The following is an English translation of the "Matters which are not described in the document to be delivered to shareholders who have requested delivery of paper-based documents among the electronic provision measures matters for the 81st Annual Shareholders' Meeting of LIXIL Corporation (the "Company")". The Company provides this translation for your reference and convenience only and without any warranty as to its accuracy or otherwise. If there is any discrepancy between the Japanese version and the English translation, the Japanese version shall prevail.

Dear Shareholders,

Matters which are not Described in the Documents to be Delivered to Shareholders Who Have

Requested Delivery of Paper-based Documents among the Electronic Provision Measures

Matters for the 81st Annual Shareholders' Meeting

81st Fiscal Year (from April 1, 2022 to March 31, 2023)

  1. Notes to the Consolidated Financial Statements
  2. Notes to the Nonconsolidated Financial Statements

LIXIL Corporation

Description of the aforementioned matters in the documents to be delivered to shareholders who have requested delivery of paper-based documents is omitted pursuant to laws and regulations, and the Company's Articles of Incorporation.

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8 to 50 years
7 to 12 years
2 to 20 years

Notes to Consolidated Financial Statements

1. Basis for Preparation of Consolidated Financial Statements

  1. Standards of preparation of consolidated financial statements
    The consolidated financial statements of LIXIL Corporation (the "Company") have been prepared in accordance with International Financial Reporting Standards ("IFRS") pursuant to Article 120, Paragraph 1 of the Ordinance on Company Accounting.
    Pursuant to the provisions of the second sentence of the paragraph, certain disclosures required under IFRS are omitted.
  2. Basis of consolidation

Number of subsidiaries:

141

Major subsidiaries:

LIXIL Total Service Corporation

LIXIL Total Hanbai Corporation

LIXIL Europe S.à r.l.

ASD Holding Corp.

LIXIL Vietnam Corporation

TOSTEM THAI Co., Ltd.

LIXIL INTERNATIONAL Pte. Ltd.

LIXIL GLOBAL MANUFACTURING VIETNAM Co., Ltd.

LIXIL Manufacturing (Dalian) Corporation

The Company conducted an absorption-type merger of LIXIL Group Finance Corporation, which was the Company's former subsidiary.

  1. Investments in associates accounted for using the equity method Number of associates accounted for using the equity method: 43
    Major associate accounted for using the equity method: Sanyo Homes Corporation
  2. Fiscal year of subsidiaries
    In preparing the consolidated financial statements, subsidiaries with fiscal year ends other than the Company's March fiscal year end provisionally prepare financial information as of March 31, which are used for consolidation.

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  1. Significant accounting policies
  1. Inventories

The cost of inventories includes costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Inventories are stated at the lower of cost or net realizable value. Cost is determined mainly by using the weighted-average method. Net realizable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale.

The carrying amount of inventories recognized in the consolidated statement of financial position is reviewed regularly. When there is slow-moving inventory over a long period, or when the Company and its subsidiaries (the "Group") do not expect that all or a portion of the inventory will be recovered through sales, the carrying amount is written down to their estimated net realizable values.

2) Property, plant and equipment

The Group measures property, plant and equipment by using the cost model at cost less accumulated depreciation and accumulated impairment losses. The cost includes any costs directly attributable to the acquisition of the asset and dismantlement, removal and restoration costs, as well as borrowing costs eligible for capitalization.

Property, plant and equipment are depreciated mainly by using the straight-line method over their estimated useful lives, except for assets that are not subject to depreciation, such as land. The estimated useful lives of major property, plant and equipment are as follows:

• Buildings and structures:

• Machinery and vehicles:

Tools, furniture and fixtures:

The depreciation method, estimated useful lives and residual values are reviewed at each fiscal year end. If there are any changes made to the depreciation method, estimated useful lives or residual values, such changes are accounted for as changes in accounting estimates and applied prospectively starting from the fiscal period of the change.

The carrying amount of property, plant and equipment shall be derecognized on disposal or when no future economic benefits are expected from its continued use. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the consideration for disposal, if any and the carrying amount of item and is recognized in profit or loss.

3) Goodwill

Goodwill arising from business combinations is stated at cost less accumulated impairment losses.

Goodwill is not amortized but allocated to cash-generating units ("CGU") (or groups of CGU) and tested for impairment at least once a year, or whenever there is any indication of impairment. Impairment losses on goodwill are recognized in profit or loss and no subsequent reversal is made. Goodwill is derecognized at the time of disposal of the associated CGU (or group of CGU) and included in the carrying amount of the disposed operation when profit or loss on disposal is recognized.

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4) Other intangible assets

After recognition, intangible assets are measured by using the cost model. Intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.

A. Intangible assets acquired individually Measured at cost on initial recognition

B. Intangible assets acquired through business combinations

Measured at fair value on the acquisition date

C. Internally generated intangible assets

Research and development costs arising internally within the Group are expensed when incurred, with the exception of expenditures for development activities that meet all of the following capitalization criteria:

  • The technical feasibility of completing the intangible asset so that it will be available for use or sale;
  • The Group's intention to complete the intangible asset and use or sell it;
  • The Group's ability to use or sell the intangible asset;
  • How the asset will generate probable future economic benefits;
  • The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
  • The Group's ability to measure reliably the expenditure attributable to the intangible asset during its development.

Intangible assets with finite useful lives are amortized by using the straight-line method over their estimated useful lives. The estimated useful lives of major intangible assets with finite useful lives are as follows:

Software:

5

years

• Customer-related assets:

13 to 3 years

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Trademarks:

5

years

to 20

Technological assets:

6

to 10

years

Trademarks with indefinite business periods are classified as intangible assets with an indefinite useful life when it is determined that there is no foreseeable limit to the period in which future economic benefits are expected, given that business periods continue, in principle, as long as the business continues.

Intangible assets with indefinite useful lives and intangible assets with finite useful lives that are not ready to use are not amortized, but they are tested for impairment at least once a year or whenever there is any indication of impairment.

Amortization methods, useful lives and residual values of assets are reviewed at each fiscal year end and any changes are accounted for as changes in accounting estimates and applied prospectively starting from the fiscal period of the change.

5) Investment property

Investment property is property held to earn rentals or for capital appreciation, or both.

Investment property is measured by using the cost model, which is consistent with the accounting treatment for buildings under property, plant and equipment, and stated at cost less any accumulated depreciation and accumulated impairment losses.

Investment property is depreciated by using the straight-line method over the estimated useful life, which is consistent with the accounting treatment for buildings under property, plant and equipment.

The depreciation method, estimated useful lives and residual values are reviewed at each fiscal year end. If there are any changes made to the depreciation method, estimated useful lives or residual values, such changes are accounted for as changes in accounting estimates and applied prospectively starting from the fiscal period of change.

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6) Impairment of non-financial assets

Non-financial assets, such as property, plant and equipment, goodwill and other intangible assets, are assessed for any indications of impairment at the end of every fiscal year. Impairment tests are performed in cases where there is an indication of impairment. However, for goodwill and intangible assets with indefinite useful lives, impairment tests are performed at least once a year regardless of any indication of impairment. Additionally, the base date of the annual impairment tests for goodwill and intangible assets with indefinite useful lives is mainly January 1. Assets for which tests cannot be performed individually are merged into the smallest group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets (CGU), and impairment tests are performed for each CGU (or group of CGU). A CGU (or group of CGU) to which goodwill is allocated for the purpose of impairment tests represents the lowest level at which the goodwill is monitored for internal management purposes and is not larger than an operating segment. Goodwill that forms part of the carrying amount of an investment in associates accounted for using the equity method is not separately recognized, and therefore, it is not tested for impairment separately. If there is any indication that investments in associates and joint ventures accounted for using the equity method may be impaired, the entire carrying amount of the investment is tested as a single asset.

The recoverable amount of an individual asset or a CGU is measured at the higher of its fair value less costs of disposal or its value in use. Where the carrying amount of the asset or CGU exceeds its recoverable amount, impairment losses are recognized and the asset is written down to its recoverable amount. In determining the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For assets other than goodwill, an assessment is made at the end of every fiscal year as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased, such as any changes in assumptions used for the determination of the recoverable amount. If any such indication exists, the Group estimates the asset's or CGU's recoverable amount. In cases where the recoverable amount exceeds the carrying amount of the asset or CGU, impairment losses are reversed up to the lower of the determined recoverable amount or the carrying amount that would have been determined, net of depreciation, had no impairment losses for the asset been recognized in prior years. Recognized impairment losses relating to goodwill cannot be reversed.

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  1. Financial instruments A. Financial assets
  1. Initial recognition and measurement

The Group classifies financial assets, at initial recognition, into financial assets that are measured at amortized cost, financial assets measured at fair value through other comprehensive income or financial asset measured at fair value through profit or loss.

All financial assets are initially recognized on the transaction date and measured at fair value, however, the financial assets that are not recorded at fair value through profit or loss are initially recognized on the transaction date and measured at the sum of the fair value and transaction costs.

  1. Subsequent measurement
    1. Financial assets that are measured at amortized cost
      Financial assets are classified to financial assets that are measured at amortized cost if both of the following conditions are met:
      • The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and
      • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

After initial recognition, assets are measured at amortized cost using the effective interest method.

(b) Financial assets measured at fair value through other comprehensive income

Financial assets are classified to financial assets measured at fair value through other comprehensive income if both of the following conditions are met:

  • The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flow and selling financial assets; and
  • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

After initial recognition, assets are measured at fair value and subsequent changes in fair value are recognized in other comprehensive income. When the financial asset is derecognized, the cumulative gain or loss is reclassified to retained earnings.

  1. Equity instruments measured at fair value through other comprehensive income
    Financial assets that have not been classified as either financial assets measured at amortized cost or financial assets measured at fair value through other comprehensive income are classified as financial assets measured at fair value through profit or loss. An entity is permitted, at initial recognition, to make an irrevocable election to present the changes in fair value of an investment in an equity instrument that is not held for trading in other comprehensive income. The Group makes this election on an instrument-by-instrument basis.
    After initial recognition, assets are measured at fair value and subsequent changes in fair value are recognized in other comprehensive income. When the equity instrument is derecognized, the Group reclassifies the cumulative amount of other comprehensive income to retained earnings and not to profit or loss. Dividends are recognized in profit or loss.
  2. Financial assets measured at fair value through profit or loss

A financial asset other than those classified as (a), (b) and (c) above is classified as a financial asset measured at fair value through profit or loss.

The Group initially recognizes and measures a financial asset measured at fair value through profit or loss at its fair value and expenses the transaction costs that are directly attributable to the acquisition of the financial asset as incurred. The Group subsequently measures the asset at fair value and recognizes the subsequent changes in fair value in profit or loss.

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(iii) Derecognition

The Group derecognizes financial assets when, and only when the contractual rights to the cash flows from the financial assets expire, or when the financial assets and substantially all the risks and rewards of ownership are transferred. In cases where the Group neither transfers nor retains substantially all the risks and rewards of ownership but continues to control the assets transferred, the Group recognizes the retained interest in assets and related liabilities that might be payable.

B. Impairment of financial assets

In the recognition of impairment losses for a financial asset or a group of financial assets that is measured at amortized cost at the end of every fiscal year, the Group assesses whether there have been significant increases in credit risk since the initial recognition. The Group determines whether there have been significant increases in credit risk by considering the change in the risk of default occurring since the initial recognition. The assessment of whether there is a change in the risk of default is made by considering the following:

  • Significant change in the financial asset's external credit rating
  • Downgrade of internal credit rating
  • Deterioration of borrower's operating results
  • Past due information

However, even when a late payment or request for a grace period occurs, the Group does not determine that there has been a significant increase in credit risk if it is determined that such late payment or request for grace period would be attributable to a temporary cash shortage, the risk of default is low and objective data such as external credit ratings reveal an ability to fulfill the obligation of contractual cash flows in the near future.

On the other hand, the Group determines that the credit of the financial assets is impaired when a late payment or request for a grace period does not arise from a temporary cash shortage and significant financial difficulty of the debtor is shown and the recoverability of the modified financial assets is significantly doubtful.

The Group considers financial assets, such as trade and other receivables, in default when all or parts of those financial assets are not collected or the collectability of those financial assets is determined to be extremely difficult.

Expected credit losses are the present value of the difference between the cash flows that are due to the Group in accordance with the contract and the cash flows that the Group expects to receive. When credit risk related to financial assets has increased significantly since the initial recognition, the Group measures the loss allowance for those financial assets at an amount equal to the lifetime expected credit losses. Conversely, when credit risk related to financial asset has not increased significantly since the initial recognition, the Group measures the loss allowance for that financial asset at an amount equal to the 12-month expected credit losses.

Despite the above requirement, the Group always measures the loss allowance for trade and other receivables and contract assets that do not contain a significant financing component at an amount equal to the lifetime expected credit losses.

As trade and other receivables mainly comprise a number of customers, the Group measures expected credit losses by grouping those receivables and considering historical credit loss experience. When those receivables are affected by a material economic change, the provision rate calculated based upon the historical credit loss experience is adjusted to reflect current and future economic prospect.

The Group directly writes off the gross carrying amounts of the credit-impaired financial assets when all or part of the financial assets are evaluated as uncollectible and it is determined that it is appropriate to write them off as a result of credit check.

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C. Financial liabilities

  1. Initial recognition and measurement

The Group classifies financial liabilities, at initial recognition, into financial liabilities measured at fair value through profit or loss and financial liabilities measured at amortized cost.

All financial liabilities are measured at fair value at initial recognition. However, financial liabilities measured at amortized cost are measured at fair value after deducting transaction costs that are directly attributable to the financial liabilities.

(ii) Subsequent measurement

After initial recognition, financial liabilities are measured based on the classification as follows:

  1. Financial liabilities measured at fair value through profit or loss
    Financial liabilities measured at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated as measured at fair value through profit or loss at initial recognition.
  2. Financial liabilities measured at amortized cost

After initial recognition, financial liabilities measured at amortized cost are measured at amortized cost using the effective interest method. Amortization under the effective interest method and gains or losses on derecognition are recognized as profit or loss.

(iii) Derecognition

Financial liabilities are derecognized when they are extinguished, i.e., when the obligations specified in the contract are discharged, cancelled or expired.

D. Compound financial instruments

The liability component of a compound financial instrument is measured at initial recognition by the fair value of a similar liability without the equity conversion option. The equity component is measured at initial recognition by deducting the fair value of the liability component from the fair value of the entire financial instrument. Direct transaction costs are allocated in proportion to the initial carrying amount of the liability component and equity component.

After initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not remeasured after initial recognition.

Interest associated with the liability component is recognized in profit or loss as finance costs. When the equity conversion option is exercised, the liability component is transferred to equity and neither gains nor losses are recognized.

E. Derivatives (including hedge accounting)

The Group uses foreign exchange forward contracts, interest rate swaps, cross-currency interest rate swaps and commodity swaps to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. The use of derivative transactions is limited to risk hedging purposes and is not for speculation purposes. These derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.

Derivatives that qualify for hedge accounting are designated as hedging instruments in cash flow hedges. A cash flow hedge is a hedge against the exposure to variability in cash flows which is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction which could affect profit or loss.

At the inception of the hedge, the Group formally designates and documents the relationship between a hedging instrument and a hedged item and the risk management objective and strategy for undertaking various hedge transactions. The documentation includes identification of the hedging instruments, the hedged items, the nature of the risks being hedged and how the hedging relationship's effectiveness is assessed. These hedges are assessed on an ongoing basis to determine whether the hedging relationship is effective prospectively, even though it is expected that there is an economic relationship between the hedged item and the hedging instrument, that the effect of credit risk does not dominate the value changes that result from that economic relationship, and that the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of the hedged item.

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If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio due to changes in an economic relationship between the hedged item and the hedging instrument but the risk management objective remains the same, the Group adjusts the hedge ratio so that it meets the qualifying criteria again. The Group discontinues hedge accounting for the portion that does not meet the requirement when the hedging relationship ceases to meet the qualifying criteria even after adjusting the hedge ratio.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized as other comprehensive income. The ineffective portion of the gain or loss on the hedging instrument is immediately recognized as profit or loss in the consolidated statement of profit or loss.

The amount of hedging instruments recognized in other comprehensive income is reclassified to profit or loss when the transactions related to hedged items affect profit or loss. In cases where hedged items result in the recognition of non-financial assets or liabilities, the amounts recognized as other comprehensive income are accounted for as adjustments to the original carrying amount of non-financial assets or liabilities.

If the hedged future cash flows are no longer expected to occur, any related cumulative gain or loss that has been recognized in equity as other comprehensive income is reclassified to profit or loss. If the hedged future cash flows are still expected to occur, amounts that have been recognized in other comprehensive income are continuously recognized in other comprehensive income until the future cash flows occur.

Derivatives which hedge accounting has not been applied are recognized at fair value and the changes in the fair value are recognized as a profit or loss in the consolidated statement of profit or loss.

F. Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis or to realize the assets and settle the liabilities simultaneously.

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LIXIL Group Corporation published this content on 26 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 May 2023 07:20:12 UTC.