Annual Report 2016 Financial Section For the Year ended March 31, 2016

Transcription

1 Annual Report 2016 Financial Section For the Year ended March 31, 2016 TOMY Company, Ltd. Listing: First Section of the Tokyo Stock Exchange Securities identification code: 7867 URL: Representative: H. G. Meij, President and CEO Inquiries: Kazuhiro Kojima, Managing Director, Deputy Head, Corporate Administrations TEL: (from overseas) Table of Contents I. Six-Year Financial Summary... P2 II. Financial Review... P4 III. Consolidated Financial Statements... P9 IV. Notes to Consolidated Financial Statements... P18 V. Business Risks... P36 VI. Anti-Takeover Measures... P38 Disclaimers The data used within this report is compiled from the corporate prospectus and earnings announcements. Future forecasts and estimations regarding management and financial information in connection with TOMY Company, Ltd., that are stated in this Annual Report have been made at our own discretion on the basis of information that we were able to obtain at the time of preparing this document. Please be aware that these forecasts and estimations contain risks and uncertainties, and that actual results may differ as a result of economic circumstances or other changes. This English version is a translation of the original Japanese document and is only for reference purposes. In the case where any differences occur between the English version and the original Japanese version, the Japanese version will prevail. 1

2 I. Six-Year Financial Summary TOMY Company, Ltd. and its consolidated subsidiaries Years ended March 31, 2016, 2015, 2014, 2013, 2012 and 2011 Millions of yen Thousands of U.S. dollars Net sales 163, , , , , ,490 1,447,171 Gross profit 57,339 52,704 53,142 55,160 61,137 52, ,873 Total selling, general and administrative expenses 54,641 50,237 49,807 52,613 50,951 42, ,926 Operating income 2,698 2,466 3,335 2,547 10,186 10,327 23,947 Ordinary income 1,459 2,014 3,300 2,622 9,823 10,143 12,956 Income (loss) before income taxes (6,711) 206 2,607 (4,846) 7,976 7,837 (59,565) Profit (loss) attributable to owners of parent (6,703) (1,817) 232 (7,173) 3,679 8,929 (59,492) (EBITDA) 2 11,692 11,194 11,526 10,087 16,854 14, ,768 R&D Expenses 3,144 2,598 2,498 2,978 2,722 2,205 27,910 Depreciation, amortization of goodwill 8,994 8,728 8,191 7,539 6,667 4,274 79,820 Net cash provided by operating activities Net cash provided by (used in) investing activities Net cash provided by (used in) financing activities 8,675 6,827 12,429 6,701 16,046 8, (3,974) (2,428) (1,015) (3,414) (38,048) 1,169 (35,270) (6,014) (10,022) 1,735 (8,494) 29,718 (6,767) (53,374) (As of March 31) Total assets 145, , , , ,654 94,597 1,292,621 Net assets 37,824 49,650 50,907 49,692 51,805 48, ,683 Interest-bearing debt 71,776 75,337 72,889 66,293 68,815 21, ,991 Per Share Data (Yen) (U.S. dollars) Net income (loss) (78.74) (19.91) 2.47 (76.21) (0.69) Dividend Net assets *1 U.S. dollar amounts have been translated at the rate of =US$1, the approximate current exchange rate at March 31, *2 EBITDA=Operating income+depreciation, amortization of goodwill 2

3 (Six-Year Financial Summary Continue) Major Financial Indices Operating margin (%) Gross profit margin (%) Overseas sales ratio (%) Return on equity (ROE) (%) 3 (15.7) (3.7) 0.5 (14.8) Return on assets (ROA) (%) Equity ratio (%) Debt-to-equity ratio (%) Dividend on equity (DOE) (%) Dividend payout ratio (%) Stock Data Stock price at year-end (Yen) Market capitalization (Millions of yen) 70,539 60,587 44,994 44,996 56,952 59,306 PER (Times) PBR (Times) Number of shares outstanding (Thousand shares) 6 Company Data 85,814 84,856 94,130 94,134 94,136 94,138 Number of subsidiaries Number of employees (Consolidated) 2,042 2,086 2,056 2,171 2,294 2,535 Number of employees (Non-consolidated) Average age of employees (Non-consolidated) Profit attributable to owners of parent Average of total Equity* *Equity=Net assets Subscription rights to shares Non-controlling interests 4 Return on assets=ordinary income Total assets 5 Debt to equity ratio=interest-bearing debt Net assets 6 Treasury stock has been excluded from these figures. 3

4 II. Financial Review 1. Operating Results Highlights of the Fiscal Year Ended March 31, 2016 Net sales rose year on year for the eighth consecutive quarter starting with the first quarter of the fiscal year ended March 31, 2015, increasing by 8.8% year on year. (Net sales excluding the impact of share transfers of TOYS UNION Co., Ltd. and TATSUNOKO PRODUCTION Co., Ltd.). Despite increases in advertising expenses and research and development expenses reflecting efforts to put more strength into marketing and new product development as part of promoting sales expansion, operating income increased by 9.4% year on year, owing to an increase in gross profit resulting from the growth in net sales. In order to accelerate measures aimed at rebuilding the TOMY International Group, whose performance has been struggling, and facilitating its transition to unified management, H.G. Meij was appointed to the concurrent position of CEO of TOMY Holdings, Inc. on September 15, 2015, to put in place an executive power structure for the entire TOMY Group. Also, TOMY International Group took command of the management and control of Europe, North America, and Australia. The system has now been changed, however, to one where the Americas (North America and Latin America), Europe and Oceania are directly managed and controlled by the leadership of the Company's Head Office. Accompanying these changes, the Company has carried out a review of business plans and, in the third quarter of the fiscal year ended March 31, 2016, recorded impairment losses in goodwill and some intangible assets at TOMY International Group as extraordinary losses. As a result, a loss attributable to owners of parent was posted. In the Japanese market, the Company strengthened development of the respective product groups "long standing," "new," "big bets (highest priority products)" and "Toys 4.0." Sales at stores were strong for long-standing products such as TOMICA, PLARAIL, and LICCA dolls as a result of enhancing existing lineups and expanding each product line. While the Company aggressively pursued development of new products, toys for girls such as MOCOMOJI ORINA craft toys were popular, and the Company also launched character-related products such as from the movie STAR WARS: THE FORCE AWAKENS. The Company also strove to expand sales in the toy market for elementary-school-age boys by launching BEY- BLADE BURST in July, which has been designated as a "big bet" and the product line attracted popularity. Moreover, concerning "Toys 4.0" in which digital elements are integrated into an analog toy, the Company launched, as a joint development with NTT DOCOMO, INC, the cloud-type talking robot OHaNAS. In the Overseas market, there were launches of products related to the two DISNEY / PIXAR movies for which the TOMY Group secured toy and other global merchandizing license; namely the movies INSIDE OUT, which has become very popular since its global release, and THE GOOD DINOSAUR, as well as ZOOTOPIA, the latest Disney movie, and the animation MILES FROM TOMORROWLAND, which is currently being broadcast in North America and other areas on DISNEY JUNIOR on DISNEY CHANNEL. Because a business alliance with MARUNOUCHI CAPITAL Co., Ltd. yielded certain results, the capital and business alliance with the said company was dissolved in May In June 2015, to ensure effective governance and realize swift decision making and flexible business execution by clearly separating management monitoring functions from management execution functions, the roles of Kantaro Tomiyama and H.G. Meij were changed to Representative Director & Chairman of the Board, and Representative Director, President & CEO, respectively. In December 2015, as part of business restructuring, the Company sold all its shares of TINKERBELL INC., which designs, manufactures and sells children's apparel and related products. 4

5 Summary of Consolidated Earnings (Millions of yen) Change Change (%) Net sales 149, ,067 13, Operating income 2,466 2, Ordinary income 2,014 1,459 (554) (27.5) Net income (loss) attributable to owners of parent (1,817) (6,703) (4,886) - Consolidated net sales for the fiscal year was 163,067 million (up 8.8% year on year), a solid result that extended the growth streak to eight consecutive quarters starting with the fiscal year ended March 31, (Net sales excluding the impact of share transfers of TOYS UNION Co., Ltd. and TATSUNOKO PRODUC- TION Co., Ltd.) The main factors for the increase in net sales were, in the Japanese market, the growing popularity of long-standing products such as TOMICA, PLARAIL, and LICCA dolls as well as new products such as BAYBLADE BURST, the battle toy for boys, in addition to the launch of products related to the movie STAR WARS: THE FORCE AWAKENS. Also, in the Overseas market, the start of the TOMY International Group's roll-out of products related to the two movies INSIDE OUT and THE GOOD DINOSAUR, for both of which the TOMY Group holds toy and other global merchandizing license, and also to ZOOTO- PIA, the latest Disney movie, and MILES FROM TOMORROWLAND. Operating income was 2,698 million (up 9.4% year on year). This operating income increase of 231 million year on year was due to an increase of gross profit from net sales growth. This was achieved despite increasing personnel expenses, advertising expenses and research and development expenses by 3,836 million, which resulted from a focus on the areas of marketing and new product development to promote sales expansion. Ordinary income was 1,459 million (down 27.5% year on year). The main factor for the decrease was an increase in foreign exchange losses in non-operating expenses. Loss attributable to owners of parent was 6,703 million, compared with a loss attributable to owners of parent of 1,817 million in the previous fiscal year, showing a substantial deterioration. This reflected the recording of 8,522 million in extraordinary losses owing to the recognition of impairment losses in goodwill and some intangible assets at TOMY International Group resulting from a review of business plans in line with a change in the management structure. Overview of Reportable Segments <Overview of operating results by segment> Previously, TOMY International Group took command of the management and control of Europe, North America, and Australia. The system has now been changed, however, to one where the Americas (North America and Latin America), Europe and Oceania are directly managed and controlled by the leadership of the Company's Head Office. Owing to these changes, the segment classification has changed effective the third quarter of the fiscal year ended March 31, The segment information for the fiscal year ended March 31, 2015 in the table below has been restated so that the year-on-year comparisons can be made. For more details, please refer to "Segment Information etc." 5

6 (Millions of yen) Change Change (%) Net sales 149, ,067 13, Japan 102, ,519 5, Americas 29,955 34,622 4, Europe 9,703 10, Oceania 2,305 2, Asia (other than Japan) 53,850 57,288 3, Eliminations and corporate (48,684) (50,513) (1,828) - Operating income (loss) 2,466 2, Japan 6,402 8,293 1, Americas (340) (1,586) (1,245) - Europe (1,077) (2,418) (1,340) - Oceania (72) (104) (31) - Asia (other than Japan) 1, (491) (35.9) Eliminations and corporate (3,814) (2,364) 1,449 - Japan Net sales in Japan for the fiscal year was 108,519 million (up 5.6% year on year), while operating income was 8,293 million (up 29.5% year on year). Regarding the long-standing products such as TOMICA, PLARAIL, and LICCA dolls, the Company, while enhancing existing product lines, also pressed ahead with expansion in each of the product lines. New product lines also sold briskly, including TOMICA SYSTEM, which users can play with by putting together a variety of road parts, PLARAIL SHINKANSEN HENKEI ROBO SHINKALION, a toy made of a robot character who transforms from an existing Shinkansen bullet-train, and KIRA-KAMI LICCA, with which users can enjoy decorating its hair with rhinestones. As part of efforts to enhance brand value, the Company started sales of LICCA STYLISH DOLL COLLECTIONS, a new brand aimed at adults appealing to differing preferences regarding fine details such as the doll's body and hairstyle, planned joint initiatives with businesses, and made proactive use of SNS to disseminate information. The Company also saw sales of trading card game DUEL MASTERS recover dramatically from the previous fiscal year, owing to an increase in additional new user target as a result of revised merchandising and promotion. The Company also launched products related to STAR WARS: THE FORCE AWAKENS, a blockbuster movie that was released in cinemas in December, while in toys for girls, sales were strong among new products that was proactively introduced, including craft toys such as MOCOMOJI ORINA and FELTY SEWING MACHINE. BEYBLADE BURST, was launched for sale in July, and attracted popularity among elementary-school-age boys through over 3,500 in-store events successfully held nationwide, among other initiatives. Concerning "Toys 4.0" in which digital elements are integrated into an analog toy, the Company launched LINEAR LINER, the world's first mass-produced miniature motor vehicle that uses magnetic levitation and runs on magnetic energy, and, as a joint development with NTT DOCOMO, INC, the cloud-type talking robot OHaNAS. There was growth in sales at KIDDY LAND CO., LTD., which operates retail stores with a high level of recognition among foreign tourists, owing to strong consumption by inbound tourists. The PRIPARA amusement machine operated by T-ARTS Company, Ltd., was very popular and the market size was expanded to achieve a number of registered members exceeding 2,400,000 after having started operations only 19 months prior. Despite a decline in overseas exports of TRANSFORMERS-related products in relation to 2014, when they attracted popularity due to the release of a TRANSFORMERS movie, as well as a deficit posted by T- ARTS Company, Ltd.'s subsidiary PENNY COMPANY, LTD. due to inventory management problems, the Company was able to increase net sales year on year owing to strong sales of a broad range of toys in Japan, as described above. The main reason for the increase in operating income was the increase in gross profit resulting from the growth in net sales, which more than offset the increase in advertising expenses and research and development expenses for promoting sales expansion. 6

7 Americas (North America and Latin America) Net sales in Americas (North America and Latin America) was 34,622 million (up 15.6% year on year), while operating loss was 1,586 million, compared with an operating loss of 340 million in the previous fiscal year. The changes occurring in the business environment surrounding the respective businesses caused declines in shipments of agricultural machinery toys and baby products. However this was more than offset by the new introduction of products related to the DISNEY / PIXAR movies INSIDE OUT, which has become very popular since its global release, and THE GOOD DINOSAUR, as well as ZOOTOPIA, the latest Disney movie, and to MILES FROM TOMORROWLAND, an animation currently being broadcast in North America and other areas on DISNEY JUNIOR on DISNEY CHANNEL. Sales were also brisk for POKEMON-related products and other character-related products. The operating loss reflected factors such as a decrease in gross profit owing mainly to a change in the product line up as a result of the increase of character related products and a rise in the cost of procurements. Europe Net sales in Europe was 10,641 million (up 9.7% year on year), while operating loss was 2,418 million, compared with an operating loss of 1,077 million in the previous fiscal year. Amid continuing adverse conditions in the European preschool market, price competition with rival companies saw continued weak sales for baby products such as bath-time toys and for preschool toys such as picture-drawing toys. On the other hand, the increase in net sales was mainly a reflection of the sales received from the release of Disneyrelated products that are in the process of being released on a global scale. The operating loss reflected factors such as a decrease in gross profit owing mainly to a change in the product line up as a result of the increase of character-related products and a rise in the cost of procurements as well as an increase in selling, general and administrative expenses. Oceania Net sales in Oceania was 2,509 million (up 8.8% year on year), while operating loss was 104 million, compared with an operating loss of 72 million in the previous fiscal year. The main reason for the increase in net sales was because sales were received from the release of Disney-related products, despite a decline in sales of baby products. The deterioration in operating loss reflected factors such as a decrease in gross profit owing mainly to a change in the product line up as a result of the increase of character related products and a rise in the cost of procurements, as well as an increase in advertising expenses to expand sales. Asia (other than Japan) Net sales in Asia (other than Japan) was 57,288 million (up 6.4% year on year), while operating income was 878 million (down 35.9%). The Group worked on expanding POA (Point of Availability) in Asia, following Japan's model, by establishing new POA at convenience stores, book stores, and the like. The Group is concentrating its efforts on selling products that have achieved popularity, such as TOMICA. Sales were strong for the plush toy series TSUM TSUM in Disney Stores, for which one can enjoy collecting and piling up the characters, and the DISNEY MOTORS TSUM TSUM, which is based on the motif of TSUM and features the same characters that debuted in the application game for smartphones, LINE: DISNEY TSUM TSUM. In addition, the Group launched TOMICA COOL DRIVE in China and Thailand, as a low-priced TOMICA that are suited to the purchase levels in countries and regions and reflect the tastes of local children. Furthermore, the Group strengthened its marketing in Asia further, drawing public attention by holding experiential events to promote the full-scale launch of PRIPARA in South Korea. The increase in net sales reflected these initiatives. The decrease in operating income was mainly due to an increase in selling, general and administrative expenses, despite the increase in gross profit that resulted from the increase in net sales. Note: As stated in "Segment Information etc.," as a result of a reclassification of segments, the accounting method for amortization of goodwill has changed to a method that allocates amortization of goodwill to each of the reportable segments of "Americas," "Europe," "Oceania," and "Asia (other than Japan)." Outlook for the Fiscal Year Ending March 31, 2017 In the domestic business, the TV animation series for the battle-spinning top toy BAYBLADE BURST, which incorporates an innovative mechanism that has won a strong reputation among elementary-schoolage boys, has been airing since April Furthermore, sales of the trading card game DUEL MASTERS are beginning to pick up again as the result of revising the product specification and marketing. Also, while continuing to expand the existing product lines of long-standing products such as TOMICA, PLARAIL, and LICCA dolls, we will enhance new product lines incorporating new ways to play, such as TOMICA SYSTEM 7

8 and PLARAIL SHINKANSEN HENKEI ROBO SHINKALION, and in LICCA dolls, we will work on branding, such as by using SNS, to expand the target market. In addition, we will develop numerous character goods, such as KAMIWAZA WANDA, a TV animation production that the Company created, and a popular manga series MY HERO ACADEMIA that features in a boys comic book magazine and has been made into an animation. In the overseas business, we will revise the management administration structure of TOMY International Group and rebuild the business by the leadership of the Company's Head Office. While promoting business concentration and selection with an eye to improving profits, we will rebuild the baby products business which acts as a revenue base to improve rate of return in Europe, and aim to achieve business recovery at an early stage. We will also accelerate the introduction of Japanese products in overseas markets, and continue to develop global characters. Regarding the full-year consolidated operating results for the fiscal year ending March 31, 2017, the TOMY Group forecasts increases in both revenues and income, with net sales of 168,000 million (up 3.0%), operating income of 4,000 million (up 48.2%), ordinary income of 3,200 million (up 119.2%), and profit attributable to owners of parent of 1,500 million (loss attributable to owners of parent of 6,703 million for the fiscal year ended March 31, 2016). Financial Position <Assets> At the end of the fiscal year ended March 31, 2016, current assets stood at 88,089 million, down 561 million from the end of the previous fiscal year ended March 31, This is mainly attributable to decreases in cash and deposits and merchandise and finished goods, despite increases in notes and accounts receivable - trade and deferred tax assets. Non-current assets stood at 57,518 million, down 13,408 million from the end of the previous fiscal year. This is mainly attributable to decreases in goodwill and right of using trademark. <Liabilities> At the end of the fiscal year ended March 31, 2016, current liabilities stood at 42,654 million, up 5,082 million from the end of the previous fiscal year. This is mainly attributable to increases in short-term loans payable, accounts payable - other and accrued expenses, despite a decrease in current portion of longterm loans payable. Non-current liabilities stood at 65,173 million, down 7,242 million from the end of the previous fiscal year. This is mainly attributable to decreases in long-term loans payable and deferred tax liabilities. <Net assets> At the end of the fiscal year ended March 31, 2016, total net assets were 37,824 million, down 11,825 million from the end of the previous fiscal year. This is mainly attributable to decreases in retained earnings, foreign currency translation adjustment and deferred gains or losses on hedges. Cash Flows Cash and cash equivalents (hereafter "cash") at the end of the fiscal year ended March 31, 2016 was 39,902 million, a decrease of 2,070 million compared with the end of the previous fiscal year ended March 31, Net cash provided by operating activities was 8,675 million, compared with 6,827 million provided in the previous fiscal year. Cash was mainly provided by a recording of impairment loss of 7,492 million largely resulting from a review of business plans in line with a split of the management structure into Americas (North America and Latin America), Europe and Oceania segments, depreciation of 7,343 million, and amortization of goodwill of 1,743 million, and by an increase in accrued expenses of 2,047 million and an increase in accounts payable - other of 1,094 million, while cash was mainly used for loss before income taxes of 6,711 million, an increase in notes and accounts receivable - trade of 2,583 million and income taxes paid of 1,172 million. Net cash used in investing activities was 3,974 million, compared with 2,428 million used in the previous fiscal year. Cash was mainly used for purchase of property, plant and equipment of 3,080 million and purchase of intangible assets of 991 million. Net cash used in financing activities was 6,014 million, compared with 10,022 million used in the previous fiscal year. Cash was mainly used for repayments of long-term loans payable of 39,501 million, while cash was mainly provided by proceeds from long-term loans payable of 33,750 million. 8

9 III. Consolidated Financial Statements Consolidated Balance Sheets (Millions of yen) As of March 31, 2015 As of March 31, 2016 Assets Current assets Cash and deposits 42,117 40,046 Notes and accounts receivable - trade 18,387 20,167 Merchandise and finished goods 19,647 18,437 Work in process Raw materials and supplies 1,122 1,223 Deferred tax assets 1,276 2,103 Other 5,943 5,841 Allowance for doubtful accounts (177) (170) Total current assets 88,651 88,089 Non-current assets Property, plant and equipment Buildings and structures 13,722 13,608 Accumulated depreciation (8,446) (8,406) Accumulated impairment loss (399) (457) Buildings and structures, net 4,876 4,743 Machinery, equipment and vehicles 2,169 2,229 Accumulated depreciation (1,420) (1,495) Accumulated impairment loss (12) (17) Machinery, equipment and vehicles, net Tools, furniture and fixtures 27,202 26,932 Accumulated depreciation (23,267) (23,068) Accumulated impairment loss (488) (1,108) Tools, furniture and fixtures, net 3,446 2,754 Land 4,336 4,309 Leased assets 6,937 6,250 Accumulated depreciation (3,498) (3,136) Accumulated impairment loss (2) (0) Leased assets, net 3,436 3,113 Construction in progress Total property, plant and equipment 17,106 15,940 Intangible assets Goodwill 28,210 22,017 Right of using trademark 11,427 7,626 Other 8,031 6,908 Total intangible assets 47,669 36,552 Investments and other assets Investment securities 2,913 2,628 Deferred tax assets Other 3,348 2,398 Allowance for doubtful accounts (226) (82) Total investments and other assets 6,151 5,025 Total non-current assets 70,927 57,518 Deferred assets Bond issuance cost Total deferred assets Total assets 159, ,652 9

10 (Millions of yen) As of March 31, 2015 As of March 31, 2016 Liabilities Current liabilities Notes and accounts payable - trade 8,639 8,398 Short-term loans payable 8,614 11,636 Current portion of long-term loans payable 5,829 4,234 Lease obligations 2,194 2,370 Accounts payable - other 4,748 5,677 Accrued expenses 5,772 7,130 Income taxes payable Provision for sales returns Allowance for recall Provision for directors bonuses 25 Provision for contingent loss Other 517 1,646 Total current liabilities 37,571 42,654 Non-current liabilities Bonds payable 10,000 10,000 Long-term loans payable 50,893 45,904 Lease obligations 1, Deferred tax liabilities 3,790 2,520 Deferred tax liabilities for land revaluation Net defined benefit liability 3,561 3,238 Provision for directors retirement benefits Other 2,084 1,949 Total non-current liabilities 72,416 65,173 Total liabilities 109, ,827 Net assets Shareholders equity Capital stock 3,459 3,459 Capital surplus 6,741 6,423 Retained earnings 32,525 24,972 Treasury shares (7,437) (6,814) Total shareholders equity 35,288 28,040 Accumulated other comprehensive income Valuation difference on available-for-sale securities Deferred gains or losses on hedges 513 (698) Revaluation reserve for land Foreign currency translation adjustment 11,948 9,846 Remeasurements of defined benefit plans (641) (928) Total accumulated other comprehensive income 12,902 9,105 Subscription rights to shares Non-controlling interests Total net assets 49,650 37,824 Total liabilities and net assets 159, ,652 10

11 Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Consolidated statements of income) Fiscal year ended March 31, 2015 (Millions of yen) Fiscal year ended March 31, 2016 Net sales 149, ,067 Cost of sales 97, ,727 Gross profit 52,704 57,339 Selling, general and administrative expenses Packing and transportation expenses 2,923 3,167 Warehousing expenses 3,904 3,973 Advertising expenses 8,971 11,632 Directors compensations Salaries, allowances and bonuses 13,867 14,682 Provision for directors bonuses 6 29 Retirement benefit expenses 1, Provision for directors retirement benefits Depreciation 2,173 2,242 Research and development expenses 2,273 2,872 Commission fee 2,930 2,932 Provision of allowance for doubtful accounts Other 11,264 11,575 Total selling, general and administrative expenses 50,237 54,641 Operating income 2,466 2,698 Non-operating income Interest and dividend income Rent income Foreign exchange gains 210 Other Total non-operating income Non-operating expenses Interest expenses Sales discounts Amortization of bond issuance cost Foreign exchange losses 564 Commission fee Other Total non-operating expenses 1,053 1,854 Ordinary income 2,014 1,459 11

12 (Millions of yen) Fiscal year ended March 31, 2015 Fiscal year ended March 31, 2016 Extraordinary income Gain on sales of non-current assets 12 4 Gain on liquidation of subsidiaries and associates 16 Gain on reversal of subscription rights to shares Other 13 Total extraordinary income Extraordinary losses Loss on sales of non-current assets 1 1 Loss on valuation of investment securities 0 Impairment loss 161 7,492 Loss on sales of shares of subsidiaries and associates 323 Business structure improvement expenses 683 Cost for settlement 1,170 Loss from fraud 214 Error correction expense 78 Other Total extraordinary losses 1,852 8,522 Profit (loss) before income taxes 206 (6,711) Income taxes - current 1,120 1,177 Income taxes - deferred 893 (1,227) Total income taxes 2,013 (49) Loss (1,806) (6,662) Profit attributable to non-controlling interests Loss attributable to owners of parent (1,817) (6,703) 12

13 (Consolidated statements of comprehensive income) Fiscal year ended March 31, 2015 (Millions of yen) Fiscal year ended March 31, 2016 Loss (1,806) (6,662) Other comprehensive income Valuation difference on available-for-sale securities 527 (222) Deferred gains or losses on hedges 296 (1,212) Revaluation reserve for land Foreign currency translation adjustment 6,949 (2,101) Remeasurements of defined benefit plans, net of tax (281) (286) Total other comprehensive income 7,544 (3,796) Comprehensive income 5,737 (10,458) Comprehensive income attributable to Comprehensive income attributable to owners of parent 5,726 (10,500) Comprehensive income attributable to non-controlling interests

14 Consolidated Statements of Changes in Net Assets For the year ended March 31, 2015 Balance at beginning of current period Cumulative effects of changes in accounting policies Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares (Millions of yen) Total shareholders equity 3,459 6,743 35,320 (1,323) 44,200 (36) (36) Restated balance 3,459 6,743 35,283 (1,323) 44,163 Changes of items during period Dividends of surplus (941) (941) Loss attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Change in treasury shares of parent arising from transactions with non-controlling shareholders Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (1,817) (1,817) (6,197) (6,197) (2) (2) (2,758) (6,113) (8,874) 3,459 6,741 32,525 (7,437) 35,288 Balance at beginning of current period Cumulative effects of changes in accounting policies Valuation difference on available-for-sale securities Accumulated other comprehensive income Deferred gains or losses on hedges Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Subscription rights to shares Noncontrolling interests Total net assets ,999 (360) 5, ,907 Restated balance ,999 (360) 5, ,871 Changes of items during period Dividends of surplus (941) Loss attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Change in treasury shares of parent arising from transactions with non-controlling shareholders Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (36) (1,817) (6,197) ,949 (281) 7, , ,949 (281) 7, (1,221) ,948 (641) 12, ,

15 For the year ended March 31, 2016 Balance at beginning of current period Cumulative effects of changes in accounting policies Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares (Millions of yen) Total shareholders equity 3,459 6,741 32,525 (7,437) 35,288 Restated balance 3,459 6,741 32,525 (7,437) 35,288 Changes of items during period Dividends of surplus (849) (849) Loss attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Change in treasury shares of parent arising from transactions with non-controlling shareholders Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (6,703) (6,703) (2) (2) (348) (348) (317) (7,553) 622 (7,248) 3,459 6,423 24,972 (6,814) 28,040 Balance at beginning of current period Cumulative effects of changes in accounting policies Valuation difference on available-forsale securities Accumulated other comprehensive income Deferred gains or losses on hedges Revaluation reserve for land Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Subscription rights to shares Noncontrolling interests Total net assets ,948 (641) 12, ,650 Restated balance ,948 (641) 12, ,650 Changes of items during period Dividends of surplus (849) Loss attributable to owners of parent Purchase of treasury shares Disposal of treasury shares Change in treasury shares of parent arising from transactions with non-controlling shareholders Net changes of items other than shareholders equity Total changes of items during period Balance at end of current period (6,703) (2) 655 (348) (222) (1,212) 26 (2,101) (286) (3,796) (360) (420) (4,577) (222) (1,212) 26 (2,101) (286) (3,796) (360) (420) (11,825) 738 (698) 146 9,846 (928) 9, ,824 15

16 Consolidated Statements of Cash Flows (Millions of yen) Fiscal year ended March 31, 2015 Fiscal year ended March 31, 2016 Cash flows from operating activities Profit (loss) before income taxes 206 (6,711) Depreciation 7,106 7,343 Impairment loss 161 7,492 Loss (gain) on valuation of investment securities 0 Amortization of goodwill 1,651 1,743 Gain on reversal of subscription rights to shares (15) (332) Increase (decrease) in allowance for doubtful accounts (2) (133) Increase (decrease) in net defined benefit liability 140 (359) Interest and dividend income (91) (240) Interest expenses Loss (gain) on sales of shares of subsidiaries and associates 323 Business structure improvement expenses 683 Loss (gain) on sales of property, plant and equipment (11) (2) Decrease (increase) in notes and accounts receivable - trade 420 (2,583) Decrease (increase) in inventories (1,828) (232) Decrease (increase) in accounts receivable - other Increase (decrease) in notes and accounts payable - trade (199) 99 Increase (decrease) in accounts payable - other 939 1,094 Increase (decrease) in accrued expenses (889) 2,047 Other, net (70) (494) Subtotal 8,387 10,684 Interest and dividend income received Interest expenses paid (791) (803) Extra retirement payments (270) Income taxes paid (853) (1,172) Net cash provided by (used in) operating activities 6,827 8,675 Cash flows from investing activities Payments into time deposits (230) Purchase of property, plant and equipment (3,564) (3,080) Proceeds from sales of property, plant and equipment 1,977 6 Purchase of intangible assets (938) (991) Proceeds from sales of intangible assets 5 Purchase of investment securities (3) (3) Proceeds from sales of investment securities 10 0 Payments for sales of shares of subsidiaries resulting in change in scope of consolidation (25) Collection of short-term loans receivable 5 2 Other, net Net cash provided by (used in) investing activities (2,428) (3,974) 16

17 (Millions of yen) Fiscal year ended March 31, 2015 Fiscal year ended March 31, 2016 Cash flows from financing activities Net increase (decrease) in short-term loans payable 1,157 3,892 Proceeds from long-term loans payable 17,000 33,750 Repayments of long-term loans payable (5,695) (39,501) Cash dividends paid (944) (851) Payments for retirement by purchase of convertible bonds (7,400) Redemption of convertible bonds (4,900) Repayments of finance lease obligations (3,122) (2,839) Purchase of treasury shares (6,197) (2) Proceeds from disposal of treasury shares Payments from changes in ownership interests in subsidiaries that do not result in change in (808) scope of consolidation Other, net (2) (310) Net cash provided by (used in) financing activities (10,022) (6,014) Effect of exchange rate change on cash and cash equivalents 1,270 (756) Net increase (decrease) in cash and cash equivalents (4,352) (2,070) Cash and cash equivalents at beginning of period 46,325 41,972 Cash and cash equivalents at end of period 41,972 39,902 17

18 IV. Notes to Consolidated Financial Statements TOMY Company, Ltd. and its consolidated subsidiaries For the fiscal year ended March 31, Basis of Presenting the Consolidated Financial Statements The accompanying consolidated financial statements 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 conformity with accounting principles generally accepted in Japan ( Japanese GAAP ), which are different in certain respects as to the application and disclosure requirements of the International Financial Reporting Standards. The financial information set out herein is an English translation of the audited Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Net Assets, Consolidated Statements of Cash Flows and the Financial Notes, which were prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act and related regulations and in conformity with the accounting principles and practices generally accepted in Japan. The consolidated financial statements are stated in Japanese yen, the currency of the country in which TOMY Company, Ltd. (the Company ) is incorporated and operates. 2. Scope of Consolidation The consolidated financial statements as of March 31, 2016 include the accounts of the Company and 34 significant subsidiaries (together, the Group ). (1) Number of consolidated subsidiaries: 34 Names of significant consolidated subsidiaries are as follows: TOMY TEC Co., Ltd.; TAKARA TOMY A.R.T.S; TOMY MARKETING COMPANY; KIDDY LAND Co., Ltd.; TOMY Holdings, Inc.; TOMY International, Inc.; TOMY (Hong Kong) Ltd. Also, four companies that were included in the scope of consolidation in the preceding fiscal year were excluded from the year under review, one due to merger, two due to liquidation and one due to transfer of all stocks. (2) Number of unconsolidated subsidiaries: None (3) Number of affiliates which are accounted for by the equity method: 1 (4) Number of affiliates which are not accounted for by the equity method: 2 3. Significant Accounting Policies (1) Important assets a. Investment securities Held-to-maturity securities: Held-to-maturity securities are stated at amortized cost using the straight-line method. Available-for-sale securities: Securities with quoted market values Securities with quoted market values are stated at fair value on the consolidated closing date. (Net unrealized gains and losses on available-for-sale securities are reported directly to net assets. The costs of these securities are calculated based on the moving-average cost method.) Securities without quoted market values Securities without quoted market values are stated on a cost basis using the moving-average cost method. b. Derivatives Derivative financial instruments are stated at fair value. c. Inventories The Company and domestic consolidated subsidiaries: Inventory is stated principally at cost, cost being determined by the gross average method. (The balance sheets amounts are determined by writing down the book value according to the decrease in profitability.) The inventory of certain subsidiaries, however, is stated at cost, cost being determined by the retail inven- 18

19 tory method. (The balance sheets amounts are determined by writing down the book value according to the decrease in profitability.) Foreign consolidated subsidiaries: The inventory of foreign consolidated subsidiaries is stated at the lower of cost or market using the first-in, first-out method. (2) Depreciation a. Property, plant and equipment (excluding lease assets) The Company and domestic consolidated subsidiaries: Depreciation of property, plant and equipment (excluding lease assets) is calculated by the decliningbalance method. (However, depreciation of buildings (excluding structures), acquired on or after April 1, 1998, is calculated by the straight-line method.) Estimated useful lives of principal assets are presented as follows: Buildings... 2 to 65 years Tools, furniture and fixtures... 2 to 20 years Foreign consolidated subsidiaries: Depreciation of property, plant and equipment is calculated by the straight-line method based on the estimated useful lives of each asset. b. Intangible assets (excluding lease assets) Amortization of intangible assets (excluding lease assets) is calculated by the straight-line method. In addition, amortization of internal-use software is calculated by the straight-line method over the useful life of the asset estimated by the Company (within five years). c. Lease assets Depreciation of lease assets is calculated using the straight-line method with the lease periods as their useful lives and no residual value. (3) Deferred assets Bond issuance cost Amortization of bond issuance cost is calculated by the straight-line method based on the bond redemption period. (4) Provisions a. Allowance for doubtful accounts Allowance for doubtful accounts is provided for monetary receivables as of the end of the consolidated fiscal year on the historical bad-debts rate for normal receivables, and the amount deemed necessary to cover individual accounts estimated to be uncollectible. b. Provision for sales returns Consolidated subsidiaries provide for losses due to sales returns after the end of the consolidated fiscal year to an estimated amount deemed necessary based on past sales return data. c. Allowance for voluntary recall The Company provides for an allowance for the voluntary recall of products to an amount that is reasonably estimated and deemed as necessary as of the end of the consolidated fiscal year. d. Provision for directors bonuses The Company and domestic consolidated subsidiaries: The Company and domestic consolidated subsidiaries provide for directors bonus payments at an estimated amount to be paid for during the consolidated fiscal year. e. Provision for directors retirement benefits Consolidated subsidiaries provide for accrued directors retirement benefits at an estimated amount deemed necessary as of the end of the consolidated fiscal year according to internal regulations. 19

20 f. Provision for contingent loss When settling funds burden over unfair transactions between trading partners, in order to prepare for possible future contingent losses, at the end of the current consolidated fiscal year the Company posted the estimated amount deemed necessary for loss burden. (5) Accounting methods for retirement benefits a. Attribution period method for estimated retirement benefits Regarding the calculation of retirement benefit obligation, the straight-line attribution method is used for attributing estimated retirement benefits to the period until the end of the consolidated fiscal year under review. b. Actuarial gain or loss and method for payment of prior service cost Prior service cost are paid according to the straight-line method for a specific number of years (5 years) within the average remaining years of service for the employee at the time of occurrence. Regarding actuarial gain or loss, mainly the straight-line attribution method is used to pay a proportional amount from the consolidated fiscal year following the occurrence of gain/loss, for a specific number of years (5 years) within the average remaining years of service for the employee during the consolidated fiscal years in which the gain/loss occurred. (6) Translation of foreign currencies into Japanese yen All monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing as of the consolidated account settlement date. The resulting transaction gains or losses are included in the determination of net income. Assets and liabilities of foreign and other subsidiaries are translated into Japanese yen based on the exchange rates prevailing as of the consolidated account settlement date. Revenue and expenses of foreign and other subsidiaries are translated into Japanese yen based on the average exchanges rates over the term. Differences arising from such translations are included in both foreign currency translation adjustment and minority interests in the net assets section of the balance sheets. (7) Hedge a. Methods of hedge accounting In principle, deferred hedge accounting has been adopted. Interest rate swap transactions that qualify for special treatment are accounted for by the special accounting method. b. Hedging instruments and hedged items Hedging instruments: - Forward exchange contracts - Currency options - Currency swaps - Interest rate swaps Hedging items: - Monetary assets and liabilities denominated in foreign currencies - Forecasted transactions denominated in foreign currencies - Variable interest rate debt c. Hedging policy Hedging with a certain range is undertaken to mitigate foreign exchange and interest rate volatility risks. d. Methods of assessing hedging effectiveness Steps are taken to assess the hedging effectiveness of hedging instruments and hedged items. However, details of hedging effectiveness are omitted in those instances where there is a high correlation between hedging instruments and related hedged items with respect to important terms and conditions including principal, interest rate and term. (8) Goodwill Goodwill and negative goodwill are amortized using the straight-line method over a period of five to 20 years. For immaterial amounts, goodwill and negative goodwill are charged in full to income at the time they occur. 20

21 (9) Cash and cash equivalents Cash and cash equivalents in the consolidated statements of cash flows include cash on hand, readily available deposits and short-term investments with original maturities not exceeding three months, which are highly liquid and virtually risk-free with respect to change of value. (10) Other Accounting methods for consumption and other taxes Consumption taxes are excluded from items in the consolidated financial statements. (Changes of accounting policies) (Application of the Accounting Standard for Business Combinations) The Company has applied the Accounting Standard for Business Combinations (ASBJ Statement No. 21, September 13, 2013), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement No. 22, September 13, 2013), the Accounting Standard for Business Divestitures (ASBJ Statement No. 7, September 13, 2013), and other standards from the fiscal year ended March 31, As a result, the accounting method has been changed to record the difference caused by changes in equity in subsidiaries the Company continues to control as capital surplus, and to record acquisition-related costs for the fiscal year in which the costs were incurred. Furthermore, for business combinations carried out on or after the beginning of the fiscal year, the accounting method was changed to reflect the reviewed acquisition cost allocation resulting from the finalization of the provisional accounting treatment in the consolidated financial statements of the period in which the business combination occurs. In addition, the Company has changed its presentation of net income and related items, and renamed minority interests as non-controlling interests. The consolidated financial statements for the year ended March 31, 2015, have been reclassified to reflect this change. Application of the Accounting Standard for Business Combinations and other standards is in accordance with the transitional measures provided for in Article 58-2 (4) of the Accounting Standard for Business Combinations, Article 44-5 (4) of the Accounting Standard for Consolidated Financial Statements, and Article 57-4 (4) of the Accounting Standard for Business Divestitures. The Company will continue to apply the standards from the beginning of the fiscal year. As a result, operating income and ordinary income for the year ended March 31, 2016, each increased by 14 million, and the loss before income taxes decreased by 14 million. Furthermore, the capital surplus as of March 31, 2016, was down by 348 million. In the consolidated statements of cash flows for the fiscal year under review, cash flows for the purchase or sale of shares of subsidiaries without changing the scope of consolidation are listed under cash flows from financing activities. Expenses related to the purchase of shares of subsidiaries changing the scope of consolidation and expenses related to the sale of shares of subsidiaries without changing the scope of consolidation are listed under cash flows from operating activities. In the consolidated statement of changes in equity for the fiscal year under review, the capital surplus as of March 31, 2016, was down by 348 million. Furthermore, net assets per share were down 3.89 in the year under review, and the loss per share was down by Notes to Consolidated Balance Sheets (1) Land revaluation In accordance with the Law Concerning Land Revaluation (Law No. 34 promulgated on March 31, 1998 and last revised on March 31, 2001) land used for business activities was revalued on March 31, Pursuant to the partial revision of the Law Concerning Land Revaluation (Law No. 24 promulgated on March 31, 1999), the income tax effect of the difference between the book value and the revalued amount has been presented under liabilities as deferred tax liabilities for land revaluation, and the amount of deduction has been presented under net assets as revaluation reserve for land. Revaluation method Under Article 2, Paragraph 4 of the Ordinance Implementing the Law Concerning Land Revaluation (Article 119 of the Cabinet Order promulgated on March 31, 1998), the land price for revaluation was determined based on the official notice prices assessed and published by the Chief Officer of the National Tax Administration, as provided for by Article 16 of the Law Concerning Public Notification of Land Prices. The appropriate adjustments were made to reflect these official notice prices. Date of revaluation...march 31,