③-2017年度有価証券報告書 Audit Report（抜粋）EN

－ 1 － Annual Securities Report ( T he 104 th business term ) From Jan uary 1, 2017 to Dec ember 31, 2017 23 - 1 4 - Chome, Bunkyo, Fukui - City , 910 - 8670 Japan NICCA CHEMICAL CO.,LTD. (Translation purposes only) － 2 － 1 Non - consolidated Financial statements, other Non - consolidated Financial statements 1) Balance sheet (Millions of yen) As of December 31, 2016 As of December 31, 2017 Assets Current assets Cash and deposits 602 411 Notes receivable – trade ※ ２ 578 ※ ２ 405 Accounts receivable – trade ※ １ 5,021 ※ １ 4,970 Merchandise and finished goods 2,034 2,266 Work in process 329 394 Raw materials and supplies 901 797 Prepaid expenses 65 130 Deferred tax assets 273 476 Short - term loans receivable from subsidiaries and associates ※ １ 4,512 ※ １ 4,367 Accounts receivable – other ※ １ 302 ※ １ 509 Other ※ １ 163 ※ １ 183 Allowance for doubtful accounts △ 2 △ 3 Total current assets 14,781 14,909 Non - current assets Property, plant and equipment Buildings 2,523 6,225 Structures 434 657 Machinery and equipment 980 1,086 Vehicles 15 10 Tools, furniture and fixtures 245 278 Land 3,276 3,372 Leased assets 3 59 Construction in progress 987 31 Total property, plant equipment 8,467 11,722 Intangible assets Goodwill 70 － Software 482 386 Soft ware in progress 22 21 Trademark right 1 1 Telephone subscription right 9 9 Right of using facilities 8 7 Total intangible assets 594 426 － 3 － (Millions of yen) As of December 31, 2016 As of December 31, 2017 Investment and other assets Investment securities 1,140 1,569 Share s of subsidiaries and associates 6,596 6,596 Investment in capital 2 2 Investments in capital of subsidiaries and associates 796 731 Long - term prepaid expenses 51 44 Claims provable in bankruptcy, claims provable in rehabilitation and other 1 3 Deferred tax assets 869 586 Corporation insurance 3 3 Guarantee deposits 149 148 Other 8 8 Allowance for doubtful accounts △ 1 △ 3 Total investment and other assets 9,617 9,690 Total non - current assets 18,680 21,839 Total assets 33,462 36,748 Liabilities Current liabilities Accounts payable – trade ※ １ 2,312 ※ １ 2,395 Short - term loans payable ※ ３ 12,282 ※ ３ 15,232 Current portion of long - term loans payable 390 390 Short - term loans payable to subsidiaries and associates ※ １ 349 ※ １ 589 Lease obligations 0 9 Accounts payable – other ※ １ 1,184 ※ １ 1,274 Accrued expenses 293 330 Income tax payable 56 67 Accrued consumption taxes 72 17 Deposits received 126 165 Provision for bonuses 565 562 Provision for loss on dissolution of employees’ pension fund － 494 Total current liabilities 17,634 21,529 Non - current liabilities Long - term loans payable 1,435 1,045 Long - term loans payable to subsidiaries and associates ※ １ 250 － Lease obligations 2 48 Long - term accounts payable – other 40 39 Provision for retirement benefits 2,348 2,461 Long - term deposits received 714 746 Provision for loss on dissolution of employees’ pension fund 494 － Provision for share - based compensation － 40 Total non - current liabilities 5,285 4,382 Total liabilities 22,920 25,911 － 4 － (Millions of yen) As of December 31, 2016 As of December 31, 2017 Net assets Shareholder’s equity Capital stock 2,898 2,898 Capital surplus Legal capital surplus 3,039 3,039 Other capital surplus Gain on disposal of treasury shares 14 14 Total capital surpluses 3,054 3,054 Retained earnings Legal retained earnings 727 727 Other retained earnings Reserve for advanced depreciation of non - current assets 6 4 Retained earnings brought forward 4,911 5,012 Total retained earnings 5,644 5,744 Treasury shares △ 1,478 △ 1,479 Total shareholder’s equity 10,119 10,217 Valuation and translation adjustments Valuation difference on available - for - sales securities 422 619 Total valuation and translation adjustment 422 619 Total net assets 10,542 10,837 Total liabilities and net assets 33,462 36,748 － 5 － 2) Statement of income (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Net sales ※ １ 22,497 ※ １ 22,500 Cost of sales ※ １ 14,304 ※ １ 14,573 Gross profit 8,192 7,927 Selling, general and administrative expenses ※ １ , ※ ２ 8,180 ※ １ , ※ ２ 8,002 Operating profit 11 △ 75 Non - operating income Interest income ※ １ 21 ※ １ 28 Dividend income ※ １ 932 ※ １ 604 Rental income 112 125 Foreign exchange gains － 17 Miscellaneous income ※ １ 137 ※ １ 98 Total non - operating income 1,202 873 Non - operating expenses Interest expenses ※ １ 69 ※ １ 61 Sales discounts 89 84 Foreign exchange losses 58 － Rental expenses 100 119 Miscellaneous loss ※ １ 5 ※ １ 8 Total non - operating expenses 323 274 Ordinary profit 890 523 Extraordinary income Gain on sales of non - current assets ※ ３ 1 ※ ３ 0 Gain on sales of investment securities 0 108 Subsidy income － 72 Total extraordinary income 1 181 Extraordinary losses Loss on retirement of non - current assets ※ １ , ※ ４ 10 ※ １ , ※ ４ 78 Loss on sales of non - current assets － ※ ５ 0 Loss on valuation of investment in capital of subsidiaries and associates － 64 Directors ’ retirement benefit 25 2 Impairment loss － ※ ６ 22 Provision for loss on dissolution of employees’ pension fund 494 － Total extraordinary losses 530 168 Profit before income taxes 361 536 Income taxes – current 141 160 Income taxes – deferred △ 54 △ 6 Total income taxes 86 154 Profit 274 381 － 6 － 3) Statement of changes in equity Fis cal year ended December 31, 2016 (Millions of yen) Shareholder’s equity Capital stock Capital surplus Retained earnings Legal capital surplus Other capital surplus Total capital surplus Legal retained earnings Other retained earnings Total retained earnings Reserve for advanced depreciatio n of non - current assets Retained earnings brought forward Balance at beginning of current period 2,898 3,039 0 3,040 727 7 4,980 5,715 Changes of items during the period Provision of reserve for advanced depreciation of non - current assets － △ 1 1 － Dividends of surplus － △ 345 △ 345 Net income － 274 274 Purchase of treasury stock － － Disposal of treasury stock 14 14 － Net changes of items other than shareholder’s equity － － Total changes of items during period － － 14 14 － △ 1 △ 69 △ 70 Balance at end of current period 2,898 3,039 14 3,054 727 6 4,911 5,644 Shareholder’s equity Valuation and translation adjustments Total net assets Treasury stock Total shareholder’s equity Valuation difference on available - for - sale securities Total valuation and translation adjustments Balance at beginning of current period △ 1,464 10,190 360 360 10,551 Changes of items during the period Provision of reserve for advanced depreciation of non - current assets － － － Dividends of surplus △ 345 － △ 345 Net income 274 － 274 Purchase of treasury stock △ 123 △ 123 － △ 123 Disposal of treasury stock 108 123 － 123 Net changes of items other than shareholder’s equity － 62 62 62 Total changes of items during period △ 14 △ 70 62 62 △ 8 Balance at end of current period △ 1,478 10,119 422 422 10,542 － 7 － Fis cal year ended December 31, 2017 (Millions of yen) Shareholder’s equity Capital stock Capital surplus Retained earnings Legal capital surplus Other capital surplus Total capital surplus Legal retained earnings Other retained earnings Total retained earnings Reserve for advanced depreciatio n of non - current assets Retained earnings brought forward Balance at beginning of current period 2,898 3,039 14 3,054 727 6 4,911 5,644 Changes of items during the period Provision of reserve for advanced depreciation of non - current assets △ 1 1 － Dividends of surplus △ 282 △ 282 Net income 381 381 Purchase of treasury stock － Disposal of treasury stock － Net changes of items other than shareholder’s equity － Total changes of items during period － － － － － △ 1 100 99 Balance at end of current period 2,898 3,039 14 3,054 727 4 5,012 5,744 Shareholder’s equity Valuation and translation adjustments Total net assets Treasury stock Total shareholder’s equity Valuation difference on available - for - sale securities Total valuation and translation adjustments Balance at beginning of current period △ 1,478 10,119 422 422 10,542 Changes of items during the period Provision of reserve for advanced depreciation of non - current assets － － Dividends of surplus △ 282 △ 282 Net income 381 381 Purchase of treasury stock △ 1 △ 1 △ 1 Disposal of treasury stock － － Net changes of items other than shareholder’s equity － 196 196 196 Total changes of items during period △ 1 98 196 196 295 Balance at end of current period △ 1,479 10,217 619 619 10,837 － 8 － 2 Notes to Financial Statements Significant Accounting Policies 1. Valuation standards and methods for assets (1 ） Valuation standards and methods for securities Held - to - maturity debt securities Stated at amortized cost (straight - line method). Stocks of subsidiaries and affiliates Stated at cost determined mainly by the moving - average method Other securities With market value Stated at fair value based on the market price as of the balance sheet date. (Unrealized gains or losses are included dir ectly in net assets. Cost of securities sold is determined by the moving - average method.) Without market value Stated at cost determined mainly by the moving - average method (2 ） The basis and method of valuation for inventories; Raw materials Stated at cost determined by the moving - average method. (The carrying amount on the balance sheet is written down to reflect the decline in profitability.) Merchandise and finished goods and work in process Stated at cost determined by the gross average me thod. (The carrying amount on the balance sheet is written down to reflect the decline in profitability.) Supplies Stated at cost determined by the last purchase price method. (The balance sheet value is calculated by writing down the book value based on a decline in profitability.) 2. Depreciation method for fixed assets (1 ） Property, plant and equipment (excluding leased assets) Buildings (excluding facilities attached to buildings) are depreciated using the straight - line method and other than buildings are depreciated using the declining - balance method. However, facilities attached to buildings and structures acquired on or after April 1, 2016 are depreciated using the straight - line method. Useful life for primary assets is as follows: Buildings (excluding building fixtures) 7 - 50 years Other than buildings 2 - 45 years (2 ） Intangible assets (excluding leased asset s) Software for internal use is amortized by the straight - line method over its estimated useful life (5 years), and other intangible assets are amortized by the straight - line method. (3 ） Leased assets The straight - line method is used with the lease term a s the useful life and the residual value as zero. 3. Accounting standards for allowances (1 ） Allowance for doubtful accounts The allowance for doubtful receivables is provided for possible losses on doubtful receivables based on the historical write - off ratio for general receivables and on an estimate of uncollectible amounts based on the individual collectability of specific do ubtful receivables. (2 ） Provision for bonuses Provision for employee bonuses is provided based on the estimated amount to be paid. (3 ） Provision for retirement benefits Provision for retirement benefits for employees is provided based on the estimated ret irement benefit obligation at the end of the fiscal year under review. In calculating retirement benefit obligations, the benefit formula basis is used to attribute expected retirement benefits to the period up to the end of the current fiscal year. － 9 － (4 ） Provision for loss on dissolution of employees’ pension fund In order to prepare for losses that are expected to occur due to the dissolution of the e mployees' pension f und, we have recorded a reasonable estimate at the end of the current fiscal year, such as losses at the time of dissolution. (5 ） Provision for share - based compensation In order to prepare for the issuance of our shares under the performance - based stock com pensation system for directors and executive officers, the estimated amount of shares to be paid in accordance with the points allocated to directors and other officers is recorded in accordance with the stock issuance rules. 4 . Other important matters forming the basis for the preparation of financial statements (1) Accounting for retirement benefits The method of accounting for unrecognized actuarial gains and losses related to retirement benefits differs from these methods of a ccounting in the consolidated financial statements. (2) Accounting method for consumption taxes All accounting transactions are booked exclusive of any national or local consumption taxes. (3) Standards for translating assets and liabilities denominated i n foreign currencies into Japanese yen Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the spot exchange rate prevailing at the end of the fiscal year. Translation differences are account ed for as gains or losses. (Notes to Balance Sheet) ※ 1 Affiliated company items Monetary claims and liabilities to affiliated companies (Millions of yen) As of December 31, 2016 As of December 31, 2017 Short - term loans receivable 5,948 5,738 Short - term loans payable 728 1,186 ※ 2 Notes due at the end of the period Accounting for notes maturing at the end of the fiscal year is settled on the date of bill clearing. As the last day of the fiscal year was a holiday for financial institutions, the following notes due at the end of the fiscal year are included in the balance at the end of the fiscal year. (Millions of yen) As of December 31, 2016 As of December 31, 2017 Notes receivable 136 87 ※ 3 Overdraft agreements and loan commitments We enter into overdraft agreements and loan commitment agreements with banks to efficiently procure working capital. The balance of undrawn lines of credit related to overdraft agreements and loan commitments at the end of the fiscal year under these agreements is as follows: (Millions of yen) As of December 31, 2016 As of December 31, 2017 Total overdraft limit and loan commitments 17,000 19,000 Loan balance 10,982 15,232 Net amount 6,017 3,768 B orrowing through loan commitment agreements (total contract amount of ¥ 10,000 million and borrowing balance of ¥ 7,700 mi llion) is subject to the following financial restrictions. ① Maintain the amount of net assets in the consolidated balance sheet as of the last day of the accounting － 10 － period and the last day of the second quarter of each fiscal year at 75% or more of the amo unt of net assets in the consolidated balance sheet as of the last day of the immediately preceding accounting period from the second quarter of June 2016 onward. ② For the two consecutive fiscal years in which the fiscal year ending after the fiscal year ending December 31, 2016 is the first fiscal year, ensure that the ordinary profit and loss shown in the consolidated profit and loss statement for the fiscal year e nding in each fiscal year will not result in a loss for two consecutive fiscal years. ※ 4 Guarantee of obligation We guarantee debt for borrowing from financial institutions for the following affiliated companies: (Millions of yen) As of December 31, 2016 As of December 31, 2017 Yamada Pharmaceutical Co.,Ltd. 12 － － 11 － (Notes to Statements of Income) ※ 1 Transactions with affiliated companies (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Turnover with business transaction Net sales 3,807 3,823 Purchases 2,283 2,001 Other operating expenses 157 206 Non - operating transactions 1,096 778 ※ 2 Approximately 50 % of the e xpenses belonging to selling, 47 % of the expenses belongin g to the current fiscal year, 50 % of the expenses belonging to general and administrative expenses in the previous fiscal year, and 53 % of the expenses in the current fi scal year. Main selling, general and administrative expense i tems (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Freight and packing costs 806 867 Remuneration and salaries for directors and corporate auditors 1,776 1,760 Provision for stock - based compensation － 40 Provision for bonuses 311 320 Retirement benefit expenses 129 169 Depreciation and amortization 173 202 Provision of allowance for doubtful accounts 0 2 Research and development costs 1,281 1,289 ※ 3 Details of gain on sales of non - current assets are as follows. (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Tools, furniture and fixtures － 0 Land 1 － Total 1 0 ※ 4 Details of loss on retirement of non - current assets are as follows. (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Buildings 8 72 Structures 0 5 Machinery and equipment 0 1 Vehicles － 0 Tools, furniture and fixtures 0 0 Total 10 78 ※ 5 Details of loss on sales of non - current assets are as follows. (Millions of yen) － 12 － Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Machinery and equipment － 0 Total － 0 ※ 6 Impairment loss Previous f iscal year (from January 1, 2016 to December 31, 2016 ) Not applicable. Current f iscal year (from January 1, 201 7 to December 31, 2017 ) We recorded impairment losses on the following asset groups. Location Application Type Fukui City, Fukui Warehouse Buildings and structures In applying impairment accounting, we group our assets based on the reportable segments (Chemicals and Cosmetics) and determine indicators of impairment for idle assets by individual asset. Fo r buildings and structures related to Warehouse in Fukui City, Fukui Prefecture, for which demolition was decided in the current fiscal year, the book value of the asset was reduced to the recoverable amount, and the reduction amount of ¥ 22 million was rec orded as extraordinary loss. The recoverable amount of these assets is determined to be zero as there is no possibility of their conversion to other companies or sale. (Notes to Securities) Share s of subsidiaries and associates (shares of subsidiaries and associates in the fiscal year u nder review is ¥ 6 .485 million for share of subsid iaries and ¥110 million for share of associates , and share of subsidiaries and associates in the previous fiscal year is ¥6.485 million for share of subsid iaries and ¥110 million for share of and associates ) are not presented because they do not have a market price and it is extremely difficult to determine a market value. － 13 － (Deferred Tax Accounting) １． Breakdown of major causes of deferred tax assets and defe rred tax liabilities (Millions of yen) Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Deferred tax assets Provision for retirement benefits 715 749 Impairment loss 233 233 Provision for bonuses 173 172 P rovision for loss on dissolution of employees’ pension fund 150 151 Accrued expenses 65 82 Loss on val uation of shares of subsidiaries and associates 63 63 Loss on valuation of Inventories 21 52 Loss on valuation of investments in capital of subsidiaries and associates 20 40 Patent rights 40 34 Deferred assets 31 31 Accrued enterprise tax 11 15 Foreign tax credit carried forward 13 － Loss carried forwards 61 － Other 41 52 Subtotal deferred tax assets 1,643 1,680 Valuation allowance △ 313 △ 345 Total deferred tax assets 1,330 1,335 Deferred tax liabilities Valuation difference on available - for - sale securities △ 185 △ 271 Reserve for advanced depreciation of non - current assets △ 2 △ 2 Total deferred tax liabilities △ 188 △ 273 Net deferred tax assets 1,142 1,062 2. Breakdown of significant differences between the statutory effective tax rate and the effective tax rate after application of tax effect accounting by major items that caused such differences Fiscal year ended December 31, 2016 Fiscal year ended December 31, 2017 Statutory tax rate 32.83% 30.69% (Adjustment s ) Expenses not deductible for income tax purposes 12.88 6.19 Local tax on per capita basis 5.43 4.07 Income not taxable permanently such as dividend income △ 78.14 △ 30.80 Valuation allowance △ 5.26 5.98 Income taxes for prior periods － 15.55 Reduction of deferred tax asse ts at the end of the period due to tax rate changes 22.61 － Tax credit △ 1.66 △ 10.58 Foreign tax credit 37.15 6.81 － 14 － Other △ 1.80 0.88 Effective tax rate after tax effect accounting is applied 24.04 28.79 (Significant Subsequent Events) Not applicable. － 15 － Independent Auditors' Audit Report March 29, 20 18 To the Board of Directors of Nicca Chemical Co., Ltd. KPMG AZSA LLC Designated Limited Liability Partner Engagement Partner Certified Public Accountant Kentaro Yamamoto SEAL Designated Limited Liability Partner Engagement Partner Certified Public Accountant Yuichi Ishibashi SEAL For the purpose of audit certification in compliance with the provision s of Article 193 - 2 (1) of the Financial Instruments and Exchange Act, we audited the consolidated financial statements of Nicca Chemical Co., Ltd. , described in the "Accoun ting Status" section for the 104 th bu siness year from January 1, 2017 , to December 31 , 2017 , namely the balance sheets, income statements, statement s of changes in shareholders' equity, significant accounting po licies, other related notes , and the supplementary schedules of Nicca Chemical Co., Ltd. Responsibility of Management for Financial Statements The Company's management is responsible for preparing and properly presenting financial statements in accordanc e with the business accounting standards generally accepted in Japan. This includes the development and operation of the internal control , which was determined by management to be necessary for preparing and properly presenting financial statements free of material misstatement by fraud or error. Responsibility of Auditor Our responsibility is to express an opinion on these financial statements from an independent perspective based on the audit conducted by us. We conducted our audit in accordance with au dit standards generally accepted in Japan. Those audit standards require that we establish an audit plan and perform the audit based on that plan to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing the procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The auditing procedures are selected and applied at our discretion based on the assessment of the risks of material misstateme nts due to fraud or errors in the financial statements. The purpose of an audit of the consolidated financial statements is not to express an opinion on the effectiveness of the entity's internal control, but in conducting these risk assessments , we examin e the internal controls relevant to the preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate to the circumstances. An audit also includes deliberation on the overall presentation of the fina ncial statements , as well as an evaluation of the accounting policies applied and its method of application, in addition to the reasonableness of accounting estimates made by the management. We believe that the audit evidence we obtained is sufficient and appropriate to provide the basis for our audit opinion. Audit Opinion We acknowledge that the financial statements above properly present the financial status of Nicca Chemical Co., Ltd. , as of December 31, 2017 , in all important respects , as well as the operating results for the fisc al year ending December 31, 2017 , in accordance with the business accounting standards generally accepted in Japan. Conflicts of Interest There are no interest relationships between the Company and us or our engagement partners that are required to be reported by the regulation of the Certified Public Accountant Act. End of document (Note) 1. The above is the digitized form of the matters described in the original audit report, and the original copy is separately in the cu stody of the Company (submitting company of the securities report). 2. XBRL data is excluded from the scope of the audit.