Financial Instruments and Related Disclosures

(a) Capital Management

The Group manages its capital under the policy of maintaining the appropriate level of assets, liabilities and capital for current and future business operations, as well as optimizing the eiciency of capital utilization throughout its business operations.

The Group uses the ratio of equity attributable to owners of the parent to total assets as an important indicator in capital management. The ratio of equity attributable to owners of the parent as of March 31, 2015 and 2016 were 50.1%, and 55.0%, respectively.

The Group is not subject to any capital requirements except for the general rules such as the JCL.

(ⅱ) Credit Risk

Trade and other receivables resulting from operating activities of the Group are exposed to credit risk of the customers. The Group sets up internal policies for new customers and credit exposure and monitors due dates and outstanding balances by individual customer. No signiicant concentration of credit risk is present in a particular region or a customer, as the Group is engaged in business activities world-wide.

The maximum exposure to the credit risk equals the inancial assets’ carrying amount after impairment in the consolidated statements of inancial position.

(b) Management of Financial Risks

The Group is engaged in business activities world-wide, and therefore exposed to various risks such as currency exchange risk, credit risk and liquidity risk.

The Group limits use of temporary cash surpluses to bank deposits, including time deposits, capital protected variable rate deposits, and deposits with Hitachi Group for maintaining the appropriate level of liquidity for current and future business operations. Further, the Group raises short-term working capital through bank borrowings and borrowings from Hitachi Pooling System. The Group uses derivatives solely for actual demand and does not enter into derivatives for speculative or trading purposes.

(ⅰ) Currency Exchange Risk

The Group is exposed to foreign currency exchange risk arising from dealings in foreign currencies.

The Group enters into forward foreign exchange contracts to reduce foreign currency exchange risk for foreign deposits expected not to be used for payment and the contracts' maturities are mainly within one month.

The sensitivity analysis for currency exchange rate

The sensitivity analysis for currency exchange rates shown below indicates the impact on income before income taxes, in the Group’s consolidated statements of proit and loss, if the Japanese yen depreciated by 1% on the foreign-currency denominated inancial instruments held by the Company and its subsidiaries as of March 31, 2015 and 2016, while all other variables are held constant.

Millions of Yen

Currency March 31, 2015 March 31, 2016

US dollar ……… 13 13

Euro ……… 5 4

(ⅲ) Liquidity Risk

In order to manage the liquidity risk related to funding (risk of not being able to make payments when due), the Group sets up payment dates for payables and the related division prepares and updates its cash low plans and maintains short-term liquidity at a certain level.

The following tables present the maturities of inancial liabilities. The contractual cash lows include interest but are not discounted.

The following table presents the aging of trade and other receivables before due and trade and other receivables past due but not impaired as of March 31, 2015 and 2016.

The changes in the balance of allowance for doubtful receivables are as follows:

Millions of Yen March 31,

2015 March 31, 2016 Not past due ……… 55,784 46,835 Past due within 30 days ……… 1,363 1,556 Past due between 31 and 90 days ……… 1,184 891 Past due between 91 days and 1 year ……… 937 1,135 Past due over 1 year ……… 96 26 Total ……… 59,364 50,442

Millions of Yen

2015 2016

Balance at the beginning of the year ……… 383 442 Increase during the year (Inward) ……… 155 93 Decrease during the year (Utilization) ……… (1) ― Decrease during the year (Reversal) ……… (85) (190)

Other ……… (10) 9

Balance at the end of the year ……… 442 354

Millions of Yen March 31, 2016

Carrying Contractual Within 1 After 1 year More than Millions of Yen

March 31, 2015 Carrying

amount Contractual

cash lows Within 1 year

After 1 year but not more

than 5 years

More than 5 years Short-term debt ……… 3,031 3,031 3,031 ― ― Trade and other payables ……… 46,089 46,089 46,089 ― ―

Other inancial liabilities ……… 314 314 314 ― ―

Long-term debt ……… 92 97 ― 97 ―

(c) Fair Value of Financial Instruments (ⅰ) Fair Value Measurements

The following methods and assumptions are used to measure the fair value of inancial assets and liabilities.

Cash and cash equivalents, Trade and other receivables, Time deposits, Short-term debt, Trade and other payables and Other inancial liabilities

The carrying amount approximates the fair value because of the short maturity of these instruments.

Long-term loans receivable

The fair value of long-term loans receivable is estimated based on the present value of future cash lows using the interest rate applicable to an additional loan of the same type.

Investments in securities

Investment securities with quoted market prices are estimated using the quoted share prices. In the absence of an active market for investment securities, quoted prices for similar investment securities, quoted prices associated with transactions that are not distressed for identical or similar investment securities or other relevant information including market interest rate curves, referenced credit spreads or default rates, are used to determine fair value. If signiicant inputs of fair value measurement are unobservable, the Group uses price information provided by inancial institutions to evaluate such investments. The information provided is corroborated by the income approach using its own valuation model, or the market approach using comparisons with prices of similar securities.

Long-term debt

The fair value of long-term debt is estimated based on quoted market prices or the present value of future cash lows using the market interest rates applicable to the same contractual terms.

(ⅱ) Financial Instruments Measured at Amortized Cost

The carrying amounts and estimated fair values of the inancial instruments measured at amortized cost are as follows. The fair value estimated for inancial assets and liabilities measured at amortized cost are classiied in Level 2 of the fair value hierarchy.

(ⅲ) Financial Instruments Measured at Fair Value in Consolidated Statements of Financial Position

Financial instruments measured at fair value are classiied into three levels of the fair value hierarchy as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets Level 2: Valuations measured by direct or indirect observable inputs other than Level 1 Level 3: Valuations measured by signiicant unobservable inputs

When several inputs are used for a fair value measurement, the level is determined based on the input with the lowest level in the fair value measurement as a whole. Transfers between levels are deemed at the beginning of each quarter period.

The following tables present the inancial assets and liabilities that are measured at fair value on a recurring basis.

Millions of Yen

March 31, 2015 March 31, 2016 Carrying

amounts Fair values Carrying

amounts Fair values Financial assets measured at

amortized cost Non-current

Other inancial assets ……… 2,944 2,946 2,944 2,944 Financial liabilities

measured at amortized cost Non-current

Long-term debt ……… 92 92 101 101

Millions of Yen March 31, 2016

Millions of Yen March 31, 2015

Level 1 Level 2 Level 3 Total

Assets

FVTPL (Non-current)

Other inancial assets ……… — — 325 325 FVTOCI (Non-current)

Other inancial assets ……… 1,432 — 5,194 6,626

The following table presents the changes in Level 3 instruments measured on a recurring basis for the years ended March 31, 2015 and 2016.

Gain (loss) in proit or loss related to FVTPL inancial assets are included in inancial income and inancial expenses in the consolidated statements of proit and loss.

Gain (loss) in OCI related to FVTOCI inancial assets are included in net changes in inancial assets measured at fair value through OCI in the consolidated statements of comprehensive income.