V. Consolidated Financial Statements and Key Notes on Financial Statements (1) Consolidated Balance Sheet

Transcription

1 V. Consolidated Financial Statements and Key Notes on Financial Statements (1) Consolidated Balance Sheet Assets Current assets Cash and deposits 40,402,122 46,115,241 Notes and accounts receivable - trade 2,846,261 4,158,981 Merchandise 9,010 11,657 Raw materials and supplies 22,049 24,811 Deferred tax assets 165, ,364 Other *1 9,935,449 *1 2,945,029 Allowance for doubtful accounts (381) (43,138) Total current assets 53,380,477 53,440,948 Fixed assets Property and equipment Buildings and structures 149,642, ,799,987 Accumulated depreciation (6,490,826) (11,892,482) Buildings and structures, net *1 143,151,519 *1 205,907,504 Buildings and structures in trust 124,058, ,852,010 Accumulated depreciation (26,718,340) (30,435,810) Buildings and structures in trust, net *1 97,340,438 *1 94,416,200 Machinery, equipment, and vehicles 324, ,358 Accumulated depreciation (178,329) (214,700) Machinery, equipment, and vehicles, net *1 146,314 *1 188,658 Machinery, equipment, and vehicles in trust 550, ,359 Accumulated depreciation (410,209) (436,934) Machinery, equipment, and vehicles in trust, net *1 140,013 *1 96,424 Land *1 109,167,755 *1 151,815,158 Golf courses 1,489,299 1,489,299 Land in trust *1 197,305,862 *1 196,290,813 Construction in progress 2,989,191 6,661,885 Other 2,481,638 3,377,562 Accumulated depreciation (1,890,246) (2,295,926) Other, net *1 591,391 *1 1,081,635 Total property and equipment 552,321, ,947,580 Intangible assets *1 10,865,648 *1 10,007,321 Investments and other assets Investment securities 15,049,270 12,981,398 Deferred tax assets 64,299 19,743 Other 2,194,324 4,288,350 Allowance for doubtful accounts (8,960) (8,480) Total investments and other assets 17,298,934 17,281,012 Total fixed assets 580,486, ,235,915 Total assets 633,866, ,676,864 13

2 Liabilities Current liabilities Notes and accounts payable trade 3,321 3,483 Short-term loans payable 21,295,090 5,150,000 Current portion of long-term loans payable *1 85,986,209 *1 61,397,831 Income taxes payable 529,916 1,485,668 Deferred tax liabilities 545, ,581 Provision for employees bonuses 155, ,297 Provision for point card certificates 3,948 39,835 Provision for shareholder benefits 140, ,323 Other 5,434,426 6,981,058 Total current liabilities 114,094,711 76,119,078 Non-current liabilities Corporate bonds 55,000, ,000,000 Long-term loans payable *1 368,302,321 *1 450,333,024 Deferred tax liabilities 2,587,138 2,844,133 Provision for directors and audit & supervisory board members retirement benefits 461, ,594 Provision for environmental measures 183, ,994 Provision for retirement benefits 657, ,508 Security and guarantee deposits received from tenants 16,093,376 17,190,007 Other Total non-current liabilities 443,285, ,654,762 Total liabilities 557,380, ,773,841 Net assets Shareholders equity Capital 20,516,413 26,163,498 Capital surplus 20,431,819 26,078,904 Retained earnings 28,430,601 35,195,146 Treasury (783) (783) Total shareholders equity 69,378,051 87,436,765 Accumulated other comprehensive income Unrealized gains (losses) on investment securities 3,775,998 3,538,046 Deferred gains (losses) on hedges 110,583 1,182,761 Foreign currency translation adjustments 2,993,887 (5,468,739) Total accumulated other comprehensive income 6,880,469 (747,931) Non-controlling interests 228, ,188 Total net assets 76,486,765 86,903,022 Total liabilities and net assets 633,866, ,676,864 14

3 (2) Consolidated Statements of Income and Comprehensive Income Consolidated Statement of Income for the Fiscal Years Ended and 2017 Revenue from operations 39,586,548 52,462,057 Cost of revenue from operations 21,092,970 28,429,023 Gross profit 18,493,577 24,033,033 Selling, general and administrative expenses Sales commissions 8,633 7,780 Advertising expenses 146,691 94,269 Directors compensation 610, ,890 Salaries and allowances 1,619,949 1,974,305 Provision for bonuses 131, ,584 Retirement benefit expenses 63,259 77,258 Provision for directors and audit & supervisory board members retirement benefits 26,407 - Provision for shareholder benefits 140, ,939 Commission fee 548, ,252 Other 1,394,865 1,974,768 Total selling, general and administrative expenses 4,691,389 6,462,048 Operating income 13,802,187 17,570,985 Non-operating income Interest income 141, ,074 Dividend income 343, ,203 Other 52,889 32,622 Total non-operating income 537, ,900 Non-operating expenses Interest expenses 3,451,619 6,692,686 Other 390, ,386 Total non-operating expenses 3,842,608 7,032,073 Ordinary income 10,497,129 11,500,813 Extraordinary income Gain on sales of investment securities 91, ,660 Gain on sales of property and equipment - *1 560,087 Total extraordinary income 91,896 1,138,748 Extraordinary loss Loss on sales of investment securities - 76,248 Total extraordinary loss - 76,248 Income before income taxes 10,589,025 12,563,312 Income taxes current 3,519,759 4,233,909 Income taxes deferred 443,703 (163,310) Total income taxes 3,963,463 4,070,598 Net income 6,625,562 8,492,714 Net income attributable to non-controlling interests 3,686 4,406 Net income attributable to owners of the parent company 6,621,876 8,488,308 15

4 Consolidated Statement of Comprehensive Income for the Fiscal Years Ended and 2017 Net income 6,625,562 8,492,714 Other comprehensive income Change in unrealized gains (losses) on investment securities 882,588 (237,951) Change in deferred gains (losses) on hedges (26,185) 1,072,177 Change in foreign currency translation adjustments 1,537,550 (8,086,037) Total other comprehensive income 2,393,953 (7,251,812) Comprehensive income 9,019,515 1,240,902 Total comprehensive income attributable to: Owners of the parent company 9,018,311 1,248,581 Non-controlling interests 1,203 (7,679) 16

5 (3) Consolidated Statement of Changes in Net Assets (April 1, 2016 to ) Shareholders' equity Capital Capital surplus Retained earnings Treasury Total shareholders' equity Balance as of April 1, 2016 Cumulative effect of changes in accounting policy Balance as of April 1, 2016 reflecting changes in accounting policy Changes of items during the period Issuance of common 13,522,664 13,438,070 22,738,694 (562) 49,698, , ,141 13,522,664 13,438,070 23,334,835 (562) 50,295,008 6,993,748 6,993,748 13,987,497 Dividends paid (1,526,109) (1,526,109) Net income attributable to owners of the parent company Purchase of treasury Net changes of items other than shareholders equity Total changes of items during the period Balance as of March 31, ,621,876 6,621,876 (220) (220) 6,993,748 6,993,748 5,095,766 (220) 19,083,043 20,516,413 20,431,819 28,430,601 (783) 69,378,051 Accumulated other comprehensive income Balance as of April 1, 2016 Cumulative effect of changes in accounting policy Balance as of April 1, 2016 reflecting changes in accounting policy Changes of items during the period Issuance of common Unrealized gains (losses) on investment securities Deferred gains (losses) on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Non-controlling interests Total net assets 2,893, ,769 1,475,495 4,505, ,430 54,432,972 (21,693) (21,693) 1, ,869 2,893, ,769 1,453,801 4,483, ,852 55,008,841 13,987,497 Dividends paid (1,526,109) Net income attributable to owners of the parent company Purchase of treasury Net changes of items other than shareholders equity Total changes of items during the period Balance as of March 31, ,621,876 (220) 882,588 (26,185) 1,540,085 2,396,488 (1,607) 2,394, ,588 (26,185) 1,540,085 2,396,488 (1,607) 21,477,924 3,775, ,583 2,993,887 6,880, ,244 76,486,765 17

6 (April 1, 2017 to ) Shareholders' equity Capital Capital surplus Retained earnings Treasury Total shareholders' equity Balance as of April 1, 2017 Changes of items during the period Issuance of common 20,516,413 20,431,819 28,430,601 (783) 69,378,051 5,647,085 5,647,085 11,294,170 Dividends paid (2,091,631) (2,091,631) Net income attributable to owners of the parent company Purchase of treasury Effect of change in accounting periods of consolidated subsidiaries Net changes of items other than shareholders equity Total changes of items during the period Balance as of March 31, ,488,308 8,488, , ,867 5,647,085 5,647,085 6,764,544-18,058,714 26,163,498 26,078,904 35,195,146 (783) 87,436,765 Accumulated other comprehensive income Balance as of April 1, 2017 Changes of items during the period Issuance of common Unrealized gains (losses) on investment securities Deferred gains (losses) on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Non-controlling interests Total net assets 3,775, ,583 2,993,887 6,880, ,244 76,486,765 11,294,170 Dividends paid (2,091,631) Net income attributable to owners of the parent company Purchase of treasury Effect of change in accounting periods of consolidated subsidiaries Net changes of items other than shareholders equity Total changes of items during the period Balance as of March 31, ,488, ,867 (237,951) 1,072,177 (8,462,626) (7,628,400) (14,056) (7,642,457) (237,951) 1,072,177 (8,462,626) (7,628,400) (14,056) 10,416,256 3,538,046 1,182,761 (5,468,739) (747,931) 214,188 86,903,022 18

7 (4) Consolidated Statement of Cash Flows Cash flows from operating activities Income before income taxes 10,589,025 12,563,312 Depreciation and amortization 8,207,551 10,776,921 Increase (decrease) in provision for employees bonuses 6,734 41,328 Increase (decrease) in provision for retirement benefits 11,179 65,403 Increase (decrease) in provision for directors and audit & supervisory board members retirement benefits (7,796) (83,186) Increase (decrease) in allowance for doubtful accounts (461) 44,244 Increase (decrease) in provision for environmental measures (10,593) 2,846 Increase (decrease) in provision for point card certificates (244) 35,886 Increase (decrease) in provision for shareholders benefits 85, ,726 Interest and dividend income (484,659) (929,277) Interest expenses 3,451,619 6,692,686 (Gain) loss on sales of investment securities (91,896) (502,411) (Gain) loss on sales of property and equipment - (560,087) (Increase) decrease in notes and accounts receivable-trade (515,812) (710,815) (Increase) decrease in inventories (1,921) (5,410) Increase (decrease) in notes and accounts payable-trade (236) 161 Increase (decrease) in accrued expenses 142, ,494 Increase (decrease) in security and guarantee deposits received from tenants 932,495 1,140,011 Other (8,771,960) 7,095,056 Subtotal 13,541,929 35,964,892 Interest and dividends income received 455, ,964 Interest expenses paid (3,285,650) (6,401,244) Income taxes paid (5,704,328) (3,266,038) Net cash provided by operating activities 5,006,978 27,238,574 Cash flows from investing activities Purchase of property and equipment (131,013,659) (135,746,347) Proceeds from sales of property and equipment - 5,385,769 Purchase of intangible assets (222,834) (36,638) Proceeds from sales of intangible assets - 312,254 Proceeds from sales of investment securities 613,036 2,229,070 Proceeds from collection of loans receivable 400 1,316 Payments for loans receivable (992) (500) Other (27,733) (29,216) Net cash used in investing activities (130,651,784) (127,884,291) 19

8 Cash flows from financing activities Net increase (decrease) in short-term loans payable (32,838,650) (16,145,090) Proceeds from long-term loans payable 185,296, ,180,232 Repayment of long-term loans payable (70,382,712) (80,594,365) Proceeds from issuance of corporate bonds 49,743,930 48,747,139 Proceeds from issuance of common 13,908,934 11,224,248 Dividends paid (1,525,344) (2,090,051) Dividends paid to non-controlling interests (2,455) (4,862) Purchase of treasury (220) - Repayments of lease obligations (3,687) - Other (303) (0) Net cash provided by financing activities 144,196, ,317,249 Effect of exchange rate change on cash and cash equivalents 2,203,707 (2,121,492) Net increase (decrease) in cash and cash equivalents 20,755,085 5,550,040 Cash and cash equivalents at the beginning of the period 19,647,036 40,402,122 Increase (decrease) in cash and cash equivalents due to change in accounting periods of consolidated subsidiaries - 163,078 Cash and cash equivalents at the end of the period 40,402,122 46,115,241 20

9 (5) Notes on Financial Statements (Notes on Going-concern Assumption) (Basis of Preparation) 1. Scope of consolidation All subsidiaries are subject to consolidation Number of consolidated subsidiaries 21 Names of principal subsidiaries Listed in II. Information on Group Companies and thus omitted Two newly established companies, including UNIZO Real Estate DC Nine, LLC, were included in the scope of consolidation from the fiscal year ended. 2. Fiscal year end of consolidated subsidiaries The fiscal year-end of consolidated subsidiaries is March 31. Overseas properties of the UNIZO Group have increased in number, and their rentable area has become equivalent to that of Japanese properties. The accounting data for the consolidated subsidiaries is consolidated at group level as a basic rule, and the impact from the difference in accounting period between the subsidiaries and the Japan units has grown large. In step with the launch of the Third Medium-Term Management plan GLOBAL PROMINENCE 2019, Aiming for Global Growth and Advancement (announced on April 28, 2017), to reflect economic reality of the UNIZO Group in the financial statements even more accurately, the end of the accounting period of UNIZO Holdings U.S., LLC, UNIZO Real Estate One, LLC and UNIZO Real Estate Two, LLC., as well as 13 other consolidated subsidiaries has been changed to March 31 of each year, effective from the consolidated accounting period for the fiscal year ended. In step with this change in accounting period, earnings from March 1, 2017 (one month) for the subsidiaries will go directly to retained earnings. 3. Accounting policies (1) Standards and methods for valuation of assets 1) Securities a) Investment securities Securities with readily determinable market price Stated at fair value based on the market price on the balance sheet date (valuation gains and losses go directly to net assets; cost basis is determined using the moving-average method). Securities without readily determinable market price Stated at cost using the moving-average method 2) Inventories Inventories held for sale in the ordinary course of business Valuation method is on a cost basis (before adjusting book values to net selling values where those values have declined below cost). a) Merchandise and finished goods Primarily at cost by the periodic average method b) Raw materials and supplies At cost by the last purchase price method 21

10 (2) Depreciation and amortization method for non-current assets 1) Property and equipment other than leased assets Declining-balance method Buildings (excluding building fixtures) acquired on or after April 1, 1998 and building fixtures and structures acquired on or after April 1, 2016 are depreciated using the straight-line method. The estimated useful lives are as follows: Buildings and structures 2-50 years Machinery, equipment and vehicles 2-17 years Tools, furniture and fixtures 2-20 years Depreciable assets with an acquisition cost of 100,000 or more and less than 200,000 are depreciated by the straight-line method over three years. 2) Intangible assets other than leased assets Straight-line method Software for internal use is amortized using the straight-line method over the period of expected use by the Group (five years). 3) Long-term prepaid expenses Amortized by the straight-line method (3) Standards of accounting for provisions 1) Allowance for doubtful accounts Allowance for doubtful accounts is provided at an amount determined based on the historical experience of bad debt with respect to ordinary receivables and an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers that are experiencing financial difficulties. 2) Provision for employees bonuses Provision for employees bonuses is provided based on the expected cost of bonuses at the end of the fiscal year. 3) Provision for point card certificates Provision for point card certificates is provided at the end of the fiscal year to cover the amount of estimated future disbursements arising from usage of accumulated points on cards earned by customers. 4) Provision for shareholder benefits Provision for shareholder benefits is provided to cover the amount of estimated future disbursements for the shareholder benefit plan. 5) Provision for directors and audit & supervisory board members retirement benefits Provision for directors and audit & supervisory board members retirement benefits is provided based on the future expected amount of final payments of retirement benefits to Directors and Audit & Supervisory Board Members as resolved at the 39th Annual General Meeting of Shareholders held on June 17, ) Provision for environmental measures Provision for environmental measures is provided to cover the amount of estimated future disbursements arising from the disposal of polychlorinated biphenyl (PCB) at certain consolidated subsidiaries. (4) Accounting treatment for retirement benefits The Group applies the simplified method for the calculation of liability for retirement benefits and retirement benefit expenses. Under the simplified method, the Group provides the amount that is required if all employees retire voluntarily at the end of the consolidated fiscal year as retirement benefit obligations. (5) Standards for translation of significant foreign currency-denominated assets or liabilities to Japanese yen Assets and liabilities of foreign subsidiaries are translated into Japanese yen based on the spot exchange rate as of the fiscal year-end date, and on the average exchange rate for the period for revenue and expenses, and differences in translations are recorded in foreign currency translation adjustments in net assets. 22

11 (6) Hedge accounting 1) Hedge accounting methods The Group adopts deferral hedge accounting for hedge transactions. For interest rate swaps that meet requirements for exceptional accounting treatment, exceptional accounting treatment is applied. 2) Hedging methods and items subject to hedging a) Hedging instrument Interest rate swaps Item subject to hedging Long-term loans payable b) Hedging instrument Forward foreign exchange contracts, Long-term loans payable Item subject to hedging Investments in capital of subsidiaries 3) Hedging policy The Group utilizes derivative transactions and foreign currency-denominated long-term loans to hedge against market interest rate fluctuations and foreign currency fluctuations accompanying foreign currency-denominated transactions. These transactions are conducted against items subject to hedging and not used for speculative purposes. 4) Method of evaluating hedging effectiveness Cumulative amounts of fluctuations in cash flows of hedged items, or market price fluctuations of these items, and cumulative amounts of fluctuations in cash flows of hedging instruments, or market price fluctuations of these instruments, are compared on a semi-annual basis, and using fluctuations of these indicators as a basis, evaluation of hedging effectiveness is made. For items to which significant conditions regarding notional amounts for hedging instruments and items subject to hedging are identical, and it can be assumed that at the time of hedging and continuing thereafter that fluctuations in cash flow will be completely offset, evaluation of hedging effectiveness is omitted. (7) Scope of cash and cash equivalents for purpose of preparing consolidated statement of cash flows All highly liquid investments that are readily convertible to cash and with insignificant risk of market value fluctuation, with a maturity of three months or less at the time of purchase. (8) Other significant matters for the basis of preparation of consolidated financial statements 1) Accounting treatment of consumption taxes Tax exclusion method is applied. 2) Application of consolidated tax payment system Consolidated tax payment system is applied. (Changes in Accounting Policy) Change in Revenue Recognition Standards From the consolidated accounting period ended, the UNIZO Group has changed revenue recognition standards for rents received from tenants. The standards have been changed from revenue recognized based on an accrual basis as per written in contracts to recognition where the total amount to be recognized over the expected contract period, including effects of rent escalation clauses, is normalized over the expected contract period, including periods of free rent. Expected contract period is that for which the contract is expected to continue to be in place (i.e. excluding periods for which chance of termination is considered high or there is material uncertainty concerning contract continuity). Overseas properties of the Group have increased in number, and their rentable area has become equivalent to that of Japanese properties. Thus overseas properties have greatly increased in terms of impact on financial results, and periods of free rent cause large fluctuations in earnings. In step with the announcement of the Third Medium-Term Management plan GLOBAL PROMINENCE 2019, Aiming for Global Growth and Advancement (announced on April 28, 2017), to reflect economic reality of the UNIZO Group in the financial statements even more accurately, revenue recognition standards have been changed. This change in accounting policy is being applied retroactively, and financial statement information presented in this report for the fiscal year ended March 31, 2017 reflects this retroactive revision. As a result, compared to before the retroactive revision, revenue from operations for the fiscal year ended March 31, 2017 increased by 680,053 thousand, and operating income, ordinary income, and income before income taxes increased by 674,015 thousand each. Also, the cumulative effect of the change in accounting policy on the beginning balance for the book value of net assets for the fiscal year ended resulted in an increase in retained earnings of 596,141 thousand for the balance as of April 1,

12 (Consolidated Balance Sheet) *1 Assets pledged as collateral and secured liabilities Assets pledged as collateral and the corresponding secured liabilities are as follows 1) Assets pledged as collateral Other current assets 157,011 62,169 Buildings and structures 21,266,540 57,427,242 Buildings and structures in trust 84,573,440 75,203,192 Machinery, equipment and vehicles 74,607 59,263 Machinery, equipment and vehicles in trust 69,456 40,845 Land 19,678,779 39,183,116 Land in trust 165,718, ,060,192 Other (Tools, furniture and fixtures) 323, ,963 Intangible assets (Leasehold interest in land) 9,762,960 8,316,854 Total 301,624, ,547,840 Additionally, investments in capital of subsidiaries of the Company, which are eliminated in consolidation ( 55,139,986 thousand and 79,497,397 thousand as of and 2017, respectively) have been pledged as collateral. 2) Secured liabilities Current portion of long-term loans payable 44,551,325 30,082,813 Long-term loans payable 205,654, ,341,312 Total 250,205, ,424,125 *2 Contingent liabilities Liabilities the Group guarantees are as follows Guarantees on employees mortgages (Consolidated Statement of Income) *1 Components of Gain on sales of property and equipment are as follows 8,415 7,126 Buildings and structures in trust - 238,649 Land in trust - 773,184 Intangible assets - (451,745) Total - 560,087 24

13 (Consolidated Statement of Comprehensive Income) *Reclassification adjustments and tax effects related to Other comprehensive income Change in unrealized gains (losses) on investment securities Change in unrealized gains for the period 1,364, ,851 Reclassification adjustments (91,896) (577,063) Change in unrealized gains before tax effects 1,272,217 (341,212) Tax effects (389,629) 103,260 Change in unrealized gains (losses) on investment securities 882,588 (237,951) Change in deferred gains (losses) on hedges Change in deferred gains for the period 28,133 1,581,198 Reclassification adjustments - - Change in deferred gains before tax effects 28,133 1,581,198 Tax effects (54,319) (509,021) Change in deferred gains (losses) on hedges (26,185) 1,072,177 Change in foreign currency translation adjustments Change in adjustments for the period 1,537,550 (8,086,037) Total other comprehensive income 2,393,953 (7,251,812) (Consolidated Statement of Changes in Net Assets) 1. Number of shares issued Balance at beginning Type of shares Increase Decrease Balance at end of period of period Common 19,833,000 3,937,700-23,770,700 (Reason for change) Issuance of new shares Increase due to public offering completed in July 2016 Increase due to third party allotment completed in July ,450,000 shares 487,700 shares 2. Treasury shares Type of shares Balance at beginning Balance at end of Increase Decrease of period period Common (Reason for change) Increase due to purchase of less-than-trading-unit shares 39 shares 3. Share warrants 25

14 4. Dividends 1) Dividends paid to shareholders Resolution Type of shares June 17, 2016 General Meeting of Shareholders November 1, 2016 Board of Directors Common Common Total amount per share (Yen) Record date Effective date 694, March 31, 2016 June 20, , September 30, 2016 November 30, ) Dividends with record date during fiscal year but with effective date subsequent to fiscal year Resolution Type of shares Source of funds Total amount per share (Yen) Record date June 23, 2017 General Meeting of Shareholders Common Retained earnings 950, March 31, 2017 Effective date June 26, Number of shares issued Type of shares Balance at beginning Balance at end of Increase Decrease of period period Common 23,770,700 4,750,000-28,520,700 (Reason for change) Issuance of new shares Increase due to public offering completed in July ,140,000 shares Increase due to third party allotment completed in July ,000 shares 2. Treasury shares Balance at beginning Balance at end of Type of shares Increase Decrease of period period Common Share warrants 4. Dividends 1) Dividends paid to shareholders Resolution Type of shares June 23, 2017 General Meeting of Shareholders October 26, 2017 Board of Directors Common Common Total amount per share (Yen) Record date Effective date 950, June 26, ,140, September 30, 2017 November 29, ) Dividends with record date during fiscal year but with effective date subsequent to fiscal year Resolution Type of shares Source of funds Total amount per share (Yen) Record date June 20, 2018 General Meeting of Shareholders Common Retained earnings 1,140, March 31, 2017 Effective date June 21,

15 (Consolidated Statement of Cash Flows) *Reconciliation between end-of-period balance of cash and cash equivalents and cash and deposits on the consolidated balance sheet Cash and deposits 40,402,122 46,115,241 Term deposits with maturity greater than three months - - Cash and cash equivalents 40,402,122 46,115,241 (Investment Securities) 1. Available-for-sale-securities Category Carrying value Cost Difference Securities whose carrying value exceeds their cost Equity securities 10,450,691 5,064,794 5,385,897 Subtotal 10,450,691 5,064,794 5,385,897 Securities whose cost exceeds their carrying value Equity securities 18,320 20,560 (2,240) Subtotal 18,320 20,560 (2,240) Total 10,469,011 5,085,354 5,383,657 (Note) Unlisted equity securities (carrying value 4,580,259 thousand) are not included in the table above since the fair values of such investments are deemed extremely difficult to determine. Category Carrying value Cost Difference Securities whose carrying value exceeds their cost Equity securities 8,704,231 3,661,787 5,042,444 Subtotal 8,704,231 3,661,787 5,042,444 Securities whose cost exceeds their carrying value Equity securities Subtotal Total 8,704,231 3,661,787 5,042,444 (Note) Unlisted equity securities (carrying value 4,277,166 thousand) are not included in the table above since the fair values of such investments are deemed extremely difficult to determine. 2. Available-for-sale-securities sold during the consolidated fiscal year Category Sales proceeds Aggregate gain Aggregate loss Equity securities 613,036 91,896 - Total 613,036 91,896 - Category Sales proceeds Aggregate gain Aggregate loss Equity securities 2,229, ,660 76,248 Total 2,229, ,660 76,248 27

16 3. Investment securities for which impairment losses were recognized (Tax Effect Accounting) 1. Main sources of deferred tax assets and deferred tax liabilities (Deferred tax assets) Provision for retirement benefits Provision for directors' and audit & supervisory board members retirement benefits 208, , , ,024 Enterprise tax payable 104, ,949 Provision for employees' bonuses 49,809 63,245 Allowance for doubtful accounts 2,869 15,591 Loss on valuation of shares of subsidiaries 78,535 78,535 Unrealized losses on investment securities 155, ,767 Provision for point card certificates 1,374 13,782 Provision for environmental measures 56,079 56,079 Other 335, ,490 Subtotal deferred tax assets 1,135,851 1,540,928 Valuation allowance (431,612) (439,797) Total deferred tax assets 704,238 1,101,130 (Deferred tax liabilities) Unrealized gains on investment securities (1,607,658) (1,504,397) Gains on valuation of investment securities (686,232) (615,961) Other (1,312,451) (2,170,378) Total deferred tax liabilities (3,606,342) (4,290,736) Net deferred tax liabilities (2,902,103) (3,189,606) 2. Main sources of difference between statutory income tax rate and effective income tax rate after tax effect accounting Statutory income tax rate 30.9% 30.9% (adjustments) Non-deductible expenses for tax purpose such as entertainment 0.8% 0.8% expenses Non-taxable income such as dividends received (0.3%) (0.3%) Per capita inhabitance tax 0.3% 0.2% Changes in valuation allowances 0.0% (0.2%) Other 5.7% 1.0% Effective income tax rate after tax effect accounting 37.4% 32.4% 28

17 (Investment and Rental Properties) Certain subsidiaries of the Company own commercial properties, including office buildings for rent primarily in the Tokyo Metropolitan area. Operating income from investment and rental properties for the fiscal year ended totaled 12,797,334 thousand (revenue from these investment and rental properties is included in revenue from operations, and expenses from these investment and rental properties is included in cost of revenue from operations or selling, general and administrative expenses). Operating income from investment and rental properties for the fiscal year ended totaled 17,418,594 thousand (revenue from these investment and rental properties is included in revenue from operations, and expenses from these investment and rental properties is included in cost of revenue from operations or selling, general and administrative expenses). Gain on sales of fixed assets from these investment and rental properties, which is included in extraordinary income, amounted to 560,087 thousand. The carrying values, net changes of the carrying values and appraised values of these investment and rental properties are as follows. Carrying value Beginning of the period 357,860, ,645,512 Net changes 121,785,033 83,844,935 End of the period 479,645, ,490,448 Appraised value end of the period 586,447, ,259,927 Notes: 1. The carrying values on the consolidated balance sheets include acquisition costs of investment and rental properties, net of accumulated depreciation, and the balance of leasehold interest in land. 2. For the fiscal year ended, net changes primarily present acquisition of office buildings for rent of 130,389,360 thousand. For the fiscal year ended, net changes primarily present acquisition of office buildings for rent of 108,348,520 thousand. 3. Appraised values as of and 2018 are based on appraisals undertaken for all subject properties by external real estate appraisers (Japan Real Estate Institute, DAIWA REAL ESTATE APPRAISAL CO., LTD., Kudan Urban Appraisal Co., Ltd., Sanyu Appraisal Corporation, TOKYO KANTEI Co., Ltd., The Tanizawa Sōgō Appraisal Co., Ltd., Chuo Real Estate Appraisal Co., Ltd., Morii Appraisal & Investment Consulting Inc., Rich Appraisal Institute co., Ltd., BBG, Inc., Cushman & Wakefield, Inc., and CBRE, Inc.). 29

18 (Segment and Other Information) [Segment Information] 1. Overview of reportable segments The UNIZO Group s reportable segments are components of the Group about which separate financial information is available and whose operating results are regularly evaluated by the Board of Directors to make decisions about how resources are allocated among the Group and assess its performance. In the Real Estate Business, the Group owns, leases and manages office buildings and other assets, and provides real estate agency services. In the Hotel Business, the Group owns and operates affordable urban hotels. 2. Calculation method of revenue from operations, income/loss, assets, liabilities and other amounts by reportable Segment The accounting policies of each reportable segment are consistent with those noted in Basis of Preparation except for measurement of inventories. Inventories in segment information are stated at cost, before adjusting book values to net selling values where those values have declined to below cost. Segment income is measured on a basis of operating income. Intersegment sales and transfers are accounted for based on prevailing market prices. As detailed in (Changes in Accounting Policy), Change in Revenue Recognition Standards, changes in revenue recognition standards have been retroactively applied. As a result, revenue from operations for the Real Estate Business segment for the fiscal year ended increased by 681,510 thousand and segment income increased by 675,473 thousand. Revenue from operations for the Hotel Business segment decreased by 1,457 thousand and segment income decreased by 1,457 thousand. 30

19 3. Information regarding revenue from operations, income/loss, assets, liabilities and other amounts by reportable segment (April 1, 2016 to ) Reportable segment Real Estate Business Hotel Business Total Total Adjustments (Note 1) Consolidated (Note 2) Revenue from operations Revenue from external customers 30,178,816 9,407,731 39,586,548 39,586,548-39,586,548 Intersegment sales and transfers 179,727 10, , ,937 (189,937) - Total 30,358,544 9,417,941 39,776,486 39,776,486 (189,937) 39,586,548 Segment income 11,754,959 2,380,042 14,135,002 14,135,002 (332,814) 13,802,187 Segment assets 534,501,886 82,576, ,078, ,078,714 16,788, ,866,848 Other items Depreciation and amortization 6,714,207 1,423,162 8,137,370 8,137,370 70,180 8,207,551 Increase in property and equipment and intangible assets 131,145,446 12,955, ,100, ,100,707 48, ,149,328 Notes: 1. Details of Adjustments are as follows: i) Included in the segment income adjustment of (332,814) thousand is an intersegment elimination of 2,441,229 thousand and corporate expenses of (2,774,044) thousand not allocated to each reportable segment. Corporate expenses mainly comprise general administrative expenses not allocated to reportable segments. ii) Included in the segment assets adjustment of 16,788,133 thousand is an elimination of (293,138,256) thousand relating to the parent s intercompany receivables, an elimination of (10,292,480) thousand relating to the parent s investment in capital of subsidiaries and corporate assets of 320,218,870 thousand not allocated to each reportable segment. 2. Segment income data is adjusted and agrees to the operating income presented on the consolidated financial statements. (April 1, 2017 to ) Reportable segment Real Estate Hotel Business Business Total Total Adjustments (Note 1) Consolidated (Note 2) Revenue from operations Revenue from external customers 42,261,383 10,200,674 52,462,057 52,462,057-52,462,057 Intersegment sales and transfers 197,276 18, , ,941 (215,941) - Total 42,458,659 10,219,339 52,677,999 52,677,999 (215,941) 52,462,057 Segment income 16,565,630 1,828,377 18,394,007 18,394,007 (823,022) 17,570,985 Segment assets 618,633, ,099, ,733, ,733,728 19,943, ,676,864 Other items Depreciation and amortization 9,059,016 1,650,107 10,709,124 10,709,124 67,797 10,776,921 Increase in property and equipment and intangible assets 114,396,238 22,722, ,119, ,119,060 44, ,163,448 Notes: 1. Details of Adjustments are as follows: i) Included in the segment income adjustment of (823,022) thousand is an intersegment elimination of 2,506,062 thousand and corporate expenses of (3,329,085) thousand not allocated to each reportable segment. Corporate expenses mainly comprise general administrative expenses not allocated to reportable segments. ii) Included in the segment assets adjustment of 19,943,136 thousand is an elimination of (348,582,673) thousand relating to the parent s intercompany receivables, an elimination of (10,292,480) thousand relating to the parent s investment in capital of subsidiaries and corporate assets of 378,818,289 thousand not allocated to each reportable segment. 2. Segment income data is adjusted and agrees to the operating income presented on the consolidated financial statements. 31

20 [Related Information] (April 1, 2016 to ) 1. Information by product and service Information is omitted as the same information is presented in Segment Information. 2. Information by geographic location (1) Revenue from operations Japan United States Total 28,645,245 10,941,303 39,586,548 (2) Property and equipment Japan United States Total 353,084, ,236, ,321, Information by major customer, as there were no customers accounting for more than 10% of the revenue from operations presented in Consolidated Statements of Income. (April 1, 2017 to ) 1. Information by product and service Information is omitted as the same information is presented in Segment Information. 2. Information by geographic location (1) Revenue from operations Japan United States Total 30,647,901 21,814,156 52,462,057 (2) Property and equipment Japan United States Total 373,076, ,871, ,947, Information by major customer, as there were no customers accounting for more than 10% of the revenue from operations presented in Consolidated Statements of Income. [Impairment loss on fixed assets by reportable segment] (April 1, 2016 to ) (April 1, 2017 to ) [Amortization amount and unamortized balance of goodwill by reportable segment] (April 1, 2016 to ) (April 1, 2017 to ) 32

21 [Gain from negative goodwill by reportable segment) (April 1, 2016 to ) (April 1, 2017 to ) (Related Party Transactions) (April 1, 2016 to ) (April 1, 2017 to ) 33

22 (Per share information) Item Net assets per share 3, , Net income per share (Note) 1. Diluted net income per share in not presented as the Company has not issued securities with dilutive effect 2. As detailed in (Changes in Accounting Policy), Change in Revenue Recognition Standards, changes in revenue recognition standards implemented in the consolidated accounting period ended have been retroactively applied, and consolidated financial statements for the consolidated accounting period ended presented in this report reflect these accounting policy changes. As a result, compared to before the revision, net assets per share for the consolidated accounting period ended March 31, 2017 increased by 40.21, and net income per share increased by Net assets per share and basis for calculation, and net income per share and basis for calculation, are as follows 1. Net assets per share Item Total net assets on balance sheet 76,486,765 86,903,022 deducted from Total net assets on balance sheet 228, ,188 (Non-controlling interests, Thousands of yen) (228,244) (214,188) Total net assets attributable to shareholders of common 76,258,521 86,688,834 Main sources of difference between Total net assets on balance sheet and net assets as of end of consolidated account period attributable to shareholders of common used as basis for calculation of net assets per share - - Total share outstanding (Shares) 23,770,700 28,520,700 Treasury shares (Shares) Number of shares used as basis for calculation of net assets per share (Shares) 23,770,399 28,520, Net income per share Item Net income attributable to owners of the parent company on Consolidated Statement of Income not attributable to shareholders of common Net income attributable to owners of the parent company attributable to shareholders of common Average number of shares outstanding during period (Shares) 6,621,876 8,488, ,621,876 8,488,308 22,658,078 27,098,207 (Significant subsequent events) (April 1, 2017 to ) 34