

Notes are omitted due to lack of materiality

– II-187 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

(2) Other

Quarterly information for the fiscal year ended March 31, 2020

	1st	2nd	3rd
Accumulated period	quarter	quarter	quarter	FY2019
Operating revenue (Millions of
yen)	64,792	127,988	166,541	204,880
Profit (loss) before income taxes
(Millions of yen)	(1,944)	(3,322)	13,102	2,326
Net profit (loss) attributable to
shareholders of the parent
company (Millions of yen)	(1,959)	1,778	12,210	2,287
Net profit (loss) per share (Yen)	(70.78)	64.22	440.60	82.54
	1st	2nd	3rd	4th
Accounting period	quarter	quarter	quarter	quarter
Quarterly net profit (loss) per
share (Yen)	(70.78)	134.87	375.98	(357.64)

2. Non-consolidated financial statements

(1) Non-consolidated financial statements

1) Balance sheets

Assets Current assets Cash at bank and on hand Notes and accounts receivable Works in process Short-term borrowings receivable from subsidiaries and affiliates Other current assets Provision for bad debts Total current assets	(Millions of yen) FY2018 (As of March 31, 2019) FY2019 (As of March 31, 2020) 2,154 11,959 1 4,931 1 6,384 14 15 41,313 43,850 2 1,374 2 724 (10,292) (11,129) 39,495 51,806

– II-188 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Non-current assets Fixed assets Buildings Structures Machinery and equipment Vehicles Tools, furniture and fixtures Land Leased assets Construction in progress Total fixed assets Intangible assets Leasehold interests in land Software Other intangible assets Total intangible assets Investments and other assets Investment securities Shares of subsidiaries and affiliates Investments in capital of subsidiaries and affiliates Long-term borrowings to subsidiaries and affiliates Prepaid pension costs Deferred tax assets Other non-current assets Provision for bad debts Total investments and other assets Total non-current assets Total assets	FY2018 (As of March 31, 2019) 8,521 921 38 0 193 13,829 40 233 23,779 8 2,265 102 2,376 915 22,155 15,354 – 110 48 891 (107) 39,367 65,524 105,019	FY2019 (As of March 31, 2020) 8,156 975 38 0 179 8,966 29 374 18,720 8 2,773 81 2,863 283 20,947 15,220 1,083 99 – 496 (59) 38,072 59,656 111,462

– II-189 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Liabilities Current liabilities Operating accounts payable Short-term borrowings Bonds payable due within one year Long-term borrowings due within one year Lease liabilities Accrued expenses Provision for outstanding claims Provision for bonuses Other current liabilities Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Lease liabilities Deferred tax liabilities Provision for stock compensation Other non-current liabilities Total non-current liabilities Total liabilities	FY2018 (As of March 31, 2019) 3 1,954 4 23,569 1,505 17,162 50 95 432 90 238 45,099 5,832 36,702 192 – 255 52 43,036 88,136	FY2019 (As of March 31, 2020) 3 5,668 4 37,324 1,985 17,527 47 – – 69 415
		63,037
		3,847 19,155 145 0 153 52
		23,354
		86,391

– II-190 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Net assets Shareholders’ equity Share capital Capital reserves Legal capital reserves Total capital reserves Retained earnings Other retained earnings Retained earnings carryforward Total retained earnings Treasury shares Total shareholders’ equity Valuation and translation adjustments Valuation difference on other securities Total valuation and translation adjustments Total net assets Total liabilities and net assets	FY2018 (As of March 31, 2019) 11,037 4,453 4,453 1,734 1,734 (605) 16,620 263 263 16,883 105,019	FY2019 (As of March 31, 2020) 11,037 4,453 4,453 10,046 10,046 (433) 25,105 (34) (34) 25,070 111,462

– II-191 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2) Income statement

Operating revenue
Group operating revenue
Real estate lease revenue
Dividend income from affiliated companies
Other operating revenue
Total operating revenue
Operating expenses
Operating profits
Non-operating income
Interest income
Dividend income
Foreign exchange gains
Rental income
Miscellaneous income
Total non-operating income
Non-operating expenses
Interest expenses
Taxes and dues
Foreign exchange losses
Provision for bad debts
Commission expenses
Miscellaneous loss
Total non-operating expenses
Ordinary profits (loss)

(Millions of yen)
FY2018
(April 1,
2018 to
March 31,
2019)
FY2019
(April 1,
2019 to
March 31,
2020)
6,448
5,943
5,943
4,335
1,879
1,534
5,209
2,064
10
4
1 13,043
1 7,940
2 8,135
2 6,422
4,908
1,518
3 551
3 616
4 31
4 16
9
–
–
377
82
384
675
1,395
806
836
84
66
–
484
95
839
50
775
530
837
1,566
3,840
4,017
(926)

– II-192 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Extraordinary income Gain on disposal of non-current assets Gain on sales of investment securities Gain on sales of shares of subsidiaries and affiliates Other extraordinary income Total extraordinary income Extraordinary losses Loss on support to subsidiaries and affiliates Loss on disposal of non-current assets Loss on valuation of shares of subsidiaries and affiliates Loss on valuation of investments in capital of subsidiaries and affiliates Structure reform cost Provision for outstanding claims Other extraordinary losses Total extraordinary losses Profits (loss) before income taxes Current income tax expenses Deferred income tax expenses Total income tax expenses Net profits	FY2018 (April 1, 2018 to March 31, 2019) 5 24 63 – 70 158 – 7 23 867 127 – *9 432 84 1,535 2,639 (104) 238 133 2,506	FY2019 (April 1, 2019 to March 31, 2020) *5 13 386 31,949 193
		32,542
		6 17,000 7 612 – – *8 5,214 – 193
		23,020
		8,595
		115 167
		282
		8,312

– II-193 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3) Statements of changes in shareholders’ equity

FY2018 (April 1, 2018 to March 31, 2019)

(Millions of yen)

Shareholders’ equity

Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period		Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (613) (613) 2,506 2,506 (24) (24) (158) (158) – – (24) (24) 2,347 2,347 11,037 4,453 – 4,453 1,734 1,734 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (854) 14,047 286 286 14,333 2,506 2,506 (235) (235) (235) 484 301 301 (23) (23) (23) 249 2,573 (23) (23) 2,549 (605) 16,620 263 263 16,883	Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (613) (613) 2,506 2,506 (24) (24) (158) (158) – – (24) (24) 2,347 2,347 11,037 4,453 – 4,453 1,734 1,734 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (854) 14,047 286 286 14,333 2,506 2,506 (235) (235) (235) 484 301 301 (23) (23) (23) 249 2,573 (23) (23) 2,549 (605) 16,620 263 263 16,883	Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 24 4,478 (613) (613) 2,506 2,506 (24) (24) (158) (158) – – (24) (24) 2,347 2,347 11,037 4,453 – 4,453 1,734 1,734 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (854) 14,047 286 286 14,333 2,506 2,506 (235) (235) (235) 484 301 301 (23) (23) (23) 249 2,573 (23) (23) 2,549 (605) 16,620 263 263 16,883
				2,347
				1,734

				Total net assets 14,333 2,506 (235) 301 (23)
				2,549
				16,883

– II-194 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

FY2019 (April 1, 2019 to March 31, 2020)

(Millions of yen)

Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period Balance at the beginning of period Changes during period Net profits Purchase of treasury share Disposal of treasury share Net changes in items other than shareholders’ equity Total changes during period Balance at the end of period		Shareholders’ equity Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 – 4,453 1,734 1,734 8,312 8,312 (0) (0) – – – – 8,312 8,312 11,037 4,453 – 4,453 10,046 10,046 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (605) 16,620 263 263 16,883 8,312 8,312 (0) (0) (0) 172 172 172 (298) (298) (298) 172 8,484 (298) (298) 8,186 (433) 25,105 (34) (34) 25,070	Shareholders’ equity Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 – 4,453 1,734 1,734 8,312 8,312 (0) (0) – – – – 8,312 8,312 11,037 4,453 – 4,453 10,046 10,046 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (605) 16,620 263 263 16,883 8,312 8,312 (0) (0) (0) 172 172 172 (298) (298) (298) 172 8,484 (298) (298) 8,186 (433) 25,105 (34) (34) 25,070	Shareholders’ equity Share capital Capital reserves Retained earnings Capital reserves Other capital reserves Total capital reserves Other retained earnings Total retained earnings Retained earnings carryforward 11,037 4,453 – 4,453 1,734 1,734 8,312 8,312 (0) (0) – – – – 8,312 8,312 11,037 4,453 – 4,453 10,046 10,046 Shareholders’ equity Valuation and translation adjustments Total net assets Treasury share Total shareholders’ equity Valuation difference on other securities Total valuation and translation adjustments (605) 16,620 263 263 16,883 8,312 8,312 (0) (0) (0) 172 172 172 (298) (298) (298) 172 8,484 (298) (298) 8,186 (433) 25,105 (34) (34) 25,070
				8,312
				10,046

				Total net assets 16,883 8,312 (0) 172 (298)
				8,186
				25,070

– II-195 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Notes

(Going concern assumption)

The total amount of borrowings and corporate bonds of the Company at the end of the fiscal year ended March 31, 2020 was JPY79,839 million (JPY84,772 million at the end of the previous fiscal year) and it is at higher level than cash on hand of JPY11,959 million (JPY2,154 million at the end of the previous fiscal year) and current liabilities exceeded current assets.

In addition, as described in the note “Going concern assumption” in 1. Consolidated financial statements under “Financial Information”, the Group, including the Company and its consolidated subsidiaries, recorded a significant decrease in sales in the Automotive Systems segment and a significant operating loss in the fiscal year ended March 31, 2020 and current liabilities on the consolidated balance sheet exceeded current assets at the end of the fiscal year ended March 31, 2020.

As a result of the above, there are circumstances that may cast significant doubt on the Company’s ability to continue as a going concern.

In light of these difficult business conditions, the Company and some of its subsidiaries (collectively, the “Companies”) submitted a formal application to the Japanese Association of Turnaround Professionals, an organization certified by both the Minister of Justice as an ADR Business Operator and by the Minister of Economy, Trade and Industry as a Specified ADR Business Operator, for the business revitalization ADR procedures on June 30, 2020, which was accepted on the same day, with the aim of establishing a strong earnings structure and fundamentally improving their financial strength in preparation for future regrowth.

Subsequently on July 14, 2020, in the presence of all financial institutions that will be subject to the business revitalization ADR procedures, the Companies held a meeting of creditors (the 1st creditors’ meeting) to explain the outline of the proposed business revitalization plan under the said procedures, and obtained the consent of all the financial institutions that would be creditors of the Companies to the temporary suspension notice. In addition, the Companies have received an extension of this temporary suspension until the end of the creditors’ meeting for the resolution of the business revitalization plan (In the case of a postponement or continuance the suspension is up to the date of the postponement or continuance).

The Company plans to receive financial support from its main financial institutions, including bridge financing and has obtained the approval of all financial institutions that would be creditors of the Companies to receive such financial support and to allow the Companies to prioritize the treatment of claims related to such financial support over those of the creditors.

– II-196 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

As part of the business revitalization ADR procedure, the Companies will formulate a business revitalization plan based on research, guidance and advice from the Japanese Association of Turnaround Professionals from a fair and neutral perspective, while consulting with our financial institutions. With respect to the details of the proposed plan, in addition to management improvement measures based on the Companies’ self-help efforts, we are keenly considering capital and business alliances with a number of sponsors, and will aim to conclude the plan with the consent of all of the financial institutions that will be creditors of the plan.

The future schedule for the turnaround ADR procedures is as follows:

The 2nd creditors’ meeting (creditors’ meeting to discuss the business revitalization plan), scheduled for November 6, 2020

The 3rd creditors’ meeting (creditors’ meeting to discuss the business revitalization plan), scheduled for December 11, 2020

However, these countermeasures are still in the process of implementation, and even if the above measures are taken, there may be a significant impact on future cash flow, depending on the future business situation of the Group and the progress of the business revitalization ADR procedures. At this time, we recognize that there is significant uncertainty regarding going concern assumption.

The non-consolidated financial statements have been prepared on the premise of a going concern, and the effects of significant uncertainty regarding going concern assumption are not reflected in the non-consolidated financial statements.

(Significant accounting policies)

1. Valuation standards and methods for securities

(1) Stock of subsidiaries and affiliates

The moving-average cost method is adopted.

(2) Other securities

Marketable securities:

Marketable securities are carried at fair value based on quoted market prices as of the end of the fiscal year.

Any changes in unrealized gain or loss are directly included in net assets and the costs of securities sold are generally calculated by the moving average method.

– II-197 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

� Non-marketable securities:

Non-marketable securities are carried at cost determined by the moving average method.

For those securities whose real value has been significantly reduced, a substantial reduction has been made accordingly.

2. Valuation standards and methods for derivative

Derivative financial instruments are stated at fair value.

3. Valuation standards and methods for inventories

4. Depreciation method for non-current assets

(1) Fixed assets (excluding leased assets)

The straight-line method is adopted.

The main useful lives are as follows.

Buildings and structures: 2-50 years

(2) Intangible assets (excluding leased assets)

The straight-line method is adopted.

Depreciation of software for internal use is calculated by the straight-line method based on its useful life in the Company.

(3) Leased assets

– II-198 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

5. Basis for translating foreign currency-denominated assets and liabilities into Japanese currency

6. Basis for accounting for provisions

(1) Provision for bad debts

(2) Provision for bonuses

To provide for the payment of bonuses to employees, an estimated amount of bonus payments corresponding to the consolidated fiscal year ended March 31, 2020.

(3) Provision for outstanding claims

(4) Provision for stock compensation

(5) Provision for retirement benefits

To provide for the retirement benefits of pension beneficiaries, a provision is made based on the estimated amount of retirement benefit obligations and pension assets at the end of the fiscal year ended March 31, 2020. If the amount of pension assets exceeds the retirement benefit obligations, the excess amount is recorded as “prepaid pension costs”.

7. Hedge accounting methods

(1) Hedge accounting method

Deferred hedge accounting is adopted.

However, exceptional treatment is applied to interest rate swaps that meet the requirements for exceptional treatment.

– II-199 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Hedging instruments and hedged items

Hedging instruments

Foreign exchange forward contracts, interest rate swaps

Hedged items

Foreign currency denominated receivables and forecasted foreign currency transactions, interest on floating rate borrowings

(3) Hedging policy

In principle, the Company enters into forward foreign exchange contracts to hedge the foreign exchange fluctuation risk associated with foreign currency-denominated receivables.

In addition, the Company enters into interest rate swaps to hedge the risk of interest rate fluctuations on interest payments.

(4) Assessment of hedge effectiveness

However, the Company does not evaluate the effectiveness of interest rate swaps for which exceptional treatment is used.

8. Other important matters for preparation of non-consolidated financial statements

(1) Accounting treatment for consumption tax, etc.

Consumption tax and local consumption tax are accounted for by the tax exclusion method.

(2) Application of the consolidated taxation system

The consolidated taxation system is applied.

(3) Application of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system

– II-200 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

its domestic consolidated subsidiaries do not apply the provisions of paragraph 44 of the “Guidance on Accounting Standards for Tax Effect Accounting” (ASBJ Guidance No. 28, February 16, 2018) and calculate the amount of deferred tax assets and deferred tax liabilities in accordance with the provisions of pre-revision tax laws.

(4) Accounting treatment for retirement benefits

The accounting method for unrecognized actuarial differences on retirement benefits is different from the accounting method in the consolidated financial statements.

(Changes in presentation)

“Commission expenses” of “Non-operating expenses” had previously been included in “Miscellaneous losses” (JPY530 million for the previous fiscal year) in the statement of income, but from the fiscal year ended March 31, 2020, it is presented as “Commission expenses” (JPY50 million for the previous fiscal year) due to its increased significance.

(Additional information)

The impact of the spread of COVID-19

The impact of the spread of COVID-19 has had a significant impact on the Group, with production sites in Europe and Asia shutting down from April to June 2020, and production sites in Japan and the United States temporarily taking a leave from operations. Currently, production sites in Europe and Asia have also resumed their production activities. However, there is no unified view on the spread of the COVID-19 infection and the timing of its termination, and it is difficult to reasonably estimate the impact of these events at this time.

Under these circumstances, based on the information available at the time of the preparation of the financial statements, the Company assumes that the impact of the spread of COVID-19 will continue for a certain period of time in the future, and makes accounting estimates, such as the cash flow related to going concern assumption, impairment of non-current assets, and the possibility of recovering deferred tax assets.

If the spread of the COVID-19 infection is prolonged, it could have a significant impact on the Company’s business results and financial position.

Transaction related to the Executive Compensation BIP Trust

Notes on the Executive Compensation BIP Trust are omitted, as the same information is presented in the note “Additional information” in 1. Consolidated financial statements” of “Financial Information”.

– II-201 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Non-consolidated balance sheets)

Note 1: 1, 2, 3 and* 4*

Monetary claims and liabilities to subsidiaries and affiliates (excluding those presented separately) are as follows.

(Millions of yen)

				FY2018	FY2019
			(As	of March	(As of March
				31, 2019)	31, 2020)
Short-term	monetary	claims		7,485	5,142
Short-term	monetary	liabilities		1,494	5,399

Note 2: Contingent liabilities

(1) The Company provides debt guarantees for borrowings from financial institutions of affiliated companies.

(Millions of yen)

Sanden International (Europe) GmbH Sanden International (U.S.A.), Inc. Sanden Vendo America Inc. Sanden (Suzhou) Precision Parts Co., Ltd. Sanden Vikas (India) Private Limited. Sanden Vikas Precision Parts Private Limited. Sanden Airconditioning (Malaysia) Sdn. Bhd. Tianjin Sanden Auto Air-Conditioning CO., LTD. P.T. Sanden Indonesia Sanden International Philippines, Inc. Sanden Thailand Co., Ltd. Sanden (Shanghai) Refrigeration Co. Ltd. Sanpak Engineering Industries Pvt. Ltd. Total	FY2018 (As of March 31, 2019) – 7,880 110 – – – 304 1,544 55 421 617 1,811 357 13,104	FY2019 (As of March 31, 2020) 14,497 2,076 – 603 2,705 376 – 328 – – – – 429
		21,018

– II-202 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) The Company has guaranteed the obligations of the following companies to financial institutions in relation to their electronically recorded obligations

Sanden Automotive Climate Systems Corporation Sanden Automotive Components Corporation Sanden Retail Systems Corporation Sanden Living Environment System Corporation Total	FY2018 (As of March 31, 2019) 745 10,215 3,705 5 14,666	(Millions of yen) FY2019 (As of March 31, 2020) 398 8,518 – –
		8,916

(3) Other

FY2018 (As of March 31, 2019)

FY2019 (As of March 31, 2020)

In connection with the plea agreement with the U.S. Department of Justice, civil lawsuits (class action lawsuits) and other lawsuits have been filed in North America seeking damages. Some of these lawsuits have already been settled. The outcome of other pending lawsuits could have an impact on the Group’s business results, but it is difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

(Non-consolidated statements of income)

Note 1: 1, 2, 3, 4 and *6

Major transactions with affiliated companies are as follows.

		(Millions of yen)
	FY2018	FY2019
	(April 1, 2018	(April 1, 2019
	to March 31,	to March 31,
	2019)	2020)
Operating revenue	7,829	5,870
Operating expenses	2,741	3,230
Amount of transactions other than operating transactions	932	17,628

– II-203 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 2: *2

Operating expenses

The major components of operating expenses are as follows.

Salaries and allowances Bonus Welfare fee Rent Depreciation Retirement benefit expenses Fees Research and development expenses	FY2018 (April 1, 2018 to March 31, 2019) 991 200 284 255 1,183 178 3,297 96	(Millions of yen) FY2019 (April 1, 2019 to March 31, 2020) 787 123 218 169 1,076 112 2,546 25

Note 3: *5

Gain on disposal of non-current assets

			(Millions of yen)
		FY2018	FY2019
	(April 1, 2018		(April 1, 2019
	to	March 31,	to March 31,
		2019)	2020)
Buildings		–	0
Land		24	13
Total		24	13

Note 4: *7

Loss on disposal of non-current assets

Buildings Land Other Total	FY2018 (April 1, 2018 to March 31, 2019) 23 – – 23	(Millions of yen) FY2019 (April 1, 2019 to March 31, 2020) 86 100 425
		612

– II-204 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Note 5: *8

Structure reform cost

To achieve the goals of its mid-term management plan, which will conclude in fiscal year 2023, the Company is working on the following five reform plans: comprehensive reorganization of production systems, enhancement of basic earning power, growth by actively promoting “collaborative creation”, cash flow generation through reform in asset structure, and reform in systems for implementation. As a result, in the fiscal year ended March 31, 2020, the Company recorded early premium retirement payments and impairment losses on non-current assets as structure reform cost.

Note 6: *9

Provision for outstanding claims

(Securities)

FY2018 (As of March 31, 2019)

FY2019 (As of March 31, 2020)

Notes to shares of subsidiaries and affiliates (balance sheet amount: JPY25,026 million for shares of subsidiaries and investments in capital; and JPY11,141 million for shares of affiliates and investments in capital) are omitted because they do not have market prices and it is extremely difficult to determine their fair value.

– II-205 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Tax effect accounting)

1. Breakdown of the main causes of deferred tax assets and deferred tax liabilities

(Millions of yen)
FY2018
(As of
March 31,
2019)
FY2019
(As of
March 31,
2020)
5,901
5,189
27
21
3,127
3,412
677
–
207
156
9,911
1,922
863
444
338
343
95
1,586
652
367
21,801
13,443
(5,901)
(5,189)
(15,704)
(8,524)
(21,605)
(13,443)
196
–
119
0
28
–
147
0
48
(0)

– II-206 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Breakdown of the main items that caused the difference between the effective statutory tax rate and the effective income tax rate after the application of tax effect accounting.

Effective statutory tax rate (Adjustment) Entertainment expenses and other permanently non-deductible items Non-deductible foreign tax credit Resident tax per capita rate Dividends received and other items permanently not included in taxable income Increase (decrease) in valuation allowance Other Income tax rate after the application of tax effect accounting	FY2018 (As of March 31, 2019) 30.5% 0.2 6.6 0.3 (59.0) 26.4 (0.0) 5.0	FY2019 (As of March 31, 2020) 30.5% 60.4 1.7 0.1 (17.6) (73.0) 1.2 3.3

(Business combination)

Transactions under common control, etc.

(Company split)

1. Outline of the transaction

(1) The name of the target business and the content of the business

Successor company in an absorption-type split

Name and description of business

Sanden Automotive Climate Systems Corporation (hereinafter, referred to “SDAS”) Sanden Automotive Components Corporation (hereinafter, referred to “SDAC”) Sanden Retail Systems Corporation (hereinafter, referred to “SDRS”)

Manufacturing and sale of automotive air conditioning systems
Manufacture and sale of automotive air-conditioner compressors.

Manufacture and sales of freezing and refrigerating showcases for commercial use and vending machines for beverage and merchandise sale

– II-207 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Date of business combination

April 1, 2019

(3) Legal form of business combination

An absorption-type split in which SDAC will take over the shares and interests in the Company’s subsidiaries related to the automotive air-conditioning compressor business, and part of the rights and obligations of the related management business. SDAS will take over the shares and interests in the Company’s subsidiaries related to the automotive air-conditioning system business and part of the rights and obligations of the related management business. SDRS will take over the shares and interests in the Company’s subsidiaries related to the retail system business and loan receivables from and part of the rights and obligations of the related management business.

(4) Other matters related to the outline of the transaction

2. Summary of accounting procedures performed

The split is treated as a transaction under common control in accordance with the “Accounting Standard for Business Combinations” and the “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”.

(Significant subsequent events)

On June 30, 2020, the Company and some of its subsidiaries formally applied for the business revitalization alternative dispute resolution (ADR) procedure to the Japanese Association of Turnaround Professionals, which is an organization certified by the Minister of Justice as an Alternative Dispute Resolution Business Operator and by the Minister of Economy, Trade and Industry as a Specified Alternative Dispute Resolution Business Operator, and the application was accepted on the same date. For details of the business revitalization ADR procedures, please refer to the note “Going concern assumption” in 2. Non-consolidated financial statements of 5. Financial Information.

– II-208 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

4) Non-consolidated schedules

Details of fixed assets

(Millions of yen)

Classification Type of assets Fixed assets Buildings Structures Machinery and equipment Vehicles Tools, furniture and fixtures Land Leased assets Construction in progress Total Intangible assets Leasehold interests in land Software Other intangible assets Total	Balance as of April 1, 2019 8,521 921 38 0 193 13,829 40 233 23,779 8 2,265 102 2,376	Increase in FY2019 814 163 8 – 28 – – 1,156 2,171 – 1,199 2 1,202	Decrease in FY2019 15 0 – – 1 292 – 1,014 1,323 – 318 2 321	Depreciation in FY2019 1,163 (359) 109 8 – 41 4,570 (4,570) 11 1 (1) 5,906 (4,931) – 373 20 394	Balance as of March 31, 2020 8,156 975 38 0 179 8,966 29 374 18,720 8 2,773 81 2,863	Accumulated depreciation 20,712 5,475 759 5 319 – 19 –
						27,291
						– – –
						–

Notes:

The figures in parentheses in the “Depreciation in FY2019” column represent the included amount of impairment loss reported.
Details of major increases in the fiscal year ended March 31, 2020 are as follows

Buildings: Equipment for Yattajima Plant JPY185 million

– II-209 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Details of provisions

(Millions of yen)

	Balance			Balance
	as of	Increase	Decrease	as of
	April 1,	in	in	March
Classification	2019	FY2019	FY2019	31, 2020
Provision for bad debts	10,399	839	50	11,188
Provision for outstanding claims	432	–	432	–
Provision for bonuses	90	69	90	69
Provision for stock compensation	255	71	172	153

Note: The reason for the appropriation and the method of calculating the amount are described in the “Significant accounting policies” section of this report.

(2) Assets and liabilities

Since the consolidated financial statements are prepared, this information is omitted.

(3) Other

Not applicable.

– II-210 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT AND INTERNAL CONTROL AUDIT REPORT

(Translation)

July 29, 2020

To the Board of Directors,

Sanden Holdings Corporation

KPMG AZSA LLC

(Tokyo Office)

Designated Limited	Certified Public	Masahiro Sasaki	Seal
Liability Partner	Accountant
Engagement Partner
Designated Limited	Certified Public	Koji Aida	Seal
Liability Partner	Accountant
Engagement Partner

AUDIT OPINION

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, we have audited the accompanying consolidated financial statements of Sanden Holdings Corporation for the fiscal year from April 1, 2019 to March 31, 2020, as shown in the “Financial Information” section, which comprise the consolidated balance sheets, consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity, consolidated statements of cash flows, major notes to consolidated financial statements, other notes and consolidated supplementary schedules.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation and its consolidated subsidiaries as of March 31, 2020 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in our country.

BASIS OF THE AUDIT OPINION

We conducted our audit in accordance with the audit principles generally accepted in our country. Our responsibility under the audit principles is stated in the “Auditor’s Responsibility for Auditing Consolidated Financial Statements” section. We are independent of the Company and its consolidated subsidiaries and fulfill our ethical responsibility as an

– II-211 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

auditor in accordance with the Code of Professional Ethics in our country. We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

SIGNIFICANT UNCERTAINTY ABOUT GOING CONCERN ASSUMPTION

As stated in the Note on Going Concern Assumption, during the fiscal year from April 1, 2019 to March 31, 2020, the Company recorded a significant decrease in net sales and recognized 3,401 million yen in operating loss, and as of March 31, 2020, current liabilities exceeded current assets on the consolidated balance sheet. Consequently, there are events or conditions that may cast significant doubt about the going concern assumption of the Company, and material uncertainty about the assumption is deemed to exist. Shown in the notes are measures to be taken to address such events or conditions and the reasons for such significant uncertainty. The consolidated financial statements were prepared under the going concern assumption. The consolidated financial statements do not reflect the effect from the significant uncertainty about the going concern assumption.

This matter does not affect our conclusion.

RESPONSIBILITY OF MANAGEMENT, AUDIT & SUPERVISORY BOARD MEMBERS AND THE AUDIT & SUPERVISORY BOARD FOR THE CONSOLIDATED FINANCIAL STATEMENTS

In preparing consolidated financial statements, management is responsible for assessing whether it is appropriate to prepare consolidated financial statements under a going concern assumption, and for disclosing any information required to be published on the going concern pursuant to corporate accounting principles generally accepted in our country.

Audit & supervisory board members and the Audit & Supervisory Board are responsible for overseeing duty execution by directors in developing and operating a financial reporting process.

AUDITOR’S RESPONSIBILITY FOR AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS

An auditor’s responsibility is to, based on the audit performed by the auditor, obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to fraud or error, and express an opinion on the financial statements from an independent standpoint in the audit report. A misstatement may occur whether due to fraud or error and is considered material if it is reasonably expected to, whether separately or collectively, affect the decision making of the users of the consolidated financial statements.

– II-212 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The auditor makes judgments as a professional expert through an audit process in accordance with the audit principles generally accepted in our country, and does the following with a sense of professional skepticism:

Identify and assess the risk of material misstatement, whether due to fraud or error. Also plan and implement audit procedures to address material misstatement risks. The choice and application of audit procedures shall be at the discretion of the auditor. Furthermore, obtain sufficient and appropriate audit evidence to serve as the basis for expressing an opinion.
The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the internal control. However, in performing risk assessments, the auditor considers audit-related internal control in order to design audit procedures that are appropriate in the circumstances.
Assess the appropriateness of accounting policies and methods of their application adopted by methods of their application as well as the reasonableness of accounting estimates made by management and the appropriateness of any related notes.
Conclude whether it is appropriate for management to prepare the consolidated financial statements on a going concern basis, and, based on the audit evidence obtained, whether there are significant uncertainties regarding the events or circumstances that may raise significant doubt about the going concern assumption. If material uncertainty about the going concern assumption is deemed to exist, an audit report is required to warn it in notes to the consolidated financial statements, or if notes on material uncertainty in the consolidated financial statements are inappropriate, an opinion with exclusions about the consolidated financial statements is required to be presented. Though the auditor’s conclusion is based on the audit evidence obtained by the date of the audit report, the Company could potentially be unable to continue as a going concern due to future events and conditions.
Assess whether the information and notes in the consolidated financial statements conform to the corporate accounting principles generally accepted in our country, and whether the information, composition and contents in the consolidated financial statements, including relevant notes, and the consolidated financial statements present fairly underlying transactions and accounting events.
Obtain evidence about the financial information of the Company and its consolidated subsidiaries in order to express an opinion on the consolidated financial statements. The auditor is responsible for directing, supervising and conducting an audit of the consolidated financial statements. The auditor is solely responsible for the audit opinion.

– II-213 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

The auditor shall report to Audit & Supervisory Board members and the Audit & Supervisory Board on the scope and timing of the planned audit, material audit findings including material weaknesses in internal controls identified during the audit process, and other matters required by the audit principles.

The auditor shall inform Audit & Supervisory Board members and the Audit & Supervisory Board of having complied with regulations on professional ethics in our country concerning independence, any information that is reasonably deemed to affect the auditor’s independence and any safeguard used to remove or mitigate impediments.

AUDIT OPINION

We have audited the internal control report of the Company as of March 31, 2020 in order to provide audit certification in accordance with Article 193-2, Paragraph 2 of the Financial Instruments and Exchange Act.

In our opinion, the internal control report referred to above, in which the Company indicated that the internal control over financial reporting was effective as of March 31, 2020, presents fairly, in all material respects, the evaluation results of the internal control over financial reporting in conformity with the evaluation standards for internal control over financial reporting generally accepted in our country.

BASIS OF THE AUDIT OPINION

We conducted an internal control audit in accordance with the audit principles for internal control over financial reporting generally accepted in our country. Our responsibility under the audit principles is stated in the “Auditor’s Responsibility for Auditing Internal Controls” section. We are independent of the Company and its consolidated subsidiaries and fulfill our ethical responsibility as an auditor in accordance with the Code of Professional Ethics in our country. We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

RESPONSIBILITY OF MANAGEMENT, AUDIT & SUPERVISORY BOARD MEMBERS AND THE AUDIT & SUPERVISORY BOARD FOR THE INTERNAL CONTROL REPORT

Management is responsible for developing and operating an internal control over financial reporting and for preparing and properly presenting internal control reports in accordance with the evaluation standards for internal control over financial reporting generally accepted in our country. Audit & Supervisory Board members and the Audit & Supervisory Board are responsible for monitoring and verifying the development and operation of the internal control over financial reporting. The internal control over financial reporting may not completely prevent or detect false statements in financial reporting.

– II-214 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

AUDITOR’S RESPONSIBILITIES IN INTERNAL CONTROL AUDITS

An auditor’s responsibility is to, based on the internal control audit performed by the auditor, obtain reasonable assurance about whether the internal control report is free of material misstatement and express an opinion on the report from an independent standpoint in the internal control audit report.

The auditor makes judgments as a professional expert through an audit process in accordance with the audit principles for internal control over financial reporting generally accepted in our country, and does the following with a sense of professional skepticism:

Conduct audit procedures to obtain audit evidence on the results of the assessment of internal control over financial reporting in the internal control report. The audit procedures for internal control audits are selected and applied at the discretion of the auditor based on the importance of the impact on the reliability of financial reporting.
Review the overall presentation of the internal control report, including statements made by management on the scope, procedures, and results of the assessment of internal control over financial reporting.
Obtain sufficient and appropriate audit evidence regarding the results of the assessment of internal control over financial reporting in the internal control report. The auditor is responsible for directing, supervising and conducting an audit of the he internal control report. The auditor is solely responsible for the audit opinion.

The auditors shall report to Audit & Supervisory Board members and the Audit & Supervisory Board on the scope and timing of the planned internal control audit, any material audit findings including material weaknesses identified regarding the internal control, and other matters required by the audit principles for internal controls.

INTEREST

We have no interest in the Company and its subsidiaries that should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

(Note)

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).

XBRL data is not included in the scope of audit.

– II-215 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S AUDIT REPORT

(Translation)

July 29, 2020

To the Board of Directors,

Sanden Holdings Corporation

KPMG AZSA LLC

(Tokyo Office)

Designated Limited	Certified Public	Masahiro Sasaki	Seal
Liability Partner	Accountant
Engagement Partner
Designated Limited	Certified Public	Koji Aida	Seal
Liability Partner	Accountant
Engagement Partner

AUDIT OPINION

In order to provide audit certification in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act, we have audited the non-consolidated financial statements of Sanden Holdings Corporation for the 94th fiscal year from April 1, 2019 to March 31, 2020, as shown in the “Financial Information” section, which comprise the balance sheet, income statement, statement of changes in shareholders’ equity, significant accounting policies, other notes and supplementary schedules.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation as of March 31, 2020 and the results of their operations for the year then ended in conformity with the corporate accounting principles generally accepted in our country.

BASIS OF THE AUDIT OPINION

We conducted our audit in accordance with the audit principles generally accepted in our country. Our responsibility under the audit principles is stated in the “Auditor’s Responsibility for Auditing Financial Statements” section. We are independent of the Company and fulfill our ethical responsibility as an auditor in accordance with the Code of Professional Ethics in our country. We believe that we have obtained sufficient and appropriate audit evidence to serve as the basis for our opinion.

– II-216 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

SIGNIFICANT UNCERTAINTY ABOUT GOING CONCERN ASSUMPTION

As stated in the Note on Going Concern Assumption, the Company is in a situation where its current liabilities exceeds its current assets on the balance sheet as of the end of the fiscal year under review, and the operating revenue in Automotive Systems Business operated by the Company and its subsidiaries significantly decreased, posting a significant operating loss. Consequently, there are events or conditions that may cast significant doubt about the going concern assumption of the Company, and material uncertainty about the assumption is deemed to exist at the moment. Shown in the notes are measures to be taken to address such events or conditions and the reasons for such significant uncertainty. The financial statements were prepared under the going concern assumption, and they do not reflect the effect from such material uncertainty.

This matter does not affect our conclusion.

RESPONSIBILITY OF MANAGEMENT, AUDIT & SUPERVISORY BOARD MEMBERS AND THE AUDIT & SUPERVISORY BOARD FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation and fair presentation of financial statements in accordance with the corporate accounting principles generally accepted in our country. This includes the development and operation of internal controls that management considers necessary for the preparation and fair presentation of financial statements free of material misstatement, whether due to fraud or error.

In preparing financial statements, management is responsible for assessing whether it is appropriate to prepare financial statements under the going concern assumption, and for disclosing any information required to be published on the going concern pursuant to the corporate accounting principles generally accepted in our country.

Audit & supervisory board members and the Audit & Supervisory Board are responsible for overseeing duty execution by directors in developing and operating a financial reporting process.

AUDITOR’S RESPONSIBILITY FOR AUDIT OF FINANCIAL STATEMENTS

An auditor’s responsibility is to, based on the audit performed by the auditor, obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error, and express an opinion on the financial statements from an independent standpoint in the audit report. A misstatement may occur whether due to fraud or error and is considered material if it is reasonably expected to, whether separately or collectively, affect the decision making of the users of the financial statements.

– II-217 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Identify and assess the risk of material misstatement, whether due to fraud or error. Also plan and implement audit procedures to address material misstatement risks. The choice and application of audit procedures shall be at the discretion of the auditor. Furthermore, obtain sufficient and appropriate audit evidence to serve as the basis for expressing an opinion.
The purpose of an audit of the financial statements is not to express an opinion on the effectiveness of the internal control. However, in performing risk assessments, the auditor considers audit-related internal control in order to design audit procedures that are appropriate in the circumstances.
Assess the appropriateness of accounting policies and methods of their application adopted by methods of their application as well as the reasonableness of accounting estimates made by management and the appropriateness of any related notes.
Conclude whether it is appropriate for management to prepare the financial statements on a going concern basis, and, based on the audit evidence obtained, whether there are significant uncertainties regarding the events or circumstances that may raise significant doubt about the going concern assumption. If material uncertainty about the going concern assumption is deemed to exist, an audit report is required to warn it in notes to the financial statements, or if notes on material uncertainty in the financial statements are inappropriate, an opinion with exclusions about the financial statements is required to be presented. Though the auditor’s conclusion is based on the audit evidence obtained by the date of the audit report, the company could potentially be unable to continue as a going concern due to future events and conditions.
Assess whether the information and notes in the financial statements conform to the corporate accounting principles generally accepted in our country, and whether the information, composition and contents in the financial statements, including relevant notes, and the financial statements present fairly underlying transactions and accounting events.

– II-218 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INTEREST

We have no interest in the Company which should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

(Note)

The above is a digitization of the text contained in the original copy of the Audit Report, which is kept separately by the Company (Company Submitting Securities Report).
XBRL data is not included in the scope of audit.

– II-219 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

A.2 UNAUDITED FINANCIAL INFORMATION OF THE SANDEN GROUP FOR THE NINE MONTHS ENDED 31 DECEMBER 2020

The following is the English translation of the unaudited consolidated financial statements of the Sanden Group for the nine months ended 31 December 2020 prepared in accordance with JGAAP which have been reviewed by Sanden’s auditors, KPMG AZSA LLC., in accordance with JGAAS as extracted from its quarterly securities report for the third quarter of the financial year ended 31 March 2021 filed to the Kanto Local Finance Bureau in Japan and made public on EDINET.

The English translation of such unaudited but reviewed consolidated financial statements has been certified by an independent translator.

Financial Information

1. Basis of preparation of the quarterly consolidated financial statements

The quarterly consolidated financial statements of the Company are prepared in accordance with the Ministry of Finance Ordinance No. 64, 2007 “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements”.

2. Auditing and attestation

The original Japanese consolidated financial statements for the third quarter of FY2020 (from October 1 to December 31, 2020) and the first nine months of FY2020 (from April 1 to December 31, 2020) were reviewed by KPMG AZSA LLC, in accordance with Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act.

– II-220 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

1. Quarterly consolidated financial statements

(1) Quarterly consolidated balance sheets

(Millions of yen)

Assets Current assets Cash at bank and on hand Notes and accounts receivable Finished goods Works in process Raw materials Other inventories Other receivables Consumption taxes receivable Other current assets Provision for bad debts Total current assets Non-current assets Fixed assets Buildings and structures, net Machinery, equipment and vehicles, net Tools, furniture and fixtures, net Land Leased assets, net Construction in progress Total fixed assets	FY2019 (As of March 31, 2020) 26,440 45,344 16,193 8,699 7,514 2,932 4,570 3,780 8,153 (17,842) 105,787 16,144 16,671 3,359 10,610 6,764 4,971 58,522	Third quarter of FY2020 (As of December 31, 2020) 22,793 *1 39,462 12,738 7,646 6,442 2,993 3,643 4,017 9,439 (15,245) 93,932 15,570 16,764 2,946 10,559 7,200 3,636 56,678

– II-221 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Intangible assets Goodwill Leased assets Other intangible assets Total intangible assets Investments and other assets Long-term equity investments Retirement benefit asset Deferred tax assets Other non-current assets Provision for bad debts Total investments and other assets Total non-current assets Total assets	FY2019 (As of March 31, 2020) 13 141 3,956 4,111 15,903 99 1,743 3,165 (1,774) 19,138 81,772 187,559	Third quarter of FY2020 (As of December 31, 2020) 3 106 4,118 4,227 14,116 100 2,077 2,283 (1,014) 17,562 78,469 172,401

– II-222 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Liabilities Current liabilities Notes and accounts payable Short-term borrowings Bonds payable due within one year Long-term borrowings due within one year Other payables Lease liabilities Taxes payable Provision for bonuses Provision for sales rebates Provision for product warranties Other current liabilities Total current liabilities Non-current liabilities Bonds payable Long-term borrowings Lease liabilities Deferred tax liabilities Retirement benefit liability Provision for environmental measures Provision for stock compensation Other non-current liabilities Total non-current liabilities Total liabilities	FY2019 (As of March 31, 2020) 29,983 47,497 1,985 20,984 6,341 2,627 238 1,475 169 1,736 8,131 121,170 3,847 25,938 7,610 476 3,491 198 153 1,972 43,689 164,859	Third quarter of FY2020 (As of December 31, 2020) 28,443 52,746 1,985 21,775 6,227 2,730 343 861 164 1,887 6,942
		124,107
		2,955 20,820 7,199 432 3,234 162 151 4,685
		39,641
		163,748

– II-223 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Net assets Shareholders’ equity Share capital Capital reserves Retained earnings Treasury share Total shareholders’ equity Other comprehensive income Valuation difference on other securities Deferred gains or losses on hedges Differences on translation of foreign currency financial statements Accumulated adjustment for retirement benefits Total other comprehensive income Minority interests Total net assets Total liabilities and net assets	FY2019 (As of March 31, 2020) 11,037 3,377 12,772 (704) 26,482 (46) (50) (3,986) (1,648) (5,732) 1,949 22,699 187,559	Third quarter of FY2020 (As of December 31, 2020) 11,037 3,377 (2,450) (674) 11,289 (21) (38) (2,813) (1,197) (4,070) 1,434 8,653 172,401

– II-224 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(2) Quarterly consolidated statements of income and quarterly consolidated statements of comprehensive income

Quarterly consolidated statements of income

First nine months of the fiscal year

(Millions of yen)

Operating revenue Operating costs Gross profit Selling, general and administrative expenses Operating loss Non-operating income Interest income Dividend income Share of profit of associates and joint ventures Rental income Other non-operating income Total non-operating income Non-operating expenses Interest expenses Foreign exchange losses Investment loss on equity method Other non-operating expenses Total non-operating expenses Ordinary loss	First nine months of FY2019 (April 1, 2019 to December 31, 2019) 166,541 139,078 27,463 29,352 (1,888) 416 14 1,018 18 447 1,916 1,837 1,568 – 1,668 5,074 (5,046)	First nine months of FY2020 (April 1, 2020 to December 31, 2020) 94,496 87,057 7,439 17,137 (9,697) 345 6 – 583 116 1,051 1,432 1,511 2,046 2,360 7,349 (15,995)

– II-225 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Extraordinary income Gain on disposal of non-current assets Gain on sales of shares of subsidiaries and affiliates Other extraordinary income Total extraordinary income Extraordinary losses Loss on disposal of non-current assets Costs associated with suspension of operations Structure reform cost Other extraordinary losses Total extraordinary losses Quarterly profits (loss) before income taxes Income tax expenses Quarterly net profits (loss) Quarterly profits (loss) of minority interests Quarterly net profits (loss) attributable to shareholders of the parent company	First nine months of FY2019 (April 1, 2019 to December 31, 2019) 1,128 24,355 23 25,507 277 – 7,016 65 7,359 13,102 1,560 11,541 (669) 12,210	First nine months of FY2020 (April 1, 2020 to December 31, 2020) 121 – 29 150 28 *1 957 – 231 1,216 (17,061) 190 (17,251) (411) (16,840)

– II-226 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Quarterly consolidated statements of comprehensive income

First nine months of the fiscal year

Quarterly net profits (loss)
Other comprehensive income
Valuation difference on other securities
Deferred gains or losses on hedges
Differences on translation of foreign currency
financial statements
Accumulated adjustment for retirement benefits
Share of other comprehensive income of affiliates
accounted for using equity method
Total other comprehensive income
Quarterly comprehensive income
Quarterly comprehensive income attributable to:
Shareholders of the parent company
Minority interests

(Millions of yen)
First nine
months of
FY2019
(April 1,
2019 to
December
31, 2019)
First nine
months of
FY2020
(April 1,
2020 to
December
31, 2020)
11,541
(17,251)
(268)
22
16
12
652
315
(364)
451
(1,375)
786
(1,339)
1,588
10,201
(15,663)
11,107
(15,178)
(905)
(484)

– II-227 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Notes

(Going concern assumption)

The Group’s operating revenue stood at ¥204,880 million, a decrease of 25% year on year, operating loss amounted to ¥3,401 million and ordinary loss came to ¥9,735 million as the Group’s financial performance were affected by the sale in last fiscal year of all outstanding shares in SDRS, a main subsidiary in the Commercial Store Systems Business, and reduced vehicle sales in the Automotive Systems Business, particularly in the European and Chinese markets, combined with globally spreading COVID-19 infections. The total amount of borrowings and corporate bonds of the Company at the end of the fiscal year ended March 31, 2020 was ¥100,252 million, which was higher than cash on hand of ¥23,711 million, and current liabilities exceeded current assets.

For the first nine months under review, operating revenue stood at ¥94,496 million, a decrease of 43% year on year, operating loss amounted to ¥9,697 million and ordinary loss came to ¥15,995 million owing to the sale of shares in SDRS, while the Automotive Systems Business was affected by globally spreading COVID-19 infections. The total amount of borrowings and corporate bonds of the Company at the end of the third quarter of the fiscal year under review was ¥100,282 million, which was higher than cash on hand of ¥21,378 million, and current liabilities exceeded current assets.

As a result of the above, there still are circumstances that may cast significant doubt on the Company’s ability to continue as a going concern.

In light of such difficult business conditions, on June 30, 2020, to establish a solid profit structure for future regrowth and drastically improve the Group’s financial structure, the Companies formally applied for the business revitalization ADR procedure to the Japanese Association of Turnaround Professionals, an organization certified by both the Minister of Justice as an ADR Business Operator and by the Minister of Economy, Trade and Industry as a Specified ADR Business Operator, and the application was accepted on the same date.

After that, on July 14, 2020, the Companies held the 1st creditors’ meeting (creditors’ meeting to explain the outline of the business revitalization plan under the procedure) with all financial institutions that are eligible creditors for the business revitalization ADR procedure in attendance. On December 11, 2020, the Companies held the successive meeting for the 2nd creditors’ meeting (creditors’ meeting to discuss the business revitalization plan) as well as the 3rd creditors’ meeting (creditors’ meeting to resolve the business revitalization plan), and obtained the consent from all financial institutions that are eligible creditors regarding the temporary suspension notice, and the Companies have received an extension of this temporary suspension until the end of the creditors’ meeting for the resolution of the business revitalization plan (In the case of a postponement or continuance, the suspension is up to the date of the postponement or continuance).

– II-228 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

In addition, the Company will receive financial support including bridge loans from major financial institutions and received approval from all financial institutions that are eligible creditors, for such financial support and treat claims related to the financial support with priority over the claims of the eligible creditors.

As part of the business revitalization ADR procedure, the Companies will formulate a business revitalization plan based on research, guidance and advice from the Japanese Association of Turnaround Professionals from a fair and neutral perspective, while consulting with our financial institutions. With respect to the details of the proposed plan, in addition to management improvement measures based on the Companies’ self-help efforts, we are consulting with sponsor candidates having expressed a legally-binding intent for sponsor assistance regarding capital and business alliances, and will aim to conclude the plan with the consent of all of the financial institutions that will be creditors of the plan.

The schedule for the turnaround ADR procedure is as follows:

The further successive meeting for the 2nd creditors’ meeting (the creditors’ meeting to discuss the proposed business revitalization plan), scheduled for March 12, 2021.

The successive meeting for the 3rd creditors’ meeting (the creditors’ meeting to resolve the proposed business revitalization plan), scheduled for April 27, 2021.

However, the schedule could potentially be changed depending on the progress of the procedures with a continuation date being set as required.

However, these countermeasures are still in the process of implementation, and even if the above measures are taken, there may be a significant impact on future cash flow, depending on the future business situation of the Group and the progress of the business revitalization ADR procedure. At this time, we recognize that there is significant uncertainty regarding going concern assumption.

Note that the quarterly consolidated financial statements have been prepared on a going concern basis and the quarterly consolidated financial statements do not reflect the effect of significant uncertainties related to the going concern assumption.

– II-229 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Specific accounting treatment applied to the preparation of quarterly consolidated financial statements)

First nine months of FY2020 (April 1, 2020 to December 31, 2020)

Calculation of income tax expenses

The Company calculated income tax expenses by multiplying quarterly income before income taxes by an effective tax rate that is reasonably estimated after an application of tax effect accounting to income before income taxes for the consolidated fiscal year including the third quarter under review.

However, in cases where using an estimated effective tax rate to calculate would make the calculation quite unreasonable, we calculated pursuant to Paragraph 12 (Method of using statutory effective tax rate) of the “Implementation Guidance on Tax Effect Accounting for Interim Financial Statements”.

Deferred income taxes are included in income taxes for presentation.

(Additional information)

Application of tax effect accounting for the transition from the consolidated taxation system to the group tax sharing system

The impact of the spread of COVID-19

There has been no material change to our assumptions such as on a potential future spread of COVID-19 infections and on extinction timing that are each stated in sections titled “The impact of the spread of COVID-19” in “Additional information” of the Securities Report for the previous consolidated fiscal year.

– II-230 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Transaction related to the executive compensation Board Incentive Plan (BIP) Trust

(1) Outline of the transaction

(2) Treasury share remaining in the trust

The Company’s shares remaining in the trust are recorded as treasury share in shareholders’ equity at the book value of the trust (excluding incidental expenses). The book value and number of shares of treasury share were ¥450 million and 206,494 shares for the previous fiscal year, and ¥370 million and 192,639 shares for the third quarter of the fiscal year under review.

Accounting treatment in hyperinflationary economies

Starting from the second quarter, the Company applied the equity method to the quarterly financial statements of Iranian affiliates after making adjustments in accordance with IAS 29 “Financial Reporting in Hyperinflationary Economies”.

Accordingly, as a cumulative effect from a retroactive application of the accounting standard, retained earnings at the beginning of the first quarter increased by ¥1,825 million.

– II-231 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Quarterly consolidated balance sheets)

1. Contingent liabilities

(1) The Company provides debt guarantees for borrowings of non-consolidated companies from financial institutions, as follows.

(Millions of yen)

SANPAK ENGINEERING INDUSTRIES (PVT) LTD. Total	FY2019 (As of March 31, 2020) (PKR650,000 thousand) 429 429	Third quarter of FY2020 (As of December 31, 2020) (PKR162,026 thousand) 105
		105

(2) Other

FY2019 (As of March 31, 2020)

Third quarter of FY2020 (As of December 31, 2020)

In connection with the plea agreement with the U.S. Department of Justice, civil lawsuits (class action lawsuits) and other lawsuits have been filed in North America seeking damages. Some of these lawsuits have already been settled. The outcome of other pending lawsuits could have an impact on the Group’s business results, but it is difficult to make a reasonable estimate of the amount of these lawsuits at this time, and it is unclear how much of an impact these lawsuits could have on the Group’s business results and financial position.

– II-232 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Notes that matured at the end of the quarterly consolidated accounting period

As for the accounting treatment for notes maturing at the end of the quarterly accounting period, they are settled at their clearance dates.

As the last day of the third quarter of the fiscal year under review was a holiday for financial institutions, the following notes matured at the end of the quarter were included in the balance at the end of the quarter.

				(Millions of yen)	(Millions of yen)
					Third
					quarter of
				FY2019	FY2020
				(As of	(As of
				March 31,	December
				2020)	31, 2020)
Notes	and	accounts	receivable	–	18

(Quarterly consolidated statements of income)

*1 Costs associated with suspension of operations

As COVID-19 infections spread, the Company recorded costs associated with the suspension of operations and temporary layoffs at production sites in countries (mainly fixed costs such as personnel expenses and depreciation) in response to requests and statements from national and local governments.

– II-233 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Quarterly consolidated statements of cash flows)

The Company did not prepare quarterly consolidated statements of cash flows for the first nine months of the fiscal year under review. Depreciation expenses for the first nine months of the fiscal year (including amortization expenses for intangible assets other than goodwill) are as follows.

(Millions of yen)

Depreciation	First nine months of FY2019 (April 1, 2019 to December 31, 2019) 7,856	First nine months of FY2020 (April 1, 2020 to December 31, 2020) 6,364

(Shareholders’ equity)

First nine months of FY2019 (April 1, 2019 to December 31, 2019)

Dividends paid

Not applicable.

First nine months of FY2020 (April 1, 2020 to December 31, 2020)

Dividends paid

Not applicable.

(Segments of the Company and related information)

Segment information

I. First nine months of FY2019 (April 1, 2019 to December 31, 2019)

As described in “II. First nine months of FY2020 (Matters related to changes in reportable segments)”.

II. First nine months of FY2020 (April 1, 2020 to December 31, 2020)

Information is omitted as the Group has only reportable segment of the Automotive Systems Business.

– II-234 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(Matters related to changes in reportable segments)

Previously, the Group’s reportable segments consisted of the Automotive Systems Business and the Commercial Store Systems Business. However, as a result of the sale of all outstanding shares of SDRS in the previous consolidated fiscal year, which was a main subsidiary of in the Commercial Store Systems Business, the segment became less important. Accordingly, starting from the first quarter, the Automotive Systems Business became the only reportable segment.

This change resulted in an omission of segment information for the first nine months of the fiscal year under review and the previous fiscal year.

(Per share information)

The basis for calculating quarterly net profit (loss) per share is as follows.

Quarterly net profit (loss) per share (Basis for calculation) Quarterly net profit (loss) attributable to shareholders of the parent company (Millions of yen) Amount not attributable to shareholders on common stock (Millions of yen) Quarterly net profit (loss) attributable to shareholders of the parent company related to common stock (Millions of yen) Average number of shares of common stock during the period (Shares)	First nine months of FY2019 (April 1, 2019 to December 31, 2019) 440.60 yen 12,210 – 12,210 27,712,756	First nine months of FY2020 (April 1, 2020 to December 31, 2020) (606.75) yen (16,840) – (16,840) 27,754,485

Notes:

Diluted quarterly net profits per share for the first nine months of the fiscal year under review is not shown in the table above as the Company recorded quarterly net loss and no dilutive shares existed. Diluted quarterly net profits per share for the first nine months of the previous fiscal year is not shown in the table above as no dilutive shares existed.
The Company’s shares held in the Executive Compensation BIP Trust are included in shares of treasury share to be deducted from the average number of shares for the period for the purpose of calculating quarterly net profits or loss per share. (238,023 shares for the first nine months of the previous fiscal year and 195,410 shares for the first nine months of the fiscal year under review)

2. Other

Not applicable.

– II-235 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INDEPENDENT AUDITOR’S REVIEW REPORT ON QUARTERLY FINANCIAL RESULTS

(Translation)

February 10, 2021

To the Board of Directors, Sanden Holdings Corporation

KPMG AZSA LLC (Tokyo Office)

Designated Limited	Certified Public	Hiroto Yamane	Seal
Liability Partner	Accountant
Engagement Partner
Designated Limited	Certified Public	Koji Aida	Seal
Liability Partner	Accountant
Engagement Partner

AUDITOR’S RESPONSIBILITY

Pursuant to Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act of Japan, we have reviewed the accompanying quarterly consolidated financial statements of Sanden Holdings Corporation (“the Company”) for the third quarter (from October 1 to December 31, 2020) and the cumulative third quarter (from April 1 to December 31, 2020) of the fiscal year ending March 31, 2021 (from April 1, 2020 to March 31, 2021), as shown in the “Financial Information” section, which comprise the quarterly consolidated balance sheets, quarterly consolidated statements of income, quarterly consolidated statements of comprehensive income and notes to the quarterly consolidated financial statements.

In our opinion, the quarterly consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sanden Holdings Corporation and its consolidated subsidiaries as of December 31, 2020 and the results of their operations for the cumulative third quarter ended December 31, 2020 in conformity to quarterly financial statements preparation principles generally accepted in our country.

BASIS OF THE AUDITOR’S CONCLUSION

We conducted our quarterly review in accordance with quarterly review principles generally accepted in our country. Our responsibility under the quarterly review principles is stated in the section “Auditor’s responsibility for review of quarterly consolidated financial statements”. We are independent of the Company and its consolidated subsidiaries and fulfill our ethical responsibility as an auditor in accordance with the Code of Professional Ethics in our country. We believe that we have obtained the evidence to serve as the basis for our conclusion.

– II-236 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

SIGNIFICANT UNCERTAINTY ABOUT GOING CONCERN ASSUMPTION

As stated in the Note on Going Concern Assumption, during the cumulative third quarter from April 1, 2020 to December 31, 2020, the Company recorded a significant decrease in operating revenue and recognized JPY9,697 million in operating loss, and as of December 31, 2020, current liabilities exceeded current assets on the quarterly consolidated balance sheet. Consequently, there are events or conditions that may cast significant doubt about the going concern assumption of the Company, and material uncertainty about the assumption is deemed to exist. Shown in the notes are measures to be taken to address such events or conditions and the reasons for such significant uncertainty. The quarterly consolidated financial statements were prepared under the going concern assumption. The quarterly consolidated financial statements do not reflect the effect from the significant uncertainty about the going concern assumption.

This matter does not affect our conclusion.

RESPONSIBILITY OF MANAGEMENT, AUDIT & SUPERVISORY BOARD MEMBERS AND THE AUDIT & SUPERVISORY BOARD FOR THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for preparing and fairly presenting quarterly consolidated financial statements in accordance with quarterly consolidated financial statements preparation principles generally accepted in our country. This includes the development and operation of internal controls that management considers necessary for the preparation and fair presentation of quarterly consolidated financial statements free of material misstatement, whether due to fraud or error.

In preparing quarterly consolidated financial statements, management is responsible for assessing whether it is appropriate to prepare quarterly consolidated financial statements under a going concern assumption, and for disclosing any information required to be published on the going concern pursuant to quarterly consolidated financial statements preparation principles generally accepted in our country.

Audit & Supervisory Board Members and the Audit & Supervisory Board are responsible for overseeing duty execution by Directors for developing and operating a financial reporting process.

AUDITOR’S RESPONSIBILITY FOR REVIEW OF QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS

The auditor is responsible for expressing a conclusion on quarterly consolidated financial statements in a quarterly review report from an independent standpoint, based on a quarterly review conducted by the auditor.

– II-237 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

The auditor makes judgments as a professional expert through a quarterly review process in accordance with quarterly review principles generally accepted in our country, and does the following with a sense of professional skepticism:

Conduct questioning, analytical procedures and other quarterly review procedures mainly for management and persons responsible for matters related to finance and accounting. Quarterly review procedures are limited in comparison to an audit of fiscal year financial statements as conducted in accordance with auditing principles generally accepted in our country.
In cases where material uncertainty about events or conditions that may cast serious doubt about information for a going concern assumption is deemed to exist, we conclude, based on evidence obtained, whether quarterly consolidated financial statements present fairly, in all material respects, quarterly financial position in conformity to quarterly financial statements preparation principles generally accepted in our country. If material uncertainty about a going concern assumption is deemed to exist, a quarterly review report is required to warn it in notes to quarterly consolidated financial statements, or if notes on material uncertainty in quarterly consolidated financial statements are inappropriate, a qualified or negative conclusion about the quarterly consolidated financial statements is required to be presented. Though the auditor’s conclusion is based on evidence obtained by the date of the quarterly review report, the company could potentially be unable to continue as a going concern due to future events and conditions.
We assess whether information and notes in quarterly consolidated financial statements conform to quarterly financial statements preparation principles generally accepted in our country, and whether information, composition and contents in quarterly financial statements, including relevant notes, and quarterly consolidated financial statements present fairly underlying transactions and accounting events.
Obtain evidence about the financial information of the company and its consolidated subsidiaries in order to express a conclusion on quarterly consolidated financial statements. The auditor is responsible for directing, supervising and implement a review of quarterly consolidated financial statements. The auditor is solely responsible for the auditor’s conclusion.

The auditor informs Audit & Supervisory Board Members and the Audit & Supervisory Board of the scope of a planned quarterly review, its timing and any material findings from the review.

The auditor informs Audit & Supervisory Board Members and the Audit & Supervisory Board of having complied with regulations on professional ethics in our country concerning independence, any information that is reasonably deemed to affect the auditor’s independence and any safeguard used to remove or mitigate impediments.

– II-238 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

INTEREST

We have no interest in the Company and its subsidiaries that should be disclosed pursuant to the provisions of the Certified Public Accountants Act.

Notes:

The above is a digitization of the text contained in the original copy of the Review Report, which is kept separately by the Company (Company Submitting Quarterly Securities Report).
XBRL data is not included in the scope of quarterly review.

– II-239 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

B. SUPPLEMENTAL FINANCIAL INFORMATION OF THE SANDEN GROUP

Set out below is supplemental financial information of the Sanden for each of the three years ended 31 March 2018, 2019 and 2020 and the nine months ended 31 December 2020 which is required for an accountants’ report under Chapter 14 of the Listing Rules but not disclosed in the Sanden Group’s published consolidated financial statements.

(Amounts are denominated in millions of Japanese Yen , and are rounded down to the nearest whole number, unless otherwise stated.)

1. Directors’ emoluments

Directors’ emoluments for the reporting periods is as follows:

Director’s emoluments Salaries and allowances Performance related bonuses Share incentive Pension scheme contributions Total	Financial year ended 31 March 2018 301 – – 48 – 349	Financial year ended 31 March 2019 250 – – 38 – 288	Financial year ended 31 March 2020 214 – – 33 – 247	Nine months ended 31 December 2019 164 – – 25 – 189	Nine months ended 31 December 2020 148 – – 14 –
					162

– II-240 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

2. Five Highest Paid Individuals

The emoluments of the five highest paid individuals during the reporting periods is as follows:

Director’s emoluments Salaries and allowances Performance related bonuses Share incentive Pension scheme contributions Total	Financial year ended 31 March 2018 – 107 8 – – 114	Financial year ended 31 March 2019 – 106 15 – – 121	Financial year ended 31 March 2020 – 113 10 – – 123	Nine months ended 31 December 2019 – 85 10 – – 94	Nine months ended 31 December 2020 – 81 14 – –
					94

The emoluments of the five highest paid individuals not being directors by bands is as follows:

Unit: millions of Japanese Yen

0-10 10-20 20-30 30-40 Total	Financial year ended 31 March 2018 – 2 3 – 5	Financial year ended 31 March 2019 – 2 2 1 5	Financial year ended 31 March 2020 – 2 1 2 5	Nine months ended 31 December 2019 – 3 2 – 5	Nine months ended 31 December 2020 – 3 2 –
					5

– II-241 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Notes and accounts receivable

The tables below show (i) the notes and accounts receivable of the major subsidiaries of the Sanden Group in Japan, Europe, America and Middle East, (ii) the overdue amount of such notes and accounts receivable and (iii) the provision for bad debts of such notes and accounts receivable. Such notes and accounts receivable account for 76% to 84% of the total amount of notes and accounts receivable of the Sanden Group at the end of the respective reporting periods.

Notes and accounts receivable

(million JPY)

Japan (Sanden Automotive Climate Systems Corporation, Sanden Automotive Components Corporation, Sanden Retail Systems Corporation (note)) Europe (Sanden International (Europe) Ltd) America (Sanden International (U.S.A.), Inc.) Middle East Total % of total notes and accounts receivable Total notes and accounts receivable	Financial year ended 31 March 2018 22,433 13,146 3,886 18,286 57,751 78% 74,204	Financial year ended 31 March 2019 27,621 14,035 3,086 16,930 61,672 84% 73,591	Financial year ended 31 March 2020 8,352 9,185 3,312 13,581 34,431 76% 45,344	Nine months ended 31 December 2019 10,288 10,181 2,251 13,672 36,392 80% 45,344	Nine months ended 31 December 2020 4,705 10,787 2,507 12,916
					30,915

					78% 39,462

Note: Sanden disposed of all equity of Sanden Retail Systems Corporation on 1 October 2019.

– II-242 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Overdue amount of such notes and accounts receivable

(million JPY)

Japan (Sanden Automotive Climate Systems Corporation, Sanden Automotive Components Corporation, Sanden Retail Systems Corporation (note)) Europe (Sanden International (Europe) Ltd) America (Sanden International (U.S.A.), Inc.) Middle East Total	Financial year ended 31 March 2018 2,617 1,116 571 12,520 16,824	Financial year ended 31 March 2019 5,531 1,540 254 16,930 24,255	Financial year ended 31 March 2020 4,107 1,800 598 13,581 20,086	Nine months ended 31 December 2019 4,103 2,404 715 13,672 20,895	Nine months ended 31 December 2020 1,789 1,315 693 12,916
					16,713

Note: Sanden disposed of all equity of Sanden Retail Systems Corporation on 1 October 2019.

– II-243 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Provision for bad debts

(million JPY)

Japan (Sanden Automotive Climate Systems Corporation, Sanden Automotive Components Corporation, Sanden Retail Systems Corporation (note)) Europe (Sanden International (Europe) Ltd) America (Sanden International (U.S.A.), Inc.) Middle East Other region Total provision for bad debts	Financial year ended 31 March 2018 46 229 218 0 185 678	Financial year ended 31 March 2019 53 353 11 15,952 193 16,562	Financial year ended 31 March 2020 2 355 33 17,146 306 17,842	Nine months ended 31 December 2019 1 315 18 16,275 148 16,758	Nine months ended 31 December 2020 1 412 42 14,571 219
					15,245

Note: Sanden disposed of all equity of Sanden Retail Systems Corporation on 1 October 2019.

To prepare for losses due to the credit loss of notes and accounts receivable, Sanden and its consolidated subsidiaries consider the collectability of specific claims such as bad debts individually, and have provided an provision for bad debts at the estimated amounts of possible losses mainly for specific receivables.

4. Notes and accounts payable

Almost all notes and accounts payable, which were trade payables, as at 31 March 2018, 2019 and 2020 and 31 December 2020 were due within four months from such dates. There were no overdue notes and accounts payable as at 31 March 2018, 2019 and 2020 and 31 December 2020.

– II-244 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

5. Total current assets and total assets less current liabilities

The Sanden Group

				Nine	Nine
	Financial	Financial	Financial	months	months
	year ended	year ended	year ended	ended 31	ended 31
	31 March	31 March	31 March	December	December
	2018	2019	2020	2019	2020
Total current assets	159,363	138,412	105,787	118,733	93,932
Total assets less current
liabilities	125,422	89,690	66,389	87,912	48,294

6. Income tax

Effective statutory tax rate in Japan

						Nine	Nine
			Financial	Financial	Financial	months	months
			year ended	year ended	year ended	ended 31	ended 31
			31 March	31 March	31 March	December	December
			2018	2019	2020	2019	2020
Effective	statutory	tax	30.7%	Because	30.5%	30.5%	30.5%
rate				loss before
				income
				taxes was
				recorded for
				the fiscal
				year, there
				is no
				information
				to be
				disclosed
				here.

– II-245 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Income tax rate for overseas subsidiaries

					Nine	Nine
		Financial	Financial	Financial	months	months
		year ended	year ended	year ended	ended 31	ended 31
		31 March	31 March	31 March	December	December
Subsidiaries	Region	2018	2019	2020	2019	2020
Sanden International	England	19%	19%	19%	19%	N/A
(Europe) Ltd*
Sanden International	Germany	N/A	N/A	30%	30%	30%
(Europe) GmbH*
SANDEN	France	33.3%	28%	28%	28%	28%
MANUFACTURING
EUROPE S.A.S.
SANDEN	Poland	19%	19%	19%	19%	17%
MANUFACTURING
POLAND SP.ZO.O.
SANDEN	USA	40%	27%	21%	21%	21%
INTERNATIONAL
(U.S.A.), INC.
SANDEN	Mexico	30%	30%	30%	30%	30%
MANUFACTURING
MEXICO S.A. DE C.V.
SANDEN	Singapore	17%	17%	17%	17%	17%
INTERNATIONAL
(SINGAPORE) PTE.LTD.
SANDEN	Malaysia	24%	24%	24%	24%	24%
AIRCONDITIONING
(MALAYSIA) SDN.BHD.
SANDEN	Taiwan	17%	20%	20%	20%	20%
INTERNATIONAL
TAIWAN CORPORATION
SANDEN VIKAS (INDIA)	India	35%	35%	35%	35%	35%
PRIVATE LIMITED.
SANDEN THAILAND CO.,	Thailand	20%	20%	20%	20%	20%
LTD.
TIANJIN SANDEN	China	15%	15%	15%	15%	15%
AUTOMOTIVE
AIR-CONDITIONING
CO., LTD.
P.T. SANDEN INDONESIA	Indonesia	25%	25%	25%	25%	25%
SANDEN	Philippines	5%	5%	5%	5%	5%
INTERNATIONAL
PHILIPPINES INC.
Sanden(Suzhou)Precision	China	25%	25%	25%	25%	25%
Parts Co., Ltd.

– II-246 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

					Nine	Nine
		Financial	Financial	Financial	months	months
		year ended	year ended	year ended	ended 31	ended 31
		31 March	31 March	31 March	December	December
Subsidiaries	Region	2018	2019	2020	2019	2020
Sanden Chongqing	China	15%	15%	25%	25%	25%
Automotive Air
Conditioning Co., Ltd.
Sanden Shanghai Thermal	China	25%	25%	25%	25%	25%
Environmental System
Co., Ltd.
Sanden Vikas Precision Parts	India	33%	33%	33%	33%	28%
Private Limited
SANDEN	Australia	30%	30%	30%	30%	30%
INTERNATIONAL
(AUSTRALIA) PTY.LTD.

Sanden International (Europe) Ltd was merged into Sanden International (Europe) GmbH* from the financial year ending 31 March 2021.

Sanden International (Europe) GmbH had become an operating subsidiary from the financial year ended 31 March 2020.

Income tax for other overseas subsidiaries of the Sanden Group is calculated at the rates prevailing in the relevant jurisdictions.

7. List of consolidated subsidiaries and affiliated companies

① Financial year ended 31 March 2018

Consolidated subsidiaries

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Climate Systems	Japan	equipment systems
Corporation
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Components Corporation	Japan	equipment systems
Sanden Retail Systems	Isesaki, Gunma,	Commercial Store	100.0%
Corporation	Japan	systems
Sanden Living &	Isesaki, Gunma,	Other	100.0%
Environmental Systems	Japan
Corporation

– II-247 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Environmental	Isesaki, Gunma,	Automotive	100.0%
Products Corporation	Japan	equipment systems
		Commercial Store
		systems
		Other
Sanden Advanced	Isesaki, Gunma,	Automotive	100.0%
Technology Corporation	Japan	equipment systems
		Commercial Store
		systems
		Other
Sanden Business Expert	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Sanwa Corporation	Isesaki, Gunma,	Automotive	100.0%
	Japan	equipment systems
Sanwa Fabtech Corporation	Maebashi, Gunma,	Commercial Store	100.0%
	Japan	systems
SD Maintenance	Kita, Tokyo, Japan	Commercial Store	100.0%
Corporation		systems
Sanden System	Isesaki, Gunma,	Other	100.0%
Engineering Corporation	Japan
Sanden Logistics	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Sanden Facility	Maebashi, Gunma,	Other	100.0%
Corporation	Japan
Sanden Fudosan	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Honda Cars Takasaki	Takasaki, Gunma,	Other	100.0%
Corporation	Japan		(66.7%)
Sankyo Kosan Corporation	Isesaki, Gunma,	Other	100.0%
	Japan
Sanden Manufacturing	Tinteniac, France	Automotive	100.0%
Europe S.A.S.		equipment systems	(100.0%)
		Other
Sanden Manufacturing	Polkowice, Poland	Automotive	100.0%
Poland sp. z o.o.		equipment systems	(100.0%)
SANDEN	BASINGSTOKE,	Automotive	100.0%
INTERNATIONAL	HAMPSHIRE, UK	equipment systems
(EUROPE)LTD.		Commercial Store
		systems
		Other
SANDEN VENDO	CASALE,	Commercial Store	100.0%
EUROPES.P.A.	MONFERRATO,	systems	(100.0%)
	ITALY

– II-248 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden International	Wylie, Texas, U.S.A.	Automotive	100.0%
(U.S.A.), Inc.		equipment systems	(100.0%)
Sanden Manufacturing	Saltillo, Coahuila,	Automotive	100.0%
Mexico S.A. de C.V.	Mexico	equipment systems	(82.3%)
SANDEN VENDO	Dallas, Texas,	Commercial Store	100.0%
AMERICA INC.	U.S.A.	systems
The Vendo Company	Dallas, Texas,	Commercial Store	100.0%
	U.S.A.	systems	(100.0%)
SANDEN OF AMERICA	WYLIE, TEXAS,	Automotive	100.0%
INC.	U.S.A.	equipment systems
Sanden Vikas (India)	Haryana, India	Automotive	50.0%
Private Limited		equipment systems	(46.7%)
Sanden International	Singapore	Automotive	100.0%
(Singapore) Pte. Ltd.		equipment systems
Sanden Airconditioning	Shah Alam Selangor	Automotive	100.0%
(Malaysia) Sdn. Bhd.	Darul Ehsan,	equipment systems	(58.50%)
	Malaysia
Tianjin Sanden Auto	Tianjin, the PRC	Automotive	51.5%
Air-Conditioning CO.,		equipment systems
LTD.
Sanden (Suzhou) Precision	Suzhou, Jiangsu, the	Automotive	65.0%
Parts Co., Ltd.	PRC	equipment systems
Sanden Chongqing	Chongqing, the PRC	Automotive	51.0%
Automotive Air		equipment systems
Conditioning Co., Ltd
Sanden International	Taoyuan, Taiwan	Automotive	100.0%
Taiwan Corporation		equipment systems
		Commercial Store
		systems
Sanden International	Calumba, Laguna,	Automotive	100.0%
Philippines Inc.	Philippines	equipment systems	(99.4%)
		Commercial Store
		systems
P.T. Sanden Indonesia	Jakarta, Indonesia	Automotive	100.0%
		equipment systems	(100.0%)
Sanden International	Condell Park, NSW,	Automotive	100.0%
(Australia) Pty. Ltd.	Australia	equipment systems
		Commercial Store
		systems
		Other
Sanden Thailand Co., Ltd.	Ayutthaya, Thailand	Automotive	95.0%
		equipment systems	(38.0%)
Sanden Shanghai	Shanghai, the PRC	Commercial Store	100.0%
Refrigeration Co., Ltd.		systems

– II-249 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Percentage of voting Name Location Principal businesses rights Sanden Shanghai Thermal Shanghai, the PRC Commercial Store 82.2% Environmental System systems Co., Ltd. Other Choon Tian PTE Ltd Singapore Automotive 100.0% equipment systems (100.0%) Choon Tian International Shanghai, the PRC Automotive 100.0% Trading (Shanghai) CO., equipment systems (100.0%) Ltd. GoodLife Manufacturing Johor, Malaysia Automotive 100.0% SDN.BHD. equipment systems (100.0%) Other 5 companies – – – Affiliated companies

			Percentage
			of voting
Name	Location	Principal businesses	rights
Asahi Sangyo Co., Ltd.	Honjou, Saitama,	Automotive	30.3%
	Japan	equipment
Sanwa Coatex Co., Ltd.	Isesaki, Gunma,	Automotive	31.7%
	Japan	equipment
		Commercial Store
		systems
		Other
Sanden Al Salam LLT	Dubai, United Arab	Automotive	43.0%
	Emirates	equipment systems	(43.0%)
Iranian Sanden Industries	Tehran, Iran	Automotive	43.0%
		equipment systems	(43.0%)
SANDEN INTERCOOL	Singburi, Thailand	Commercial Store	49.0%
(THAILAND) PUBLIC		systems
CO.,LTD.
Shenyang Sanden	Shenyang, the PRC	Automotive	47.5%
Automotive		equipment systems
Air-Conditioning Co.,
Ltd.
Sanden Huayu Automotive	Shanghai, the PRC	Automotive	43.0%
Air-Conditioning Co.,		equipment systems
Ltd.

– II-250 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

② Financial year ended 31 March 2019

Consolidated subsidiaries

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Climate Systems	Japan	equipment systems
Corporation
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Components Corporation	Japan	equipment systems
Sanden Retail Systems	Isesaki, Gunma,	Commercial Store	100.0%
Corporation	Japan	systems
Sanden Living &	Isesaki, Gunma,	Other	100.0%
Environmental Systems	Japan
Corporation
Sanden Environmental	Isesaki, Gunma,	Commercial Store	100.0%
Products Corporation	Japan	systems
Sanden Advanced	Isesaki, Gunma,	Automotive	100.0%
Technology Corporation	Japan	equipment systems
		Commercial Store
		systems
		Other
Sanden Business Expert	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Sanwa Corporation	Isesaki, Gunma,	Automotive	100.0%
	Japan	equipment systems
Sanwa Fabtech Corporation	Maebashi, Gunma,	Commercial Store	100.0%
	Japan	systems
SD Maintenance	Kita, Tokyo, Japan	Commercial Store	100.0%
Corporation		systems
Sanden System	Isesaki, Gunma,	Other	100.0%
Engineering Corporation	Japan
Sanden Logistics	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Sanden Facility	Maebashi, Gunma,	Other	100.0%
Corporation	Japan
Sanden Fudosan	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Honda Cars Takasaki	Takasaki, Gunma,	Other	100.0%
Corporation	Japan		(66.7%)
Sankyo Kosan Corporation	Isesaki, Gunma,	Other	100.0%
	Japan
Sanden Manufacturing	Tinteniac, France	Automotive	100.0%
Europe S.A.S.		equipment systems	(100.0%)
		Other

– II-251 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Manufacturing	Polkowice, Poland	Automotive	100.0%
Poland sp. z o.o.		equipment systems	(100.0%)
SANDEN	BASINGSTOKE,	Automotive	100.0%
INTERNATIONAL	HAMPSHIRE, UK	equipment systems
(EUROPE)LTD.		Commercial store
		systems
		Other
Sanden International	Bad Nauheim,	Automotive	100.0%
(Europe) GmbH	Germany	equipment systems	(100.0%)
SANDEN VENDO GMBH	DUSSELDORF,	Commercial store	100.0%
	GERMANY	systems	(100.0%)
SANDEN VENDO	CASALE,	Commercial store	100.0%
EUROPES.P.A.	MONFERRATO,	systems	(100.0%)
	ITALY
Sanden International	Wylie, Texas, U.S.A.	Automotive	100.0%
(U.S.A.), Inc.		equipment systems
Sanden Manufacturing	Saltillo, Coahuila,	Automotive	100.0%
Mexico S.A. de C.V.	Mexico	equipment systems	(82.3%)
SANDEN VENDO	Dallas, Texas,	Commercial store	100.0%
AMERICA INC.	U.S.A.	systems
The Vendo Company	Dallas, Texas,	Commercial store	100.0%
	U.S.A.	systems	(100.0%)
SANDEN OF AMERICA	WYLIE, TEXAS,	Automotive	100.0%
INC.	U.S.A.	equipment systems
Sanden Vikas (India)	Haryana, India	Automotive	50.0%
Private Limited		equipment systems	(46.7%)
Sanden International	Singapore	Automotive	100.0%
(Singapore) Pte. Ltd.		equipment systems
Sanden Automotive	Singapore	Automotive	100.0%
Systems (Singapore) Pte.		equipment systems	(100.0%)
Ltd.
Sanden Airconditioning	Shah Alam Selangor	Automotive	100.0%
(Malaysia) Sdn. Bhd.	Darul Ehsan,	equipment systems	(58.50%)
	Malaysia
Tianjin Sanden Auto	Tianjin, the PRC	Automotive	51.5%
Air-Conditioning CO.,		equipment systems
LTD.
Sanden (Suzhou) Precision	Suzhou, Jiangsu, the	Automotive	65.0%
Parts Co., Ltd.	PRC	equipment systems
Sanden Chongqing	Chongqing, the PRC	Automotive	51.0%
Automotive Air		equipment systems
Conditioning Co., Ltd
Sanden International	Taoyuan, Taiwan	Automotive	100.0%
Taiwan Corporation		equipment systems

– II-252 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Retail Systems	New Taipei, Taiwan	Commercial store	100.0%
Taiwan Corporation		systems	(100.0%)
Sanden International	Calumba, Laguna,	Automotive	100.0%
Philippines Inc.	Philippines	equipment systems	(99.4%)
		Commercial store
		systems
P.T. Sanden Indonesia	Jakarta, Indonesia	Automotive	100.0%
		equipment systems	(100.0%)
Sanden International	Condell Park, NSW,	Automotive	100.0%
(Australia) Pty. Ltd.	Australia	equipment systems
		Commercial store
		systems
		Other
Sanden Thailand Co., Ltd.	Ayutthaya, Thailand	Automotive	95.0%
		equipment systems	(38.0%)
Sanden Shanghai	Shanghai, the PRC	Commercial store	100.0%
Refrigeration Co., Ltd.		systems
Sanden Shanghai Thermal	Shanghai, the PRC	Commercial store	100.0%
Environmental System		systems
Co., Ltd.		Other
Other 8 companies	–	–	–

– II-253 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Affiliated companies

				Percentage
				of voting
Name	Location		Principal businesses	rights
Asahi Sangyo Co., Ltd.	Honjou, Saitama,		Automotive	30.3%
		Japan	equipment
Sanwa Coatex Co., Ltd.	Isesaki, Gunma,		Automotive	31.7%
		Japan	equipment
			Commercial store
			systems
			Other
Sanden Al Salam LLT	Dubai, United Arab		Automotive	43.0%
		Emirates	equipment	(43.0%)
Iranian Sanden Industries	Tehran, Iran		Automotive	43.0%
			equipment systems	(43.0%)
SANDEN INTERCOOL	SINGBURI,		Commercial store	49.0%
(THAILAND) PUBLIC		THAILAND	systems
CO.,LTD.
Shenyang Sanden	Shenyang, the PRC		Automotive	47.5%
Automotive			equipment systems
Air-Conditioning Co.,
Ltd.
Sanden Huayu Automotive	Shanghai, the PRC		Automotive	43.0%
Air-Conditioning Co.,			equipment systems
Ltd.
Other 1 company	–		–	–

– II-254 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

③ Financial year ended 31 March 2020

Consolidated subsidiaries

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Climate Systems	Japan	equipment systems
Corporation
Sanden Automotive	Isesaki, Gunma,	Automotive	100.0%
Components Corporation	Japan	equipment systems
Sanden Living &	Isesaki, Gunma,	Other	100.0%
Environmental Systems	Japan
Corporation
Sanden Environmental	Isesaki, Gunma,	Other	100.0%
Products Corporation	Japan
Sanden Advanced	Isesaki, Gunma,	Automotive	100.0%
Technology Corporation	Japan	equipment systems
Sanden Business Associate	Isesaki, Gunma,	Other	100.0%
Corporation	Japan
Sanwa Corporation	Isesaki, Gunma,	Automotive	100.0%
	Japan	equipment systems	(100.0%)
Sanden System	Isesaki, Gunma,	Other	100.0%
Engineering Corporation	Japan
Sanden Manufacturing	Tinteniac, France	Automotive	100.0%
Europe S.A.S.		equipment systems	(100.0%)
		Other
Sanden Manufacturing	Polkowice, Poland	Automotive	100.0%
Poland sp. z o.o.		equipment systems	(100.0%)
Sanden International	Bad Nauheim,	Automotive	100.0%
(Europe) GmbH	Germany	equipment systems	(100.0%)
Sanden International	Wylie, Texas, U.S.A.	Automotive	100.0%
(U.S.A.), Inc.		equipment systems	(100.0%)
Sanden Manufacturing	Saltillo, Coahuila,	Automotive	100.0%
Mexico S.A. de C.V.	Mexico	equipment systems	(100.0%)
The Vendo Company	Dallas, Texas,	Other	100.0%
	U.S.A,
Sanden Vikas (India)	Haryana, India	Automotive	50.0%
Private Limited		equipment systems	(46.7%)
Sanden International	Singapore	Automotive	100.0%
(Singapore) Pte. Ltd.		equipment systems
Sanden Automotive	Singapore	Automotive	100.0%
Systems (Singapore) Pte.		equipment systems	(100.0%)
Ltd.

– II-255 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

			Percentage
			of voting
Name	Location	Principal businesses	rights
Sanden Airconditioning	Shah Alam Selangor	Automotive	100.0%
(Malaysia) Sdn. Bhd.	Darul Ehsan,	equipment systems	(100.0%)
	Malaysia
Tianjin Sanden Auto	Tianjin, the PRC	Automotive	51.5%
Air-Conditioning CO.,		equipment systems
LTD.
Sanden (Suzhou) Precision	Suzhou, Jiangsu, the	Automotive	65.0%
Parts Co., Ltd.	PRC	equipment systems
Sanden Chongqing	Chongqing, the PRC	Automotive	100.0%
Automotive Air		equipment systems
Conditioning Co., Ltd
Sanden International	Taoyuan, Taiwan	Automotive	100.0%
Taiwan Corporation		equipment systems	(100.0%)
Sanden International	Calumba, Laguna,	Automotive	99.4%
Philippines Inc.	Philippines	equipment systems	(99.4%)
P.T. Sanden Indonesia	Jakarta, Indonesia	Automotive	100.0%
		equipment systems	(100.0%)
Sanden International	Condell Park, NSW,	Automotive	100.0%
(Australia) Pty. Ltd.	Australia	equipment systems	(100.0%)
		Other
Sanden Thailand Co., Ltd.	Ayutthaya, Thailand	Automotive	95.0%
		equipment systems	(95.0%)
Sanden Shanghai Thermal	Shanghai, the PRC	Other	100.0%
Environmental System
Co., Ltd.
Other 9 companies	–	–	–

– II-256 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

Affiliated companies

			Percentage
			of voting
Name	Location	Principal businesses	rights
Asahi Sangyo Co., Ltd.	Honjou, Saitama,	Automotive	30.3%
	Japan	equipment
Sanwa Coatex Co., Ltd.	Isesaki, Gunma,	Automotive	31.7%
	Japan	equipment
		Other
Sanden Al Salam LLT	Dubai, United Arab	Automotive	43.0%
	Emirates	equipment	(43.0%)
Iranian Sanden Industries	Tehran, Iran	Automotive	43.0%
		equipment systems	(43.0%)
Shenyang Sanden	Shenyang, the PRC	Automotive	47.5%
Automotive		equipment systems
Air-Conditioning Co.,
Ltd.
Sanden Huayu Automotive	Shanghai, the PRC	Automotive	43.0%
Air-Conditioning Co.,		equipment systems
Ltd.

8. Investments in subsidiaries

Sanden’s investments in subsidiaries were as follows:

Unlisted shares, at cost Loans to subsidiaries Impairment Provision for bad debts	Financial year ended 31 March 2018 50,816 35,357 (31,488) (10,052) (41,510)	Financial year ended 31 March 2019 57,143 41,313 (32,483) (10,292) (42,775)	Financial year ended 31 March 2020 28,466 44,934 (3,440) (11,129)
			(14,569)

– II-257 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

9. Long-term equity investments

The Sanden Group

Listed equity investments outside Hong Kong, at fair value Unlisted equity investments, at cost Total	Financial year ended 31 March 2018 973 212 1,186	Financial year ended 31 March 2019 721 336 1,058	Financial year ended 31 March 2020 119 164 283	Nine months ended 31 December 2019 148 164 312	Nine months ended 31 December 2020 152 162
					315

10. Auditors’ remuneration

					Nine	Nine
		Financial	Financial	Financial	months	months
		year ended	year ended	year ended	ended 31	ended 31
		31 March	31 March	31 March	December	December
		2018	2019	2020	2019	2020
Auditors’	remuneration	239	246	244	183	186

– II-258 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

11. Borrowings and lease liabilities

The Sanden Group

Short term borrowings Bond payable due within 1 year Long term borrowings due within 1 year Lease liabilities due within 1 year Bond payable (excluding the portion due within 1 year) Long term borrowings (excluding the portion due within 1 year) Lease liabilities (excluding the portion due within 1 year) Total	Financial year ended 31 March 2018 Average interest rate Maturity (FY) Millions of yen 2.0 2018 45,011 0.2 2018 712 1.5 2018 18,299 – 2018 2,018 0.3 2023 5,987 1.6 2024 56,134 – 2027 6,113 134,274	Financial year ended 31 March 2019 Average interest rate Maturity (FY) Millions of yen 1.9 2019 51,513 0.2 2019 1,505 1.4 2019 23,704 1.7 2019 2,175 0.3 2023 5,832 1.6 2025 47,939 1.3 2029 5,974 138,642	Financial year ended 31 March 2020 Average interest rate Maturity (FY) Millions of yen 2.4 2020 47,497 0.3 2020 1,985 1.4 2020 20,984 1.8 2020 2,627 0.3 2023 3,847 1.7 2026 25,938 1.5 2029 7,610 110,489	Financial year ended 31 March 2020 Average interest rate Maturity (FY) Millions of yen 2.4 2020 47,497 0.3 2020 1,985 1.4 2020 20,984 1.8 2020 2,627 0.3 2023 3,847 1.7 2026 25,938 1.5 2029 7,610 110,489
				110,489

(Continued)

Short term borrowings Bond payable due within 1 year Long term borrowings due within 1 year Lease liabilities due within 1 year Bond payable (excluding the portion due within 1 year) Long term borrowings (excluding the portion due within 1 year) Lease liabilities (excluding the portion due within 1 year) Total	Nine months ended 31 December 2019 Average interest rate Maturity (FY) Millions of yen 1.8 2020 43,741 0.2 2020 1,785 1.9 2020 23,324 0.1 2020 2,843 0.3 2023 4,940 2.3 2025 36,201 0.1 2028 8,031 120,866	Nine months ended 31 December 2020 Average interest rate Maturity (FY) Millions of yen 1.5 2021 52,746 0.3 2021 1,985 2.0 2021 21,775 0.1 2021 2,730 0.4 2023 2,955 2.8 2026 20,820 0.1 2029 7,199 110,212	Nine months ended 31 December 2020 Average interest rate Maturity (FY) Millions of yen 1.5 2021 52,746 0.3 2021 1,985 2.0 2021 21,775 0.1 2021 2,730 0.4 2023 2,955 2.8 2026 20,820 0.1 2029 7,199 110,212
			110,212

– II-259 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Continued)

Within 1 year Within 1-2 years Within 2-5 years Beyond 5 years	Financial year ended 31 March 2018 66,041 23,731 41,557 2,945 134,274	Financial year ended 31 March 2019 78,898 25,364 33,622 758 138,642	Financial year ended 31 March 2020 73,094 19,120 16,858 1,415 110,489	Nine months ended 31 December 2019 71,695 40,356 8,466 350 120,866	Nine months ended 31 December 2020 79,237 26,148 4,534 293
					110,212

12. Income from listed and unlisted investments

The Sanden Group

Dividend income from investment securities Listed Unlisted Total	Financial year ended 31 March 2018 174 17 191	Financial year ended 31 March 2019 21 20 41	Financial year ended 31 March 2020 14 5 19	Nine months ended 31 December 2019 10 4 14	Nine months ended 31 December 2020 4 2
					6

Unlisted dividend income included income from subsidiaries and affiliates.

13. Land

The Sanden Group

The carrying value of properties located on land outside Hong Kong Land-freehold Total	Financial Year ended 31 March 2018 16,883 16,883	Financial Year ended 31 March 2019 16,776 16,776	Financial Year ended 31 March 2020 10,610 10,610	Nine months ended 31 December 2019 15,873 15,873	Nine months ended 31 December 2020 10,559
					10,559

– II-260 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

14. Commitments

There is no authorized but not contracted and contracted but not provided commitment as of 31 December 2020.

15. Rental income

The Sanden Group

					Nine	Nine
		Financial	Financial	Financial	months	months
		year ended	year ended	year ended	ended 31	ended 31
		31 March	31 March	31 March	December	December
		2018	2019	2020	2019	2020
Rental	income	–	–	344	172	558

16. Investment properties

All of the Sanden Group’s investment properties are situated in Japan and are held under the following lease terms:

Lease term Land 1 year 1-5 years Over 5 years Buildings and Structures 1 year 1-5 years Over 5 years Total investment properties	Financial year ended 31 March 2018 – – – – – – –	Financial year ended 31 March 2019 – – – – – – –	Financial year ended 31 March 2020 – 3,841 – – 2,865 – 6,741	Nine months ended 31 December 2019 – 3,841 – – 2,921 – 6,799	Nine months ended 31 December 2020 – 3,841 – – 2,686 –
					6,555

All properties in Japan are freehold.

– II-261 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

17. Profit/(loss) on sale of investments or properties

① The Sanden Group’s profit on sale of investments or properties

				Nine	Nine
	Financial	Financial	Financial	months	months
	year ended	year ended	year ended	ended 31	ended 31
	31 March	31 March	31 March	December	December
	2018	2019	2020	2019	2020
Land	368	81	1,279	1,080	82
Buildings and Structures	190	60	0	–	19
Sales of investment
securities	5,488	63	311	–	–
Sales of investments in
capital of subsidiaries
and affiliates	572	–	25,403	24,355	–

② The Sanden Group’s loss on sale of investments or properties

						Nine	Nine
			Financial	Financial	Financial	months	months
			year ended	year ended	year ended	ended 31	ended 31
			31 March	31 March	31 March	December	December
			2018	2019	2020	2019	2020
Land			229	1	99	–	–
Buildings	and	Structures	126	18	93	0	5

– II-262 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

18. Five-Year Summary

Items Operating profits (loss) Profits (loss) before income taxes Income taxes Net profits (loss) Net profits (loss) attributable to shareholders of the parent company Profits (loss) of minority interests Items Total assets Total liabilities Total net assets Total equity attributable to shareholders of the parent company Minority interests	Financial Year ended 31 March 2016 5,494 7,905 208 7,696 6,965 731 31 March 2016 301,325 225,821 75,503 70,098 5,405	Financial Year ended 31 March 2017 1,582 (18,966) 2,884 (21,850) (22,488) 638 31 March 2017 280,194 231,034 49,159 43,549 5,610	Financial Year ended 31 March 2018 5,469 5,867 1,409 4,458 4,255 202 31 March 2018 276,289 225,332 50,957 45,185 5,772	Financial Year ended 31 March 2019 889 (20,568) 3,071 (23,639) (23,060) (579) 31 March 2019 246,401 222,862 23,538 18,959 4,579	Financial Year ended 31 March 2020 (3,401) 2,326 1,360 966 2,287 (1,321) 31 March 2020 187,559 164,859 22,699 20,750 1,949

– II-263 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

C. SUMMARY OF MATERIAL DIFFERENCES BETWEEN ACCOUNTING POLICIES ADOPTED BY THE COMPANY (CASBE) AND THE SANDEN GROUP (JGAAP)

As described in the section headed “Waiver from Strict Compliance with Rule 14.67(6)(a)(i) of the Listing Rules” in the Letter from the Board, the Company has applied to the Stock Exchange for, and has been granted, a waiver from the requirement for an accountants’ report on Sanden under Rule 14.67(6)(a)(i) of the Listing Rules.

Instead, Sections A.1 and A.2 of this Appendix contains a copy of the:

(a) English translation of consolidated financial statements of the Sanden Group for the three years ended 31 March 2018, 2019 and 2020, which are prepared in accordance with JGAAP; and
(b) English translation of quarterly consolidated financial statements of the Sanden Group for the nine months ended 31 December 2020, which are prepared in accordance with JGAAP for quarterly consolidated financial statements.

The financial position as of 31 December 2019 is not presented in Section A.2 of this Appendix. The quarterly consolidated financial statements of Sanden Group for the nine months ended 31 December 2019 are included in the Sanden Group’s quarterly securities report in Japanese for the financial position as of 31 December 2019. The financial information included in Sections A.1 and A.2 of this Appendix and financial position as of 31 December 2019 are collectively referred hereinafter as “ Sanden Historical Financial Information ”.

The Sanden Historical Financial Information contains the consolidated balance sheet of the Sanden Group as at 31 March 2018, 2019 and 2020, 31 December 2019 and 2020, the consolidated statement of income and other comprehensive income of the Sanden Group for each of the three years ended 31 March 2018, 2019 and 2020 and the nine months ended 31 December 2019 and 2020 (the “ Relevant Periods ”).

The accounting policies adopted for the preparation of the Sanden Historical Financial Information differ in certain material respects from the accounting policies adopted by the Company. Differences, other than presentation differences, which would have a significant effect on the Sanden Historical Financial Information had they been prepared in accordance with the accounting policies adopted by the Company, are set out below in the section entitled “ Unaudited Adjusted Financial Information under the Company’s Policies ” with the following disclosures:–

(a) a comparison between the Sanden Group’s consolidated statements of income as extracted from the Sanden Historical Financial Information, prepared in accordance with JGAAP, and adjusted consolidated statements of income had they instead been prepared in accordance with the accounting policies adopted by the Company which are in compliance with CASBE. The process applied in the preparation of such comparison is set out in the “ Basis of Preparation ” section below;

– II-264 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

(b) a comparison between the Sanden Group’s consolidated balance sheets as extracted from the Sanden Historical Financial Information, prepared in accordance with JGAAP, and adjusted balance sheets had they instead been prepared in accordance with the accounting policies adopted by the Company which are in compliance with CASBE. The process applied in the preparation of such comparison is also set out in the “ Reconciliation Process ” section below; and
(c) a discussion of the material differences in line item for consolidated balance sheets and consolidated statements of income for the Relevant Periods arising in (a) and (b) above.

(These are collectively referred as the “ Reconciliation Information ”).

Basis of Preparation

The Reconciliation Information for the Relevant Periods, representing the “ Unadjusted Financial Information under JGAAP ” of the Sanden Group which are extracted from the Sanden Historical Financial Information and quantified adjustments to financial information as if it had been prepared in accordance with the accounting policies adopted by the Company which are in compliance with CASBE (“ Adjusted Financial Information under the Company’s Policies ”).

Reconciliation Information for the Relevant Periods do not include any adjustments under CASBE No.38 “First-time Adoption of China Accounting Standards for Business Enterprise”.

Reconciliation Process

The Reconciliation Information has been prepared by comparing and analysing the differences between the accounting policies adopted by Sanden for the preparation of the Sanden Historical Financial Information in accordance with JGAAP and the accounting policies adopted by the Company which are in compliance with CASBE, and quantifying the relevant material financial effects of such differences, if any.

Your attention is drawn to the fact that the Reconciliation Information has not been subject to an independent audit. Accordingly, no opinion is expressed by independent auditor of Sanden on whether it presents a true and fair view of Sanden’s financial positions as at 31 March 2018, 2019 and 2020 and 31 December 2019 and 2020, nor its results for the years or periods then ended under the accounting policies adopted by the Company.

– II-265 –

FINANCIAL INFORMATION OF THE SANDEN GROUP

APPENDIX II

ShineWing Japan LLC and ShineWing Certified Public Accountants LLP were engaged by the Company to conduct work in accordance with “Standards for Other Assurance Engagements of PRC Certified Public Accountants No. 3101 Assurance Engagements Other Than Audit or Review of Historical Financial Information”（《中國註冊會計師其他鑒證業務準則第3101號－歷史財務信息審計或審閱以外的鑒證業務》）. The work consisted primarily of:

(i) comparing the “Unadjusted Financial Information under JGAAP” as set out below in the section entitled “Sanden Group’s Unaudited Adjusted Financial Information under the Company’s Policies” with the Sanden Historical Financial Information prepared under JGAAP, as appropriate;
(ii) considering the adjustments made and evidence supporting the adjustments made in arriving at the “Adjusted Financial Information under the Company’s Policies” also set out below in the section entitled “Sanden Group’s Unaudited Adjusted Financial Information under the Company’s Policies”, which included examining the differences between Sanden Group’s accounting policies and the Company’s accounting policies; and
(iii) checking the arithmetic accuracy of the computation of the “Adjusted Financial Information under the Company’s Policies”.

The engagement of ShineWing Japan LLC and ShineWing Certified Public Accountants LLP were intended solely for the use of the Directors in connection with this circular and may not be suitable for another purpose. Based on the work performed, ShineWing Japan LLC and ShineWing Certified Public Accountants LLP have concluded that:

(i) the “Unadjusted Financial Information under JGAAP” as set out in the section entitled “Sanden Group’s Unaudited Adjusted Financial Information under the Company’s Policies” is in agreement with the Sanden Historical Financial Information;
(ii) the adjustments reflect, in all material respects, the differences between Sanden Group’s accounting policies and the Company’s accounting policies, except for potential impact of those adjustments under CASBE No.38 as described in the Basis of Preparation which are not included in the Reconciliation Information; and
(iii) the computation of the “Adjusted Financial Information under the Company’s Policies” is arithmetically accurate.

Sanden Group’s Unaudited Adjusted Financial Information under the Company’s Policies

The Sanden Historical Financial Information for the Relevant Periods have been prepared and presented in accordance with JGAAP. Except for presentation difference and the potential impact of those adjustments under CASBE No.38 as described in the Basis of Preparation which are not included in the Reconciliation Information, there are no material

– II-266 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

differences between the Sanden Historical Financial Information, compared to that applying the accounting policies adopted by the Company which are in compliance with CASBE other than as set out below:

1) Matters relating to the scope of consolidation
2) Matters relating to the application of the equity method
3) Matters relating to consolidation of subsidiaries and business years of equity-method affiliates
4) Accounting for pension liabilities
5) Matters relating to the treatment of goodwill
6) Matters relating to minority interests
7) Matters relating to marketable securities for which no market price exists
8) Matters relating to sample inventories
9) Matters relating to operating leases
10) Matters related to reclassification adjustments of accounts

The consolidated statements of cash flows are not presented as there are no significant differences except for presentation differences.

(Amounts in millions of Japanese Yen, and are rounded down to the nearest whole number, unless otherwise stated.)

The following is the text of a report received from the reporting accountants, ShineWing Japan LLC and ShineWing Certified Public Accountants LLP, in respect of the summary of the material differences between the accounting policies adopted by the Company (CASBE) and the Sanden Group (JGAAP) for incorporation in this circular.

– II-267 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated balance sheet Note Asset Current assets Cash at bank and on hand 1,3, Notes and accounts receivable 1,3, Finished goods 1,3,8, Works in progress Raw materials Other inventories Other receivables 1,3, Consumption tax receivable 1,3, Other current assets 1,3, Provision for bad debts 3, Transactional financial assets Notes receivable Accounts receivable Factoring of accounts receivable Prepayment Inventories Dividends receivable Total current assets	2018/3/31 Before adjustment 18,776 74,204 21,895 12,089 10,065 3,438 5,876 4,527 9,167 (678) – – – – – – – 159,363	GAAP difference adjustment (158) (855) 125 – – – 16 (27) 170 11 – – – – – – – (717)	Account expression adjustment – (73,348) (22,021) (12,089) (10,065) (3,438) 6,430 (4,500) (2,592) 667 26 2,291 69,564 1,461 0 47,615 – 0	2018/3/31 After adjustment 18,618 – – – – – 12,323 – 6,745 – 26 2,291 69,564 1,461 0 47,615 –
				158,646

– II-268 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current assets Fixed assets Buildings and structures (net) 1,3, Mechanical equipment and vehicles (net) 1,3, Tools, furniture and fixtures (net) 1,3, Land 3, Leased assets (net) 3,9, Construction in progress 3, Fixed assets Right-of-use assets Total fixed assets Intangible assets Goodwill 5, Leased assets Other intangible assets 1,3, Intangible assets Total intangible assets Investment and other assets Long-term equity investments 1,2,3,5,7, Retirement benefit assets Deferred tax assets 1,3, Other non-current assets 1,3,9, Provision for bad debts Long-term prepayments Other equity instruments Investment property Total investment and other assets Total non-current assets Total assets	2018/3/31 Before adjustment 21,351 23,642 5,019 16,883 8,144 6,699 – – 81,741 73 177 3,618 – 3,869 22,960 118 4,641 6,018 (3,064) – – – 30,674 116,285 275,649	GAAP difference adjustment (204) 1,309 (86) (12) 15 (1,431) – – (408) 276 – 27 – 304 1,517 – (79) (11) – – – – 1,427 1,323 605	Account expression adjustment (21,147) (24,952) (4,932) (16,871) (8,160) – 67,903 8,160 – – (177) (3,645) 3,823 0 (1,636) (118) 640 (3,409) 3,064 462 1,636 – 640 640 640	2018/3/31 After adjustment – – – – – 5,268 67,903 8,160
				81,332
				350 – – 3,823
				4,174
				22,841 – 5,203 2,597 – 462 1,636 –
				32,742
				118,249
				276,895

– II-269 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Liabilities Current liabilities Notes and accounts payable 1,3, Short-term borrowings 3, Bonds payable due within one year Long-term borrowings due within one year 3, Other payables 1,3, Lease liabilities 3, Taxes payable 1,3, Provision for bonuses 1,3, Provision for sales rebates Provision for product warranties 3, Provision for outstanding claims Other current liabilities 1,3, Transactional financial liabilities Notes payable Accounts payable Contract liabilities Employee remuneration payable Taxes payable Deferred income (current) Non-current liabilities due within one year Estimated liabilities Total current liabilities	2018/3/31 Before adjustment 53,483 45,011 712 18,299 11,039 2,018 699 3,759 935 3,253 986 10,027 – – – – – – – – – 150,227	GAAP difference adjustment (792) (122) – (11) (1) (17) 13 (79) – 21 – 459 – – – – – – – – – (529)	Account expression adjustment (52,691) (41) (712) (18,287) (27) (2,000) (712) (3,679) (935) (3,274) (986) (453) 5 4,417 48,366 625 3,733 2,275 103 21,001 3,274 0	2018/3/31 After adjustment – 44,848 – – 11,011 – – – – – – 10,033 5 4,417 48,366 625 3,733 2,275 103 21,001 3,274
				149,697

– II-270 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current liabilities Bonds payable Long-term borrowings 1,3, Lease liabilities 3,9, Deferred tax liabilities 2,7, Retirement benefit liability 1,4, Provision for environmental measures Provision for stock compensation Other non-current liabilities 3,9, Transactional financial liabilities Long-term employee remuneration payable Deferred income (non-current) Total non-current liabilities Total Liabilities Owners’ equity 1,2,3,4,5,6,7,8,9, Total liabilities and owners’ equity	2018/3/31 Before adjustment 5,987 56,134 6,113 205 3,376 273 187 2,185 – – – 74,464 224,691 50,957 275,649	GAAP difference adjustment – (401) (7) 138 6 – – 27 – – – (236) (766) 1,372 605	Account expression adjustment – – – 640 (3,382) (273) (187) (1,349) 108 3,636 1,448 640 640 0 640	2018/3/31 After adjustment 5,987 55,732 6,106 984 – – – 863 108 3,636 1,448
				74,868
				224,565
				52,329
				276,895

– II-271 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated income statement Note Operating revenue 1,3, Operating costs 1,3,4, Gross profit Selling, general and administrative expenses 1,3,5,8,9, Taxes and surcharges Management expenses Sales expenses R&D expenses Financial expenses Operating profit (loss) Non-operating income Interest income 1,3, Dividend income 2, Share of profit of associates and joint ventures 2,3,5, Foreign exchange gains 1,3, Rent income Other non-operating income 1,3, Total non-operating income Non-operating expenses Impairment loss on credit Interest expenses 1,3,9, Foreign exchange losses 1,3, Commission expenses Share of losses of associates and joint ventures 2,3, Other non-operating expenses 1,3, Total non-operating expenses Ordinary profits (loss)	2017/4/1 2018/3/31 Before adjustment 287,609 234,955 52,654 47,185 – – – – – 5,469 – 54 191 2,667 – – 1,064 3,978 – – 2,180 1,437 – – 1,419 5,036 4,411	GAAP difference adjustment (2,663) (2,286) (377) (149) – – – – – (227) – 1 (5) 397 9 – (13) 389 – – 26 0 – – (12) 13 147	Account expression adjustment (68) – (68) (47,036) 1,821 29,176 8,421 8,006 3,578 (4,036) 1,310 (56) (186) (3,065) (9) – (1,051) (3,057) 5,166 0 (2,206) (1,437) – – (1,406) 115 (7,208)	2017/4/1 2018/3/31 After adjustment 284,878 232,668 52,209 – 1,821 29,176 8,421 8,006 3,578 1,205 1,310 – – – – – –
				1,310
				5,166 0 – – – – –
				5,166
				(2,649)

– II-272 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Extraordinary income Investment income Gain on disposal of assets Gain on disposal of non-current assets 3, Gain on sales of investment in capital of subsidiaries and affiliates Gain on sales of investment securities Insurance claim income Other extraordinary income 3, Total extraordinary income Extraordinary losses Asset impairment losses Loss on disposal of non-current assets 1,3, Losses related to the COVID-19 pandemic Provision for bad debts Structural reform costs Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses 3, Total extraordinary losses	2017/4/1 2018/3/31 Before adjustment – – 690 572 5,488 106 163 7,020 – 557 – – 2,884 – 1,901 221 5,564	GAAP difference adjustment – – 0 – – – 2 2 – – – – – – – – –	Account expression adjustment 9,302 441 (690) (572) (5,488) (106) (165) 2,721 1,076 (557) – – (2,884) – (1,901) (221) (4,487)	2017/4/1 2018/3/31 After adjustment 9,302 441 – – – – –
				9,744
				1,076 – – – – – – –
				1,076

– II-273 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Profits (loss) before income taxes Current income tax expenses 1,3, Deferred income tax expenses 3, Income tax Total income tax expenses Net profits (loss) Profits (loss) of minority interests 3,6, Net profits (loss) attributable to shareholders of the parent company Net profits from continuing operations Net profits from discontinued operations Consolidated balance sheet Note Asset Current assets Cash at bank and on hand 1,3, Notes and accounts receivable 1,3, Finished goods 1,3,8, Works in progress Raw materials Other inventories Other receivables 1,3, Consumption tax receivable 1,3, Other current assets 1,3, Provision for bad debts 3, Transactional financial assets Notes receivable Accounts receivable Factoring of accounts receivable Prepayment Inventories	2017/4/1 2018/3/31 Before adjustment 5,867 1,269 139 – 1,409 4,458 202 4,255 2019/3/31 Before adjustment 13,030 73,591 24,142 11,685 9,249 3,194 5,975 4,575 9,531 (16,562) – – – – – –	GAAP difference adjustment 149 (6) (42) – (49) 199 (92) 291 GAAP difference adjustment (610) (97) 292 – – – (5) 6 76 4 – – – – – –	Account expression adjustment 2017/4/1 2018/3/31 After adjustment – 6,017 (1,263) – (96) – 1,359 1,359 0 1,359 0 4,657 – 110 0 4,547 3,190 1,356 (Unit: million yen) Account expression adjustment 2019/3/31 After adjustment – 12,419 (73,494) – (24,435) – (11,685) – (9,249) – (3,194) – 3,322 9,292 (4,582) – (2,759) 6,847 16,558 – 135 135 2,084 2,084 57,105 57,105 1,630 1,630 0 0 48,564 48,564	2017/4/1 2018/3/31 After adjustment 6,017
				– – 1,359
				1,359
				4,657
				110
				4,547

– II-274 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Dividends receivable Total current assets Non-current assets Fixed assets Buildings and structures (net) 1,3, Mechanical equipment and vehicles (net) 1,3, Tools, furnitures and fixtures (net) 1,3, Land 3, Leased assets (net) 3,9, Construction in progress 3, Fixed assets Right-of-use assets Total fixed assets	2019/3/31 Before adjustment – 138,412 20,767 20,873 5,217 16,776 7,615 6,187 – – 77,436	GAAP difference adjustment – (332) 13 (204) (67) 0 714 464 – – 920	Account expression adjustment – 0 (20,780) (20,669) (5,150) (16,776) (8,330) – 63,376 8,330 0	2019/3/31 After adjustment –
				138,079
				– – – – – 6,651 63,376 8,330
				78,357

– II-275 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Intangible assets Goodwill 5, Leased assets Other intangible assets 1,3, Intangible assets Total intangible assets Investment and other assets Long-term equity investments 1,2,3,5,7, Retirement benefit assets Deferred tax assets 1,3, Other non-current assets 1,3,9, Provision for bad debts Long-term prepayments Other equity instruments Investment property Total investment and other assets Total non-current assets Total assets	2019/3/31 Before adjustment 27 351 3,699 – 4,078 21,873 110 2,240 5,856 (3,606) – – – 26,473 107,988 246,401	GAAP difference adjustment 323 – 50 – 374 2,787 – 45 38 – – – – 2,870 4,165 3,832	Account expression adjustment – (351) (3,750) 4,101 – (1,447) (110) 0 (3,945) 3,606 448 1,447 – 0 0 0	2019/3/31 After adjustment 350 – – 4,101
				4,452
				23,213 – 2,285 1,949 – 448 1,447 –
				29,343
				112,153
				250,233

– II-276 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Liabilities Current liabilities Notes and accounts payable 1,3, Short-term borrowings 3, Bonds payable due within one year Long-term borrowings due within one year 3, Other payables 1,3, Lease liabilities 3, Taxes payable 1,3, Provision for bonuses 1,3, Provision for sales rebates Provision for product warranties 3, Provision for outstanding claims Other current liabilities 1,3, Transactional financial liabilities Notes payable Accounts payable Contract liabilities Employee remuneration payable Taxes payable Deferred income (current) Non-current liabilities due within one year Estimated liabilities Total current liabilities	2019/3/31 Before adjustment 50,000 51,513 1,505 23,704 7,553 2,175 478 3,347 426 2,782 432 12,789 – – – – – – – – – 156,710	GAAP difference adjustment (539) 1,259 – 85 (37) 142 7 (22) – 5 – (200) – – – – – – – – – 700	Account expression adjustment (49,461) (41) (1,505) (23,790) 175 (2,317) (485) (3,325) (426) (2,788) (432) (1,223) 1 4,561 45,117 72 3,365 1,981 122 27,612 2,788 0	2019/3/31 After adjustment – 52,731 – – 7,691 – – – – – – 11,365 1 4,561 45,117 72 3,365 1,981 122 27,612 2,788
				157,411

– II-277 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current liabilities Bonds payable Long-term borrowings 1,3, Lease liabilities 3,9, Deferred tax liabilities 2,7, Retirement benefit liability 1,4, Provision for environmental measures Provision for stock compensation Other non-current liabilities 3,9, Transactional financial liabilities Long-term employee remuneration payable Deferred income (non-current) Total non-current liabilities Total Liabilities Owners’ equity 1,2,3,4,5,6,7,8,9, Total liabilities and owners’ equity	2019/3/31 Before adjustment 5,832 47,939 5,974 245 3,653 243 255 2,005 – – – 66,151 222,862 23,538 246,401	GAAP difference adjustment – (104) 558 118 7 – – 34 – – – 614 1,315 2,517 3,832	Account expression adjustment – – – – (3,661) (243) (255) (1,156) 94 3,989 1,232 – 0 – 0	2019/3/31 After adjustment 5,832 47,835 6,533 364 – – – 883 94 3,989 1,232
				66,766
				224,177
				26,056
				250,233

– II-278 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated income statement Note Operating revenue 1,3, Operating costs 1,3,4, Gross profit Selling, general and administrative expenses 1,3,5,8,9, Taxes and surcharges Management expenses Sales expenses R&D expenses Financial expenses Operating profits (loss) Non-operating income Interest income 1,3, Dividend income 2, Share of profit of associates and joint ventures 2,3,5, Foreign exchange gains 1,3, Rent income Other non-operating income 1,3, Total non-operating income Non-operating expenses Impairment loss on credit Interest expenses 1,3,9, Foreign exchange losses 1,3, Commission expenses Share of losses of associates and joint ventures 2,3, Other non-operating expenses 1,3, Total non-operating expenses Ordinary profits (loss)	2018/4/1 2019/3/31 Before adjustment 273,934 227,011 46,922 46,033 – – – – – 889 – 54 41 2,148 397 – 666 3,308 – – 2,482 – 50 – 1,100 3,633 564	GAAP difference adjustment (2,956) (2,302) (654) (127) – – – – – (526) – 0 (7) 137 1 – (10) 120 – – 11 0 – 1 6 18 (424)	Account expression adjustment 36 – 36 (45,905) 1,715 26,984 8,552 8,928 2,040 (2,279) 724 (54) (33) (2,286) (398) – (656) (2,704) 19,161 0 (2,493) 0 (50) (1) (1,107) 15,510 (20,495)	2018/4/1 2019/3/31 After adjustment 271,013 224,709
				46,304
				– 1,715 26,984 8,552 8,928 2,040
				(1,917)
				724 – – – – – –
				724
				19,161 0 – – – – –
				19,161
				(20,355)

– II-279 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Extraordinary income Investment income Gain on disposal of assets Gain on disposal of non-current assets 3, Gain on sales of investment in capital of subsidiaries and affiliates Gain on sales of investment securities Insurance claim income Other extraordinary income 3, Total extraordinary income Extraordinary losses Asset impairment losses Loss on disposal of non-current assets 1,3, Losses related to the COVID-19 pandemic Provision for bad debts Structural reform costs Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses 3, Total extraordinary losses	2018/4/1 2019/3/31 Before adjustment – – 337 – 63 – 137 538 – 257 – 16,244 4,461 109 432 165 21,672	GAAP difference adjustment – – 9 – – – (1) 8 – 0 – – – – – 118 118	Account expression adjustment 2,383 271 (347) – (63) – (135) 2,107 3,403 (257) – (16,244) (4,461) (109) (432) (284) (18,387)	2018/4/1 2019/3/31 After adjustment 2,383 271 – – – – –
				2,654
				3,403 – – – – – – –
				3,403

– II-280 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Profits (loss) before income taxes Current income tax expenses 1,3, Deferred income tax expenses 3, Income tax Total income tax expenses Net profits (loss) Profits (loss) of minority interests 3,6, Net profits (loss) attributable to shareholders of the parent company Net loss from continuing operations Net profits from discontinued operations Consolidated balance sheet Note Asset Current assets Cash at bank and on hand 1,3, Notes and accounts receivable 1,3, Finished goods 1,3,8, Works in progress Raw materials Other inventories Other receivables 1,3, Consumption tax receivable 1,3, Other current assets 1,3, Provision for bad debts 3, Transactional financial assets Notes receivable Accounts receivable Factoring of accounts receivable Prepayment Inventories	2018/4/1 2019/3/31 Before adjustment (20,568) 686 2,384 – 3,071 (23,639) (579) (23,060) 2020/3/31 Before adjustment 26,440 45,344 16,193 8,699 7,514 2,932 4,570 3,780 8,153 (17,842) – – – – – –	GAAP difference adjustment (535) (56) 11 – (45) (490) (257) (232) GAAP difference adjustment 452 (2,700) (335) – – – (25) 13 (8) (87) – – – – – –	Account expression adjustment 2018/4/1 2019/3/31 After adjustment 0 (21,104) (630) – (2,395) – 3,025 3,025 – 3,025 0 (24,130) – (837) 0 (23,292) (25,015) 1,722 (Unit: million yen) Account expression adjustment 2020/3/31 After adjustment (2,728) 24,163 (42,643) – (15,857) – (8,699) – (7,514) – (2,932) – 2,322 6,867 (3,794) – 727 8,872 17,930 – 229 229 2,571 2,571 25,385 25,385 – – 0 0 35,004 35,004	2018/4/1 2019/3/31 After adjustment (21,104)
				– – 3,025
				3,025
				(24,130)
				(837)
				(23,292)

– II-281 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Dividends receivable Total current assets Non-current assets Fixed assets Buildings and structures (net) 1,3, Mechanical equipment and vehicles (net) 1,3, Tools, furnitures and fixtures (net) 1,3, Land 3, Leased assets (net) 3,9, Construction in progress 3, Fixed assets Right-of-use assets Total fixed assets	2020/3/31 Before adjustment – 105,787 16,144 16,671 3,359 10,610 6,764 4,971 – – 58,522	GAAP difference adjustment – (2,692) (74) (201) (65) (1) 284 (49) – – (108)	Account expression adjustment – – (16,069) (16,470) (3,294) (10,609) (7,049) – 39,701 7,049 (6,741)	2020/3/31 After adjustment –
				103,095
				– – – – – 4,921 39,701 7,049
				51,672

– II-282 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Intangible assets Goodwill 5, Leased assets Other intangible assets 1,3, Intangible assets Total intangible assets Investment and other assets Long-term equity investments 1,2,3,5,7, Retirement benefit assets Deferred tax assets 1,3, Other non-current assets 1,3,9, Provision for bad debts Long-term prepayments Other equity instruments Investment property Total investment and other assets Total non-current assets Total assets	2020/3/31 Before adjustment 13 141 3,956 – 4,111 15,903 99 1,743 3,165 (1,774) – – – 19,138 81,772 187,559	GAAP difference adjustment 337 – (24) – 312 1,151 – (13) (22) – – – – 1,115 1,319 (1,372)	Account expression adjustment – (141) (3,931) 4,073 – (737) (99) – (1,730) 1,774 55 737 6,741 6,741 0 0	2020/3/31 After adjustment 350 – – 4,073
				4,424
				16,317 – 1,729 1,412 – 55 737 6,741
				26,994
				83,092
				186,187

– II-283 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Liabilities Current liabilities Notes and accounts payable 1,3, Short-term borrowings 3, Bonds payable due within one year Long-term borrowings due within one year 3, Other payables 1,3, Lease liabilities 3, Taxes payable 1,3, Provision for bonuses 1,3, Provision for sales rebates Provision for product warranties 3, Provision for outstanding claims Other current liabilities 1,3, Transactional financial liabilities Notes payable Accounts payable Contract liabilities Employee remuneration payable Taxes payable Deferred income (current) Non-current liabilities due within one year Estimated liabilities Total current liabilities	2020/3/31 Before adjustment 29,983 47,497 1,985 20,984 6,341 2,627 238 1,475 169 1,736 – 8,131 – – – – – – – – – 121,170	GAAP difference adjustment (2,330) (1,190) – 42 (168) (5) (7) 11 – 9 – 1,620 – – – – – – – – – (2,019)	Account expression adjustment (27,653) – (1,985) (21,027) 185 (2,621) (230) (1,487) (169) (1,745) – (1,255) 0 2,444 25,226 12 1,526 1,285 115 25,633 1,745 –	2020/3/31 After adjustment – 46,306 – – 6,358 – – – – – – 8,495 0 2,444 25,226 12 1,526 1,285 115 25,633 1,745
				119,150

– II-284 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current liabilities Bonds payable Long-term borrowings 1,3, Lease liabilities 3,9, Deferred tax liabilities 2,7, Retirement benefit liability 1,4, Provision for environmental measures Provision for stock compensation Other non-current liabilities 3,9, Transactional financial liabilities Long-term employee remuneration payable Deferred income (non-current) Total non-current liabilities Total Liabilities Owners’ equity 1,2,3,4,5,6,7,8,9, Total liabilities and owners’ equity	2020/3/31 Before adjustment 3,847 25,938 7,610 476 3,491 198 153 1,972 – – – 43,689 164,859 22,699 187,559	GAAP difference adjustment – (397) 216 123 9 – – 34 – – – (14) (2,033) 661 (1,372)	Account expression adjustment – – – – (3,500) (198) (153) (990) 51 3,723 1,068 – – 0 0	2020/3/31 After adjustment 3,847 25,540 7,827 599 – – – 1,016 51 3,723 1,068
				43,674
				162,825
				23,361
				186,187

– II-285 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated income statement Note Operating revenue 1,3, Operating costs 1,3,4, Gross profit Selling, general and administrative expenses 1,3,5,8,9, Taxes and surcharges Management expenses Sales expenses R&D expenses Financial expenses Operating profits (loss) Non-operating income Interest income 1,3, Dividend income 2, Share of profit of associates and joint ventures 2,3,5, Foreign exchange gains 1,3, Rent income Other non-operating income 1,3, Total non-operating income	2019/4/1 2020/3/31 Before adjustment 204,880 173,052 31,827 35,229 – – – – – (3,401) – 587 19 71 – – 1,067 1,745	GAAP difference adjustment (1,246) (1,025) (221) (329) – – – – – 108 – 0 (2) (674) 16 – (13) (673)	Account expression adjustment 358 154 204 (34,899) 1,477 19,352 6,847 7,471 4,812 (4,857) 25,277 (587) (16) 603 (16) – (1,054) 24,205	2019/4/1 2020/3/31 After adjustment 203,991 172,181
				31,810
				– 1,477 19,352 6,847 7,471 4,812
				(8,151)
				25,277 – – – – – –
				25,277

– II-286 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Non-operating expenses Impairment loss on credit Interest expenses 1,3,9, Foreign exchange losses 1,3, Commission expenses Share of losses of associates and joint ventures 2,3, Other non-operating expenses 1,3, Total non-operating expenses Ordinary profits (loss) Extraordinary income Investment income Gain on disposal of assets Gain on disposal of non-current assets 3, Gain on sales of investment in capital of subsidiaries and affiliates Gain on sales of investment securities Insurance claim income Other extraordinary income 3, Total extraordinary income Extraordinary losses Asset impairment losses Loss on disposal of non-current assets 1,3, Losses related to the COVID-19 pandemic (Unit: million yen) Provision for bad debts Structural reform costs Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses 3, Total extraordinary losses	2019/4/1 2020/3/31 Before adjustment – – 2,400 2,997 775 – 1,905 8,079 (9,735) – – 1,364 25,403 9 – 30 26,808 – 733 – – 13,395 96 – 521 14,746	GAAP difference adjustment – – 19 (3) – 16 (51) (17) (547) – – (9) – – – 1 (8) – 0 – – – – – 17 17	Account expression adjustment 9,875 2 (2,420) (2,994) (775) (16) (1,854) 1,817 17,530 151 787 (1,354) (25,403) (9) – (31) (25,861) 6,433 (733) – – (13,395) (96) – (538) (8,331)	2019/4/1 2020/3/31 After adjustment 9,875 2 – – – – –
				9,878
				7,247
				151 787 – – – – – 938 6,433 – – – – – – –
				6,433

– II-287 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Profits (loss) before income taxes Current income tax expenses 1,3, Deferred income tax expenses 3, Income tax Total income tax expenses Net profits (loss) Profits (loss) of minority interests 3,6, Net profits (loss) attributable to shareholders of the parent company Net profits from continuing operations Net loss from discontinued operations Consolidated balance sheet Note Asset Current assets Cash at bank and on hand 1,3, Notes and accounts receivable 1,3, Finished goods 1,3,8, Works in progress Raw materials Other inventories Other receivables 1,3, Consumption tax receivable 1,3, Other current assets 1,3, Provision for bad debts 3, Transactional financial assets Notes receivable Accounts receivable Factoring of accounts receivable Prepayment Inventories	2019/4/1 2020/3/31 Before adjustment 2,326 1,031 328 – 1,360 966 (1,321) 2,287 2019/12/31 Before adjustment 34,956 45,730 17,567 9,840 6,996 3,084 5,475 4,542 7,297 (16,758) – – – – – –	GAAP difference adjustment (573) 1 – – 1 (574) (35) (539) GAAP difference adjustment 1,126 1,257 21 – – – (44) 0 63 (7) – – – – – –	Account expression adjustment 2019/4/1 2020/3/31 After adjustment 0 1,753 (1,032) – (328) – 1,361 1,361 – 1,361 0 391 – (1,356) 0 1,748 7,589 (5,841) (Unit: million yen) Account expression adjustment 2019/12/31 After adjustment (3,255) 32,827 (46,988) – (17,589) – (9,840) – (6,996) – (3,084) – 1,322 6,752 (4,542) – 3,047 10,408 16,766 – 162 162 2,807 2,807 30,680 30,680 – – 0 0 37,511 37,511	2019/4/1 2020/3/31 After adjustment 1,753
				– – 1,361
				1,361
				391
				(1,356)
				1,748

– II-288 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Dividends receivable Total current assets Non-current assets Fixed assets Buildings and structures (net) 1,3, Mechanical equipment and vehicles (net) 1,3, Tools, furnitures and fixtures (net) 1,3, Land 3, Leased assets (net) 3,9, Construction in progress 3, Fixed assets Right-of-use assets Total fixed assets	2019/12/31 Before adjustment – 118,733 17,479 17,950 3,866 15,873 7,214 5,011 – – 67,396	GAAP difference adjustment – 2,416 26 (347) (184) 2 310 (940) – – (1,133)	Account expression adjustment – 0 (17,505) (17,602) (3,682) (15,876) (7,524) – 47,867 7,524 (6,799)	2019/12/31 After adjustment –
				121,150
				– – – – – 4,070 47,867 7,524
				59,462

– II-289 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Intangible assets Goodwill 5, Leased assets Other intangible assets 1,3, Intangible assets Total intangible assets Investment and other assets Long-term equity investments 1,2,3,5,7, Retirement benefit assets Deferred tax assets 1,3, Other non-current assets 1,3,9, Provision for bad debts Long-term prepayments Other equity instruments Investment property Total investment and other assets Total non-current assets Total assets	2019/12/31 Before adjustment 17 155 3,434 – 3,606 16,463 110 1,651 4,494 (2,813) – – – 19,906 90,908 209,642	GAAP difference adjustment 333 – 1 – 335 1,162 – 95 54 – – – – 1,312 514 2,931	Account expression adjustment – (155) (3,435) 3,590 0 (767) (110) – (2,873) 2,813 169 767 6,799 6,799 0 0	2019/12/31 After adjustment 350 – – 3,590
				3,941
				16,858 – 1,746 1,676 – 169 767 6,799
				28,018
				91,422
				212,573

– II-290 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Liabilities Current liabilities Notes and accounts payable 1,3, Short-term borrowings 3, Bonds payable due within one year Long-term borrowings due within one year 3, Other payables 1,3, Lease liabilities 3, Taxes payable 1,3, Provision for bonuses 1,3, Provision for sales rebates Provision for product warranties 3, Provision for outstanding claims Other current liabilities 1,3, Transactional financial liabilities Notes payable Accounts payable Contract liabilities Employee remuneration payable Taxes payable Deferred income (current) Non-current liabilities due within one year Estimated liabilities Total current liabilities	2019/12/31 Before adjustment 30,120 43,741 1,785 23,324 6,288 2,843 220 1,262 136 1,766 – 10,240 – – – – – – – – – 121,729	GAAP difference adjustment 931 593 – (233) 735 42 33 (240) – 11 – 87 – – – – – – – – – 1,961	Account expression adjustment (31,052) 0 (1,785) (23,090) 161 (2,885) (254) (1,022) (136) (1,777) – (1,262) 0 2,746 28,379 79 1,047 1,194 118 27,760 1,777 0	2019/12/31 After adjustment – 44,335 – – 7,185 – – – – – – 9,066 0 2,746 28,379 79 1,047 1,194 118 27,760 1,777
				123,690

– II-291 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current liabilities Bonds payable Long-term borrowings 1,3, Lease liabilities 3,9, Deferred tax liabilities 2,7, Retirement benefit liability 1,4, Provision for environmental measures Provision for stock compensation Other non-current liabilities 3,9, Transactional financial liabilities Long-term employee remuneration payable Deferred income (non-current) Total non-current liabilities Total Liabilities Owners’ equity 1,2,3,4,5,6,7,8,9, Total liabilities and owners’ equity	2019/12/31 Before adjustment 4,940 36,201 8,031 447 3,450 209 133 1,933 – – – 55,346 177,075 32,566 209,642	GAAP difference adjustment – 273 298 123 9 – – 48 – – – 753 2,714 216 2,931	Account expression adjustment – – – – (3,459) (209) (133) (1,062) 75 3,664 1,124 – 0 0 0	2019/12/31 After adjustment 4,940 36,474 8,330 570 – – – 919 75 3,664 1,124
				56,099
				179,790
				32,782
				212,573

– II-292 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated income statement Note Operating revenue 1,3, Operating costs 1,3,4, Gross profit Selling, general and administrative expenses 1,3,5,8,9, Taxes and surcharges Management expenses Sales expenses R&D expenses Financial expenses Operating profits (loss) Non-operating income Interest income 1,3, Dividend income 2, Share of profit of associates and joint ventures 2,3,5, Foreign exchange gains 1,3, Rent income Other non-operating income 1,3, Total non-operating income Non-operating expenses Impairment loss on credit Interest expenses 1,3,9, Foreign exchange losses 1,3, Commission expenses Share of losses of associates and joint ventures 2,3, Other non-operating expenses 1,3, Total non-operating expenses	2019/4/1 2019/12/31 Before adjustment 166,541 139,078 27,463 29,352 – – – – – (1,888) – 416 14 1,018 – 18 447 1,916 – – 1,837 1,568 – – 1,668 5,074	GAAP difference adjustment 1,782 1,477 305 (462) – – – – – 768 – 0 (2) (422) (1) – 140 (286) – – 17 0 – 16 6 39	Account expression adjustment 4 – 4 (28,889) 1,085 16,379 5,783 5,796 3,008 (3,160) 24,977 (416) (12) (596) 1 (18) (588) 23,347 3,927 – (1,854) (1,567) – (16) (1,674) (1,186)	2019/4/1 2019/12/31 After adjustment 168,328 140,555
				27,772
				– 1,085 16,379 5,783 5,796 3,008
				(4,280)
				24,977 – – – – – –
				24,977
				3,927 – – – – – –
				3,927

– II-293 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Ordinary profits (loss) Extraordinary income Investment income Gain on disposal of assets Gain on disposal of non-current assets 3, Gain on sales of investment in capital of subsidiaries and affiliates Gain on sales of investment securities Insurance claim income Other extraordinary income 3, Total extraordinary income Extraordinary losses Asset impairment losses Loss on disposal of non-current assets 1,3, Losses related to the COVID-19 pandemic Provision for bad debts Structural reform costs Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses 3, Total extraordinary losses	2019/4/1 2019/12/31 Before adjustment (5,046) – – 1,128 24,355 – – 23 25,507 – 277 – – 7,016 – – 65 7,359	GAAP difference adjustment 442 – – 26 – – – 20 47 – 0 – – – – – 1,560 1,560	Account expression adjustment 21,373 603 977 (1,155) (24,355) – – (44) (23,973) 6,320 (277) – – (7,016) – – (1,626) (2,599)	2019/4/1 2019/12/31 After adjustment 16,770
				603 977 – – – – –
				1,581
				6,320 – – – – – – –
				6,320

– II-294 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Profits (loss) before income taxes Current income tax expenses 1,3, Deferred income tax expenses 3, Income tax Total income tax expenses Net profits (loss) Profits (loss) of minority interests 3,6, Net profits (loss) attributable to shareholders of the parent company Net profits from continuing operations Net loss from discontinued operations	2019/4/1 2019/12/31 Before adjustment 13,102 1,560 – – 1,560 11,541 (669) 12,210	GAAP difference adjustment (1,071) 16 (39) – (23) (1,048) (368) (679)	Account expression adjustment 0 (1,576) 39 1,537 0 0 – 0	2019/4/1 2019/12/31 After adjustment 12,030
				– – 1,537
				1,537
				10,493
				(1,037)
				11,531
				17,372 (5,841)

– II-295 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated balance sheet Note Asset Current assets Cash at bank and on hand 1,3, Notes and accounts receivable 1,3, Finished goods 1,3,8, Works in progress Raw materials Other inventories Other receivables 1,3, Consumption tax receivable 1,3, Other current assets 1,3, Provision for bad debts 3, Transactional financial assets Notes receivable Accounts receivable Factoring of accounts receivable Prepayment Inventories Dividends receivable Total current assets Non-current assets Fixed assets Buildings and structures (net) 1,3, Mechanical equipment and vehicles (net) 1,3, Tools, furnitures and fixtures (net) 1,3, Land 3, Leased assets (net) 3,9, Construction in progress 3, Fixed assets Right-of-use assets Total fixed assets	2020/12/31 Before adjustment 22,793 39,462 12,738 7,646 6,442 2,993 3,643 4,017 9,439 (15,245) – – – – – – – 93,932 15,570 16,764 2,946 10,559 7,200 3,636 – – 56,678	GAAP difference adjustment 572 1,385 (420) – – – (447) 4 (17) (28) – – – – – – – 1,049 (40) (104) 34 0 145 (115) – – (81)	Account expression adjustment (1,419) (40,848) (12,317) (7,646) (6,442) (2,993) 3,820 (4,021) (1,613) 15,273 149 2,325 26,333 – 0 29,400 – – (15,529) (16,660) (2,981) (10,559) (7,345) – 39,175 7,345 (6,555)	2020/12/31 After adjustment 21,946 – – – – – 7,017 – 7,808 – 149 2,325 26,333 – 0 29,400 –
				94,981
				– – – – – 3,520 39,175 7,345
				50,041

– II-296 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Intangible assets Goodwill 5, Leased assets Other intangible assets 1,3, Intangible assets Total intangible assets Investment and other assets Long-term equity investments 1,2,3,5,7, Retirement benefit assets Deferred tax assets 1,3, Other non-current assets 1,3,9, Provision for bad debts Long-term prepayments Other equity instruments Investment property Total investment and other assets Total non-current assets Total assets	2020/12/31 Before adjustment 3 106 4,118 – 4,227 14,116 100 2,077 2,283 (1,014) – – – 17,562 78,469 172,401	GAAP difference adjustment 347 – (12) – 334 2,129 – (4) 53 – – – – 2,177 2,431 3,480	Account expression adjustment – (106) (4,105) 4,211 0 (844) (100) – (1,052) 1,014 138 844 6,555 6,555 – 0	2020/12/31 After adjustment 350 – – 4,211
				4,562
				15,401 – 2,073 1,283 – 138 844 6,555
				26,296
				80,900
				175,881

– II-297 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Liabilities Current liabilities Notes and accounts payable 1,3, Short-term borrowings 3, Bonds payable due within one year Long-term borrowings due within one year 3, Other payables 1,3, Lease liabilities 3, Taxes payable 1,3, Provision for bonuses 1,3, Provision for sales rebates Provision for product warranties 3, Provision for outstanding claims Other current liabilities 1,3, Transactional financial liabilities Notes payable Accounts payable Contract liabilities Employee remuneration payable Taxes payable Deferred income (current) Non-current liabilities due within one year Estimated liabilities Total current liabilities	2020/12/31 Before adjustment 28,443 52,746 1,985 21,775 6,227 2,730 343 861 164 1,887 – 6,942 – – – – – – – – – 124,107	GAAP difference adjustment 614 (92) – – 209 (60) 5 6 – 3 – 30 – – – – – – – – – 716	Account expression adjustment (29,058) 0 (1,985) (21,775) 156 (2,669) (349) (868) (164) (1,890) – (1,271) 0 2,250 26,849 57 890 1,386 120 26,429 1,890 0	2020/12/31 After adjustment – 52,654 – – 6,592 – – – – – – 5,700 0 2,250 26,849 57 890 1,386 120 26,429 1,890
				124,823

– II-298 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated balance sheet Note Non-current liabilities Bonds payable Long-term borrowings 1,3, Lease liabilities 3,9, Deferred tax liabilities 2,7, Retirement benefit liability 1,4, Provision for environmental measures Provision for stock compensation Other non-current liabilities 3,9, Transactional financial liabilities Long-term employee remuneration payable Deferred income (non-current) Total non-current liabilities Total Liabilities Owners’ equity 1,2,3,4,5,6,7,8,9, Total liabilities and owners’ equity	2020/12/31 Before adjustment 2,955 20,820 7,199 432 3,234 162 151 4,685 – – – 39,641 163,748 8,653 172,401	GAAP difference adjustment – (166) 155 145 10 – – 47 – – – 193 910 2,569 3,480	Account expression adjustment – – – – (3,245) (162) (151) (1,022) 46 3,469 1,064 – 0 – 0	2020/12/31 After adjustment 2,955 20,654 7,355 578 – – – 3,711 46 3,469 1,064
				39,835
				164,658
				11,222
				175,881

– II-299 –

APPENDIX II

FINANCIAL INFORMATION OF THE SANDEN GROUP

(Unit: million yen)

Consolidated income statement Note Operating revenue 1,3, Operating costs 1,3,4, Gross profit Selling, general and administrative expenses 1,3,5,8,9, Taxes and surcharges Management expenses Sales expenses R&D expenses Financial expenses Operating profits (loss) Non-operating income Interest income 1,3, Dividend income 2, Share of profit of associates and joint ventures 2,3,5, Foreign exchange gains 1,3, Rent income Other non-operating income 1,3, Total non-operating income Non-operating expenses Impairment loss on credit Interest expenses 1,3,9, Foreign exchange losses 1,3, Commission expenses Share of losses of associates and joint ventures 2,3, Other non-operating expenses 1,3, Total non-operating expenses Ordinary profits (loss)	2020/4/1 2020/12/31 Before adjustment 94,496 87,057 7,439 17,137 – – – – – (9,697) – 345 6 – – 583 116 1,051 – – 1,432 1,511 – 2,046 2,360 7,349 (15,995)	GAAP difference adjustment 3,417 2,572 845 (114) – – – – – 959 – 7 – 586 (16) – (1) 576 – – (6) 11 – 1 (16) (9) 1,545	Account expression adjustment 583 273 309 (17,022) 835 9,320 2,956 4,084 2,612 (2,476) 153 (352) (6) (586) 16 (583) (114) (1,474) 2,965 1 (1,426) (1,523) – (2,047) (2,343) (4,373) 422	2020/4/1 2020/12/31 After adjustment 98,498 89,903
				8,594
				– 835 9,320 2,956 4,084 2,612
				(11,214)
				153 – – – – – –
				153
				2,965 1 – – – – –
				2,967
				(14,027)

– II-300 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Consolidated income statement Note Extraordinary income Investment income Gain on disposal of assets Gain on disposal of non-current assets 3, Gain on sales of investment in capital of subsidiaries and affiliates Gain on sales of investment securities Insurance claim income Other extraordinary income 3, Total extraordinary income Extraordinary losses Asset impairment losses Loss on disposal of non-current assets 1,3, Losses related to the COVID-19 pandemic Provision for bad debts Structural reform costs Loss on reversal of differences on translation of foreign currency financial statements incurred from liquidation of foreign subsidiaries Provision for outstanding claims Other extraordinary losses 3, Total extraordinary losses Profit before taxes (loss before taxes is listed with “�”) Current income tax expenses 1,3, Deferred income tax expenses 3, Income tax Total income tax expenses Net profits (loss) Profits (loss) of minority interests 3,6, Net profits (loss) attributable to shareholders of the parent company Net loss from continuing operations Net profit from discontinued operations	2020/4/1 2020/12/31 Before adjustment – – 121 – – – 29 150 – 28 957 – – – – 231 1,216 (17,061) 190 – – 190 (17,251) (411) (16,840)	GAAP difference adjustment – – 12 – – – 9 22 – 0 – – – – – (86) (86) 1,655 0 4 – 4 1,650 265 1,384	Account expression adjustment (1,463) 125 (134) – – – (39) (1,511) 41 (28) (957) – – – – (144) (1,088) 0 (190) (4) 194 0 0 – 0	2020/4/1 2020/12/31 After adjustment (1,463) 125 – – – – –
				(1,337)
				41 – – – – – – –
				41
				(15,406)
				– – 194
				194
				(15,601)
				(146)
				(15,455)
				(15,455) –

– II-301 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

Notes

1. Matters related to the scope of the merger

Non-consolidated subsidiary

According to the Japanese Accounting Standards, the subsidiaries actually controlled by the parent company shall in principle be included in the scope of consolidated financial statements, but subsidiaries that do not have a significant impact on the consolidated financial statements can be excluded from the scope of consolidation.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, all subsidiaries actually controlled by the parent company shall be included in the scope of the consolidated statement.

The consolidated financial statements of the following non-consolidated subsidiaries are included in the consolidated financial statements after the adjustment of accounting standards. SANDEN BRIGHT PARTNER CO., LTD. Sanden International Brazil SANDEN TECHNICAL CENTER OF VIETNAM CO.,LTD Sanden Retail Systems Korea Co., Ltd.

2. Matters related to the application of the equity method

Affiliates not applicable to the equity method

According to the Japanese Accounting Standards, companies that can implement significant influence on affiliates shall in principle be included in the scope of application of the equity method, but the equity method may not apply to affiliates that do not have a significant influence on the consolidated financial statements.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, the Company has included the equity method in the application of the equity method to the affiliates that have a significant influence.

In the consolidated statement after the adjustment of accounting standards, the following affiliates that are not applicable to the equity method are included in the scope of application of the equity method.

SANPAK ENGINEERING INDUSTRIES PVT. LTD.

– II-302 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

3. Matters related to the business year of consolidated subsidiaries and equity method affiliates.

According to the Japanese Accounting Standards, if the difference between the final settlement date of the financial statements and the final settlement date of consolidated financial statements of subsidiaries and affiliates does not exceed 3 months, the financial statements of each subsidiary and affiliate on the final settlement date may be adopted during the course of preparing consolidated financial statements.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, when preparing consolidated financial statements, the financial statements of subsidiaries and affiliates shall have the same final settlement date as the consolidated financial statements.

In the consolidated financial statements after the adjustment of accounting standards, the financial statements of subsidiaries and affiliates whose final settlement date is inconsistent with the consolidated financial statements are adjusted based on the final settlement date of the consolidated financial statements.

4. The accounting treatment method of retirement benefit liabilities

According to the Japanese Accounting Standards, the mathematical and actuarial differences in the calculation of the retirement reserve shall be amortized in a fixed number of years within the average remaining service life of the employees according to the straight-line method when they occur in each consolidated fiscal year. For the company (the consolidated parent company), expenses will be accounted one-off in the year which it occurs.

There is no provision for retirement benefit liabilities in the provisions of Chinese Accounting Standards and the accounting policies of Hisense Appliances, but the International Accounting Standards stipulate that mathematical and actuarial differences are not amortized.

In the consolidated statement after the adjustment of accounting standards, adjustments were made in accordance with the provisions of international accounting standards.

5. Matters related to the handling of goodwill

According to the Japanese Accounting Standards, goodwill shall be amortized within an appropriate period and be subject to annual impairment tests.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, goodwill will not be amortized, but an annual impairment test shall be conducted.

In the consolidated financial statements after the adjustment of accounting standards, the amortized goodwill has been adjusted for offsetting.

– II-303 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

6. Matters related to minority interests’ equity

According to the Japanese Accounting Standards, for insolvent subsidiaries, the minority interests will no longer be assumed for their losses when calculating minority interests’ equity.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, minority interests are required to bear the losses of the subsidiary in proportion to their shareholding when calculating the minority interests’ equity.

In the consolidated statement after the adjustment of accounting standards, the minority interests’ equity and minority interests’ gains and losses are adjusted according to the shareholding ratio.

7. Matters related to securities that do not have market prices

According to Japanese Accounting Standards, securities for which there is no market price can be measured at their acquisition cost.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, investment in securities must be measured at fair value.

In the consolidated statement after the adjustment of accounting standards, the fair value of securities that do not have a market price is adjusted.

8. Matters related to sample inventory

According to the Japanese Accounting Standards, there is no clear regulation on sample inventory. There are samples in the inventory reported by the company.

According to Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, samples are required to be expensed.

In the consolidated statements after the adjustment of accounting standards, the samples in the inventory were processed for expenses.

9. Matters related to operating leases

According to the Japanese Accounting Standards, operating lease contracts do not require the confirmation of right-of-use assets and lease liabilities.

According to the Chinese Accounting Standards and the accounting policies of Hisense Home Appliances, operating leases are also required to confirm the right-of-use assets and lease liabilities starting from 2019.

In the consolidated statement after the adjustment of accounting standards, the right-of-use assets and lease liabilities are confirmed for operating leases after 2019.

– II-304 –

APPENDIX II FINANCIAL INFORMATION OF THE SANDEN GROUP

10. Matters related to subject reclassification adjustment

Since the presentation method of consolidated financial statements required by the Japanese Accounting Standards is different from that of the Chinese Accounting Standards, in addition to the accounting treatment adjustments caused by the differences in the above accounting standards, the consolidated statements after the adjustment of accounting standards have also been reclassified and adjusted in accordance with the disclosure requirements of the Chinese Accounting Standards.

– II-305 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

The following is the unaudited pro forma consolidated statement of assets and liabilities as at 31 December 2020 of the Enlarged Group which has been prepared on the basis of the notes set out below and assumes that the Subscription had been completed on 31 December 2020. Details of the Subscription are set out in the section headed “Letter from the Board” contained in this circular.

The unaudited pro forma financial information of the Enlarged Group is based on the consolidated statement of assets and liabilities of the Group as at 31 December 2020 as extracted from the Company’s published annual report for the year ended 31 December 2020 as referred to in Appendix I to this circular and the consolidated statement of assets and liabilities of the Sanden Group as at 31 December 2020 as extracted from the unaudited consolidated balance sheet of the Sanden Group as set out in Appendix II to this circular.

The unaudited pro forma financial information of the Enlarged Group has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effect of the Subscription. Because of its hypothetical nature, such unaudited pro forma financial information may not give a true picture of the financial position of the Enlarged Group had the Subscription been completed as of the specified date or any future dates.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the historical financial information of the Group set out in the annual report of the Company for the year ended 31 December 2020 and with other financial information included elsewhere in this circular.

– III-1 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report received from the reporting accountants, ShineWing Certified Public Accountants LLP, in respect of the Enlarged Group’s pro forma financial information for incorporation in this circular.

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信永中和會計師事務所北京市東城區朝陽門北大街聯繫電話： +86(010)6554 2288 8號富華大廈A座9層 telephone: +86(010)6554 2288 9/F, Block A, Fu Hua Mansion, ShineWing No. 8, Chaoyangmen Beidajie, Dongcheng District, Beijing, 傳真： +86(010)6554 7190 certified public accountants 100027, P. R. China facsimile: +86(010)6554 7190

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

XYZH/2021QDAA40224

To the Directors of Hisense Home Appliances Group Co., Ltd

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Hisense Home Appliances Group Co., Ltd. (the “Company”) and its subsidiaries (collectively the “Group”). The unaudited pro forma financial information has been compiled by the directors of the Company (the “Directors”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated balance sheets as at 31 December 2020, and related notes (the “Unaudited Pro Forma Financial Information”) as set out on pages III-5 to III-11 of the Company’s circular dated 7 May 2021, in connection with the proposed subscription for shares in Sanden Holdings Corporation (the “Transaction”). The applicable criteria on the basis of which the Directors have compiled the Unaudited Pro Forma Financial Information are described on pages III-5 to III-11.

The Unaudited Pro Forma Financial Information has been compiled by the Directors to illustrate the impact of the Transaction on the Group’s financial position as at 31 December 2020 as if the Transaction had taken place at 31 December 2020. As part of this process, information about the Group’s financial position has been extracted by the Directors from the Group’s financial statements for the year ended 31 December 2020, on which an accountant’s report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars (“AG 7”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

– III-2 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Our Independence and Quality Control

We have complied with the independence and other conduct requirements of the “Code of Ethics for Professional Accountants” of the Chinese Institute of Certified Public Accountants (“CICPA”), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies the “Standards on Quality Control of Accounting Firms 5101” issued by the CICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420, Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus, issued by the HKICPA. This standard requires that we plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 31 December 2020 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

– III-3 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The related pro forma adjustments give appropriate effect to those criteria; and
The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

ShineWing Certified Public Accountants LLP

Beijing, China

7 May 2021

– III-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the unaudited pro forma financial information of the Enlarged Group (being the Company and its subsidiaries (collectively the “Group”) together with Sanden Holdings Corporation (the “Target Company”) and its subsidiaries (collectively the “Target Group”)), comprising the unaudited pro forma consolidated balance sheet as at 31 December 2020. It has been prepared by the Directors of the Company in accordance with Rule 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ’’Listing Rules’’) for the purpose of illustrating the effect of the proposed subscription for shares in Sanden Holdings Corporation (the “Transaction”) on the Group’s financial position as at 31 December 2020 as if the Transaction had been completed on 31 December 2020.

This unaudited pro forma financial information has been prepared using accounting policies consistent with those of the Group and based upon the unaudited consolidated balance sheet of the Group as at 31 December 2020 as extracted from the Company’s published annual report for the year then ended, after making certain pro forma adjustments as described below. These pro forma adjustments of the Transaction are (i) directly attributable to the Transaction concerned and not relating to future events or decisions; and (ii) factually supportable based on the terms of the subscription agreement.

The unaudited pro forma financial information of the Enlarged Group is based on a number of assumptions, estimates, uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the unaudited pro forma financial information of the Enlarged Group does not purport to describe the actual financial position of the Enlarged Group as at 31 December 2020 that would have been attained had the Transaction been completed on 31 December 2020, or any future date. Furthermore, the unaudited pro forma financial information of the Enlarged Group is for illustrative purposes only, and because of its hypothetical nature, it may not give a true picture of the financial information of the Enlarged Group or predict the future financial information of the Enlarged Group.

– III-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

In addition, for the purpose of the unaudited pro forma financial information of the Enlarged Group, the Directors considered that the fair values of the identifiable net assets of the Target Group may change after the date of this circular as the fair value of identifiable net assets of the Target Group to be acquired will be assessed on the completion date of the acquisition. As the unaudited pro forma financial information of the Enlarged Group is prepared for illustrative purposes only, the Directors have assumed that the fair value of the identifiable net assets of the Target Group as at 31 December 2020 was their respective carrying amount. The possible change in fair value of identifiable net assets of the Target Group is not reflected in the unaudited pro forma financial information of the Enlarged Group.

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the historical financial information of the Group set out in the Company’s published annual report for the year ended 31 December 2020, and the historical financial information of the Target Group set out in Appendix II and other information included elsewhere in this circular.

– III-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Balance Sheet as of 31 December 2020

Unit: RMB million

				The
		The Target	Pro forma	Enlarged
Items	The Group	Group	adjustments	Group
	(Note 1)	(Note 2)	(Note 3)
Current assets
Cash at bank and on hand	7,110.77	1,387.78	-33.83	8,464.72
Transactional financial assets	2,620.90	9.42		2,630.32
Derivative financial assets
Notes receivable	548.50	147.02		695.52
Accounts receivable	6,594.10	1,665.19		8,259.29
Factoring of accounts receivable	4,241.24			4,241.24
Prepayments	224.43			224.43
Others receivables	398.21	443.73		841.94
Including: Interest receivable
Dividend receivable		185.28		185.28
Financial assets purchased under agreements
to resell
Inventories	4,295.26	1,859.14		6,154.40
Contract assets
Holding assets for sale
Non-current assets due within one year
Other current assets	4,198.01	493.75		4,691.76
Total current assets	30,231.42	6,006.03	-33.83	36,203.62
Non-current assets
Investments in debt
Other investments in debt
Long-term receivables
Long-term equity investments	523.75	973.90		1,497.65
Other equity investment		53.37		53.37
Other non-current financial assets
Investment properties	36.65	414.51		451.16
Fixed assets	3,879.40	2,477.33		6,356.73
Construction in progress	228.89	222.59		451.48
Productive biological assets
Oil and gas assets
Right-of-use assets	68.10	464.47		532.57
Intangible assets	1,745.05	266.35		2,011.40
Development expenditure
Goodwill	132.57	22.13		154.70
Long-term prepayments	33.34	8.73		42.07
Deferred tax assets	704.01	131.09		835.10
Other non-current assets	4,228.46	81.13		4,309.59
Total non-current assets	11,580.22	5,115.60		16,695.82
Total assets	41,811.64	11,121.63	-33.83	52,899.44

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

				The
		The Target	Pro forma	Enlarged
Items	The Group	Group	adjustments	Group
	(Note 1)	(Note 2)	(Note 3)
Current liabilities
Short-term borrowings	22.03	3,329.63		3,351.66
Transactional financial liabilities	0.20	2.91		3.11
Derivative financial liabilities
Notes payable	10,775.38	142.28		10,917.66
Accounts payable	7,291.83	1,697.82		8,989.65
Advances from customers
Contract liability	1,100.53	3.60		1,104.13
Employee remunerations payable	649.95	56.28		706.23
Taxes payable	498.92	87.65		586.57
Other payable	2,011.56	416.85		2,428.41
Including: Interests payable
Dividends payable		2.00		2.00
Holding liabilities for sale
Non-current liabilities due within one year	29.56	1,671.26		1,700.82
Other current liabilities	4,339.38	360.45		4,699.83
Total current liabilities	26,719.34	7,768.73		34,488.07
Non-current liabilities
Long-term borrowings		1,306.08		1,306.08
Bonds payable		186.86		186.86
Including: Preferred stock
Perpetual bond
Lease liabilities	28.36	465.10		493.46
Long-term payables
Long-term employee remunerations payable		219.37		219.37
Provisions	483.88	119.52		603.40
Deferred income	99.08	74.87		173.95
Deferred tax liability	74.47	36.55		111.02
Other non-current liabilities		234.67		234.67
Total non-current liabilities	685.79	2,643.02		3,328.81
Total liabilities	27,405.13	10,411.75		37,816.88
NET ASSETS	14,406.51	709.88	-33.83	15,082.56

– III-8 –

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The consolidated balance sheet as at 31 December 2020 of the Group were extracted from the Group’s published annual report for the year ended 31 December 2020. The relevant balance has been adjusted to RMB million.
The consolidated balance sheet as at 31 December 2020 of the Target Group were extracted from the unaudited adjusted financial information of Sanden Group under the Company’s accounting policies set out in Appendix II to this circular. The currency unit of the Target Group’s consolidated balance sheet is yen, which has been adjusted to RMB million according to the exchange rate on 31 December 2020, i.e. 100 yen to RMB6.3236.
Pursuant to the Share Purchase Agreement entered into between the Company and Sanden Holdings Corporation (“Sanden”), and subject to the consent of the ADR Creditors’ meeting to the Turnaround Plan (including, among which, waiving of ADR Debts), the Company proposed to subscribe for 83,627,000 ordinary shares of Sanden at the price of JPY256 per share on the closing date, with the total subscription price of approximately RMB1,353.79 million.

For the preparation of statements, we have assumed that the subscription has taken place on 31 December 2020 and the consideration for the equity transfer be fully paid on that date.

Upon completion of the Transaction, the Company will hold approximately 74.88% equity interests and approximately 75% voting rights in the Target Company. The Company will include the Target Company in the scope of the consolidated statements of the Company. According to the Accounting Standards for Business Enterprises No. 20 – Business Combination, the Transaction is to be treated according to the requirements of business combinations involving entities not under common control and the identifiable net assets of the Target Group should be presented in the consolidated financial statements of the Enlarged Group at fair value. For the preparation of the unaudited pro forma financial information, the Directors have assumed that the Transaction was completed on 31 December 2020 and the fair value of the identifiable net assets of the Target Group was their respective carrying amount.

– III-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

(1) The cost of and goodwill in business combination:

Unit: RMB million

Item	Target Group
Cost of combination
– Cash	1,353.79
Total cost of combination	1,353.79
Less: the acquired interest in the fair value of the identifiable
net assets	1,545.28
The goodwill/cost of combination is less than the amount of the
acquired interest in the fair value of the identifiable net
assets	-191.49

The fair value of the identifiable net assets obtained is calculated based on (identifiable net assets of the Target Group of RMB709.88 million on the acquisition date + capital increase of RMB1,353.79 million obtained) * 74.88%.

(2) Adjustment on the balance sheet of the Company and the Target Group on the acquisition date, and the Company’s long-term equity investments were offset against the Target Group’s net assets.

Unit: RMB million

	The	The
	Company	Target	Combined
Item	①	Group ②	offset③	Total
Monetary funds	-1,353.79	1,319.96		-33.83
Long-term equity investments	1,353.79		-1,353.79
Net assets		1,319.96	-1,353.79	-33.83
Net assets of the Target
Group		1,319.96	-1,519.95	-199.99
Retained earnings on
consolidated statement
(management expenses)			-25.33	-25.33
Retained earnings on
consolidated statement
(non-operating income)			191.49	191.49

① Assuming that the Transaction was completed on 31 December 2020, the Company is required to pay RMB1,353.79 million of capital increase while recognizing RMB1,353.79 million of long-term equity investments;

– III-10 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX III

② The Target Group received RMB1,319.96 million after deducting the issuance expenses of RMB33.83 million while the net assets increased by RMB1,319.96 million.
③ Offsetting the Company’s long-term equity investment of RMB1,353.79 and the Target Group’s net assets of RMB1,519.95 million ((identifiable net assets of the Target Group of RMB709.88 million on the acquisition date + capital increase of RMB1,353.79 million obtained – issuance expenses of RMB33.83 million) * 74.88%) on the acquisition date, while the issuance expenses attributable to the Company of RMB25.33 million (RMB33.83 million * 74.88%) were offset against the retained earnings on consolidated statement (management expenses) and added the combined cost of RMB191.49 million, which is less than the fair value of the identifiable net assets obtained, to the retained earnings on consolidated statement (non-operating income).
As the amount of the transaction costs of the Transaction is small, it is not accounted for in the unaudited pro forma financial information of the Enlarged Group.
Save as mentioned above, no other adjustments have been made to the unaudited pro forma consolidated balance sheet of the Enlarged Group to reflect any operating results or other transactions entered into by the Group and the Target Group subsequent to 31 December 2020.

– III-11 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

Set out below is the management discussion and analysis on the Sanden Group for each of the three financial years ended 31 March 2018, 2019 and 2020 and for the nine months ended 31 December 2020. The discussion and analysis relate to the consolidated results and financial position of the Sanden Group.

OPERATING RESULTS

(Millions of yen)

				Nine	Nine
	Year	Year	Year	months	months
	ended31	ended31	ended 31	ended 31	ended 31
	March	March	March	December	December
	2018	2019	2020	2019	2020
Operating revenue	287,609	273,934	204,880	166,541	94,496
Operating profits (loss)	5,469	889	(3,401)	(1,888)	(9,697)
Profits (loss) before
income taxes	5,867	(20,568)	2,326	13,102	(17,061)
Net profits (loss)
attributable to
shareholders of the
parent company	4,255	(23,060)	2,287	12,210	(16,840)

Operating revenue

For the three years ended 31 March 2018, 2019 and 2020, operating revenue of Sanden was approximately JPY287.6 billion, JPY273.9 billion and JPY204.9 billion respectively. For the nine months ended 31 December 2019 and 2020 operating revenue of Sanden was approximately JPY166.5 billion and JPY94.5billion respectively.

Operating revenue for the year ended 31 March 2019 decreased by approximately JPY13,675 million from the year ended 31 March 2018 mainly due to decrease of sales in the Automotive Systems Business segment. Operating revenue for the year ended 31 March 2020 decreased by approximately JPY69,054 million from the year ended March 2019 primarily due to the decrease of sales in the Automotive Systems Business segment and decrease of sales in the Commercial Store Systems segment because of the transfer of Sanden Retail Systems Corporation (hereinafter referred to as “ SDRS ”) shares on 1 October 2019. Sanden transferred all the issued shares in SDRS, a consolidated subsidiary of Sanden and main business pillar in the Commercial Store Systems Business and all loans Sanden had against SDRS, to SDRS Holdings Corporation operated by Integral Corporation as of 1 October 2019.

Operating revenue for the nine months ended 31 December 2020 was JPY94,496 million, a decrease of JPY72,045 million from the nine months ended 31 December 2019. The decrease was primarily attributable to the decrease of sales in the Automotive Systems Business segment and the fact that SDRS had been excluded from the scope of consolidation from the third quarter of the year ended 31 March 2020.

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

The decrease of sales in the Automotive Systems Business was primarily attributable to the shutting down of the production sites of customers and the Sanden Group, which continued after April 2020 a round of furloughs at sites in Japan, the U.S., and other countries due to a decline in demand resulting in a significant decrease in sales in the first quarter of the year ending 31 March 2021. Yet, the sites resumed operation in the second quarter of the year ending 31 March 2021 with demand being on a recovery trend, and the level of recovery exceeded expectations in the third quarter and recently reached the same level as in the previous year. Nonetheless, demand fell below the previous year’s level on a cumulative basis, resulting in the decrease in operating revenue.

Revenue by segment

(Millions of yen)

Automotive Systems Business Commercial Store Systems Business Total Reportable Segments Other Total	Year ended31 March 2018 208,855 68,147 277,003 10,605 287,609	Year ended31 March 2019 193,465 69,423 262,888 11,045 273,934	Year ended 31 March 2020 153,776 43,275 197,052 7,827 204,880	Nine months ended 31 December 2019 115,988 43,237 159,225 7,315 166,541	Nine months ended 31 December 2020* N/A N/A N/A N/A
					94,496

* Information is omitted as the Sanden’s only reportable segment is the Automotive Systems Business.

Segment revenue comparison of years ended 31 March 2019 and 2018

In the Automotive Systems Business, operating revenue in Europe increased by approximately 6% due to the increase in sales of electric compressors and HVAC equipment for trucks, but operating revenue decreased in China and Asia due to the impact of trade policies between the U.S. and China, particularly intensified market competition in China. Operating revenue also declined in the Americas due to the decrease in sales of small and medium-sized vehicles on an OEM basis and in Japan due to the impact of switching suppliers by customers. As a result of these factors, operating revenue in the Automotive Systems Business segment for the year ended 31 March 2019 was JPY193.5 billion, a decrease of approximately JPY15.4 billion from the year ended 31 March 2018.

In the Commercial Store Systems Business, there were a lot of challenges, such as reviewing business models in response to labor shortages, promoting labor saving, and responding to the change to consumer orientation, as the Japan domestic convenience store industry peaked in terms of the number of stores with new store openings leveling off. Despite that Sanden had also been struggling due to the intensified competition targeting

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

main customers, the retail store systems business as a whole grew by 3%, contributed by the coffee machine business for convenience stores, which was a result of continued activities to discover customer needs. For the vending systems business, though the Japan domestic vending machine market had also been leveling off, sales increased as a result of the Sanden Group’s market share increased due to cost competitiveness, which had been improved by the cellular manufacturing system. In addition, overseas sales increased attributable to the increasing demand of Japanese convenience stores in the Americas, but decreased in Europe, Asia, and China due to a decrease in capital expenditures by customers. As a result of these factors, operating revenue in the Commercial Store systems business were JPY69.4 billion for the year ended 31 March 2019, an increase of approximately JPY1.3 billion year on year.

Segment revenue comparison of years ended 31 March 2020 and 2019

In the Automotive Systems Business, segment revenue for the year ended 31 March 2020 was approximately JPY153,776 million, a decrease of approximately 20.5% compared to the year ended 31 March 2019, and excluding the impact of JPY6.2 billion in foreign exchange, the actual decline was JPY33.5 billion. In Europe, sales of electric compressors increased due to the effects of regulations on fuel consumption and exhaust gas, but overall sales in Europe declined mainly due to the shutdown of plants caused by COVID-19. Sales in China and Asia declined mainly due to the impact of the market downturn in China and India, and the shutdown of plants in India, Malaysia and the Philippines. In addition, there was the impact of withdrawing from the Middle East business in August 2018.

In Japan, sales decreased due to the impact of decrease in sales of construction equipment. In the Americas, the Sanden Group was unable to fully cover the factors behind the decrease in sales due to the closure of some customers’ factories, resulting in a decrease in sales. Globally, the number of compressors sold during the year ended 31 March 2020 was 14.24 million units, a 12% decrease from the previous fiscal year.

In the Commercial Store Systems Business, due to the transfer of all issued shares of SDRS, segment revenue for the year ended 31 March 2020 were approximately JPY43.3 billion, a decrease of approximately JPY26.1 billion compared to the year ended 31 March 2019.

The operating revenue of other business amounted to approximately JPY7.8 billion for the year ended 31 March 2020, a decrease of approximately JPY3.2 billion compared to the year ended 31 March 2019. This decline was mainly due to the decrease in operating revenue owing to the “reduction of the living environment business and withdrawal from production” based on the business portfolio review and the transfer of shares in the vehicle sales business.

Operating profits (loss)

For the three years ended 31 March 2018, 2019 and 2020, operating profits (loss) was profits of approximately JPY5,469 million, profits of approximately JPY889 million and loss of approximately JPY3,401 million respectively. For the nine months ended 31 December 2019 and 2020 operating loss of Sanden was approximately JPY1,888 million and approximately JPY9,697 million.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

APPENDIX IV

Operating profits for the year ended 31 March 2019 was JPY889 million, a decrease of JPY4,580 million from the year ended 31 March 2018. The decrease was mainly due to the failure to make up for a substantial decline in sales and the consequent productivity deterioration, despite responding to annual price cuts from automakers through measures such as “cost reduction” and “cost improvement”, and also due to the continuous development investment for the future.

Operating loss for the year ended 31 March 2020 was JPY3,401 million, while for the year ended 31 March 2019 operating profits was recorded. Though Sanden had actively promoted a comprehensive reorganization of the production system as part of structural reforms, reviewed the optimal staffing and production systems and implemented measures to reduce variable costs and fixed costs, it could not offset the sharp decline in demand and sales due to COVID-19 pandemic.

Operating loss was JPY9,697 million for the nine months ended 31 December 2020, compared to operating loss of JPY1,888 for the nine months ended 31 December 2019, largely due to a significant decrease in demand caused by the COVID-19 pandemic in the first quarter and a steep rise in distribution costs accompanying a sharp recovery in demand in the third quarter for year ending 31 March 2021.

Operating profits (loss) by segment

(Millions of yen)

Automotive Systems Business Commercial Store Systems Business Total Reportable Segments Other Total	Year ended31 March 2018 6,610 285 6,895 (1,426) 5,469	Year ended31 March 2019 560 773 1,334 (445) 889	Year ended 31 March 2020 (5,303) 2,297 (3,006) (395) (3,401)	Nine months ended 31 December 2019 (4,001) 2,331 (1,669) (218) (1,888)	Nine months ended 31 December 2020* N/A N/A N/A N/A (9,697)

* Information is omitted as the Sanden’s only reportable segment is the Automotive Systems Business.

Segment operating profits comparison of years ended 31 March 2019 and 2018

In the Automotive Systems Business, operating profits was JPY560 million for the year ended 31 March 2019, a significant decrease by JPY6,050 million from the year ended 31 March 2018. The main factors for the decrease included the failure to cover a loss of JPY4.7 billion caused by a significant decrease in sales and the resulting deterioration in productivity, although an annual price cut of JPY4.4 billion requested by automobile

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

manufacturers was absorbed by reductions in cost of goods sold of JPY3.7 billion and cost improvements of JPY1.2 billion, and continuous development investment for the future of JPY1.3 billion.

In the Commercial Store Systems Business, operating profits was JPY773 million for the year ended 31 March 2019, an increase of JPY488 million from the year ended 31 March 2018. The main changes included an increase in operating revenue of JPY300 million attributable to the introduction of new coffee machines for convenience stores, a decrease in cost of goods sold JPY500 million, and an improvement in costs of JPY200 million, which offset a deterioration in price factors of JPY400 million.

As for other business areas, the Sanden Group promoted initiatives such as “downsizing/withdrawing from the residential environment business”, as part of business portfolio reviews. As a result, though net sales were unchanged year on year at JPY11,045 million, operating loss improved from JPY1,426 million for the year ended 31 March 2018 to operating loss JPY445 million for the year ended 31 March 2019.

Segment operating profits (loss) comparison of years ended 31 March 2020 and 2019

In the Automotive Systems Business, operating loss amounted to approximately JPY5.3 billion for the year ended 31 March 2020, while operating profits was recorded for the year ended 31 March 2019. The decrease was primarily due to that the reduction in variable and fixed costs associated with structural reforms of JPY4.4 billion, and a reduction in cost of goods sold on a global basis of JPY3.9 billion could not cover the significant decrease in sales because of the impact of COVID-19, the annual price reduction from automobile manufacturers, and the impact of yen appreciation.

In the Commercial Store Systems Business, operating profits amounted to approximately JPY2.3 billion for the year ended 31 March 2020, an increase of approximately JPY1.5 billion from the year ended 31 March 2019. The main factors of changes were due to an increase in sales due to the introduction of new coffee machines for convenience stores and cost reductions due to improved production efficiency.

Profits (loss) before income taxes

For the three years ended 31 March 2018, 2019 and 2020, profits before income taxes of Sanden was approximately JPY5,867 million, loss of approximately JPY20,568 million and profits of approximately JPY2,326 million respectively. For the nine months ended 31 December 2019 and 2020 profits (loss) before income taxes of Sanden was profits of approximately JPY13,102 million and loss of approximately JPY17,061 million.

The reason that loss before income taxes for the year ended 31 March 2019 was recorded while profits before income taxes was recorded for the year ended 31 March 2018 was primarily due to the recording of two extraordinary losses which includes a provision for bad debts for receivables from affiliated companies in the Middle East affected by the financial sanctions against Iran as well as restructuring cost. In addition to the extraordinary loss, cost reduction could not cover price reductions requested by customers in Automotive Systems Business. The profits before income taxes of the year ended 31 March 2020

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

increased to approximately JPY2,326 million, compared to the figure for the year ended 31 March 2019 due to a gain on sale of SDRS shares, partially offset by a decrease in sales due to a sharp drop in demand caused by COVID-19 as well as early retirement benefits and impairment losses on fixed assets associated with the restructuring.

Profits before income taxes for the nine months ended 31 December 2020 decreased by approximately JPY30,163 million, compared to the figures for the year ended 31 December 2019 was primarily due to a sharp drop in demand caused by COVID-19, losses of foreign exchange and equity method as well as personnel expense and other fixed cost incurred while the plants were temporarily shut down.

Net profits (loss) attributable to shareholders of the parent company

Net loss attributable to the shareholders of the parent company amounted to JPY23,060 million for the year ended 31 March 2019 compare to net profits attributable to the shareholders of the parent company for the same period of the previous fiscal year was JPY 4,255 million due to the posting of provision for bad debts (extraordinary loss) related to trade receivables from affiliated companies in the Middle East and structure reform cost.

Net profits attributable to shareholders of the parent company amounted to JPY2,287 million for the year ended 31 March 2020 due to gain on sale of SDRS shares though the loss on early premium retirement allowance and impairment loss on non-current assets due to structural reforms were included, compared to net loss attributable to shareholders of the parent company of JPY23,060 million for the year ended 31 March 2019.

The net loss attributable to the shareholders of the parent company million for the nine months ended 31 December 2020 was JPY16,840 million compared to net profits of JPY12,210 million for the nine months ended 31 December 2019, primarily due to extraordinary losses of fixed expenses caused by COVID-19 pandemic recorded in the first quarter, in addition to the ordinary loss due to operating losses, foreign exchange losses, and deterioration of earnings in companies accounted for by the equity method.

LIQUIDITY AND FINANCIAL RESOURCES

Source of capital and liquidity of funds

The Sanden Group financed working capital requirements primarily by cash flows from operating activities, internal funds and borrowing from financial institutions.

The Sanden Group raises the fund necessary for investment by cash flows from operating activities and its own funds, as well as financing by borrowing from financial institutions and issuing corporate bonds. But the situation in fiscal year ended 31 March 2020 and the nine months ended 31 December 2020 was that current liabilities exceeded current assets.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

APPENDIX IV

Financing

The Sanden Group decides financing according to the purpose of the funds and the time, period, and region where the funds are needed.

As of 31 March 2018, short-term borrowings amounted to JPY45,011 million and were denominated primarily in JPY, the U.S. dollar, and the Euro. The U.S. dollar and euro are the main currencies used in the JPY51,513 million balance of short-term borrowings at the end of the fiscal year ended March 31, 2019 and the JPY47,497 million of the balance of short-term borrowings at the end of the fiscal year ended March 31, 2020.

The Sanden Group’s basic policy is to procure the long-term funds required for production equipment investment and other capital expenditures with long-term borrowings. As of 31 March 2018, total long-term borrowings and bonds payables amounted to JPY81,133 million. A large part of the long-term borrowings was borrowed with fixed interest rates from financial institutions. It included JPY36,368 million, which was bank loans borrowed and bonds issued during the fiscal year ended 31 March 2018, mainly in Japan for investment in facilities.

During the year ended 31 March 2019, the Sanden Group borrowed long-term borrowings of JPY17,368 million mainly in Japan and used them for capital expenditures. Major portion of the JPY 71,644 million in long-term borrowings at the end of the fiscal year ended 31 March 2019 was fixed-rate borrowings from financial institutions.

The total amount of borrowings and corporate bonds of the Sanden Group at the end of the fiscal year ended 31 March 2020 was JPY100,252 million (JPY130,495 million at the end of the previous fiscal year) and it was at higher level than cash on hand of JPY23,711 million (JPY13,030 million at the end of the previous fiscal year). Major portion of the JPY52,755 million in long-term borrowings and bonds outstanding at the end of the fiscal year ended 31 March 2020 were fixed-rate borrowings from financial institutions.

There was no significant change in total borrowings as of 31 December 2020 from 31 March 2020.

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

In light of such difficult business conditions, on 30 June 2020, to establish a solid profit structure for future regrowth and drastically improve the Sanden Group’s financial structure, Sanden and some of its subsidiaries formally applied for the Turnaround ADR Proceedings to the Japanese Association of Turnaround Professionals, an organization certified by both the Minister of Justice as an ADR Business Operator and by the Minister of Economy, Trade and Industry as a Specified ADR Business Operator, and the application was accepted on the same date.

After that, on 14 July 2020, Sanden and its subsidiaries held the first creditor meeting to explain the outline of the Turnaround Plan with all ADR Creditors for the Turnaround ADR Proceedings in attendance. Sanden and its subsidiaries obtained the consent from all ADR Creditors regarding the temporary suspension notice, and they have received an extension of this temporary suspension until the end of the creditors’ meeting for the resolution of the Turnaround Plan (In the case of a postponement or continuance, the suspension is up to the date of the postponement or continuance).

In addition, Sanden plans to receive financial support including bridge loans from major financial institutions and received approval from all ADR Creditors, for such financial support and treat claims related to the financial support with priority over the claims of the ADR Creditors.

– IV-8 –

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

	9 months ended 31 December 2020	Average	interest Maturity Millions	rate (FY) of yen	1.54 2021 52,747	0.26 2021 1,985		2.04 2021 21,775	0.09 2021 2,730		0.38 N/A 2,955		2.84 2026 20,820		0.1 2029 7,199	Borrowings Lease bond	74,522 2,730 1,985	17,751 6,462 1,935	1,926 185 1,020	1,018 153 –	119 114 –	7 286 –	95,343 9,929 4,940
	9 months ended 31 December 2019	Average	interest Maturity Millions	rate (FY) of yen	1.83 2020 43,742	0.19 2020 1,785		1.87 2020 23,324	0.1 2020 2,843		0.33 N/A 4,940		2.31 2025 36,201		0.1 2028 8,031	Borrowings Lease bond	67,066 2,843 1,785	31,192 6,979 2,185	2,293 418 1,935	1,821 200 820	818 160 –	76 274 –	103,267 10,875 6,725
Financial year ended	31 March 2020	Average	interest Maturity Millions	rate (FY) of yen	2.4 2020 47,497	0.26 2020 1,985		1.43 2020 20,985	1.78 2020 2,627		0.33 N/A 3,847		1.67 2026 25,938		1.48 2029 7,610	Borrowings Lease bond	68,482 2,627 1,985	14,588 2,348 2,185	8,221 1,816 1,512	2,753 1,286 150	350 772 –	27 1,389 –	94,420 10,238 5,832
Financial year ended	31 March 2019	Average	interest Maturity Millions	rate (FY) of yen	1.94 2019 51,513	0.19 2019 1,505		1.35 2019 23,704	1.67 2019 2,175		0.31 N/A 5,832		1.59 2025 47,939		1.34 2029 5,974	Borrowings Lease bond	75,218 2,176 1,505	21,480 1,898 1,985	14,803 1,690 2,185	8,401 1,254 1,512	2,839 786 150	414 345 –	123,155 8,149 7,337
Financial year ended	31 March 2018	Average	interest Maturity Millions	rate (FY) of yen	2.01 2018 45,011	0.17 2018 712		1.45 2018 18,299	N/A 2018 2,018		0.3 N/A 5,987		1.64 2024 56,134		N/A 2027 6,113	Borrowings Lease bond	63,311 2,018 712	20,649 1,877 1,205	17,743 1,514 1,685	10,778 1,315 1,885	4,504 920 1,212	2,459 485 –	119,444 8,129 6,699
					Short term borrowings	Bond payable due within 1 year	Long term borrowings due within	1 year	Lease liabilities due within 1 year	Bond payable (excluding the	portion due within 1 year)	Long term borrowings (excluding	the portion due within 1 year)	Lease liabilities (excluding the	portion due within 1 year)	Repayment schedule	Within 1 year	Within 1-2 years	Within 2-3 years	Within 3-4 years	Within 4-5 years	Beyond 5 years	Total

– IV-9 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

Gearing ratio

As at 31 March 2018, 2019 and 2020 and 31 December 2020, the gearing ratios of Sanden were 81.5%%, 90.4%, 87.9% and 95.0% respectively. The gearing ratio is defined as total liabilities divided by total assets.

FINANCIAL POSITION

Year ended 31 March 2018

Total assets as at 31 March 2018 decreased to JPY276,289 million from the end of the previous financial year. This mainly reflected decreases in trade notes and accounts receivable as well as long-term equity investment.

Total liabilities declined to JPY225,332 million, mainly reflecting decreases in other payables and interest-bearing liabilities.

Total net assets increased to JPY50,957 million, largely owing to the increase in net profits attributable to shareholders of the parent company.

Year ended 31 March 2019

Total assets as at 31 March 2019 decreased by JPY29,247 million from 31 March 2018 to JPY246,401 million, mainly due to the posting of provision for bad debts and a decrease in cash at bank and on hand, tangible fixed assets, deferred tax assets, etc. Total liabilities decreased by JPY1,829 million from 31 March 2018 to JPY222,862 million, mainly due to an increase in interest-bearing debt and decreases in trade notes and accounts payable, other payables.

Net assets decreased by JPY27,418 million from 31 March 2018 to JPY23,538 million due to net loss attributable to shareholders of the parent company, a decrease in differences on translation of foreign currency financial statements, etc.

Year ended 31 March 2020

Total assets as at 31 March 2020 were JPY187,559 million, a decrease of JPY58,841 million from 31 March 2019, mainly due to an increase in cash at bank and on hand, a decrease in trade receivables, inventories and non-current assets. The decrease in assets included the impact of the transfer of SDRS shares of JPY43,388 million.

Total liabilities decreased by JPY58,002 million from 31 March 2019 to JPY164,859 million, mainly due to a decrease in interest-bearing debt, trade notes and accounts payable, and other payables. The decrease in liabilities also included the effect of the transfer of SDRS shares of JPY31,043 million.

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

Net assets decreased by JPY839 million from 31 March 2019 to JPY22,699 million due to a decrease in minority interests, although there was an increase in net profits attributable to shareholders of the parent company.

Nine months ended 31 December 2020

Total assets as of 31 December 2020 decreased by JPY15,158 million from 31 March 2020 to JPY172,401 million, mainly due to a decrease in deposits, notes and accounts receivable and inventories as a result of sales decrease caused by COVID-19.

Total liabilities decreased by JPY1,111 million from 31 March 2020 to JPY163,748 million mainly due to decreases in accounts payable and other current liabilities.

Net assets decreased by JPY14,046 million from 31 March 2020 to JPY8,653 million due to the quarterly net loss attributable to shareholders of the parent company.

CAPITAL EXPENDITURE

For the three years ended 31 March 2018, 2019 and 2020, the capital expenditures of Sanden was approximately JPY12.4 billion, JPY13.0 billion and JPY12.3 billion respectively. For the nine months ended 31 December 2019 and 2020, the capital expenditures of Sanden was approximately JPY9.9 billion and JPY4.6 billion.

Overview of capital expenditures for the year ended 31 March 2018

Sanden made a total capital expenditure of JPY12.4 billion for the purpose of strengthening the global production system, local production, and in-house production. In the Automotive Systems Business, a total of JPY10.8 billion in capital expenditures were made mainly for local production and in-house production comprising JPY4.5 billion in Japan, JPY3.1 billion in Asia, JPY2.8 billion in Europe, and JPY0.3 billion in North America, In the Commercial Store Systems Business, Sanden made capital expenditures of JPY0.9 billion for parts localization and productivity improvements mainly in the Asian region and Japan, and JPY0.7 billion in other businesses to streamline the in-house production of parts.

Overview of capital expenditures for the year ended 31 March 2019

Sanden made a total capital expenditure of JPY13.0 billion for the purpose of strengthening the global production system, local production, and in-house production. In the Automotive Systems Business, a total of JPY10.3 billion in capital expenditures were made mainly for local production and in-house production comprising JPY4.8 billion in Japan, JPY2.5 billion in Asia, JPY1.8 billion in Europe, and JPY1.1 billion in North America, In the Commercial Store Systems Business, Sanden made capital expenditures of JPY1.7 billion for parts localization and productivity improvements mainly in Japan, and JPY0.9 billion in other businesses to streamline the in-house production of parts.

– IV-11 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

Overview of capital expenditures for the year ended 31 March 2020

Sanden made a total capital expenditure of JPY12.3 billion for the purpose of strengthening the global production system, local production, and in-house production. In the Automotive Systems Business, a total of JPY11 billion in capital expenditures were made mainly for local production and in-house production comprising JPY5.3 billion in Japan, JPY2.9 billion in Asia, JPY2.1 billion in Europe, and JPY0.7 billion in North America, In the Commercial Store Systems Business, Sanden made capital expenditures of JPY0.7 billion mainly in the Asian region and Japan, and JPY0.6 billion in other businesses to streamline the in-house production of parts.

Overview of capital expenditures for the nine months ended 31 December 2020

Sanden made a total capital expenditure of JPY4.6 billion for the purpose of strengthening the global production system, local production, and in-house production. In the Automotive Systems Business, a total of JPY4.6 billion in capital expenditures were made mainly for local production and in-house production comprising JPY2.9 billion in Japan, JPY1.2 billion in Asia, JPY0.5 billion in Europe.

SIGNIFICANT INVESTMENTS

The Sanden Group did not make any significant investment in the years ended 31 March 2018, 2019 and 2020 and the nine months ended 31 December 2020.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND ASSOCIATED COMPANIES

At a meeting of the Board of Directors held on 7 February 2019, Sanden decided to effect a corporate split (hereinafter referred to as “ the Company Split” ) in which the shares, etc. of subsidiaries engaged in the automotive systems business and the Commercial Store systems business as well as part of the rights and obligations of the related management-related business will be succeeded by Sanden’s wholly-owned subsidiaries, Sanden Automotive Components Corporation (hereinafter “ SDAC ”), Sanden Automotive Climate Systems Corporation (hereinafter “ SDAS ”) and SDRS, through an absorption-type split. In addition, on the same day, Sanden entered into an agreement regarding the absorption-type split. The Company Split became effective as of 1 April 2019.

Sanden transferred the all the issued shares of SDRS, a consolidated subsidiary of Sanden and main business pillar in the Commercial Store Systems Business, and all loans Sanden had against SDRS, to SDRS Holdings Corporation operated by Integral Corporation as of 1 October 2019. Thereby, Sanden has concentrated its management assets to Automotive Systems Business.

Save as disclosed above, there were no other material acquisitions or disposals by the Sanden Group for the three years ended 31 March 2018, 2019 and 2020 and the nine months ended 31 December 2020.

– IV-12 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

FOREIGN EXCHANGE RISK MANAGEMENT

The Sanden Group’s global operations, including Automotive Systems Business, involve foreign currency transactions. In particular, exchange rate fluctuations in the Sanden Group’s major transaction currencies, the U.S. dollar and the Euro, and currency fluctuations in China and other parts of Asia may affect the Sanden Group’s business results and financial position. In addition, the currencies stated in the financial statements of consolidated overseas subsidiaries and companies accounted for by the equity method have been translated into Japanese yen and recorded in the Sanden’s consolidated financial statements. Therefore, the translation rate may affect net income and stockholders’ equity as accounted for in the consolidated financial statements.

Trade receivables of the Sanden Group denominated in foreign currencies arising in the course of doing business overseas are exposed to the risk of exchange rate fluctuations, but are generally hedged through the use of forward exchange contracts, except to the extent that they are within the balance of accounts payable in the same foreign currency.

EMPLOYEES AND REMUNERATION POLICY

Sanden had 10,106, 9,628, 6,509 and 6,122 employees as at 31 March 2018, 2019, and 2020 and 31 December 2020 respectively. This does not include temporary staff. Average numbers of temporary staff were 3,034, 3,055, 2,051 and 2,175 for the three years ended 31 March 2018, 2019, and 2020 and 31 December 2020 respectively.

The remuneration policy of Sanden is reviewed every year and appropriate adjustments are made with reference to employees’ performance, conditions in the human resources market and general economic conditions.

Sanden adopts a defined contribution pension plan except in Japan. For overseas group companies, Sanden adopts the type of corporate pension in accordance with local laws and customs.

Sanden’s total staff cost for the three years ended 31 March 2018, 2019 and 2020 and for the nine months ended 31 December 2019 and 2020 were approximately JPY54,414 million, JPY52,094 million, JPY40,493 million, JPY33,009 million and JPY19,229 million respectively.

There are big differences between year ended 31 March 2019 and 2020 due to (i) Sanden’s sale of Sanden Retail systems corporation in October in 2019; and (ii) Sanden optimized production system including human resources globally in accordance with its 5 years Mid-term Management Plan (SCOPE 2023).

Sanden has not granted any share options to any members of the board of directors, executive officers. Sanden has adopted the Board Incentive Plan, but has not adopted any stock option scheme. The Board Incentive Plan is a scheme in which a company delivers its own shares to directors, etc. at the time of their tenure or retirement, with the main purpose of providing incentives. For the three years ended 31 March 2018, 2019 and 2020, the number of shares allocated to directors and executive officers under the Board Incentive

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APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

Plan was 34,021, 59,394 and 37,864 respectively. For the nine months ended 31 December 2019 and 2020 the number of shares issued under the Board Incentive Plan was 29,394 and 15,522 respectively.

The 92nd Annual General Meeting of Shareholders held on 21 June 21 2018 approved the proposal of the Board Incentive Plan for directors and corporate officers within JPY 450 million for 3 fiscal years and upper limit of allocated points is 650,000 (equivalent to 130,000 shares) per fiscal year. For each director, a certain number of points will be granted based on a director’s position in each period and the achievement of financial performance, consolidated ordinary profit margin, and addition granted rate is 0% to 30%. The points could be accumulated every year, and after the retirement, Sanden’s shares will be allocated to the director based on his or her accumulated points. In order to link with management target in the Sanden’s mid-term plan, consolidated ordinary profit margin is chosen to be the criteria for determining the entitlement of shares.

The Sanden Group recognizes that “HR development” is the one of biggest management issues for the future of Sanden, and it has employee education such as selection training, specialized education and self-development. Each education and training is based on “Leadership Education” which consists of “Corporate Philosophy”, “Business Skills” and “Management Skills”. It is started from younger age groups.

COLLATERALS

Part of the assets of Sanden have been provided as collateral, including time deposits, buildings and structures, and land. As at 31 March 2018, 2019, and 2020 and 31 December 2020, Sanden had assets provided as collateral on the consolidated balance sheet amounting to approximately JPY7,852million, JPY7,975 million, JPY9,445 million and JPY9,445 million respectively.

CONTINGENT LIABILITIES

As at 31 March 2018, 2019, and 2020 and 31 December 2020, Sanden had contingent liabilities amounting to approximately JPY600 million, JPY357 million, JPY429 million and JPY105 million respectively arising from the provision of debt guarantees for borrowings and other debt from financial institutions of non-consolidated companies.

For details of civil lawsuits (class action lawsuits) and other lawsuits filed in North America, please refer to Note 4b to the consolidated balance sheets in the audited consolidated financial statements of the Sanden Group for the financial years ended 31 March 2018, 2019 and 2020 in Section A.1 of Appendix II at page II-22, II-23 and page II-131 of this circular and Note 1(2) to the quarterly consolidated balance sheets in the unaudited consolidated financial statements of the Sanden Group for the nine months ended 31 December 2020 in Section A.2 of Appendix II at page II-233 of this circular. These lawsuits are not considered by Sanden to have material adverse effect on the Sanden Group.

– IV-14 –

APPENDIX IV MANAGEMENT DISCUSSION AND ANALYSIS OF THE SANDEN GROUP

FUTURE PLANS FOR MATERIAL INVESTMENT

(i) Structural reform

Sanden has been promoting the structural reform based on its 5-year Mid-term Management Plan (SCOPE2023), which was started in the fiscal year ended March 2020 and will be completed in the fiscal year ending March 2024. Specifically, Sanden intends to improve its market competitiveness through global production sharing according to the product life cycle and sales volume, and centralized parts procurement, and establish an optimal personnel structure through by consolidating its footprints and related headcount reductions.

(ii) Growth investment

Sanden plans to make growth investment in integrated thermal management for electric vehicles in addition to conventional air-conditioning systems, as outlined in SCOPE2023. Since appropriate thermal management can help reduce battery consumption and improve vehicle range, Sanden expects the higher demand for the automobile thermal management with the electrification of vehicles. Such growth investment will be made to meet the demand for products that can achieve thermal management for electric vehicles, and Sanden believes such investment is essential for Sanden’s mid-to-long term growth.

Such planned investments will be funded by the proceeds of the Subscription.

PROSPECTS

Sanden’s growth is supported by 3 technical fields; ’devices’ as typified by compressors, heat exchangers, etc., air conditioning systems and heat pump systems that are consisted of devices, and total heat management systems which control the systems mentioned earlier in a more comprehensive and efficient manner. Intending to enter the market of air conditioning for new concept vehicles, Sanden is also advancing the technical development in the system field. In the field of integrated heat management, to be adaptable to CASE, Maas, etc., it is promoting the collaborative creation with Nidec and others. It will contribute to the society through development of environment friendly technologies, i.e., extension of cruise distance of EV by optimally controlling all the heat management parameters. Sanden is aiming to be a company that can provide solutions for integrated heat management.

By combining Sanden’s competitiveness with the Group’s superior cutting-edge technology, in the CASE era, the Sanden Group is confident that it can create greater value for its customers by “creating new changes by ourselves,” which is the fusion of the automobile industry and the electrical industry. As a new Sanden, it will contribute to the realization of a carbon-free society toward its future vision of “To create the affluent society in which the environment and comfort are in harmony.”

– IV-15 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquires, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

Interests of Directors, supervisors and chief executive of the Company in the securities of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Listing Rules (the “ Model Code ”) to be notified to the Company and the Stock Exchange were as follows:

Long position in the Shares

				Approximate
				percentage
				of total
			Approximate	issued share
			percentage	capital of
Name of Director/	Nature of	Number of	of issued A	the
Supervisor	interest	A Shares	Shares (%)	Company(%)
Mr. Tang Ye Guo	Beneficial	623,700	0.069	0.046
	owner
Mr. Jia Shao Qian	Beneficial	404,360	0.045	0.030
	owner

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors and chief executive of the Company had interests and short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8

– V-1 –

GENERAL INFORMATION

APPENDIX V

of Part XV of the SFO (including interests and short positions which any such Director, supervisor or chief executive was taken or deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered into the register maintained by the Company referred to therein or which were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange.

Other interests

As at the Latest Practicable Date:

(a) none of the Directors or supervisors of the Company had any interest, direct or indirect, in any assets which have been, since 31 December 2020, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Enlarged Group or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group;
(b) none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Enlarged Group subsisting as at the Latest Practicable Date which was significant in relation to the business of the Enlarged Group; and
(c) Mr. Tang Ye Guo, Mr. Jia Shao Qian, Mr. Lin Lan, Mr. Dai Hui Zhong, Mr. Duan Yue Bin and Mr. Fei Li Cheng, being Directors, are also directors or senior management of Hisense Group Holdings Co., Ltd.（海信集團控股股份有限公司）or some of its subsidiaries. Hisense Group Holdings Co., Ltd.（海信集團控股股份有限公司）was deemed to have an interest in the Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)).

4. COMPETING BUSINESS

To the best knowledge of the Directors, as at the Latest Practicable Date, none of the Directors nor their respective close associates had any interests in a business, which competes or is likely to compete either directly or indirectly with the business of the Group which would be required to be disclosed under Rule 8.10 of the Listing Rules, as if each of them were treated as a controlling shareholder of the Company.

– V-2 –

GENERAL INFORMATION

APPENDIX V

5. LITIGATION

Save as disclosed below, as at the Latest Practicable Date, no litigation, arbitration or claims of material importance known to the Directors was pending or threatened by or against the Company or any member of the Enlarged Group.

6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Enlarged Group) have been entered into by the members of the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

(i) the capital injection agreement dated 28 September 2020 entered into between Qingdao Hisense Financial Investment Co., Ltd.（青島海信金融投資股份有限公司） (“ Hisense Financial Investment ”), Qingdao Hisense Electronic Equipment Co., Ltd. （青島海信電子設備股份有限公司） (“ Hisense Electronic Equipment ”), the Company and Hisense International Co., Ltd. （青島海信國際營銷股份有限公司） (“ Hisense International ”) in relation to the injection of registered capital in the aggregate amount of RMB100,000,000 into Hisense Financial Holdings Co., Ltd.
（青島海信金融控股有限公司）(“ Hisense Financial Holdings ”) in proportion to the respective equity interests of the existing equity holders in Hisense Financial Holdings (that is, as to RMB24,000,000 by the Company), details of which are set out in the announcement of the Company dated 28 September 2020; and
(ii) the capital injection agreement dated 17 November 2020 entered into between Hisense Financial Investment, Hisense Electronic Equipment, the Company, Hisense International and Qingdao Intelligent & Precise Electronics Co., Ltd.（青島智動精工電子有限公司）(“ Hisense I&P Electronics* ”) in relation to the injection of registered capital in the aggregate amount of RMB318,000,000 into Hisense Financial Holdings. Pursuant to the capital injection agreement, (i) the Company will subscribe for an additional registered capital of RMB40,000,000 at a consideration of RMB50,400,000; (ii) Hisense International will subscribe for an additional registered capital of RMB40,000,000 at a consideration of RMB50,400,000; (iii) Hisence I&P Electronics, as a new equity holder, will subscribe for registered capital of RMB238,000,000 at a consideration of RMB299,880,000; and (iv) each of Hisense Financial Investment and Hisense Electronic Equipment will not inject any additional registered capital into Hisense Financial Holdings. Details of the capital injection are set out in the announcement of the Company dated 17 November 2020.

7. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, none of the Directors was aware of any material adverse change in the financial or trading position of the Group since 31 December 2020 (being the date to which the latest published audited financial statements of the Group were made up).

– V-3 –

GENERAL INFORMATION

APPENDIX V

8. EXPERTS

The following sets out the qualifications of the experts which have given their service as contained in this circular:

Name

Qualifications

ShineWing Japan LLC

a member of the Japanese Institute of Certified Public Accountants

ShineWing Certified Public a member of the Chinese Institute of Certified Accountants LLP Public Accountants

As at the Latest Practicable Date, each of ShineWing Japan LLC and ShineWing Certified Public Accountants LLP:–

(a) did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group;
(b) did not have any interest, direct or indirect, in any assets which have been, since 31 December 2020, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group; and
(c) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name and report in the form and context in which they are included.

9. GENERAL

(a) The registered office of the Company is at No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the PRC. The Company’s head office and principal place of business in Hong Kong is situated at Room 3101-05, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong. The Company’s branch share registrar and transfer office in Hong Kong is Hong Kong Registrars Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(b) The secretary of the Company is Ms. Wong Tak Fong, who is a fellow member of the Hong Kong Institute of Chartered Secretaries and the Chartered Governance Institute (formerly known as the Institute of Chartered Secretaries and Administrators) in the United Kingdom, a fellow member of the Taxation Institute of Hong Kong. She had acted as the managing director of General Bright Consultants Ltd. and was the chief financial controller of DIAMOND DRAGON FASHION LTD（鑽龍時裝有限公司）.

– V-4 –

GENERAL INFORMATION

APPENDIX V

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s principal place of business in Hong Kong at Room 3101-05, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong during normal business hours from the date of this circular up to and including the date of the EGM:

(a) the articles of association of the Company;
(b) the resolutions passed by the Board on 1 March 2021 approving the Share Purchase Agreement and the transactions contemplated thereunder;
(c) the annual reports and consolidated audited accounts of the Company for each of the three years ended 31 December 2018, 2019 and 2020;
(d) the audited financial information of the Sanden Group for the financial years ended 31 March 2018, 2019 and 2020 prepared in accordance with JGAAP and the unaudited but reviewed financial information of the Sanden Group for the nine months ended 31 December 2020 prepared under JGAAP as set out in Section A of Appendix II to this circular;
(e) the report on the summary of the material differences of the accounting policies adopted by the Group (CASBE) and the Sanden Group (JGAAP) prepared by ShineWing Japan LLP and reviewed by ShineWing Certified Public Accountants LLC dated 7 May 2021, the text of which is set out in Section C of Appendix II to this circular;
(f) the report on the unaudited pro forma financial information of the Enlarged Group prepared by ShineWing Certified Public Accountants LLC dated 7 May 2021, the text of which is set out in Appendix III to this circular;
(g) the letters of consent from each of ShineWing Japan LLP and ShineWing Certified Public Accountants LLC referred to in the section headed “8. Experts” in this Appendix;
(h) the Share Purchase Agreement;
(i) the material contracts referred to in the section headed “Material Contracts” in this Appendix; and
(j) this circular.

– V-5 –

NOTICE OF THE 2021 SECOND EXTRAORDINARY GENERAL MEETING

海信家電

HISENSE HOME APPLIANCES GROUP CO., LTD. 海信家電集團股份有限公司

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00921)

NOTICE OF THE 2021 SECOND EXTRAORDINARY GENERAL MEETING

Reference is made to the circular of Hisense Home Appliances Group Co., Ltd. (the “ Company ”) dated 7 May 2021 (the “ Circular ”) regarding major transaction.

NOTICE IS HEREBY GIVEN that the 2021 second extraordinary general meeting (the “ EGM ”) of the Company will be held at the conference room of the Company’s head office, No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the People’s Republic of China (the “ PRC ”) on Tuesday, 25 May 2021 at 3:00 p.m. or any adjournment of such meeting to consider and, if thought fit, pass the following resolution, with or without modification, as ordinary resolution of the Company:

ORDINARY RESOLUTION

To consider and approve the Share Purchase Agreement between the Company and Sanden Holdings Corporation and the transactions contemplated thereunder.

By order of the Board of Hisense Home Appliances Group Co., Ltd. Tang Ye Guo Chairman

Foshan City, Guangdong, the PRC, 7 May 2021

Notes:

(1) Words and expressions that are not expressly defined in this notice shall bear the same meanings as those defined in the Circular.
(2) Holders of H shares of the Company intending to attend the EGM shall return the accompanying reply slip in writing to the registered office of the Company during hours between 8:30 a.m. and 11:00 a.m., 1:30 p.m. and 4:30 p.m. on every business day on or before Thursday, 20 May 2021. To qualify for attendance at the EGM, all transfers of H shares of the Company together with the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Monday, 17 May 2021 for registration.
(3) Shareholders who are entitled to attend and vote at the EGM are entitled to appoint one or more persons (whether or not a shareholder of the Company) as their proxy or proxies to attend and vote on their behalf.

– EGM-1 –

NOTICE OF THE 2021 SECOND EXTRAORDINARY GENERAL MEETING

(4) Holders of H shares of the Company whose names appear on the register of members of the Company as at the close of business on Monday, 17 May 2021 (including holders of H Shares of the Company who have submitted verified transfer forms at or before 4:30 p.m. on Monday, 17 May 2021) will be entitled to attend the EGM. The register of members of the Company will be closed from Tuesday, 18 May 2021 to Tuesday, 25 May 2021 (both days inclusive).
(5) To be valid, the proxy form, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or authority, must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 24 hours before the time appointed for holding the EGM or any adjournment of such meeting (as the case may be).
(6) In accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, any vote of shareholders at a general meeting must be taken by poll (except those which relate purely to a procedural or administrative matter). As such, the resolution set out in this notice will be voted on by way of poll. Voting results will be uploaded to the website of the Company at hxjd.hisense.cn and the website of The Stock Exchange of Hong Kong Limited at www.hkexnews.hk after the conclusion of the EGM.
(7) The registered address of the Company is:

No. 8 Ronggang Road, Ronggui Street, Shunde District Foshan City, Guangdong Province, the PRC Postal code: 528303 Tel: (86) 757 2836 2570 Fax: (85) 757 2836 1055 Contact person: Ms. Zhou Xin

(8) References to time and dates in this notice are to Hong Kong time and dates.
(9) The English version of the proposed resolution as set out in this notice is for reference only and if there is any conflict between the English and the Chinese versions, the Chinese version shall prevail.

As at the date of this notice, the Company’s executive directors are Mr. Tang Ye Guo, Mr. Jia Shao Qian, Mr. Lin Lan, Mr. Dai Hui Zhong, Mr. Duan Yue Bin and Mr. Fei Li Cheng; and the Company’s independent non-executive directors are Mr. Ma Jin Quan, Mr. Zhong Geng Shen and Mr. Cheung Sai Kit.

– EGM-2 –

AI assistant

Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2021

50436_rns_2021-05-07_58f05e0a-4686-4b57-ab04-ad1016bdc9fc.pdf

海信家電

HISENSE HOME APPLIANCES GROUP CO., LTD. 海信家電集團股份有限公司

(1) MAJOR TRANSACTION – SUBSCRIPTION FOR SHARES IN SANDEN HOLDINGS CORPORATION; AND

(2) NOTICE OF 2021 SECOND EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

海信家電

HISENSE HOME APPLIANCES GROUP CO., LTD. 海信家電集團股份有限公司

MAJOR TRANSACTION SUBSCRIPTION FOR SHARES IN SANDEN HOLDINGS CORPORATION

THE SUBSCRIPTION

BACKGROUND

THE SHARE PURCHASE AGREEMENT

Subscription Shares

Subscription Price and Subscription Amount

LETTER FROM THE BOARD

(d) the past stock price performance of Sanden

Conditions Precedent

Completion

Guarantee to be provided by the Company

LETTER FROM THE BOARD

Indemnity

Use of Proceeds by Sanden

Allocation of proceeds

(i) Structural reform

Europe

America

China

(ii) Growth investment

LETTER FROM THE BOARD

Termination

Assignability

The Turnaround Plan

1. Adjusted consolidated net assets as of 30 September 2020

2. Investment by sponsor

LETTER FROM THE BOARD

3. Measures for Structural Reform

4. Management Numerical Plans (Profit/Loss and Balance Sheet Plans)

(i) Profit/Loss Plan

LETTER FROM THE BOARD

(ii) Balance Sheet Plan

5. Details of the ADR Debts

(b) Type of ADR Debts

6. Amount of Debt Forgiveness

7. Repayment of Remaining ADR Debts

8. Interest

REASONS FOR AND BENEFITS OF THE SUBSCRIPTION

FINANCIAL EFFECTS OF THE SUBSCRIPTION

INFORMATION ON THE COMPANY

INFORMATION ON THE SANDEN GROUP

The Sanden Group

The Turnaround ADR Proceedings

LETTER FROM THE BOARD

Financial Information

LISTING RULES IMPLICATIONS

EGM

LETTER FROM THE BOARD

WAIVER FROM STRICT COMPLIANCE WITH RULE 14.67(6)(A)(I) OF THE LISTING RULES

WAIVER FROM STRICT COMPLIANCE WITH RULE 14.66(2) AND PARAGRAPH 29(2) OF APPENDIX 1B OF THE LISTING RULES

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. INDEBTEDNESS

The Group

The Sanden Group

Lease liabilities

Contingent liabilities

3. WORKING CAPITAL

4. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

A. FINANCIAL INFORMATION OF THE SANDEN GROUP FOR EACH OF THE THREE YEARS ENDED 31 MARCH 2018, 2019 AND 2020 AND THE NINE MONTHS ENDED 31 DECEMBER 2020

A.1 AUDITED FINANCIAL INFORMATION OF THE SANDEN GROUP FOR EACH OF THE THREE YEARS ENDED 31 MARCH 2018, 2019 AND 2020

Financial Information

1. Basis of preparation of the consolidated financial statements and the non-consolidated financial statements

2. Auditing and attestation

Medlive Technology Co., Ltd. Proxy Solicitation & Information Statement 2021

Note 3: 1, 2, 3, 4, 5, 7, 9, 10, 11*

Note 5: 2 and* 6*