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Berlitz Financial Statements 2017

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FINANCIAL
STATEMENTS
2017
For the year ended March 31, 2017
In the Financial Statements 2017, we have posted the English consolidated financial statements,
which are based on the Japanese consolidated financial statements with certain recombinations and
recompositions for the convenience of readers outside Japan. For details, please refer to Note 1 on
page 20. The section from page 14 to page 46 of the Financial Statements 2017 is the only section
that has been audited.
Contents
01
14
16
17
18
19
20
47
48
49
Management’
s Discussion and Analysis
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor’
s Report
The History of Benesse Holdings, Inc.
Corporate Information
Management’
s Discussion and Analysis
Benesse Holdings, Inc. and Consolidated Subsidiaries
1. Market Environment
In the environment for our mainstay Domestic Education Company, introduction of elementary
school English classes at an earlier stage and a new university entrance exam paired with a
revised curriculum emphasizing the four English language skills (listening, reading, speaking,
and writing), for which parents are anxious to prepare their children, will be introduced in
2020. Furthermore, as information and communications technology (ICT) continues to evolve,
digital learning using PCs, smartphones, tablets and other devices has caught on rapidly. Moreover, with new companies entering the existing education market, these trends are fueling
intensified competition.
As for the Overseas Business Company, in January 2016, the Chinese government revised
its Population and Family Planning Law, ending its one-child policy for controlling the population. As a result, China is now expected to see an increase in the number of births.
For the Nursing Care and Childcare Company, care service requirements continue to
expand as the population ages. Meanwhile, as the industry-wide jobs-to-applicants ratio continues to rise, securing personnel has become a pressing issue for the sector.
In the Language Learning Company, the proliferation of products and services using ICT and
so forth is driving diversification in language services and more intense competition. The
number of overseas students is also increasing globally, due to an increase in the number of
students seeking educational and career opportunities abroad, particularly as emerging countries undergo economic growth. Another factor is that study abroad and overseas experience
can now have an increasingly significant bearing on careers.
NET SALES
OPERATING INCOME
(Billions of Yen)
500
423.7
450.2
466.4
463.3
(Billions of Yen)
444.2
430.1
50
400
40
300
30
200
20
100
10
38.1
33.8
35.8
29.2
10.9
0
12
13
14
15
16
17
0
12
[ Years ended March 31 ]
Be n e sse Holdin gs, In c.
13
14
15
16
7.7
17
[ Years ended March 31 ]
Fin an cial State me n ts 2 0 1 7
01
2. Operating Results for the Year Ended March 31, 2017
In terms of consolidated operating results for the year ended March 31, 2017, net sales
decreased for a third consecutive year, operating income decreased for a fourth consecutive
year, and the Company recorded net income attributable to owners of the parent for the first
time in three years.
(1) Net Sales
Net sales declined ¥14,127 million, or 3.2%, year on year to ¥430,064 million.
The main factors behind the decline were a decline in sales of the ELS business (overseas
study support business) of Berlitz Corporation, following a decline in overseas students from
Saudi Arabia, the negative impact of currency translation due to the yen’
s appreciation in the
Language Learning Company, and a decrease in enrollments in Shinkenzemi and Kodomo
Challenge in the Domestic Education Company. Meanwhile, in the Nursing Care and Childcare
Company, sales increased mainly due to a higher number of residents in line with growth in
the number of nursing homes and housing for seniors, while in the Overseas Business Company, sales growth was driven mainly by higher cumulative enrollment in correspondence
courses in China, which offset the negative impact of currency translation due to the yen’
s
appreciation.
NET SALES BY SEGMENT
Millions of Yen
Years ended March 31
Net Sales
Domestic Education Company
2016
2017
¥444,191
¥430,064
204,157
194,407
Overseas Business Company
27,114
28,047
Nursing Care and Childcare Company
94,967
102,996
Language Learning Company
73,912
60,282
Others
44,041
44,332
Note: Segment sales are based on sales to external customers and intersegment sales or transfers are not included.
NET SALES BY SEGMENT
Language Learning
Company
Others
10.3%
14.0%
Nursing Care and
Childcare Company
24.0%
430,064
million yen
Domestic
Education
Company
45.2%
Overseas
Business Company
6.5%
02
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
[ Year ended March 31, 2017 ]
(2) Cost of Sales and SG&A Expenses
Cost of sales decreased ¥3,988 million, or 1.6%, year on year to ¥251,361 million. The cost of
sales ratio (cost of sales as a proportion of net sales) increased 0.9 of a percentage point to
58.4% from 57.5% in the previous fiscal year.
COST OF SALES RATIO AND SG&A RATIO
Years ended March 31
2012
2013
2014
2015
2016
2017
Cost of Sales Ratio
50.0%
50.8%
52.1%
55.9%
57.5%
58.4%
SG&A Ratio
42.0
40.7
40.2
37.8
40.1
39.8
Selling, general and administrative (SG&A) expenses decreased ¥6,961 million, or 3.9%, year
on year to ¥171,017 million. The SG&A ratio (SG&A expenses as a proportion of net sales)
decreased by 0.3 of a percentage point to 39.8% from 40.1% in the previous fiscal year.
COST OF SALES RATIO
SG&A RATIO
(%)
(%)
65
60
57.5
55.9
55
50.0
50.8
58.4
50
52.1
42.0
45
40.7
40.2
40.1
39.8
16
17
40
37.8
35
12
13
14
15
16
30
17
12
13
14
[ Years ended March 31 ]
DOMESTIC EDUCATION COMPANY
(Billions of Yen)
20
204.2
150
0
10
16
(Billions of Yen)
(Billions of Yen)
40
30
194.4
3.1
[ Years ended March 31 ]
OVERSEAS BUSINESS COMPANY
(Billions of Yen)
300
4
27.1
2.6
28.0
3.1
3
20
2
10
1
1.7
17
0
0
16
[ Years ended March 31 ]
■ Net Sales (Left)
■ Operating Income (Right)
15
17
0
[ Years ended March 31 ]
■ Net Sales (Left)
■ Operating Income (Right)
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
03
(3) Operating Income
Operating income decreased ¥3,177 million, or 29.2%, to ¥7,686 million.
This was mainly due to lower earnings on lower sales in the Language Learning Company
and Domestic Education Company, despite higher earnings due to higher sales in the Nursing
Care and Childcare Company and Overseas Business Company, among other factors.
The operating income ratio fell 0.6 of a percentage point to 1.8% from 2.4% in the previous
fiscal year.
OPERATING INCOME (LOSS) BY SEGMENT
Millions of Yen
Years ended March 31
2016
Operating Income
2017
¥10,863
¥7,686
Domestic Education Company
3,117
1,672
Overseas Business Company
2,641
3,136
Nursing Care and Childcare Company
7,024
8,187
Language Learning Company
3,234
Others
Reconciliations
(479)
1,699
1,996
(6,852)
(6,826)
Note: Operating income (loss) for each segment is before eliminations in consolidated totals.
(4) Other Income (Expenses)
Other income—net totaled ¥1,115 million during the fiscal year, compared with other
expenses—net of ¥941 million in the previous fiscal year.
NURSING CARE AND
CHILDCARE COMPANY
LANGUAGE LEARNING COMPANY
(Billions of Yen)
(Billions of Yen)
120
95.0
103.0
8.2
9
7.0
(Billions of Yen)
80
(Billions of Yen)
73.9
4
3.2
6
40
3
(Billions of Yen)
2
20
1
0
0
3
44.3
44.0
3
40
(Billions of Yen)
60
60.3
60
80
OTHERS
40
2.0
2
1.7
1
20
(0.5)
0
16
17
0
16
[ Years ended March 31 ]
■ Net Sales (Left)
■ Operating Income (Right)
04
Be n e s s e Ho l d i n g s, Inc.
17
(1)
0
16
[ Years ended March 31 ]
■ Net Sales (Left)
■ Operating Income (Right)
F i nanci al St at ement s 2017
17
0
[ Years ended March 31 ]
■ Net Sales (Left)
■ Operating Income (Right)
(5) Income before Income Taxes
Income before income taxes was ¥8,800 million, a decline of ¥1,121 million, or 11.3%, from
the previous fiscal year. The decline was mainly due to the decline in operating income,
despite an increase in gain on sale of fixed assets, and so forth.
(6) Income Taxes
Total income taxes decreased ¥12,935 million, or 75.5%, from the previous fiscal year to
¥4,203 million.
This mainly reflected the absence of a reversal of deferred tax assets at Benesse Corporation recorded in the previous fiscal year.
(7) Net Income Attributable to Owners of the Parent
Net income attributable to owners of the parent was ¥3,557 million, compared with net loss
of ¥8,211 million in the previous fiscal year.
Net income per share was ¥36.98 compared with net loss of ¥85.37 in the previous fiscal
year.
ROE AND ROA
Years ended March 31
2012
ROE
8.7%
ROA
3.9
2013
10.9%
4.7
2014
2015
2016
9.7%
(5.3)%
(4.5)%
2.1%
4.2
(2.2)
(1.7)
0.7
NET INCOME (LOSS) ATTRIBUTABLE
TO OWNERS OF THE PARENT
ROE
ROA
(Billions of Yen)
(%)
(%)
30
20
21.1
8
19.9
10.9
16.4
15
10
3.9
9.7
8.7
(15)
12
13
14
15
16
17
(10)
0.7
0
(8.2)
[ Years ended March 31 ]
4.2
2.1
0
(10.7)
4.7
4
3.6
0
2017
12
13
14
(5.3)
(4.5)
15
16
(2.2)
17
(4)
12
[ Years ended March 31 ]
Be n e sse Holdin gs, In c.
13
14
15
(1.7)
16
17
[ Years ended March 31 ]
Fin an cial State me n ts 2 0 1 7
05
3. Segment Information
(1) Domestic Education Company
Net sales in the Domestic Education Company in the year ended March 31, 2017 amounted to
¥194,407 million, a decrease of 4.8% from the previous fiscal year.
The main factors behind the decline were a drop in cumulative enrollments for the Company’
s mainstay Shinkenzemi and Kodomo Challenge correspondence courses.
Operating income declined 46.4% to ¥1,672 million, mainly due to lower earnings on lower
sales, despite increased income from cost reductions.
The number of enrollees in domestic correspondence courses such as Shinkenzemi and
Kodomo Challenge as of April 2017 was 2.45 million, up by 20,000 year on year.
BREAKDOWN OF NET SALES FOR THE DOMESTIC EDUCATION COMPANY
Millions of Yen
Years ended March 31
2016
2017
¥ 14,864
¥ 11,931
Shinkenzemi:
Senior High School Courses
Percentage
Change
(19.7)%
Junior High School Courses
24,329
21,545
(11.4)
Elementary School Courses
55,460
47,896
(13.6)
Kodomo Challenge (Preschool Courses)
16,996
16,757
(1.4)
111,649
98,129
(12.1)
School & Teacher Support
46,083
47,153
Other
46,425
49,125
¥204,157
¥194,407
Subtotal
Total
2.3
5.8
(4.8)%
Note: Net sales by segment do not include intersegment sales or transfers.
SHINKENZEMI ENROLLMENTS
(DOMESTIC + OVERSEAS)
CUMULATIVE DOMESTIC ENROLLMENTS
IN SHINKENZEMI OVER A FULL YEAR
(Thousands of Students)
5,000
4,870
4,670
4,570
3,770
4,000
3,680
3,810
NO. OF STUDENTS TAKING SHINKEN
SIMULATED EXAMS AND OTHER EXAMS
(Thousands of Students)
(Thousands of Students)
50,000 45,590 45,271
10,000
42,677
27,147
2,000
20,000
4,000
1,000
10,000
2,000
14
15
16
0
17
12
13
[ As of April ]
■
■
■
■
Senior High School Courses
Junior High School Courses
Elementary School Courses
Kodomo Challenge (Preschool Courses) ■ Overseas
06
Be n e s s e Ho l d i n g s, Inc.
14
15
16
17
[ Years ended March 31 ]
■
■
■
■
12
13
14
10,100
9,700 10,000
6,000
30,000
13
9,400
8,000
3,000
12
9,100
38,713
40,000
30,040
0
8,900
Senior High School Courses
Junior High School Courses
Elementary School Courses
Kodomo Challenge (Preschool Courses)
F i nanci al St at ement s 2017
0
15
16
17
[ Years ended March 31 ]
(2) Overseas Business Company
Net sales in the Overseas Business Company in the year ended March 31, 2017 amounted to
¥28,047 million, an increase of 3.4% over the previous fiscal year.
The main contributing factors were an increase in cumulative enrollment in correspondence
courses in China, which outweighed the negative impact of currency translation due to the
yen’
s appreciation.
Operating income increased 18.8% to ¥3,136 million, mainly due to higher income on
increased sales, despite the negative impact of currency translation due to the yen’
s
appreciation.
The number of enrollees in overseas correspondence courses, including enrollment in correspondence courses for preschoolers in South Korea based on a licensing contract, as of April
2017 was 1.36 million, up by 110,000 year on year.
(3) Nursing Care and Childcare Company
Net sales in the Nursing Care and Childcare Company in the year ended March 31, 2017 were
¥102,996 million, an increase of 8.5% over the previous fiscal year.
The main factor behind the higher sales was steady growth in the number of residents following expansion in the number of nursing homes and elderly houses by 16 locations year on year.
Operating income increased 16.6% to ¥8,187 million, mainly due to higher earnings from
increased sales.
(4) Language Learning Company
Net sales from the Language Learning Company in the year ended March 31, 2017 amounted
to ¥60,282 million, a decrease of 18.4% from the previous fiscal year.
The main factors behind the decline were a decline in sales of the ELS business (overseas
study support business) of Berlitz Corporation, following a decline in overseas students from
Saudi Arabia and the negative impact of currency translation due to the yen’
s appreciation.
Operating loss was ¥479 million (compared to operating income of ¥3,234 million in the
previous fiscal year), as earnings declined due to the decline in sales and other factors.
NUMBER OF BERLITZ LESSONS
(COMPANY OPERATED)
BERLITZ LANGUAGE CENTERS
AND FRANCHISES
(Thousands of Lessons)
8,000
6,506
7,007
600
6,737
6,496
6,232
563
6,232
6,000
550
4,000
500
2,000
450
0
11
12
13
14
15
16
400
555
535
497
11
[ Years ended December 31 ]
Be n e sse Holdin gs, In c.
12
13
14
504
507
15
16
[ As of December 31 ]
Fin an cial State me n ts 2 0 1 7
07
(5) Others
Net sales in the Others segment amounted to ¥44,332 million, an increase of 0.7% from the
previous fiscal year. The main factor was an increase in sales in the telemarketing business of
TMJ, Inc., despite a decline in sales in the mail-order sales and other businesses at Benesse
Corporation.
Operating income rose 17.6% year on year to ¥1,996 million, mainly due to increased earnings following cost reductions.
4. Outlook for the Year Ending March 31, 2018
Net sales for the year ending March 31, 2018 are projected to increase 5.8% year on year to
¥454.8 billion. The main factors in this forecast are growth in the nursing care business,
expected increases in cumulative enrollments in Shinkenzemi and Kodomo Challenge due to
year-on-year increases in enrollments in April 2017 up to 2.45 million, as well as increases in
retention rates, and an expansion in earnings in the correspondence course business in China.
Meanwhile, the outlook forecasts operating income to increase 84.8% year on year to
¥14.2 billion and net income attributable to owners of the parent to increase 54.6% to ¥5.5
billion. The main factors in this forecast are an increase in earnings and an improvement in
productivity in the Domestic Education Company, despite an increase in costs due to structural
reforms in Language Learning Company.
08
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
5. Financial Position and Liquidity
(1) Assets, Liabilities and Total Equity
Total assets on March 31, 2017 were ¥481,905 million, an increase of ¥6,978 million, or 1.5%,
compared to the end of the previous fiscal year.
Total current assets were ¥250,788 million, an increase of ¥7,185 million, or 2.9%.
Net property and equipment increased ¥6,488 million, or 5.0%, to ¥136,232 million. This
increase was due chiefly to a rise in lease assets as lease transactions rose under a Nursing
Care and Childcare Company program of opening new nursing homes in the nursing home
services business.
Total investments and other assets decreased ¥6,696 million, or 6.6%, to ¥94,885 million.
This decrease was due mainly to decreases in software.
Total liabilities on March 31, 2017 were ¥306,738 million, ¥11,078 million, or 3.7%, higher
than a year earlier.
Total current liabilities increased ¥1,983 million, or 1.4%, to ¥147,665 million. This increase
was mainly due to an increase in accounts payable—trade.
Long-term liabilities amounted to ¥159,074 million, an increase of ¥9,095 million, or 6.1%,
from a year earlier. This increase was mainly due to an increase in lease obligations.
Total equity at March 31, 2017 was ¥175,166 million, a decrease of ¥4,100 million, or
2.3%. This decrease was due mainly to the payment of dividends.
Total equity per share was ¥1,749.37, down ¥47.20 year on year.
FINANCIAL POSITION
Millions of Yen
As of March 31
Total Assets
Current Assets
Property and Equipment
Investments and
Other Assets
Current Liabilities
Long-term Liabilities
Total Equity
Equity Ratio (%)
Total Equity per Share of
Common Stock (Yen)
2012
2013
2014
2015
2016
2017
¥432,081
230,014
91,106
¥460,259
248,663
97,766
¥487,594
262,779
107,440
¥490,955
251,278
121,997
¥474,927
243,602
129,743
¥481,905
250,788
136,232
110,961
153,002
84,889
194,190
43.5
113,830
157,292
95,488
207,479
43.7
117,375
172,943
99,541
215,110
42.9
117,680
187,296
105,766
197,893
39.2
101,582
145,682
149,979
179,266
36.4
94,885
147,665
159,074
175,166
34.9
1,934
2,071
2,174
2,000
1,797
1,749
Note: T
he computation of Total Equity per Share of Common Stock is based on the weighted-average number of shares of
common stock outstanding during each year.
(2) Cash Flows
Cash and cash equivalents (hereafter,“cash”
) on March 31, 2017 stood at ¥119,001 million,
an increase of ¥10,646 million, or 9.8%, compared to the previous fiscal year-end. Net cash
used in investing activities of ¥436 million and net cash used in financing activities of ¥11,995
million were offset by net cash provided by operating activities of ¥25,237 million.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
09
Major factors affecting cash flows were as follows:
Cash flow from operating activities
Net cash provided by operating activities totaled ¥25,237 million. The main components were
depreciation and amortization of ¥20,507 million as a non-cash expense, income before income
taxes of ¥8,800 million, and an increase in trade accounts payable of ¥4,569 million. These
were partially offset by income taxes paid of ¥7,990 million and interest paid of ¥3,923 million.
Net cash provided by operating activities declined ¥959 million year on year (3.7% less).
This chiefly reflected increases in outflows due to an increase in inventories of ¥9,369 million,
a net outflow of ¥4,934 million for income taxes—paid exceeding income taxes—refund, and
an increase in asset for retirement benefits of ¥3,396 million. These were partially offset by
decreases in outflows due to increases in trade accounts payable of ¥11,354 million and
accounts payable—other of ¥6,678 million.
Cash flow from investing activities
Net cash used in investing activities totaled ¥436 million. The main components were purchases of software of ¥5,939 million and net cash outflows for purchases of property and
equipment of ¥4,326 million. These were partially offset by a net cash inflow of ¥8,413 million
for proceeds from sales of marketable securities exceeding purchases of marketable securities.
There was a year-on-year decrease of ¥25,755 million in cash used (98.3% less). The main
factors were a change of ¥19,511 million from a net cash outflow from purchases of marketable securities exceeding proceeds from sales of marketable securities to a net cash inflow
from proceeds from sales of marketable securities exceeding purchases of marketable securities and an increase in inflows of ¥5,382 million in proceeds from sales of property and equipment. This was partially offset by an increase in outflows of ¥4,318 million for increase in time
deposits—net.
Cash flow from financing activities
Net cash used in financing activities was ¥11,995 million. The main components were ¥9,137
million in dividends paid and repayments of lease obligations of ¥2,155 million.
Net cash used in financing activities increased by ¥8,759 million year on year (270.7%
more). The main factor was a decline in inflows of ¥32,806 million in proceeds from long-term
debt, which was partially offset by a decrease in outflows of ¥25,018 million for repayment of
long-term debt.
(3) CAPEX and Depreciation and Amortization
CAPEX in the year ended March 31, 2017 decreased 5.3% year on year to ¥23,610 million.
This decrease was chiefly due to a decline in system infrastructure investment and completion
of a round of new product development investment, as well as stopping the opening of locations for Area Benesse.
Depreciation and amortization decreased by 5.7% year on year to ¥20,385 million.
10
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
6. Capital Structure Policy
(1) Dividend Policy
Benesse’
s fundamental policy is to pay a sustainable dividend to its shareholders with a
payout ratio target of at least 35%. In addition, the Company aims to return as much profit to
shareholders as possible while giving overall consideration to future business trends and shortterm capital requirements.
In continuing this policy, the Company has decided to pay an annual dividend of ¥95.0 per
share for the fiscal year ended March 31, 2017, the same amount as the previous fiscal year.
For the year ending March 31, 2018, the Company plans to pay the same annual dividend
of ¥95.0 per share (again comprising interim and year-end dividends of ¥47.5) based on the
above policy.
Benesse plans to use retained earnings for business investment to drive medium- to longterm growth, including mergers and acquisitions (M&As), R&D, and investments to strengthen
business fundamentals. The Company plans to be particularly proactive regarding M&As in
fields where growth is anticipated.
(2) Share Buyback Program
The Company held 6.27 million shares of treasury stock as of March 31, 2017, amounting to
6.11% of its issued shares. The Company plans to continue acquiring treasury stock as necessary going forward.
7. Risk Factors
The following items are major risks related to the business activities of the Benesse Group that
could potentially have a significant effect on the judgment of investors. Recognizing the possibility that these risks may materialize, the Benesse Group considers and implements concrete
measures with the aim of avoiding such risks and minimizing the impact on the Group’
s results
and financial position in the event that they should occur. The following discussion of risk factors contains forward-looking statements, and reflects management’
s judgment as of June 26,
2017, the submission date of the Group’
s securities report (yukashoken hokokusho).
(1) Trouble Arising from Information Security and Information Systems
The Group manages a variety of information on its information systems required for providing
products and services and for sales activities. This includes personal information of existing and
potential customers, such as their names, genders, birthdates, addresses, telephone numbers,
and so forth, in addition to other information required for business activities.
Moreover, the Group provides educational services utilizing original tablet PCs and other
digital devices, as well as language lessons and other services using the Internet.
The Group takes information system security measures in managing this information to completely prevent leaks caused by unauthorized external access to the system or leaks by internal personnel. The Group also takes the necessary measures to ensure stable operation of its
information systems, such as backing up information and appropriate server maintenance.
In response to the leak of customers’personal information that came to light in 2014, the
Group carried out rigorous fact-finding surveys to identify the cause and made every effort to
control the spread of damage, while implementing countermeasures to prevent leaks, which it
has continued to improve.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
11
Nevertheless, this incident could lead to mistrust in the Group, as well as to damage suits
and other legal action against the Group. If such consequences increase on a disproportionately large scale, they could have an impact on the Group’
s results and financial position.
Moreover, if another leak of customers’personal information should occur, such an incident
would impair the Group’
s trustworthiness and brand value. This could also affect the Group’
s
results and financial position.
(2) Effect on Core Business
In the Group’
s mainstay domestic education business, the Group conducts member-based
correspondence course businesses, which had an enrollment of 2.45 million members as of
April 2017, such as Shinkenzemi and Kodomo Challenge for students aged from preschool to
senior high school. The Group also operates the school and teacher support business and the
cram and prep school business.
The education system in Japan has been undergoing arguably the largest reforms from primary, and secondary, through to tertiary education since the end of the Second World War.
These include the announcement of new curriculum guidelines and investigating new tests to
replace the National Center Test for University Admissions. School-level education is expected
to undergo a major change around 2020. Taking these changes as an opportunity, the Group
will continue to determine the actual status of customers and gather information related to the
discussion on the education system. The Group will then aim to grow its market share by
expanding its cram and prep school business, developing education services combining paper
and digital formats with human support services, providing a product lineup matched to customers’learning styles such as new learning systems that incorporate physical locations, developing and advancing marketing methods other than direct mail, and bolstering its school and
teacher support business.
Furthermore, the Group will aim to further expand the correspondence course business in
East Asian countries, including China, where a high growth rate is expected. The Group is also
responding to population trends by expanding the nursing care and childcare business, centering on operation of nursing homes for the elderly.
However, following the education system reform, if the environment were to change rapidly
and at a scale exceeding the Group’
s measures in the domestic education business, or if the
market entry of companies in other industries were to result in price destruction and a significant change in the competition environment, this could affect the Group’
s results and financial
position.
(3) Nursing Care Insurance
The Group’
s nursing care business mainly involves operation of specified facilities. However,
regional governments are inclined to continue regulating the total volume of specified facilities.
Meanwhile, although growth has levelled off in construction of elderly housing with care
services promoted by the government, the elderly houses sector is seeing even more intense
competition due to factors such as the entry of major corporations, soaring construction costs,
and land shortages. With nursing care insurance facing a difficult situation, the Benesse Group
has been working to create a business model with a low degree of reliance on nursing care
insurance revenue. The Group has also started peripheral operations such as human resource
dispatch and sourcing, nursing care consultation, and food delivery services for seniors, and is
working to expand these in a way that is resilient to the impact of systematic changes.
12
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Nevertheless, related laws and reimbursements applicable to nursing care could be further
revised in a manner that is disadvantageous to the Group’
s businesses, and this may require
the Group to review the nature of its products, services and fee structures. In such an instance,
the Group’
s results and financial position could be adversely affected.
(4) Damage from Natural Disasters
To ensure its readiness to cope with major earthquakes and other natural disasters, the Benesse
Group is implementing business continuity measures. This includes putting in place a system for
gathering data concerning damage suffered by Group companies and the strategic dispersal of
key information systems and distribution bases in the domestic education business.
Nevertheless, in the event of a catastrophic natural disaster, the Benesse Group’
s results
and financial position could be affected by the interruption of sales activities in the disasterstricken area; the destruction of Group facilities and other property; subsequent turmoil
related to transportation, communications, distribution, and other social infrastructure; and
damage to outsourcers. Furthermore, most of the Benesse Group’
s operating companies are
headquartered in Tokyo, which could adversely affect Group operations should a catastrophic
event strike the city.
(5) Accounting for Asset Impairment
In the event of a dramatic decline in the profitability of the Company or its individual Group
companies, it is likely that impairment losses will need to be posted with respect to land,
buildings, goodwill, or other assets held. The posting of such losses could affect the Group’
s
results and financial position.
(6) Overseas Procurement and Business
The Benesse Group oversees manufacturing of and procures educational tools and toys mainly
in China. Elsewhere, subsidiary Berlitz Corporation operates over 500 schools in more than 70
countries and regions worldwide. The Benesse Group also operates a business primarily providing preschool education services in China and other East Asian countries. As of April 2017,
the business in China had 1,080 thousand members, the business in Taiwan had 150 thousand
members, and the business in South Korea had 130 thousand members (licensing contract). In
an attempt to mitigate risk, the Benesse Group actively collects data concerning legal and
regulatory revisions and policy trends, particularly in East Asian countries, and ascertains the
status of civil conflicts in which it could inadvertently become involved. Similarly, the Group
hedges against volatility in foreign currency exchange rates, and seeks to identify new procurement sources. Nevertheless, natural disasters, cultural and religious tension, political or economic instability, or the new establishment or amendment of laws or regulations in any of
these countries and regions could have an adverse impact on the Benesse Group’
s results and
financial position.
(7) Distribution
The Benesse Group relies on postal services and the distribution services of other external
parties for the production and delivery of its Shinkenzemi and Kodomo Challenge educational
materials and direct mailings. The Group is currently promoting further digitalization of its educational materials and is developing marketing approaches beyond direct mail. Nevertheless,
the Group’
s results and financial position may be affected by an increase in production and
distribution costs.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
13
Consolidated Balance Sheet
Benesse Holdings, Inc. and Consolidated Subsidiaries
March 31, 2017
Thousands of
U.S. Dollars
(Note 1)
Millions of Yen
Assets
2017
2016
Cash and time deposits (Notes 3 and 4)
¥113,543
¥ 91,892
$1,013,777
Marketable securities (Notes 3, 4 and 5)
30,301
44,501
270,545
Accounts
32,010
32,562
285,804
Other
342,214
Current Assets:
2017
Trade receivables (Note 4):
38,328
39,941
Due from affiliates
33
36
295
Inventories (Note 6)
25,100
23,525
224,107
Deferred tax assets (Note 18)
3,695
3,515
32,991
Other current assets
9,374
9,067
83,696
(1,596)
(1,437)
(14,250)
Allowance for doubtful receivables (Note 4)
Total current assets
250,788
243,602
2,239,179
Land
34,947
36,746
312,027
Buildings and leasehold improvements (Note 7)
89,865
91,407
802,366
Equipment, fixtures and other (Note 7)
31,612
31,628
282,249
Lease assets (Note 7)
73,688
60,252
657,929
230,112
220,033
2,054,571
(93,880)
(90,290)
136,232
129,743
1,216,357
12,127
11,818
108,277
Property and Equipment:
Total
Accumulated depreciation
Net property and equipment
Investments and Other Assets:
Investment securities (Notes 4 and 5)
Investments in unconsolidated subsidiaries and
associated companies (Note 4)
2,190
1,988
19,554
Goodwill and other intangible assets (Note 9)
15,487
18,483
138,277
Software (Note 7)
28,431
32,845
253,848
Asset for retirement benefits (Note 11)
1,711
386
15,277
Deferred tax assets (Note 18)
1,596
2,522
14,250
33,343
33,540
297,704
94,885
101,582
847,187
¥481,905
¥474,927
$4,302,723
Other assets
Total investments and other assets
Total
See notes to consolidated financial statements.
14
(838,214)
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Thousands of
U.S. Dollars
(Note 1)
Millions of Yen
Liabilities and Equity
2017
Current Liabilities:
Current portion of long-term debt (Notes 4 and 10)
2016
2017
¥      10
Trade payables (Note 4):
Accounts
Other
Due to affiliates
Advances received
Income taxes payable (Note 4)
Other current liabilities
¥ 16,589
12,563
$  148,116
26,044
26,531
232,536
680
688
6,071
80,362
79,480
717,518
5,281
5,054
47,152
18,709
21,356
167,045
147,665
145,682
1,318,438
Long-term debt, less current portion (Notes 4 and 10)
37,806
37,806
337,554
Lease obligations (Notes 4 and 8)
65,887
54,284
588,277
Guarantee deposits received from nursing home residents
35,023
34,375
312,705
7,297
7,406
65,152
560
3,627
5,000
12,501
12,481
111,616
159,074
149,979
1,420,304
Common stock—authorized, 405,282,040 shares in 2017 and
2016; issued, 102,453,453 shares in 2017 and 2016
13,600
13,600
121,429
Capital surplus
29,479
29,479
263,205
Total current liabilities
Long-Term Liabilities:
Liability for retirement benefits (Note 11)
Deferred tax liabilities (Note 18)
Other long-term liabilities
Total long-term liabilities
Commitments and Contingent Liabilities (Notes 4, 8 and 17)
Equity (Notes 12 and 19):
Stock acquisition rights
115
41
1,027
Retained earnings
150,991
156,572
1,348,134
Treasury stock—at cost—6,265,283 shares in 2017 and
6,264,793 shares in 2016
(21,736)
(21,735)
(194,073)
Accumulated other comprehensive loss:
Unrealized gain on available-for-sale securities
1,606
1,364
14,339
(41,045)
Foreign currency translation adjustments
(4,597)
(3,732)
Defined retirement benefit plans (Note 11)
(1,074)
(2,738)
Total
Noncontrolling interests
Total equity
Total
168,384
172,851
(9,589)
1,503,427
6,782
6,415
60,554
175,166
179,266
1,563,981
¥481,905
¥474,927
$4,302,723
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
15
Consolidated Statement of Income
Benesse Holdings, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2017
Thousands of
U.S. Dollars
(Note 1)
Millions of Yen
Net Sales
Cost of Sales (Notes 8, 11 and 16)
Gross profit
Selling, General and Administrative Expenses
(Notes 8, 11, 15 and 16)
Operating income
Other Income (Expenses):
2017
2016
¥430,064
¥444,191
$3,839,857
2017
251,361
255,350
2,244,294
178,703
188,841
1,595,563
171,017
177,978
1,526,938
7,686
10,863
68,625
1,161
Dividend income
130
85
Rent income
379
467
Interest expense—net (Notes 8 and 10)
Foreign exchange loss
Gain on investments—net
Equity in net earnings of an unconsolidated subsidiary and
associated companies
Gain on sale of fixed assets (Note 13)
(2,786)
(31,330)
(261)
(454)
(2,330)
647
476
5,777
129
66
1,152
3,624
2,258
32,357
Gain on revision of retirement benefit plan (Note 11)
Loss on impairment of long-lived assets (Note 7)
249
(867)
Loss on restructuring of business
Other—net
Income Taxes (Note 18):
Current
Deferred
(158)
(7,741)
(789)
842
Income Before Income Taxes
3,384
(3,509)
(355)
8,800
9,922
7,199
7,099
7,517
78,572
64,277
(2,996)
10,039
(26,750)
4,203
17,138
37,527
Net Income (Loss)
4,597
(7,216)
41,045
Net Income Attributable to Noncontrolling Interests
1,040
Total income taxes
Net Income (Loss) Attributable to Owners of the Parent
995
¥   3,557
¥ (8,211)
Yen
2017
Per Share of Common Stock (Notes 2.t and 21):
Basic net income (loss)
¥36.98
Diluted net income
36.98
Cash dividends applicable to the year
95.00
9,286
$    31,759
U.S. Dollars
2016
¥(85.37)
2017
$0.33
0.33
95.00
0.85
Diluted net income per share for the year ended March 31, 2016, is not disclosed because it is anti-dilutive due to the Company’
s net
loss position.
See notes to consolidated financial statements.
16
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Consolidated Statement of Comprehensive Income
Benesse Holdings, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2017
Thousands of
U.S. Dollars
(Note 1)
Millions of Yen
2017
Net Income (Loss)
Other Comprehensive Income (Loss) (Notes 11 and 20):
Unrealized gain (loss) on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive income (loss) in associates
Total other comprehensive income (loss)
Comprehensive Income (Loss)
Total Comprehensive Income (Loss) Attributable to:
Owners of the parent
Noncontrolling interests
2016
2017
¥4,597
¥ (7,216)
$41,045
267
(872)
2,384
(864)
(270)
(7,714)
1,646
(1,242)
12
(14)
107
1,061
(2,398)
9,473
¥5,658
¥ (9,614)
$50,518
¥4,598
¥(10,590)
$41,054
1,060
976
14,696
9,464
See notes to consolidated financial statements.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
17
Consolidated Statement of Changes in Equity
Benesse Holdings, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2017
Thousands
Millions of Yen
Accumulated Other Comprehensive Loss
Number of
Shares of
Common Stock
Outstanding
Balance, April 1, 2015
96,189
Common
Stock
¥13,600
Capital
Surplus
Stock
Acquisition
Rights
¥29,359
Unrealized
Foreign
Gain on
Currency
Available-for- Translation
Sale Securities Adjustments
Retained
Earnings
Treasury
Stock
¥173,921
¥(21,733)
¥2,235
¥(3,468)
Defined
Retirement
Benefit Plans
Noncontrolling
Interests
Total
¥(1,494) ¥192,420
¥5,473
Total
Equity
¥197,893
Net loss attributable
to owners of the parent
(8,211)
(8,211)
(8,211)
Cash dividends, ¥95 per share
(9,138)
(9,138)
(9,138)
Purchases of treasury stock
(1)
(2)
Company split
120
¥ 41
96,188
13,600
(3)
121
Net change in the year
Balance, March 31, 2016
(3)
29,479
41
(871)
156,572
(21,735)
1,364
(264)
(1,244)
(3,732)
(2,738)
(2,338)
172,851
121
942
6,415
(1,396)
179,266
Net income attributable
to owners of the parent
3,557
3,557
3,557
Cash dividends, ¥95 per share
(9,138)
(9,138)
(9,138)
Purchases of treasury stock
(1)
Net change in the year
Balance, March 31, 2017
74
96,188
¥13,600
¥29,479
¥115
¥150,991
¥(21,736)
(1)
242
(865)
¥1,606
¥(4,597)
1,664
(1)
1,115
367
1,482
¥(1,074) ¥168,384
¥6,782
¥175,166
Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Loss
Common
Stock
Balance, March 31, 2016
$121,429
Capital
Surplus
Stock
Acquisition
Rights
$263,205
Retained
Earnings
$  366 $1,397,964
$(194,063)
$12,179
$(33,321)
Defined
Retirement
Benefit Plans
Noncontrolling
Interests
Total
$(24,446) $1,543,313
Total
Equity
$57,277 $1,600,590
Net income attributable
to owners of the parent
31,759
31,759
31,759
Cash dividends, $0.85 per share
(81,589)
(81,589)
(81,589)
Purchases of treasury stock
(10)
Net change in the year
Balance, March 31, 2017
661
$121,429
$263,205
See notes to consolidated financial statements.
18
Treasury
Stock
Unrealized
Foreign
Gain on
Currency
Available-for- Translation
Sale Securities Adjustments
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
$1,027 $1,348,134
$(194,073)
(10)
2,160
(7,724)
$14,339
$(41,045)
14,857
9,954
$ (9,589) $1,503,427
(10)
3,277
13,231
$60,554 $1,563,981
Consolidated Statement of Cash Flows
Benesse Holdings, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2017
Thousands of
U.S. Dollars
(Note 1)
Millions of Yen
Operating Activities:
Income before income taxes
Adjustments for:
Income taxes—paid
Income taxes—refund
Depreciation and amortization
Loss on impairment of long-lived assets
Other noncash income and expenses—net
Changes in assets and liabilities, net of effects:
Increase (decrease) in allowance for doubtful receivables
and other reserves
Decrease (increase) in trade accounts receivable
(Increase) decrease in inventories
Increase (decrease) in trade accounts payable
Increase (decrease) in advances received
(Increase) decrease in asset for retirement benefits
Decrease in interest and dividends receivable
Decrease in interest payable
Other—net
Total adjustments
Net cash provided by operating activities
Investing Activities:
(Increase) decrease in time deposits—net
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property and equipment
Proceeds from sales of property and equipment
Purchases of software
Purchases of investment securities
Proceeds from sales of investment securities
Other—net
Net cash used in investing activities
Financing Activities:
Proceeds from long-term debt
Repayment of long-term debt
Dividends paid
Repayments of lease obligations
Other—net
Net cash used in financing activities
Foreign Currency Translation Adjustments
on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year (Note 3)
Noncash Investing and Financing Activities:
Assets and obligations from finance lease transactions
recognized in the consolidated balance sheet:
Lease assets
Lease obligations
2017
2016
¥   8,800
¥   9,922
2017
$    78,572
(7,990)
770
20,507
867
400
(6,464)
4,177
21,758
158
2,080
(71,339)
6,875
183,098
7,741
3,571
196
26
(1,821)
4,569
2,492
(1,325)
500
(3,923)
1,169
(420)
(1,254)
7,547
(13,463)
(3,797)
2,071
546
(3,227)
6,562
1,750
232
(16,259)
40,795
22,250
(11,830)
4,464
(35,026)
10,437
16,437
16,274
146,759
(3,511)
(64,015)
72,428
(4,326)
7,386
(5,939)
(2,147)
1,176
(1,488)
806
(64,617)
53,519
(5,736)
2,004
(7,029)
(4,059)
1,664
(2,745)
(31,348)
(571,563)
646,679
(38,625)
65,946
(53,027)
(19,170)
10,500
(13,286)
(9)
(9,137)
(2,155)
(694)
32,806
(25,028)
(9,138)
(1,859)
(17)
(3,236)
(80)
(81,580)
(19,241)
(6,196)
(107,097)
(2,160)
(1,368)
(19,286)
25,237
26,196
(436)
(26,193)
(11,995)
10,646
108,355
(4,601)
112,956
225,331
(3,894)
95,054
967,455
¥119,001
¥108,355
$1,062,509
¥13,810
13,976
¥12,176
12,534
$123,304
124,786
See notes to consolidated financial statements.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
19
Notes to Consolidated Financial Statements
Benesse Holdings, Inc. and Consolidated Subsidiaries
Year Ended March 31, 2017
Note 1.
Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated financial statements of Benesse Holdings, Inc. (the“Company”
) have
been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and
Exchange Act and its related accounting regulations, and in accordance with accounting principles
generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards “IFRS”
(
). The foreign consolidated
subsidiaries prepare their financial statements in accordance with either IFRS or accounting principles
generally accepted in the United States of America “U.S.
(
GAAP”
).
In preparing these consolidated financial statements, certain reclassifications and rearrangements
have been made to the consolidated financial statements issued domestically in order to present them
in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been
made in the 2016 consolidated financial statements to conform to the classifications used in 2017.
The consolidated financial statements are stated in Japanese yen, the currency of the country in
which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S.
dollar amounts are included solely for the convenience of readers outside Japan and have been made
at the rate of ¥112 to $1, the approximate rate of exchange at March 31, 2017. Such translations
should not be construed as representations that the Japanese yen amounts could be converted into
U.S. dollars at that or any other rate.
Note 2.
Summary of Significant Accounting Policies
a. Consolidation —The consolidated financial statements include the accounts of the Company and
its 42 (42 in 2016) significant subsidiaries (collectively, the“Companies”
). Berlitz Corporation, a
wholly owned subsidiary of the Company located in the United States of America, consolidates all of
its subsidiaries, and is counted as one company, the financial statements of which are prepared in
accordance with U.S. GAAP. Consolidation of the remaining unconsolidated subsidiaries would not
have a material effect on the accompanying consolidated financial statements in 2017 and 2016.
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which
the Companies have the ability to exercise significant influence are accounted for by the equity method.
Investments in six associated companies and one unconsolidated subsidiary are accounted for by
applying the equity method.
All significant intercompany balances and transactions have been eliminated in consolidation. All
material unrealized profits included in assets resulting from transactions within the Companies are
also eliminated.
b. Business Combinations —Business combinations are accounted for using the purchase method.
Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses in
the periods in which the costs are incurred. If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the business combination occurs, an acquirer
shall report in its financial statements provisional amounts for the items for which the accounting is
incomplete. During the measurement period, which shall not exceed one year from the acquisition,
the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to
reflect new information obtained about facts and circumstances that existed as of the acquisition date
and that would have affected the measurement of the amounts recognized as of that date. Such
adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date. The acquirer recognizes any bargain purchase gain in profit or loss
immediately on the acquisition date after reassessing and confirming that all of the assets acquired
and all of the liabilities assumed have been identified after a review of the procedures used in the
purchase price allocation. A parent’
s ownership interest in a subsidiary might change if the parent
purchases or sells ownership interests in its subsidiary. The carrying amount of noncontrolling interest
is adjusted to reflect the change in the parent’
s ownership interest in its subsidiary while the parent
retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted is accounted
for as capital surplus as long as the parent retains control over its subsidiary.
20
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
c. Cash Equivalents —Cash equivalents in the consolidated statement of cash flows are defined as
low-risk, highly liquid, short-term (maturity within three months of acquisition date) investments that
are readily convertible to cash.
d. Inventories —Inventories are primarily stated at the lower of cost, determined by the average cost
method, or net selling value. Inventories of foreign consolidated subsidiaries are primarily stated at
the lower of cost or market, or net selling value.
e. Marketable and Investment Securities —Marketable and investment securities are classified and
accounted for, depending on management’
s intent, as follows: (1) trading securities, which are held
for the purpose of earning capital gains in the near term are reported at fair value, and the related
unrealized gains and losses are included in earnings; (2) held-to-maturity debt securities, for which
there is a positive intent and ability to hold to maturity are reported at amortized cost; and (3) availablefor-sale securities, which are not classified as either of the aforementioned securities, are reported at
fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component
of equity.
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average
method. For other-than-temporary declines in fair value, investment securities are reduced to net
realizable value by a charge to income.
f. Property and Equipment —Property and equipment are stated at cost. Depreciation of property and
equipment of the Company and its domestic consolidated subsidiaries is computed by the declining-
balance method over the estimated useful lives of the assets, while the straight-line method is applied
to buildings acquired on or after April 1, 1998, building improvements and structures acquired on or
after April 1, 2016, lease assets of the Company and its domestic consolidated subsidiaries, and all
property and equipment of foreign consolidated subsidiaries. The range of useful lives in the Company
and its domestic consolidated subsidiaries is principally from 2 to 50 years for buildings. The useful
lives for lease assets of the Company and its domestic consolidated subsidiaries are the terms of the
respective leases.
Under certain conditions such as exchanges of fixed assets of similar kinds and sales and purchases
resulting from expropriation, Japanese tax laws permit companies to defer the profit arising from such
transactions by reducing the cost of the assets acquired. As of March 31, 2017 and 2016, such
deferred profit amounted to ¥1,369 million ($12,223 thousand) and ¥1,053 million, respectively.
Pursuant to an amendment to the Corporate Tax Act, the Company adopted Accounting Standards
Board of Japan (the“ASBJ”
) Practical Issues Task Force “PITF”
(
) No. 32,“Practical Solution on a
change in depreciation method due to Tax Reform 2016”and changed the depreciation method for
building improvements and structures acquired on or after April 1, 2016, from the declining-balance
method to the straight-line method. The effect of these changes was immaterial.
g. Long-Lived Assets —Long-lived assets of the Company and its domestic consolidated subsidiaries
are reviewed for impairment whenever events or changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the
carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows
expected to result from the continued use and eventual disposition of the asset or asset group. The
impairment loss would be measured as the amount by which the carrying amount of the asset
exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued
use and eventual disposition of the asset or the net selling price at disposition.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
21
h. Goodwill and Other Intangible Assets —The differences between the cost and net equity in domestic consolidated subsidiaries at acquisition “consolidation
(
goodwill”
) are amortized on a straight-line
basis, ranging from 4 to 20 years. Immaterial consolidation goodwill that was incurred in the current
period was charged to income.
Prior to April 1, 2008, in accordance with Statement of Financial Accounting Standards No. 142,
“Goodwill and Other Intangible Assets,”goodwill and other intangible assets of Berlitz Corporation
that were determined to have an indefinite life were not amortized, but rather tested for impairment
on an annual basis and between annual tests if an event occurs or circumstances arise that would
more likely than not reduce the fair value below its carrying amount, which were reflected in the
Company’
s consolidated financial statements without any adjustments. Effective April 1, 2008, goodwill and other intangible assets are adjusted to be amortized on a straight-line basis primarily over 20
years due to the adoption of ASBJ PITF No. 18,“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.”See Note 9 for details
of goodwill and other intangible assets. Intangible assets that are determined not to have an indefinite
life primarily consist of publishing rights. Publishing rights are amortized on a straight-line basis over
25 years.
Financial Accounting Standards Board “FASB”
(
) Accounting Standards Codification “ASC”
(
) Topic
350 provides private companies with a simplified goodwill accounting alternative that allows amortization of goodwill on a straight-line basis over a useful life of (1) 10 years or (2) less than 10 years if it
can be demonstrated that a shorter useful life is more appropriate. Where a company has a US subsidiary which elects to amortize goodwill under the simplified method, PITF No. 18 provides companies with a choice of (a) continuing to amortize the goodwill over the remaining useful life used by the
parent in previous years in the consolidated financial statements, or (b) amortizing the goodwill prospectively over the useful life which was adopted by the US subsidiary if it is shorter than (a) above.
Effective April 1, 2016, Berlitz Corporation, a consolidated subsidiary in the United States of America, elected to adopt the simplified goodwill accounting alternative under FASB ASC Topic 350,
“Intangible—Goodwill and Other”and began amortizing its goodwill over a useful life of 10 years.
Effective April 1, 2016, the Company prospectively amortized the goodwill for Berlitz Corporation,
over the remaining useful life which had previously been adopted by the Company in its consolidated
financial statements. There was no impact on the Company’
s financial position or results of operations from such accounting changes.
i. Software —Software used internally is amortized by the straight-line method over its estimated
useful life (primarily 5 years and 10 years) within the Company.
j. Leases —Finance lease transactions are capitalized to recognize lease assets and lease obligations
in the balance sheet. Lease obligations relating to finance leases are primarily used for capital
expenditures.
k. Retirement and Pension Plans —The Company and certain of its domestic consolidated subsidiaries
have severance lump-sum payment plans for employees. The Company and its certain domestic consolidated subsidiaries have a contributory funded defined benefit pension plan and lump-sum payment plans for employees, directors, Audit & Supervisory Board members and company officers. The
pension plans, which were established under the Japanese Welfare Pension Insurance Law, cover a
substitutional portion of the governmental pension program by the Company on behalf of the government and a corporate portion established at the discretion of the Company. The pension fund is
administered by a board of trustees composed of management and employee representatives as
required by government regulations.
Effective April 1, 2004, the Company and its certain domestic consolidated subsidiaries introduced
a cash-balance plan as part of the former pension plan to reduce the Company’
s future risk due to
unexpected low returns from the pension fund.
22
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
A certain foreign consolidated subsidiary (Berlitz Corporation) has a Supplemental Executive Retirement Plan “SERP”
(
) for the benefit of its Chairman of the Board, certain designated executives and
their designated beneficiaries.
In addition, certain consolidated subsidiaries have defined contribution plans.
The Company accounted for the liability for retirement benefits based on the projected benefit
obligations and plan assets at the balance sheet date. The projected benefit obligations of certain
domestic consolidated subsidiaries are attributed to periods on a benefit formula basis and of foreign
consolidated subsidiaries are attributed to periods using the projected unit credit method. Actuarial
gains and losses of certain domestic consolidated subsidiaries that are yet to be recognized in profit
or loss are recognized within equity (accumulated other comprehensive income), after adjusting for
tax effects and are recognized in profit or loss over 8 years no longer than the expected average
remaining service period of the employees. Foreign consolidated subsidiaries only recognize actuarial
gains and losses that are greater than 10% of the larger of the beginning balances of the projected
benefit obligation or the market-related value (which may equal fair value) of the plan assets and they
are amortized on a straight-line basis primarily over 5 years within the average remaining service
period. Past service costs are amortized on a straight-line basis primarily over 8 years within the average remaining service period.
Retirement benefits to directors, Audit & Supervisory Board members and company officers of certain domestic consolidated subsidiaries are recorded as a liability at the amount that would be
required if all directors, Audit & Supervisory Board members and company officers retired at each
consolidated balance sheet date.
l. Asset Retirement Obligations —An asset retirement obligation is recorded for a legal obligation
imposed either by law or contract that results from the acquisition, construction, development and
normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed
asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required
for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be
made in the period the asset retirement obligation is incurred, the liability should be recognized when
a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a
liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over
time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or
the amount of the original estimate of undiscounted cash flows are reflected as an adjustment to the
carrying amount of the liability and the capitalized amount of the related asset retirement cost.
m. Stock Options —Compensation expense for employee stock options are recognized based on the
fair value at the date of grant and over the vesting period as consideration for receiving goods or
services in accordance with ASBJ Statement No. 8,“Accounting Standard for Stock Options.”Stock
options granted to nonemployees are accounted for based on the fair value of either the stock option
or the goods or services received. In the balance sheet, the stock option is presented as a stock
acquisition right as a separate component of equity until exercised.
n. Research and Development Costs —Research and development costs are charged to income
as incurred.
o. Foreign Currency Transactions —All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized
in the consolidated statement of income to the extent that they are not hedged by forward exchange
contracts.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
23
p. Foreign Currency Financial Statements —The consolidated balance sheet accounts of the foreign
consolidated subsidiaries are translated into Japanese yen at the current exchange rate as of the
consolidated balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as“Foreign currency translation adjustments”in a separate component of equity. Revenue and expense accounts of foreign consolidated subsidiaries are
translated into yen at the average exchange rate.
q. Derivative Financial Instruments and Hedge Activities —The Company uses derivative financial
instruments to manage its exposures to fluctuations in foreign currency exchange and interest rates.
Foreign exchange forward contracts, currency options, and interest rates and currency swaps are
utilized by the Company to reduce foreign currency exchange and interest rate risks. The Company
does not enter into derivatives for trading or speculative purposes.
The Company records foreign exchange forward contracts and currency options at fair value, and
the unrealized gains/losses are recognized in the consolidated statement of income.
The interest rate and currency swap used to hedge long term debt denominated in a foreign currency with a variable interest rate, which qualifies for hedge accounting and meets specific matching
criteria, is not measured at market value. Rather, the long-term debt is recorded at a yen amount
under the swap agreement and interest expense is calculated and recorded using a fixed interest rate.
r. Bonuses to Directors, Audit & Supervisory Board Members and Company Officers —Bonuses to
directors, Audit & Supervisory Board members and company officers are accrued at the end of the
year to which such bonuses are attributable.
s. Income Taxes —The provision for income taxes is computed based on the pretax income included
in the consolidated statement of income. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.
The Company applied ASBJ Guidance No. 26,“Guidance on Recoverability of Deferred Tax Assets,”
effective April 1, 2016. There was no impact from this for the year ended March 31, 2017.
t. Per Share Information —Basic net income (loss) per share is computed by dividing net income (loss)
attributable to common shareholders by the weighted-average number of common shares outstanding for the period.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock.
Cash dividends per share presented in the accompanying consolidated statement of income are
dividends applicable to the respective fiscal years, including dividends to be paid after the end of
the year.
u. Accounting under Introduction of Consolidated Taxation System —In the current fiscal year, the
Company and certain domestic consolidated subsidiaries have obtained approval for the application
of the consolidated taxation system, which will be applied from the following fiscal year. Therefore,
the Company’
s financial statements in the current fiscal year are based on an assumption that the
consolidated taxation system is applied from the current fiscal year in accordance with“Practical
Solution on Tentative Treatment of Tax Effect Accounting Under Consolidated Taxation System (Part
1)”(ASBJ, PITF No. 5, January 16, 2015) and“Practical Solution on Tentative Treatment of Tax Effect
Accounting Under Consolidated Taxation System (Part 2)”(ASBJ, PITF No. 7, January 16, 2015).
24
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
v. Application of the“Balance Sheet Classification of Deferred Taxes”by Overseas Consolidated
Subsidiaries —In November 2015, the FASB issued Accounting Standards Update 2015–17,“Balance
Sheet Classification of Deferred Taxes.”This standard requires classification of deferred tax assets and
deferred tax liabilities into non-current assets or liabilities in the consolidated balance sheet. Berlitz
Corporation, an overseas consolidated subsidiary, has applied this standard, effective for fiscal year
ended March 31, 2017, on a prospective basis and, accordingly, prior periods were not retrospectively restated.
The overseas consolidated subsidiary’
s deferred tax assets (under current assets) and deferred tax
liabilities (included in“Others”under current liabilities) under the current classification included in the
consolidated balance sheet as of March 31, 2017, are ¥1,315 million and ¥66 million, respectively.
Note 3.
Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Cash and time deposits
Marketable securities
Time deposits and short-term investments which
mature or become due after more than three months
from acquisition date
Investment fund and other
Cash and cash equivalents
Note 4.
2017
2016
Thousands of
U.S. Dollars
2017
¥113,543
30,301
¥ 91,892
44,501
$1,013,777
270,545
(11,718)
(13,125)
¥119,001
(5,536)
(22,502)
¥108,355
(104,625)
(117,188)
$1,062,509
Financial Instruments and Related Disclosures
(1) Group Policy for Financial Instruments
The Companies focus on liquidity and safety in regards to investments of surplus funds, after considering their application and timing. Particularly, derivative transactions are utilized mainly to hedge various risks and efficiently invest in funds. The Companies consider derivative transactions with high
leverage to be high-risk transactions, and do not enter into such transactions. In addition, the Companies have set overdraft limits in order to finance operating capital with efficiency and stability in case
of an unexpected contingency.
(2) Nature and Extent of Risks Arising from Financial Instruments
Trade receivables are exposed to credit risks of counterparties. Trade receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates. The Companies
enter into foreign exchange forward contracts and interest rates and currency swaps in order to earn
returns and manage exposure to market risk from changes in foreign currency exchange rates of loans
receivable with foreign consolidated subsidiaries, foreign currency deposits and long-term debt
denominated in foreign currencies. Foreign exchange forward contracts and interest rates and currency swaps are exposed to credit risks of counterparties and the market risk of fluctuation in foreign
currency exchange rates. Marketable and investment securities mainly comprise commercial papers,
negotiable certificates of deposit, trust beneficiary rights, government and corporate bonds, and
others including equity securities and trust fund investments with certain holding limits, which are
exposed to issuer credit risk, fluctuation risks of foreign exchange, interest rates and market price.
Trade payables and income taxes payable are payable within one year. Short-term bank loans and
long-term debt are primarily used for future business investments in the Company, and used for
financing operating capital and capital expenditures in consolidated subsidiaries. Long-term debt with
variable interest is exposed to fluctuation risk of interest rates. Long-term debt denominated in a foreign currency with a variable interest rate is exposed to fluctuation risks of the foreign currency
exchange and interest rates.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
25
(3) Risk Management for Financial Instruments
Credit risk management
The Companies manage credit risks of trade receivables as defined in the“Management Regulations
for Receivables,”based on which the general manager of each department manages each receivable
by type with regard to the counterparty, due date, the amount and the balance in order to recognize
or mitigate any concerns over their collection at an early stage.“Management Regulations for Receivables”of consolidated subsidiaries are established pursuant to the“Management Regulations for
Receivables”of Benesse Corporation, a consolidated subsidiary of the Company.
The Finance Department of the Companies manages the credit risk of security issuers by regularly
monitoring the fair values, rating and credit standing in accordance with“Fund Management
Regulations.”
Because the counterparties to these derivatives are limited to major international financial institutions, the Company and its foreign consolidated subsidiaries do not anticipate any losses arising from
credit risk.
Market risk management
For fluctuation risks of foreign currency exchange rates, interest rates and market prices relating to
marketable and investment securities, the Companies’Finance Department obtains and monitors the
price information of marketable and investment securities from financial institutions on a steady basis
for securities with market prices, and periodically for those without market prices. With respect to
securities transactions, the Companies’Finance Department executes transactions in accordance with
the provisions of the“Fund Management Regulations,”which regulate the authorization and transaction limit amounts, in order to monitor operating status on a regular basis. The results of the monitoring by the Companies’Finance Department are reported to the CEO weekly and to the Board of
Directors quarterly, and are also reported to the Board of Directors each time significant circumstances occur.
Fluctuation risks of foreign currency exchange rates relating to receivables in foreign currencies are
hedged by foreign exchange forward contracts and the risks relating to long-term debt denominated
in a foreign currency with a variable interest rate is hedged by an interest and currency swap. In addition, a portion of short-term bank loans and long-term debt is financed by fixed interest to prevent
fluctuation risk of the corresponding interest rates.
For fluctuation risks of foreign currency exchange rates relating to derivative transactions that are
foreign exchange forward contracts, the authorization and credit limit amount are defined in“Derivatives Transactions Regulations.”The Companies’Finance Department also monitors foreign exchange
forward contracts in terms of the balance and gain or loss on valuation, and reports to the CEO weekly
and to the Board of Directors quarterly. The results of the monitoring by the Companies’Finance
Department are also reported to the Board of Directors each time significant circumstances occur.
Liquidity risk management
The Companies’Finance Department monitors liquidity risk by preparing an annual cash management
plan based on the reports from each department, and a monthly cash management plan through
confirmation of daily cash receipts and payments. Consolidated subsidiaries perform similar procedures in accordance with the Company’
s procedures.
26
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
(4) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are
not available, other rational valuation techniques are used instead. Such techniques include variable
factors and the results of valuation may differ depending on prerequisites. The contract amounts of
derivatives, which are shown in the following table, do not represent the amounts exchanged by the
parties and do not measure the Companies’exposure to market risk.
The table below shows the carrying amounts of financial instruments recorded in the consolidated
balance sheets as of March 31, 2017 and 2016, and their fair values, as well as the differences
between the carrying amounts and the fair values. Financial instruments whose fair values are
deemed extremely difficult to assess are not included.
(a) Fair value of financial instruments
Millions of Yen
Carrying
Amount
March 31, 2017
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities
Total
Trade payables
Income taxes payable
Long-term debt
Lease obligations
Total
Derivatives
¥113,543
70,371
(1,596)
68,775
39,720
¥222,038
¥ 43,313
5,281
37,806
68,022
¥154,422
¥    (10)
March 31, 2016
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities
Total
Trade payables
Income taxes payable
Long-term debt
Lease obligations
Total
Derivatives
¥ 91,892
72,539
(1,437)
71,102
53,935
¥216,929
¥ 39,782
5,054
37,816
56,201
¥138,853
¥    (15)
Be n e sse Holdin gs, In c.
Fair
Value
Unrealized
Gain (Loss)
¥113,543
68,775
39,720
¥222,038
¥ 43,313
5,281
38,005
72,742
¥159,341
¥    (10)
¥  199
4,720
¥4,919
¥ 91,892
71,102
53,935
¥216,929
¥ 39,782
5,054
38,152
62,298
¥145,286
¥    (15)
¥  336
6,097
¥6,433
Fin an cial State me n ts 2 0 1 7
27
Thousands of U.S. Dollars
Carrying
Amount
March 31, 2017
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities
Total
Trade payables
Income taxes payable
Long-term debt
Lease obligations
Total
Derivatives
$1,013,777
628,313
(14,250)
614,063
354,643
$1,982,483
$  386,723
47,152
337,554
607,339
$1,378,768
$      (89)
Fair
Value
Unrealized
Gain (Loss)
$1,013,777
614,063
354,643
$1,982,483
$  386,723
47,152
339,330
649,482
$1,422,687
$      (89)
$ 1,776
42,143
$43,919
Notes: 1. Trade receivables are stated net of each allowance for doubtful receivables.
2.Long-term debt and lease obligations are stated at the carrying amount, including current portion. The fair value of
the interest rate and currency swap, which qualify for hedge accounting and meet specific matching criteria, is
included in the fair value of the long-term debt as the related hedged-items.
3. Derivatives are stated net of assets and liabilities. The figures in parentheses indicate net liabilities.
Cash and Time Deposits and Trade Receivables
The carrying values of cash and time deposits and trade receivables approximate fair value because
of their short maturities.
Marketable and Investment Securities
While the fair values of equity securities are measured at the quoted market price of the stock
exchange, the fair values of government and corporate bonds and trust fund investments and others
are measured at the quoted market price of the stock exchange and also by the prices obtained from
financial institutions. Fair value information for marketable and investment securities by classification
is included in Note 5.
Trade Payables and Income Taxes Payable
The carrying values of trade payables and income taxes payable approximate fair value because of
their short maturities.
Long-Term Debt and Lease Obligations
The fair values of long-term debt and lease obligations are determined by discounting the cash flows
related to the debt at the Companies’assumed corporate borrowing rate.
Certain long-term debt denominated in a foreign currency with a variable interest rate is hedged by
an interest and currency swap. Since the swap qualifies for hedge accounting and meets specific
matching criteria, it is not measured at market value. Rather, the long-term debt is recorded at a yen
amount under the swap agreement and interest expense is calculated and recorded using a fixed
interest rate.
The fair value of the long-term debt is determined based on the assumption that the long-term debt
is debt denominated in Japanese yen with a fixed rate.
Derivatives
Fair value information for derivatives is included in Note 17.
28
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of
U.S. Dollars
Millions of Yen
Investments in equity instruments that do not have
a quoted market price in an active market
Investments in partnerships
Investments in associated companies
Investment in an unconsolidated subsidiary
Total
2017
2016
2017
¥1,370
1,338
2,190
¥1,371
1,013
1,950
38
¥4,372
$12,232
11,947
19,554
¥4,898
$43,733
(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen
March 31, 2017
Time deposits
Trade receivables
Marketable and investment securities—
Available-for-sale securities with fund investments and other:
Government and corporate bonds
Trust fund investments and other
Total marketable and investment securities
March 31, 2016
Time deposits
Trade receivables
Marketable and investment securities—
Available-for-sale securities with fund investments and other:
Government and corporate bonds
Trust fund investments and other
Total marketable and investment securities
Due in 1 Year
or Less
Due after 1
Year through
5 Years
Due after 5
Years through
10 Years
¥113,307
70,371
¥   2,700
27,600
¥ 30,300
¥2,961
433
¥3,394
¥1,000
¥1,000
¥ 91,679
72,539
¥   2,500
42,001
¥ 44,501
¥3,464
1,504
¥4,968
Thousands of U.S. Dollars
March 31, 2017
Time deposits
Trade receivables
Marketable and investment securities—
Available-for-sale securities with fund investments and other:
Government and corporate bonds
Trust fund investments and other
Total marketable and investment securities
Due in 1 Year
or Less
Due after 1
Year through
5 Years
Due after 5
Years through
10 Years
$1,011,670
628,313
$    24,107
246,429
$  270,536
$26,438
3,866
$30,304
$8,929
$8,929
Please see Note 10 for annual maturities of long-term debt and Note 8 for obligations under finance
leases.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
29
Note 5.
Marketable and Investment Securities
Marketable and investment securities as of March 31, 2017 and 2016, consisted of the following:
Thousands of
U.S. Dollars
Millions of Yen
Current:
Government and corporate bonds
Trust fund investments and other
Total
Non-current:
Marketable equity securities
Investments in equity instruments that do not have
a quoted market price in an active market
Investments in partnerships
Government and corporate bonds
Trust fund investments and other
Total
2017
2016
2017
¥ 2,702
27,599
¥30,301
¥ 2,503
41,998
¥44,501
$ 24,125
246,420
$270,545
¥ 4,852
¥ 4,257
$ 43,321
1,370
1,338
3,042
1,525
¥12,127
1,371
1,013
3,593
1,584
¥11,818
12,232
11,947
27,161
13,616
$108,277
The costs and aggregate fair values of marketable and investment securities at March 31, 2017 and
2016, were as follows:
Millions of Yen
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
March 31, 2017
Securities classified as available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other
¥ 2,822
5,620
29,225
¥2,053
130
14
¥ 23
6
115
¥ 4,852
5,744
29,124
March 31, 2016
Securities classified as available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other
¥ 2,696
5,939
43,644
¥1,584
160
41
¥ 23
3
103
¥ 4,257
6,096
43,582
Thousands of U.S. Dollars
March 31, 2017
Securities classified as available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other
Cost
Unrealized
Gains
Unrealized
Losses
Fair Value
$ 25,196
50,179
260,938
$18,330
1,160
125
$  205
53
1,027
$ 43,321
51,286
260,036
The proceeds, realized gains and realized losses of the available-for-sale securities that were sold
during the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
Proceeds from sales
Gross realized gains
Gross realized losses
Net realized gain (loss)
2017
¥815
¥578
¥578
2016
¥1,188
¥  633
1
¥  634
Thousands of
U.S. Dollars
2017
$7,277
$5,161
$5,161
The impairment losses on available-for-sale equity securities for the year ended March 31, 2016,
were ¥353 million.
30
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Note 6.
Inventories
Inventories at March 31, 2017 and 2016, consisted of the following:
Millions of Yen
2017
Finished products
Work in process
Raw materials and supplies
Total
Note 7.
¥20,058
3,536
1,506
¥25,100
2016
¥18,317
3,481
1,727
¥23,525
Thousands of
U.S. Dollars
2017
$179,089
31,571
13,447
$224,107
Long-Lived Assets
The Company and its consolidated subsidiaries reviewed their long-lived assets for impairment as of
March 31, 2017 and 2016. As a result, the Company recognized impairment losses, which were as
follows:
Use
Year ended March 31, 2017
Real estate for rent
Mail-order business
Learning assessment business
aimed at elementary school
students and junior high school
students
Residential care services business
Cram and prep school business
English language classes
for children business
Cram school business
Year ended March 31, 2016
Residential care services business
English language classes
for children business
Prepaid online learning business
Cram school and prep school
business
Cram school business
Millions
of Yen
Type
Thousands of
U.S. Dollars
The Recoverable Amounts
Land, buildings and
structures and others
Software for internal use
Software for internal use
¥386
$3,445
The assessed value of fixed assets
214
56
1,911
500
The assessed value of fixed assets
The assessed value of fixed assets
Buildings and structures
and others
Buildings and structures
and others
Buildings and structures
and others
Buildings and structures
and others
Total
119
1,063
The assessed value of fixed assets
40
357
The assessed value of fixed assets
31
277
The assessed value of fixed assets
21
188
The assessed value of fixed assets
¥867
$7,741
Buildings and structures
and others
Buildings and structures
and others
Software for internal use
¥ 74
The assessed value of fixed assets
31
The assessed value of fixed assets
27
The assessed value of fixed assets
Total
¥158
9
The assessed value of fixed assets
Buildings and structures
and others
Lease assets and others
17
Be n e sse Holdin gs, In c.
The assessed value of fixed assets
Fin an cial State me n ts 2 0 1 7
31
Note 8.
Leases
Lessee
A foreign consolidated subsidiary leases certain equipment, office space and other assets under noncancelable operating leases. The Company and a domestic consolidated subsidiary have lease contracts for certain land, buildings and other assets under noncancelable operating leases.
Obligations under finance leases and future minimum payments under noncancelable operating
leases were as follows:
Millions of Yen
Thousands of U.S. Dollars
2017
Due within one year
Due after one year
Total
Note 9.
Finance
Leases
¥ 2,135
65,887
¥68,022
2017
Operating
Leases
Finance
Leases
¥13,399
66,801
¥80,200
$ 19,062
588,277
$607,339
Operating
Leases
$119,633
596,438
$716,071
Goodwill and Other Intangible Assets
Goodwill and other intangible assets at March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Consolidation goodwill
Goodwill associated with domestic consolidated subsidiaries
Goodwill associated with a foreign consolidated subsidiary
Others
Total
Note 10.
2017
2016
¥ 9,619
531
3,461
1,876
¥15,487
¥11,097
598
4,455
2,333
¥18,483
Thousands of
U.S. Dollars
2017
$ 85,884
4,741
30,902
16,750
$138,277
Short-Term Bank Loans and Long-Term Debt
Long-term debt at March 31, 2017 and 2016, consisted of the following:
Millions of Yen
Long-term debt, unsecured:
Banks and others, in yen—with interest rates ranging
from 0.036% to 0.130% in 2017
and 0.047% to 0.130% in 2016
Banks and others, in real—with interest rates of 1.61%
in 2016
Total long-term debt, unsecured
Total long-term debt
Less current portion
Long-term debt, less current portion
2017
2016
¥37,806
¥37,806
10
37,816
37,816
(10)
¥37,806
37,806
37,806
¥37,806
Thousands of
U.S. Dollars
2017
$337,554
337,554
337,554
$337,554
Annual maturities of long-term debt at March 31, 2017, were as follows:
Year Ending March 31
2019
2020
2021
Total
32
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Millions of Yen
¥ 5,000
19,000
13,806
¥37,806
Thousands of
U.S. Dollars
$ 44,643
169,643
123,268
$337,554
Note 11.
Retirement and Pension Plans
The Company and Certain of Its Consolidated Subsidiaries
Retirement Benefits for Employees
Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain
other factors. Such retirement benefits are made in the form of a lump-sum severance payment from
certain domestic consolidated subsidiaries and annuity payments from a welfare annuity fund.
Employees are entitled to larger payments if the termination is involuntary or by retirement at the
mandatory retirement age.
Since July 1, 2015, one of the Company’
s domestic consolidated subsidiaries has shifted its defined
benefit pension plan to a defined contribution pension plan.
Years ended March 31, 2017 and 2016
(1) The changes in defined benefit obligation for the years ended March 31, 2017 and 2016, were
as follows:
Thousands of
U.S. Dollars
Millions of Yen
Balance at beginning of year
Current service cost
Interest cost
Actuarial (gains) losses
Benefits paid
Foreign currency translation difference
for a foreign consolidated subsidiary
Decrease in relation to the shift of pension plan
to defined contribution pension plan
Other
Balance at end of year
2017
2016
2017
¥24,223
1,489
160
(1,217)
(994)
¥23,717
1,373
275
1,688
(1,200)
$216,277
13,295
1,429
(10,866)
(8,876)
(27)
(31)
(241)
(1,599)
¥23,634
¥24,223
$211,018
(2) The changes in plan assets for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
Balance at beginning of year
Expected return on plan assets
Actuarial gains (losses)
Contributions from the employer
Benefits paid
Decrease in relation to the shift of pension plan
to defined contribution pension plan
Balance at end of year
2017
2016
Thousands of
U.S. Dollars
2017
¥17,190
343
272
748
(578)
¥18,744
352
(706)
797
(734)
$153,482
3,063
2,429
6,678
(5,161)
¥17,975
(1,263)
¥17,190
$160,491
(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances
of defined benefit obligation and plan assets, was as follows:
Millions of Yen
Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation
Net liability arising from defined benefit obligation
2017
¥ 16,265
(17,975)
(1,710)
7,369
¥ 5,659
Be n e sse Holdin gs, In c.
2016
¥ 16,805
(17,190)
(385)
7,418
¥ 7,033
Thousands of
U.S. Dollars
2017
$ 145,223
(160,491)
(15,268)
65,795
$ 50,527
Fin an cial State me n ts 2 0 1 7
33
Millions of Yen
Liability for retirement benefits
Asset for retirement benefits
Net liability arising from defined benefit obligation
2017
¥ 7,370
(1,711)
¥ 5,659
2016
¥7,419
(386)
¥7,033
Thousands of
U.S. Dollars
2017
$ 65,804
(15,277)
$ 50,527
Berlitz Corporation has a SERP for the benefit of its Chairman of the Board, certain designated executives and their designated beneficiaries. Liability for retirement benefits above includes ¥197 million
($1,759 thousand), and ¥177 million for SERP for the years ended March 31, 2017 and 2016, respectively, which is disclosed in the other current liabilities in the consolidated balance sheet.
(4) The components of net periodic benefit costs for the years ended March 31, 2017 and 2016,
were as follows:
Millions of Yen
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial losses
Amortization of prior service cost
Net periodic benefit costs
Gains in relation to the shift of pension plan
to defined contribution pension plan
2017
¥2,154
160
(343)
739
67
¥2,777
2016
¥2,050
275
(352)
696
66
¥2,735
Thousands of
U.S. Dollars
2017
$19,232
1,429
(3,063)
6,599
598
$24,795
¥ (249)
Service cost includes ¥665 million ($5,938 thousand) and ¥677 million of estimated prepaid retirement payment for employees in accordance with the prepaid retirement allowance plan in Benesse
Corporation for the years ended March 31, 2017 and 2016, respectively.
For the year ended March 31, 2016, gains in relation to the shift of a pension plan to a defined
contribution pension plan were recorded in other income in the consolidated statement of income as
a result of the shift of a domestic consolidated subsidiary’
s benefit pension plan on July 1, 2015.
(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of
defined retirement benefit plans for the years ended March 31, 2017 and 2016, were as follows:
Millions of Yen
Prior service cost
Actuarial gains (losses) (amount before income tax effect)
Total
2017
¥    67
2,208
¥2,275
2016
¥     66
(1,610)
¥(1,544)
Thousands of
U.S. Dollars
2017
$   598
19,714
$20,312
(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in
respect of defined retirement benefit plans as of March 31, 2017 and 2016, were as follows:
Millions of Yen
Unrecognized prior service cost
(amount before income tax effect)
Unrecognized actuarial losses
(amount before income tax effect)
Total
34
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
2017
2016
Thousands of
U.S. Dollars
2017
¥      3
¥    (64)
$      27
(1,525)
¥(1,522)
(3,733)
¥(3,797)
(13,616)
$(13,589)
(7) Plan assets
a. Components of plan assets
Plan assets as of March 31, 2017 and 2016, consisted of the following:
2017
Debt investments
Equity investments
General account
Cash and cash equivalents
Others
Total
2016
33%
19
19
4
25
100%
33%
15
20
12
20
100%
b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return,
which are expected currently and in the future from the various components of the plan assets.
(8) Assumptions used for the years ended March 31, 2017 and 2016, are set forth as follows:
Discount rate
The Company and domestic
consolidated subsidiaries
Foreign consolidated subsidiaries
Expected rate of
return on plan assets
Expected rate of
The Company and domestic
salary increases
consolidated subsidiaries
Foreign consolidated subsidiaries
2017
2016
Primarily 0.6%
Primarily 3.6%
Primarily 0.4%
Primarily 3.8%
Primarily 2.0%
Primarily 2.0%
Primarily 7.1%
Primarily 2.0%
Primarily 7.1%
Primarily 2.0%
(9) Others
On July 1, 2015, one of the Company’
s domestic consolidated subsidiaries shifted its defined benefit
pension plan to a defined contribution pension plan.
The transfer resulted in the following effects and gain on revision of retirement benefit plan of ¥249
million recorded for the year ended March 31, 2016.
Millions of Yen
Decrease in retirement benefit obligations
Decrease in plan assets
Actuarial losses that are yet to be recognized
Decrease in relation to the shift of pension plan to defined contribution pension plan
2016
¥ 1,599
(1,263)
(87)
¥   249
Retirement Benefits for Directors, Audit & Supervisory Board Members and Company Officers
The liability for retirement benefits at March 31, 2017 and 2016, for directors, Audit & Supervisory
Board members and company officers at certain domestic consolidated subsidiaries was ¥124 million
($1,107 thousand) and ¥164 million, respectively. The retirement benefits for directors and Audit &
Supervisory Board members are paid subject to the approval of the shareholders.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
35
Note 12.
Equity
Japanese companies are subject to the Companies Act of Japan (the“Companies Act”
). The significant
provisions in the Companies Act that affect financial and accounting matters are summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition
to the year-end dividend upon resolution at the shareholders’meeting. Additionally, for companies
that meet certain criteria, including (1) having a Board of Directors, (2) having independent auditors,
(3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed
as one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the Company has prescribed so in its articles of incorporation. The Company meets all the above criteria, and
accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time
during the fiscal year.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides certain
limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is
defined as the amount available for distribution to the shareholders, but the amount of net assets
after dividends must be maintained at no less than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a
legal reserve (a component of retained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the payment of such dividends until
the aggregate amount of legal reserve and additional paid-in capital equals 25% of the common
stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may
be reversed without limitation. The Companies Act also provides that common stock, legal reserve,
additional paid-in capital, other capital surplus and retained earnings can be transferred among the
accounts within equity under certain conditions upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot
exceed the amount available for distribution to the shareholders which is determined by a specific
formula. Under the Companies Act, stock acquisition rights are presented as a separate component of
equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
36
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Note 13.
Related Party Transactions
The Company sold art to FUKUTAKE FINE ART PTE. LTD during the year ended March 31, 2017,
as follows:
Millions of Yen
2017
Sales of art
Gain on sales
¥3,370
2,920
Thousands of
U.S. Dollars
2017
$30,089
26,071
The Company sold art that it held to FUKUTAKE FINE ART PTE. LTD, whose representative is an outside director of the Company. FUKUTAKE FINE ART PTE. LTD is a wholly owned subsidiary of efu
Investment Limited, where the Company’
s outside director serves as a director. efu Investment Limited
holds 14,668 thousand shares representing 15.2% of the Company’
s voting rights, and of which 6,809
thousand shares are entrusted to The Master Trust Bank of Japan, Ltd. as trust assets. Selling prices of
the art are determined based on appraisals made by multiple companies.
The Company sold art to efu Investment Limited during the year ended March 31, 2016, as follows:
Millions of Yen
2016
Sales of art
Trade receivables
Gain on sales
¥1,324
1,430
1,158
efu Investment Limited, whose representative is an outside director of the Company, holds 14,668
thousand shares, which is 15.2% of the Company’
s voting rights. Selling prices of the art are determined based on appraisals made by multiple companies.
Note 14.
Segment Information
Under ASBJ Statement No. 17,“Accounting Standard for Segment Information Disclosures,”and ASBJ
Guidance No. 20,“Guidance on Accounting Standard for Segment Information Disclosures,”an entity
is required to report financial and descriptive information about its reportable segments. Reportable
segments are operating segments or aggregations of operating segments that meet specified criteria.
Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. Generally, segment information is required
to be reported on the same basis as is used internally for evaluating operating segment performance
and deciding how to allocate resources to operating segments.
(1) Description of Reportable Segments
The reportable segments of the Benesse Group (the“Group”
) are subject to regular review in order
for the Board of Directors to decide on the allocation of management resources and evaluate results,
and to obtain financial data separated from the constituents of each company.
The Group positions the four fields of Domestic Education, Overseas Business, Nursing Care and
Childcare and Language Learning as growth companies, and concentrates investment of management
resources in these areas in order to achieve long-term growth for the Group as a whole.
Accordingly, the Group is made up of segments grouped by products and services based on these
four companies, and has designated the Domestic Education Company, Overseas Business Company,
Nursing Care and Childcare Company, and Language Learning Company as its reportable segments.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
37
In the Domestic Education Company, the Group engages in the correspondence course business,
the school and teacher support business, the cram and prep school business, English language
classes for children business and other businesses.
In the Overseas Business Company, the Group engages in the correspondence course business in
China and Taiwan, targeting mainly infants.
In the Nursing Care and Childcare Company, the Group engages in the residential care services business (operation of nursing homes and elderly homes), home helper services business, training courses
for nursing care personnel, staff placement and personnel dispatch company specializing in medical and
nursing care personnel, daycare and afterschool childcare operations business and other businesses.
In the Language Learning Company, the Group engages in the language instruction business, the ELS
business which provides educational services including language training to those who want to study
abroad, the global leadership training business, the translation and interpreting business, and other
businesses.
(2) Matters regarding Changes in Reportable Segments
From the second quarter of the year ended March 31, 2017, Benesse USA Company was renamed
the Language Learning Company due to the change in operational classification. Berlitz Japan, Inc.,
Okayama Language Center, Simul International, Inc. and its subsidiaries previously included in the
Domestic Education Company are determined to be included in Language Learning Company.
Effective April 1, 2016, Overseas Business Development Company was renamed the Overseas
Business Company.
Moreover, segment information for the year ended March 31, 2016, has been restated based on
the new classification after these changes.
(3) M
ethods of Measurement for the Amounts of Sales, Profit (Loss), Assets and Other Items for
Each Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2,
“Summary of Significant Accounting Policies.”
(4) Information about Sales, Profit (Loss), Assets and Other Items
Millions of Yen
2017
Reportable Segment
Domestic
Education
Company
Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)
Segment assets
Other:
Increase in property and equipment
and intangible assets
Depreciation
Nursing Care
and Childcare
Company
Others
Total
Reconciliations Consolidated
¥28,047
¥102,996
¥60,282
¥385,732
¥44,332
¥430,064
24
94
1,473
1,711
28,068
29,779
¥(29,779)
¥194,527
¥28,071
¥103,090
¥61,755
¥387,443
¥72,400
¥459,843
¥(29,779)
¥430,064
¥   1,672
¥ 3,136
¥   8,187
¥   (479)
¥ 12,516
¥ 1,996
¥ 14,512
¥ (6,826)
¥   7,686
170,217
25,426
152,715
40,090
388,448
33,001
421,449
60,456
481,905
5,725
462
15,259
1,199
22,645
770
23,415
195
23,610
10,401
269
3,952
1,852
16,474
1,662
18,136
2
18,138
702
2,208
39
2,247
653
214
867
867
13,365
246
13,611
13,611
701
1,553
2,254
2,254
534
Loss on impairment of long-lived assets
534
119
4,949
4,955
Be n e s s e Ho l d i n g s, Inc.
Reportable
Segment Total
120
972
Investment in equity method affiliates
Language
Learning
Company
¥194,407
Amortization of goodwill
Goodwill at March 31, 2017
38
Overseas
Business
Company
637
F i nanci al St at ement s 2017
64
3,461
¥430,064
2,247
Millions of Yen
2016
Reportable Segment
Domestic
Education
Company
Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)
Segment assets
Other:
Increase in property and equipment
and intangible assets
Depreciation
Amortization of goodwill
Loss on impairment of long-lived assets
Goodwill at March 31, 2016
Investment in equity method affiliates
Overseas
Business
Company
Nursing Care
and Childcare
Company
Language
Learning
Company
Reportable
Segment Total
Others
Total
Reconciliations Consolidated
¥204,157
¥27,114
¥ 94,967
¥73,912
¥400,150
¥44,041
¥444,191
436
2
47
285
770
28,194
28,964
¥(28,964)
¥204,593
¥27,116
¥ 95,014
¥74,197
¥400,920
¥72,235
¥473,155
¥(28,964)
¥444,191
¥   3,117
¥ 2,641
¥   7,024
¥ 3,234
¥ 16,016
¥ 1,699
¥ 17,715
¥ (6,852)
¥ 10,863
170,812
22,287
139,719
45,275
378,093
33,984
412,077
62,850
474,927
7,747
223
13,253
1,811
23,034
1,742
24,776
158
24,934
11,572
224
3,434
2,279
17,509
1,741
19,250
(26)
19,224
1,001
534
798
2,333
50
2,383
57
74
131
27
158
158
5,921
5,489
15,865
285
16,150
16,150
712
1,340
2,052
2,052
648
4,455
64
¥444,191
2,383
Thousands of U.S. Dollars
2017
Reportable Segment
Domestic
Education
Company
Sales:
Sales to external customers
Intersegment sales or transfers
Total
Segment profit (loss)
Segment assets
$1,735,777
1,071
Overseas
Business
Company
Nursing Care
and Childcare
Company
$250,420 $  919,607
214
839
Language
Learning
Company
Reportable
Segment Total
$538,232 $3,444,036
13,152
250,608
265,884
$3,839,857
$(265,884)
$250,634 $  920,446
$551,384 $3,459,312
$646,429 $4,105,741
$(265,884) $3,839,857
$    14,929
$ 28,000 $    73,098
$ (4,277) $  111,750
$ 17,821 $  129,571
$ (60,946) $    68,625
1,363,527
357,946
3,468,286
Increase in property and equipment
and intangible assets
51,116
4,125
136,241
10,705
Depreciation
92,866
2,402
35,286
16,536
6,268
Amortization of goodwill
8,679
4,768
Loss on impairment of long-lived assets
4,768
1,063
44,188
44,241
Investment in equity method affiliates
Reconciliations Consolidated
$1,736,848
227,018
Goodwill at March 31, 2017
Total
$395,821 $3,839,857
15,276
1,519,795
Other:
Others
5,688
571
30,902
294,652
3,762,938
539,785
4,302,723
202,187
6,875
209,062
1,742
210,804
147,090
14,839
161,929
17
161,946
19,715
348
20,063
5,831
1,910
7,741
7,741
119,331
2,196
121,527
121,527
6,259
13,866
20,125
20,125
20,063
Note: The details of reconciliations are as follows:
Millions of Yen
Sales
Intersegment eliminations
Total
2017
¥(29,779)
¥(29,779)
2016
¥(28,964)
¥(28,964)
Millions of Yen
Profit (Loss)
Intersegment eliminations
Corporate expenses
Total
2017
¥  (667)
(6,159)
¥(6,826)
2016
¥   172
(7,024)
¥(6,852)
Thousands of
U.S. Dollars
2017
$(265,884)
$(265,884)
Thousands of
U.S. Dollars
2017
$ (5,955)
(54,991)
$(60,946)
Notes: 1. Corporate expenses are mainly expenses of the Company that are not attributable to the reportable segments.
2. Segment profit (loss) is adjusted with operating income in the consolidated statement of income.
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
39
Thousands of
U.S. Dollars
Millions of Yen
Assets
2017
Intersegment eliminations
Corporate assets
Total
¥(15,427)
75,883
¥ 60,456
2016
2017
¥(13,727)
76,577
¥ 62,850
$(137,741)
677,526
$ 539,785
Note: C
orporate assets consist mainly of marketable securities of the Company that are not attributable to the reportable
segments.
Thousands of
U.S. Dollars
Millions of Yen
Increase in Property and Equipment and Intangible Assets
2017
Intersegment eliminations
Capital investment in the Company
Total
2016
¥(231)
426
¥ 195
2017
¥(197)
355
¥ 158
$(2,063)
3,805
$ 1,742
Note: Capital investment in the Company is not attributable to reportable segments.
Thousands of
U.S. Dollars
Millions of Yen
Depreciation
2017
Intersegment eliminations
Corporate expenses
2016
¥(250)
252
Total
¥(272)
246
¥    2
¥ (26)
2017
$(2,232)
2,249
$     17
Note: Corporate expenses are expenses related to the Company that are not attributable to the reportable segments.
(5) Information about Geographical Areas
Sales
Millions of Yen
2017
Japan
¥355,204
Others
¥74,860
Thousands of U.S. Dollars
2016
Total
¥430,064
Japan
¥357,828
Others
¥86,363
2017
Total
¥444,191
Japan
$3,171,464
Others
$668,393
Total
$3,839,857
Note: Sales are classified by country or region based on the location of customers.
Note 15.
Advertising Costs
Advertising costs charged to income were ¥30,348 million ($270,964 thousand) and ¥28,791 million
for the years ended March 31, 2017 and 2016, respectively.
Note 16.
Research and Development Costs
Research and development costs charged to income were ¥1,154 million ($10,304 thousand) and
¥1,275 million for the years ended March 31, 2017 and 2016, respectively.
40
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Note 17.
Derivatives
The Company enters into foreign currency exchange contracts to hedge foreign currency exchange
risk associated with certain assets denominated in foreign currencies.
It is the Company’
s policy to use derivatives only for the purpose of reducing market risks associated with assets. The Company does not hold or issue derivatives for trading purposes.
Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential fluctuations in market conditions, including foreign currency exchange rates. Credit risk is the possibility that a loss may result from a counterparty’
s failure to perform according to the terms and
conditions of the contract.
Because the counterparties to these derivatives are limited to major international financial institutions, the Company does not anticipate any losses arising from credit risk.
The execution and control of derivatives are managed by the Companies’Finance Department
applying internal control policies that regulate the authorization and credit limit amount. Each derivative transaction is reported to the CEO weekly and reported to the Board of Directors quarterly, and
is also reported to the Board of Directors each time significant circumstances occur. Prior to entering
into derivative contracts, foreign consolidated subsidiaries confer with independent advisers to assess
the reasonableness of the contracts and obtain the Board of Directors approval, and each derivative
transaction is periodically reported to the Board of Directors.
Derivative Transactions to Which Hedge Accounting Was Not Applied at March 31, 2017
and 2016
Millions of Yen
2017
Currency option contracts:
Purchase call—U.S. dollars
Option premiums
Contract
Amount
Contract
Amount
Due after
One Year
Fair Value
¥1,400
10
Unrealized
Gain (Loss)
¥(10)
Millions of Yen
2016
Foreign currency forward contracts—
Selling—U.S. dollars
Total
Currency option contracts:
Purchase call—U.S. dollars
Option premiums
Contract
Amount
Contract
Amount
Due after
One Year
Fair Value
¥1,661
¥1,661
¥1,400
10
¥1,400
10
Unrealized
Gain (Loss)
¥(10)
¥(10)
¥(10)
¥(10)
¥ 5
¥ (5)
Thousands of U.S. Dollars
2017
Currency option contracts:
Purchase call—U.S. dollars
Option premiums
Contract
Amount
Contract
Amount
Due after
One Year
$12,500
89
Be n e sse Holdin gs, In c.
Fair Value
Unrealized
Gain (Loss)
$(89)
Fin an cial State me n ts 2 0 1 7
41
The contract or notional amounts of derivatives which are shown in the above table do not represent
the amounts exchanged by the parties and do not measure the Company’
s exposure to credit or
market risk.
The fair value of foreign currency exchange contracts is measured at the forward quotation.
The fair value of currency options is measured at the quoted price obtained from the financial
institutions.
Derivative Transactions to Which Hedge Accounting Was Applied at March 31, 2017
Millions of Yen
2017
Interest rate and currency swap
Total
Hedged Item
Long-term debt
Contract
Amount
Due after
One Year
Contract
Amount
¥9,806
¥9,806
¥9,806
¥9,806
Millions of Yen
2016
Interest rate and currency swap
Total
Hedged Item
Long-term debt
Contract
Amount
Due after
One Year
Contract
Amount
¥9,806
¥9,806
¥9,806
¥9,806
Thousands of U.S. Dollars
2017
Interest rate and currency swap
Total
Hedged Item
Long-term debt
Contract
Amount
$87,554
$87,554
Contract
Amount
Due after
One Year
$87,554
$87,554
The above interest rate and currency swap used to hedge long-term debt denominated in a foreign
currency with a variable interest rate, which qualifies for hedge accounting and meets specific matching criteria, is not measured at market value. Rather, the long-term debt is recorded at a yen amount
under the swap agreement and interest expense is calculated and recorded using a fixed interest rate.
The fair value of these interest rates and currency swaps is included in long-term debt as described
in Note 4.
42
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Note 18.
Income Taxes
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes
which, in the aggregate, resulted in normal effective statutory tax rates of approximately 30.9% for the
year ended March 31, 2017, and 33.1% for the year ended March 31, 2016.
The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at March 31, 2017 and 2016, were as follows:
Millions of Yen
Deferred tax assets:
Provision for employees’bonuses
Enterprise tax
Social insurance premium
Inventories
Trade receivables—accounts
Payables—other
Accrued expenses
Depreciation
Loss on impairment of long-lived assets
Liability for retirement benefits
Long-term payable—other
Valuation difference of consolidated subsidiaries
Tax loss carryforwards
Asset retirement obligations
Unrealized profit of fixed asset
Deferred revenue
Deferred consumption taxes
Loss on valuation of investment securities
Other
Less valuation allowance
Total
Deferred tax liabilities:
Inventories
Unrealized gain on available-for-sale securities
Intangible assets
Undistributed earnings of foreign consolidated and
associated subsidiaries
Prepaid pension expenses
Other
Total
Net deferred tax assets
2017
2016
¥ 2,093
294
337
775
930
244
2,156
4,963
1,367
1,369
1,099
¥ 1,949
332
312
1,043
255
508
2,038
5,115
1,727
790
1,209
746
6,591
286
109
567
75
223
879
(18,111)
6,643
9,508
254
74
644
173
134
1,304
(17,683)
10,035
Thousands of
U.S. Dollars
2017
$ 18,688
2,625
3,009
6,920
8,304
2,179
19,250
44,313
12,205
12,223
9,813
84,893
2,268
661
5,750
1,545
1,196
11,640
(157,884)
89,598
810
733
2,051
10
613
2,857
7,232
6,545
18,313
750
531
429
5,304
¥ 4,731
211
186
441
4,318
¥ 2,325
6,696
4,741
3,830
47,357
$ 42,241
Net deferred tax assets were included in the consolidated balance sheet as follows:
Millions of Yen
Current assets—Deferred tax assets
Investments and other assets—Deferred tax assets
Current liabilities—Other current liabilities
Long-term liabilities—Deferred tax liabilities
Net deferred tax assets
2017
¥3,695
1,596
(560)
¥4,731
Be n e sse Holdin gs, In c.
2016
¥ 3,515
2,522
(85)
(3,627)
¥ 2,325
Thousands of
U.S. Dollars
2017
$32,991
14,250
(5,000)
$42,241
Fin an cial State me n ts 2 0 1 7
43
A reconciliation between the normal effective statutory tax rate for the years ended March 31,
2017 and 2016, and the actual effective tax rate reflected in the accompanying consolidated statement of income was as follows:
2017
Normal effective statutory tax rate
Change in the valuation allowance
Amortization of goodwill
Expense not deductible for income tax purposes
Per capita inhabitants' taxes
Equity in net earnings of affiliated companies
Foreign withholdings tax
Decrease in deferred tax assets by change of tax rate
Differences of income taxes with consolidated subsidiaries
Revenue exempt from income tax purposes
Other
Actual effective tax rate
30.9%
(11.6)
7.4
3.9
5.4
8.5
2.5
0.1
0.7
47.8%
2016
33.1%
122.7
7.5
4.6
4.4
2.1
0.3
(2.4)
(0.1)
0.5
172.7%
New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for
the fiscal year beginning on or after April 1, 2016, to approximately 30.9% and for the fiscal year beginning on or after April 1, 2018, to approximately 30.6%. The effect of these changes was immaterial.
Note 19.
Stock Option Plan
The stock options that existed as of March 31, 2017, are as follows:
Stock Option
Persons Granted
2015 Stock Option 3 directors
17 selected employees
2016 Stock Option 3 directors
Number
of Options
Granted
1,477
1,873
975
Date of Grant
August 3,
2015
September 12,
2016
Exercise
Price
Exercise Period
¥3,513
From August 4, 2017
to August 3, 2022
¥2,639
From September 13, 2018
to September 12, 2023
The stock option activity is as follows:
2015 Stock Option
Year Ended March 31, 2017
Non-vested
March 31, 2016—Outstanding
Granted
Canceled
Vested
March 31, 2017—Outstanding
Vested
March 31, 2016—Outstanding
Vested
Exercised
Canceled
March 31, 2017—Outstanding
Exercise price
Fair value price at grant date
44
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
2016 Stock Option
(Shares)
3,350
(75)
(1,194)
2,081
975
975
1,194
1,194
¥3,513
($31)
¥  377
($ 3)
¥2,639
($24)
¥  277
($ 2)
The Assumptions Used to Measure the Fair Value of the 2016 Stock Option
Note 20.
Estimate method:
Black-Scholes option-pricing model
Volatility of stock price:
25.17%
Estimated remaining outstanding period:
Four and a half years
Estimated dividend:
¥95 per share
Interest rate with risk free:
(0.164)%
Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) for the years ended March 31, 2017 and
2016, were as follows:
Thousands of
U.S. Dollars
Millions of Yen
2017
Unrealized gain on available-for-sale securities:
Gains (losses) arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Amount before income tax effect
¥  (524)
(804)
$ 8,027
(4,545)
¥  267
¥  (872)
$ 2,384
¥ (893)
29
¥  (270)
$ (7,973)
259
¥ (864)
¥  (270)
$ (7,714)
¥1,459
816
¥(2,325)
781
$13,027
7,285
¥1,646
¥(1,242)
$14,696
¥    12
1
¥    (26)
4
$   107
9
(1,328)
456
(864)
Total
Defined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Amount before income tax effect
Income tax effect
Total
(7,714)
(1,544)
302
13
(1)
20,312
(5,616)
(22)
8
¥    12
Total other comprehensive income (loss)
3,482
(1,098)
(270)
2,275
(629)
Share of other comprehensive income (loss) in associates:
Gains (losses) arising during the year
Reclassification adjustments to profit or loss
2017
¥  899
(509)
390
(123)
Foreign currency translation adjustments:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Note 21.
2016
116
(9)
¥    (14)
¥1,061
$   107
¥(2,398)
$ 9,473
Net Income per Share
Reconciliation of the differences between basic and diluted net income per share “EPS”
(
) for the years
ended March 31, 2017 and 2016, was as follows. Diluted EPS for the year ended March 31, 2016, is
not disclosed because it is anti-dilutive due to the Company’
s net loss position.
Year Ended March 31, 2017
Basic EPS—
Net income available to common shareholders
Effect of dilutive securities—Warrants
Diluted EPS—Net income for computation
Year Ended March 31, 2016
Basic EPS—
Net loss available to common shareholders
Millions of Yen
Thousands of
Shares
Net Income
(Loss) Attributable to Owners
of the Parent
WeightedAverage Shares
¥ 3,557
Yen
U.S. Dollars
EPS
¥ 36.98
$0.33
¥ 3,557
96,188
5
96,193
¥ 36.98
$0.33
¥(8,211)
96,189
¥(85.37)
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
45
Note 22.
Subsequent Event
a. Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2017, was approved at the Company’
s
shareholders’meeting held on June 24, 2017:
Year-end cash dividends, ¥47.5 ($0.42) per share
Millions of Yen
¥4,569
Thousands of
U.S. Dollars
$40,795
b. Introduction of a Restricted Stock Compensation Plan
As part of review of the compensation plan for directors, the Company resolved to introduce a
restricted stock compensation plan “the
(
Plan”
) at the ordinary general shareholders’meeting held on
June 24, 2017.
(1) Purpose and reasons for introducing the Plan
The Company has determined to replace the existing stock option plan by introducing a plan that
grants restricted stock to directors (excluding outside directors; hereinafter“Eligible Directors”
). In
doing so, the Company aims to strengthen the correlation with its medium- to long-term performance,
to provide directors with a further incentive to sustainably increase corporate value, and to promote
further shared values between directors and shareholders.
With the above introduction of the Plan, the Company will abolish the stock option compensation
plan for Eligible Directors, and will not issue new stock subscription rights, except for those already
granted, as a stock option compensation for Eligible Directors in the future.
(2) Overview of the restricted stock compensation plan
(a) Overview of the Plan
Eligible Directors contribute the entire amount of monetary compensation receivables paid to them
by the Company under the Plan as an in-kind contribution to acquire common shares of the Company
to be allotted by the Company in accordance with a resolution of the Board of Directors. For the
issuance and disposal of the Company’
s common shares under the Plan, the Company and the Eligible Directors shall conclude a restricted stock allocation agreement including provisions such as (1)
the prohibition on the Eligible Directors transferring to a third party, creating a security interest upon,
or otherwise disposing of their received allotment of common shares of the Company (hereinafter
“the Shares”
) for a certain period of time and (2) the gratis acquisition of the Shares by the Company
in the case that certain reasons arise. To prevent Eligible Directors from transferring to a third party,
creating a security interest upon, or otherwise disposing of the Shares, during the restriction period,
the Shares are to be managed in a dedicated account to be opened by the Eligible Directors.
(b) Upper Limit of Monetary Compensation Receivables and Maximum Number of Shares to Be Granted
The entire amount of monetary compensation receivables to be paid to the Eligible Directors under
the Plan shall not exceed ¥70 million per year. In addition, under the Plan, the number of common
shares of the Company to be issued or disposed of shall not exceed 30,000 per year (however, the
total number may be adjusted within a reasonable range as necessary in case of a stock split of the
Company’
s common shares (including a gratis allocation of the Company’
s common shares), stock
consolidation, or other reason arising on or after the date of the resolution by the shareholders’
meeting).
(c) Amount to Be Paid per Share with a Restricted Stock
The amount to be paid per share with a restricted stock shall be decided by the Board of Directors in
a range that does not represent a particularly advantageous sum for the directors eligible for receiving
the Company’
s common shares, based on the closing price for the Company’
s common shares on the
Tokyo Stock Exchange on the business day preceding the Board of Directors’meeting involving the
issuance or disposal. (If there is no closing price on that day, then the closing price on the immediately preceding day.)
46
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Independent Auditor’
s Report
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
47
The History of Benesse Holdings, Inc.
Year
1955
1962
1969
1972
1973
1980
1988
1990
1993
1994
1995
1997
1998
The Company establishes the Kansai School Entrance Research Association and begins offering Kansai
Simulated Exams (now Shinken Simulated Exams) for senior high school students.
Correspondence Education Seminar (now Shinkenzemi Senior High School Courses) is launched.
Tokyo Office opens and begins offering Shinken Simulated Exams in eastern Japan.
Correspondence Education Seminar Junior (now Shinkenzemi Junior High School Courses) is launched.
Kansai Simulated Exams are renamed Shinken Simulated Exams.
Correspondence Education Seminar is renamed Shinkenzemi.
Shinkenzemi Elementary School Courses are introduced.
Shinkenzemi Preschool Courses for ages 4 to 5 (now Kodomo Challenge) are introduced.
The Company’
s new corporate identity“Benesse”is announced.
The Company invests in Berlitz School of Languages, Inc. (now Berlitz Japan, Inc.).
The Company acquires Berlitz International, Inc. (now Berlitz Corporation) of the United States.
The magazines Tamago Club and Hiyoko Club are launched.
Shinkenzemi Preschool Courses for ages 2 to 3 (now Kodomo Challenge) are introduced.
The Company’
s name is changed to Benesse Corporation.
Benesse lists on the Second Section of the Osaka Securities Exchange and the Hiroshima Stock Exchange.
Benesse moves up to the First Section of the Osaka Securities Exchange.
Benesse Home Clara Okayama (now Clara Kadotayashiki ) opens in Okayama.
Simul International, Inc. joins the Benesse Group.
2000
Benesse lists on the First Section of the Tokyo Stock Exchange.
Benesse Care Corporation is established.
Benesse acquires controlling stake in Shinkoukai Co., Ltd.
2001
Berlitz International, Inc. (now Berlitz Corporation) becomes the Company’
s wholly owned subsidiary.
Benesse en-Famille Inc. is established through joint capital investment with Taihei Co., Ltd., a home fooddelivery company.
2003
Shinken-AD Co., Ltd. becomes a consolidated subsidiary.
Benesse consolidates its three nursing care-related companies (including Benesse Care Corporation and
Shinkoukai Co., Ltd. to form Benesse Style Care Co., Ltd.)
Benesse Hong Kong Co., Ltd. is established.
2004
Benesse Korea Co., Ltd. is established.
2005
2006
2007
2008
2009
2010
2012
2013
2014
2015
48
History
Fukutake Publishing Co., Ltd. is established in Minamigata, Okayama Prefecture and begins publishing
junior high school educational materials and student pocket books.
Benesse Educational Research and Development Center (now Benesse Educational Research and
Development Institute) is established.
AVIVA Co., Ltd. joins the Benesse Group.
Kodomo Challenge courses are introduced in China.
Benesse acquires Ochanomizu Seminar Co., Ltd.
Benesse acquires Tokyo Individualized Educational Institute, Inc.
Shinkenzemi Junior High School Courses + i launched.
Tokyo Educational Institute Co., Ltd. joins the Benesse Group.
Benesse converts to a holding company structure using a corporate spin-off.
Benesse acquires all shares of Bon Sejour Corporation.
Benesse transfers all shares of AVIVA Co., Ltd.
Benesse acquires UP Inc.
Bon Sejour Corporation is folded into Benesse Style Care Co., Ltd. by merger.
Benesse transfers all shares of Benesse Korea Co., Ltd.
Benesse Palette Co., Ltd. is established through a joint venture between Benesse Style Care Co., Ltd. and
LEOC Co., Ltd.
Benesse Senior Support Co., Ltd. is established.
Benesse acquires all of the outstanding shares of Minerva Intelligence Co., Ltd.
Benesse InfoShell Co., Ltd. is established.
Benesse i-Career Co., Ltd. is established.
Be n e s s e Ho l d i n g s, Inc.
F i nanci al St at ement s 2017
Corporate Information
Corporate Data
As of March 31, 2017
NAME:
Consolidated Subsidiaries
As of March 31, 2017
Name of company
Benesse Holdings, Inc.
DATE ESTABLISHED:
January 28, 1955
HEADQUARTERS:
3-7-17 Minamigata, Kita-ku, Okayama-shi,
Okayama 700-0807, Japan
REPRESENTATIVE:
Representative Director and President, CEO
Tamotsu Adachi
(As of June 24, 2017)
NUMBER OF EMPLOYEES:
21,022 (consolidated)
CAPITAL:
13,600 million yen
CLOSING DATE:
March 31
Benesse Corporation
UP Inc.
Tokyo Individualized Educational Institute, Inc.
Benesse i-Career, Co., Ltd.
Shinken-AD Co., Ltd.
Plandit Co., Ltd.
Minerva Intelligence Co., Ltd.
Learn-S Co., Ltd.
Ochanomizu Seminar Co., Ltd.
Tokyo Educational Institute Co., Ltd.
Benesse Corporation China
PT. Benesse Indonesia
Benesse Style Care Co., Ltd.
Benesse Senior Support Co., Ltd.
Benesse Palette Co., Ltd.
Benesse MCM Corp.
Berlitz Corporation
Simul International, Inc.
TMJ, Inc.
Benesse InfoShell Co., Ltd.
Benesse Business-mate, Inc.
Naoshima Cultural Village Co., Ltd.
Benesse Base-Com, Inc.
Benesse Insurance Services, Inc.
Benesse Hong Kong Co., Ltd
17 other subsidiaries
Investor Information
NUMBER OF SHARES ISSUED:
102,453,453 shares
LISTED DATE:
October 26, 1995
SECURITIES LISTINGS
(COMMON STOCK):
Tokyo Stock Exchange,
First Section
TICKER CODE:
9783
UNIT OF TRADING:
100 shares
INDEPENDENT AUDITORS:
Deloitte Touche Tohmatsu LLC
TRANSFER AGENT:
Mitsubishi UFJ Trust and
Banking Corporation
NUMBER OF SHAREHOLDERS:
43,536
As of March 31, 2017
TOP 10 SHAREHOLDERS:
The Master Trust Bank of Japan, Ltd.
Japan Trustee Services Bank, Ltd.
efu Investment Limited
Fukutake Foundation
JP Morgan Chase Bank
The Chugoku Bank, Ltd.
Junko Fukutake
Minamigata Holdings, Inc.
State Street Bank West Client
Nobuko Fukutake
Shares
(Thousand)
Percentage
(%)
10,910
9,646
7,858
5,008
4,781
2,787
2,155
1,836
1,830
1,769
11.34
10.02
8.16
5.20
4.97
2.89
2.24
1.90
1.90
1.83
Notes: 1.The shares held by The Master Trust Bank of Japan, Ltd. include 6,809 thousand Company shares (a 7.07%
investment ratio) contributed by efu Investment Limited as trust assets. efu Investment is an asset management and
investment corporation of which Hideaki Fukutake serves as representative.
The decision-maker with respect to the execution of voting rights’related to the consigned trust assets is efu
Investment Limited.
2.The Company owns 6,265 thousand shares of treasury stock which are not included above because they do not
carry voting rights. These shares of treasury stock are also excluded from the calculation of percentages.
SHAREHOLDINGS BY TYPE OF SHAREHOLDER:
Treasury Stock
Financial Instruments Firms
6.12 %
0.96 %
Other Corporations
9.70 %
Financial Institutions
27.66 %
Individuals and Other
20.82 %
Foreign Companies—Other
34.74 %
Be n e sse Holdin gs, In c.
Fin an cial State me n ts 2 0 1 7
49
Benesse Holdings, Inc.
Corporate Communications &
Investor Relations Department
1-34, Ochiai, Tama-shi,
Tokyo 206-0033, Japan
Phone: +81-42-357-3656
Email: [email protected]
URL: http://www.benesse-hd.co.jp/en/ir/
Disclaimer
This Financial Statements 2017 is intended only to serve as a reference for use in making investment decisions; it is not intended as an inducement either to
purchase or to sell Benesse Holdings’shares. Investors are solely responsible for their investment decisions. Please bear in mind that while Benesse Holdings
has taken great care over the content of the Financial Statements 2017, the Company accepts no responsibility for any errors that the book may contain.
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