Independent Auditor’s Report
To the Board of Directors of JALUX Inc.:
We have audited the accompanying consolidated financial statements of JALUX Inc. and its consolidated subsidiaries,
which comprise the consolidated balance sheet as at March 31, 2017, and the consolidated statement of income, statementof comprehensive income, statement of changes in net assets and statement of cash flows for the year then ended, and asummary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether
due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we comply withethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments,
we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements
in order to design audit procedures that are appropriate in the circumstances, while the objective of the financial statement
audit is not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates madeby management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of JALUX
Inc. and its consolidated subsidiaries as at March 31, 2017, and their financial performance and cash flows for the year
then ended in accordance with accounting principles generally accepted in Japan.
Other Matter
The consolidated financial statements of JALUX Inc. and its consolidated subsidiaries as at and for the year ended March
31, 2016 were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements
on June 17, 2016.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,2017 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 3 to the consolidated financial
statements.

KPMG AZSA LLC
July 20, 2017
Tokyo, Japan

JALUX Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31,2017
2016
(Thousands of yen)

AssetsCurrent assets:
Cash and time deposits (Notes 17 and 21)
Trade notes and accounts receivable (Notes 17and 23)
Inventories (Note 4)
Deferred income taxes (Note 13)
Accounts receivable - other
Other
Allowance for doubtful accounts
Total current assets
Property and equipment (Notes 5, 12, 15 and 20):
Buildings and structures
Machinery and vehicles
Flight equipment
Land
Construction in process
Other
Property and equipment, net
Intangible assets:
Software (Note 12)
Other
Total intangible assets
Investments and other assets:
Investment securities (Notes 6, 17 and 18)
Long-term loans receivable
Guarantee deposits (Note 17)
Deferred income taxes (Note 13)
Asset for retirement benefits (Note 8)
Other
Allowance for doubtful accounts
Total investment and other assets
Deferred charges:
Business commencement expenses
Total deferred charges
Total assets

2017(Thousands of
U.S. dollars)(Note 3)

¥ 6,258,404
13,604,220
11,071,622
417,6142,062,307
1,570,583(27,039)
34,957,714¥ 7,285,729
13,247,697
11,102,103
472,947
2,598,839
1,216,589(44,983)
35,878,922$ 55,879
121,466
98,854
3,729
18,413
14,023(241)
312,122

1,533,345
999,208

13,691
8,922

374,637
833,247
474,972
4,215,411

1,584,195
74,48659,740872,92169,780367,325
3,028,450

365,223
34,574
399,797

303,406
33,743
337,149

3,261
309
3,570

2,048,238
171,095
1,914,373
41,02763,443
149,751(25,936)4,361,993

1,937,389
180,553
1,856,994
55,167
20,584
124,417(13,636)
4,161,470

18,288
1,528
17,093
366
566
1,337
(232)
38,946–

16,172
16,172¥43,422,165

–

–

–

¥43,934,917

–

3,345
7,440
4,241
37,638–$392,2762

March 31,
2017
2016
(Thousands of yen)

Liabilities and net assets
Current liabilities:
Trade notes and accounts payable (Notes 17 and 23):
Short-term borrowings and Current portion of long-term
debt (Notes 7 and 17)
Accrued income taxes (Note 13)
Accrued expenses (Note 17)
Other
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 7 and 17)
Liability for retirement benefits (Note 8)
Deferred tax liabilities (Note 13)
Other
Total long-term liabilities

2017(Thousands of
U.S. dollars)(Note 3)

¥ 9,746,049¥10,051,744$ 87,018

3,503,153
745,123
3,011,991
2,493,668
19,499,985

2,405,852
832,188
3,298,178
4,326,455
20,914,420

31,278
6,653
26,893
22,265
174,107

2,159,701
35,429144,376
650,230
2,989,737

2,233,882
134,965
132,405
580,055
3,081,307

19,283
316
1,289
5,806
26,6942,558,550
688,723
17,130,525(134,674)
20,243,124

2,558,550
711,250
15,065,042(140,124)
18,194,717

22,844
6,149
152,951(1,202)
180,7423,314(8,007)30

22,908(183,270)(60,886)(217,933)(113,073)(42,553)(97,261)(260,896)

205(1,636)(544)(1,946)

–

4,231

–

1,420,003
21,445,194¥43,934,917

1,488,384
19,426,437¥43,422,165

12,679191,475$392,276

Commitments and contingent liabilities (Note 7)
Net assets (Note 9):
Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Common stock in treasury
Total shareholders’ equity
Accumulated other comprehensive income:Net unrealized gain (loss) on other securities, net oftaxes (Note 18)
Net unrealized gain (loss) on hedging instruments, netof taxes (Note 19)
Translation adjustments
Retirement benefits liability adjustments (Note 8)
Total accumulated other comprehensive income
Subscription rights to shares (Note 10)
Non-controlling interests
Total net assets
Total liabilities and net assets

The accompanying notes are an integral part of these statements.
3

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Income
Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)(Note 3)Operating revenues (Notes 22 and 23)
Operating expenses (Notes 22 and 23):
Cost of sales
Selling, general and administrative expenses
Operating income
Non-operating income (expenses):
Interest income
Interest expense
Equity in earnings of affiliates
Other, net (Note 11)
Profit before income taxes
Income taxes (Note 13):
Current
DeferredProfit attributable to:Non-controlling interests
Owners of the company¥143,217,913¥141,502,643$1,278,731

119,847,979
19,313,420
139,161,400
4,056,513

118,620,892
19,092,167
137,713,059
3,789,583

1,070,071
172,441
1,242,513
36,21913,376(66,367)
204,299(52,915)
98,393
4,154,906

11,225(53,977)
166,253(237,343)(113,841)
3,675,741

119
(593)
1,824
(472)
879
37,0971,365,416(6,432)
1,358,984
2,795,921
223,371¥ 2,572,550

1,348,151(72,543)
1,275,607
2,400,133
385,449¥ 2,014,684

12,191(57)
12,13424,964
1,994$ 22,969

The accompanying notes are an integral part of these statements.

4

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Comprehensive Income
March 31,2017
2016
(Thousands of yen)

ProfitOther comprehensive income:Net unrealized gain (loss) on other securities, net oftaxes
Net unrealized gain (loss) on hedging instruments,
net of taxes
Translation adjustments
Retirement benefits liability adjustment, net of tax
Share of other comprehensive income of companies
accounted for by the equity method
Total other comprehensive income (Note 14)
Comprehensive income
Comprehensive income attributable to:
Owners of the company
Non-controlling interests

2017(Thousands of
U.S. dollars)(Note 3)

¥2,795,921¥2,400,133$24,964

9,986(15,575)89

135,982(121,379)
36,375(191,169)
50,817(122,607)

1,214(1,084)
325(26,365)
34,600¥2,830,521(55,725)(334,260)¥2,065,872

(235)
309
$25,273¥2,615,513¥ 215,008¥1,677,894¥ 387,978$23,353$ 1,920

5

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

Commonstock intreasury

Balance at March 31,2015
Cash dividends(¥25 per share)
Net income for the year
ended March 31, 2016
Purchase of common
stock in treasury
Other

12,775,000

2,558,550

711,250

13,366,520(139,647)

Balance at March 31, 2016
Cash dividends(¥40 per share)
Net income for the year
ended March 31, 2017
Purchase of common
stock in treasury
Disposal of common
stock in treasury
Capital increase of
consolidated
subsidiaries
Other

12,775,000

Balance at March 31, 2017

12,775,000

Net unrealized Net unrealized
gain (loss) on gain (loss) onotherhedgingsecurities,
instruments,
net of taxes
net of taxes(Note 18)
(Note 19)
10,614(Thousands of yen)
78,096

Translation
adjustments

Retirement
benefits
liability
adjustments(Note 8)Subscription
rights toshares(Note 10)

Noncontrollinginterests

Total
net assets(38,162)

25,3454,231

1,029,756

17,606,555(316,163)(316,163)

2,014,684

2,014,684(476)

2,558,550

711,250

15,065,042(140,124)(18,621)(191,169)(4,390)(122,607)(8,007)(113,073)(42,553)(97,261)

4,231

458,628(476)
121,838

1,488,384

19,426,437(505,853)(505,853)

2,572,550

2,572,550-(1,213)

5,450

4,237

(22,526)

Number ofshares ofcommonstock¥2,558,550

Commonstock¥688,723

Capitalsurplus(22,526)¥17,130,525

Retainedearnings¥(134,674)

Commonstock intreasury

11,322

135,982(140,717)

36,375¥ 3,314¥ 22,908¥ (183,270)¥ (60,886)

Translation
adjustments

Retirement
benefits
liability
adjustments(Note 8)$(868)Net unrealized
Net unrealized gain (loss) on
gain (loss) on
hedgingother securities, instruments,
net of taxes
net of taxes(Note 18)
(Note 19)

(4,231)(68,380)(29,649)-¥1,420,003¥21,445,194

Subscription
rights toshares(Note 10)

Noncontrollinginterests

Total
net assets$ 38$ 13,289$173,450(Thousands of U.S. dollars) (Note 3)
Balance at March 31, 2016

12,775,000$22,844

Cash dividends($0.35 per share)
Net income for the year
ended March 31, 2017
Purchase of common
stock in treasury
Disposal of common
stock in treasury
Capital increase of
consolidated
subsidiaries
Other
Balance at March 31, 2017

$6,350$134,509$(1,251)$ 71$ 1,010$(380)(4,517)(4,517)22,96922,969
-

(11)

49

38

(201)

12,775,000$22,844$6,149(201)$152,951$ (1,202)

101

1,214

(1,256)

325

(38)

(611)

(265)

$ 30

$ 205

$ (1,636)$ (544)-$12,679$191,475

The accompanying notes are an integral part of these statements.

6

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)(Note 3)Operating activities
Profit before income taxes
Depreciation and amortization(Decrease) in provision for allowance for doubtful accounts(Increase) in asset for retirement benefits
Increase in liability for retirement benefits
Interest and dividend income
Interest expense
Exchange (gain) loss, net
Equity in earnings of affiliates
Loss on sales of, and loss on disposal of property and equipment
Impairment losses on fixed assets(Gain) loss on sales of investments in securities
Loss on revaluation of investments in securities(Increase) in notes and accounts receivable(Increase) decrease in inventories
Decrease in notes and accounts payable
Decrease in advance payment
Increase (decrease) in advance received(Increase) decrease in bad debts on receivables
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Proceeds from sales of property and equipment
Purchases of intangible assets
Proceeds from purchase of shares of subsidiaries resulting in change inscope of consolidation
Purchases of investments in securities
Proceeds from sales and redemption of investments in securities
Long-term loans receivable madeCollection of long-term loans
Increase in deposits for business space
Decrease in deposits for business space
Other, net
Net cash (used in) investing activities
Financing activities
Increase (decrease) in short-term borrowings, net
Proceeds from long-term loans
Repayment of long-term loans
Proceeds from share issuance to non-controlling shareholders
Dividends paid to stockholders
Dividends paid to non-controlling shareholders
Payments from changes in ownership interests in subsidiaries that do not
result in change in scope of consolidation
Increase (decrease) in commercial papers
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year (Note 21)¥ 4,154,906
560,039(5,221)(20,207)
2,938(39,020)
66,367(55,067)(204,299)
22,851
3,076
500
23,417(550,906)
1,274,701(191,215)(232,714)(232,925)(13,007)(148,674)
4,415,537
84,051(61,876)(1,531,433)
2,906,279¥ 3,675,741
436,105(46,145)(10,625)
69,606(52,258)
53,97729,518(166,253)
65,111
145,172(9,639)–(300,116)(98,633)(383,448)(76,173)
259,867
58,081
536,736
4,186,626
41,074(50,670)(1,076,115)
3,100,914$ 37,097
5,000
(47)
(180)
26
(348)
593
(492)
(1,824)
204
27
4
209
(4,919)11,381(1,707)(2,078)(2,080)(116)(1,327)39,424750(552)(13,674)
25,949(2,845,300)
56,438(152,288)(942,351)
2,933(136,653)(25,404)504(1,360)–(6,339)300(1,308)
10,320(102,244)
176,014(71,641)(2,936,049)

242,589(283,041)
119,845(131,073)
11,753(282,565)
122,130(58,785)(1,335,219)

–
(57)
3
(12)
92
(913)
1,572
(640)
(26,215)

1,405,623
644,635(1,187,110)
15,000(507,238)(180,000)(313,520)
730,186(1,002,047)
103,355(317,444)(180,000)

12,5505,756(10,599)
134(4,529)(1,607)(140,721)(999,963)
1,495(948,279)–
999,963(30,955)(10,462)(1,256)(8,928)13(8,467)(59,634)(1,037,684)
7,251,560¥ 6,213,875

39,1991,794,432
5,457,127¥ 7,251,560(532)(9,265)64,746$ 55,481

The accompanying notes are an integral part of these statements.
7

JALUX Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2017

1.

Summary of Significant Accounting Policiesa.

Basis of preparation
JALUX Inc. (the “Company”) and its consolidated domestic subsidiaries maintain theiraccounting records and prepare their financial statements in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been compiled from theconsolidated financial statements filed with the Financial Services Agency as requiredby the Financial Instruments and Exchange Law of Japan, certain modifications andinclusion of certain additional financial information are made for the convenience ofreaders outside Japan.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts of lessthan one thousand yen have been omitted. As a result, the totals shown in theaccompanying consolidated financial statements (both in yen and U.S. dollars) do notnecessarily agree with the sum of the individual amounts.

b.

Principles of consolidation and accounting for investments in unconsolidated subsidiaries
and affiliates
The consolidated financial statements include the accounts of the Company andsignificant companies controlled directly or indirectly by the Company. Companies overwhich the Company exercises significant influence in terms of their operating andfinancial policies have been included in the consolidated financial statements on an
equity basis.
The balance sheet date of sixteen of the consolidated subsidiaries is December 31. Any
significant differences in intercompany accounts and transactions arising from intervening
intercompany transactions during the period from January 1 through March 31 havebeen adjusted, if necessary, for the respective years.
All significant intercompany accounts and transactions and unrealized gain or loss onintercompany accounts and transactions have been eliminated.

c.

Securities
Securities except for investments in subsidiaries and affiliates are classified as trading
securities, held-to-maturity securities or other securities. Trading securities are carriedat fair value. Held-to-maturity securities are carried at amortized cost. Marketablesecurities classified as other securities are carried at fair value with any unrealized gainor loss reported as a separate component of net assets, net of taxes. Non-marketablesecurities classified as other securities are carried at cost. Cost of securities sold isdetermined principally by the average method.
8

1.

Summary of Significant Accounting Policies (continued)d.

Derivatives
Derivatives are stated at fair value.
Gain or loss on derivatives designated as hedging instruments is deferred until the loss
or gain on the underlying hedged items is recognized. Foreign receivables and payables
are translated at the applicable forward foreign exchange rates if certain conditions are
met. In addition, the related interest differential paid or received under interest-rate
swaps utilized as hedging instruments is recognized over the terms of the swap agreements
as an adjustment of interest expense on the hedged items if certain conditions are met.

e.

Inventories
Inventories are stated at the lower of cost or net selling value, cost being determined asfollows:f.

Merchandise:
The Company
Subsidiaries––

by the moving average method
principally by the first-in, first-out method

Real estate for sale–by the specific identification method
Leasing real estates for sale are depreciated by applying
the method of tangible fixed assets.

Property and equipment
For the Company and the consolidated domestic subsidiaries, depreciation of the shops
in airports and the buildings for rent is computed principally by the straight-line methodand depreciation of other property and equipment is computed principally by the
declining-balance method. The consolidated foreign subsidiaries principally adopt thestraight-line method. The estimated useful lives of the assets are as follows:
Buildings and structures:
Machinery and vehicles:g.

8 to 47 years
4 to 10 years

Software
Computer software intended for internal use is amortized by the straight-line method
based on their estimated useful life.

h.

Leased assets
Leased assets arising from transactions under finance lease agreements which do nottransfer the ownership to the lessee is depreciated to residual value of zero by thestraight-line method over the terms of the agreements.

i.

Deferred charges
Business commencement expenses are amortized using the straight-line method over 5
years or less.

9

1.

Summary of Significant Accounting Policies (continued)j.

Allowance for doubtful accounts
The allowance for doubtful accounts on specific receivables is provided at the estimateof the unrecoverable amounts. The allowance for doubtful accounts on other receivables
is provided based on the historical rate of losses on receivables.

k.

Retirement benefit
The retirement benefit obligation for employees is attributed to each period by thebenefit formula method over the estimated years of service of the eligible employees.
Actuarial gains and losses are amortized by the straight-line method beginning thefollowing fiscal year over a period of 5 years.
Certain consolidated subsidiaries have adopted the simplified method in the calculationof their retirement benefit obligation and retirement benefit expense.

l.

Goodwill
Goodwill has been amortized by the straight-line method over 5 years.

m. Cash equivalents
The Company and its consolidated subsidiaries define cash equivalents as highly liquid,
short-term investments with an original maturity of three months or less.
n.

Income tax
The provision for income taxes is based on income for financial statement purposes.
Income taxes comprise corporation tax, enterprise tax and prefectural and municipal
inhabitants’ taxes. The assets and liabilities approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.

2.

Accounting Changes

Due to amendments to the Japanese Corporation Tax Act, the Company and its domestic
subsidiaries adopted “Practical Solution on a change in depreciation method due to Tax
Reform 2016” (Practice Issue Task Force No.32, June 17, 2016 (hereinafter, “PITF No.32”))
from the current fiscal year and changed the depreciation method for buildings, facilities
attached to buildings and structures, which were acquired since April 1, 2016, from thedeclining balance method to the straight line method.
The effects of these accounting changes on the consolidated financial statements for the fiscal
year ended March 31, 2017 were immaterial.
(Additional information)
The Company and its domestic subsidiaries adopted “Revised Implementation Guidanceon Recoverability of Deferred Tax Assets” (the Accounting Standards Board of Japan
Guidance No. 26, March 28, 2016 (hereinafter, “Guidance No.26”)) from the current fiscal
10year.
3.

U.S. Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of¥112.00 = U.S.$1.00, the approximate exchange rate prevailing on March 31, 2017, has beenused. The inclusion of such amounts is not intended to imply that yen have been or could bereadily converted, realized or settled in U.S. dollars at that or any other rate.
4.

Inventories

Inventories at March 31, 2017 and 2016 were as follows:
March 31,2017
2016
(Thousands of yen)
Merchandise and finished products
Real estate held for sale
Raw materials and supplies¥9,459,804
1,518,910
92,908¥11,071,622¥10,324,077
698,431
79,593¥11,102,103

2017(Thousands of
U.S. dollars)$84,462
13,561
829$98,854

Land, buildings and structures and other property and equipment of ¥1,290,535 thousand($11,522 thousand) were transferred to real estate held for sale at March 31, 2017 because
the Company changed the purpose of holding those assets.
Revaluation loss included in “Cost of sales” amounted to ¥44,455 thousand ($396 thousand)and ¥25,534 thousand for the years ended March 31, 2017 and 2016.
5.

Property and Equipment

The following table sets forth the acquisition costs and related accumulated depreciation ofcertain property and equipment at March 31, 2017 and 2016:
March 31,2017
2016
(Thousands of yen)
Buildings and structures
Machinery and vehicles
Flight equipment
Other
Accumulated depreciation¥ 3,277,280
1,322,536
1,671,799
6,271,615(3,264,089)¥ 3,007,525¥ 3,331,252
342,601
104,672
1,560,773
5,339,299(3,253,551)¥ 2,085,748

2017(Thousands of
U.S. dollars)$ 29,261
11,80814,92655,996(29,143)$ 26,853

11

6.

Investments and Other Assets

Investments in unconsolidated subsidiaries and affiliates included in “Investment securities”
as of March 31, 2017 and 2016 amounted to ¥1,590,126 thousand ($14,197 thousand) and¥1,475,789 thousand, respectively.
7.

Short-Term Borrowings and Long-Term Debt

Short-term borrowings and long-term debt at March 31, 2017 and 2016 consisted of thefollowing:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Short-term Borrowings:
Short-term Borrowings without collateral,with weighted-average interest rate of
1.56%
Long-term debt:
Loans without collateral, due 2017 to 2023,
with weighted-average interest rate of
1.26%
Lease obligations
Less current portion¥2,525,014¥2,525,014¥1,249,532¥1,249,532$22,545$22,545¥3,137,840
140,116
3,277,956(1,018,545)¥2,259 ,411

¥3,390,202
97,464
3,487,666(1,183,494)¥2,304,172$28,016
1,251
29,267(9,094)$20,173

The aggregate annual maturities of long-term debt subsequent to March 31, 2017 aresummarized as follows:Year ending March 31,
2018
2019
2020
2021
2022
2023 and thereafter(Thousands ofyen)(Thousands of
U.S. dollars)¥ 978,139
728,139771,875
409,275
209,275
41,136¥3,137,840$ 8,733
6,501
6,891
3,654
1,868
367
$28,01612

7.

Short-Term Borrowings and Long-Term Debt (continued)

The aggregate annual maturities of lease obligations subsequent to March 31, 2017 aresummarized as follows:Year ending March 31,
2018
2019
2020
2021
2022
2023 and thereafter(Thousands ofyen)(Thousands of
U.S. dollars)¥40,406
37,92627,454
21,26910,376
2,685¥140,116

$360
338
245
189
92
23
$1,251The Company has entered into loan commitment agreements with banks in order to source
funds for its operations smoothly.
The outstanding balance of loan commitment as of March 31, 2017 and 2016 were as follows:
March 31,2017
2016
(Thousands of yen)
Total commitment available
Less amount utilized
Balance available

8.

¥3,000,000¥3,000,000¥4,000,000¥4,000,000

2017(Thousands of
U.S. dollars)$26,785$26,785

Retirement Benefit Plan

The Company and certain consolidated subsidiaries have either funded or unfunded defined
benefit plans and defined contribution plans. The Company and certain consolidated
subsidiaries have defined benefit plans covering substantially all employees who are entitledto lump-sum or annuity payments, the amounts of which are determined by reference to theirbasic rates of pay, length of service, and the conditions under which termination occur.
Certain consolidated subsidiaries have adopted the simplified method in the calculation of
their retirement benefit obligation. One of consolidated subsidiaries revised its retirement
benefit plan from lump-sum payment to defined contribution plan in March, 2016.
Plan excluding that calculated by simplified method

13

8.

Retirement Benefit Plan (continued)

The changes in the retirement benefit obligation during the years ended March 31, 2017 and2016 are as follows:
March 31,2017
2016
(Thousands of yen)
Balance at the beginning of the year
Service cost
Interest cost
Adjustment for actuarial assumptions
Retirement benefit paid
Balance at the end of the year

¥2,368,683
116,369
19,423
14,573(132,243)¥2,386,806¥2,279,782
117,328
18,694
103,032(150,154)¥2,368,683

2017(Thousands of
U.S. dollars)$21,148
1,039
173
130
(1,180)$21,310

Plan excluding that calculated by simplified method (continued)
The changes in plan assets during the year ended March 31, 2017 and 2016 are as follows:
March 31,2017
2016
(Thousands of yen)
Balance at the beginning of the year
Expected return on plan assets
Adjustment for actuarial assumptions
Contributions by the Company
Retirement benefit paid
Balance at the end of the year

¥2,389,267
59,731
37,22496,267(132,243)¥2,450,249¥2,464,019
61,600(71,245)
85,047(150,154)¥2,389,267

2017(Thousands of
U.S. dollars)$21,332533
332
859(1,180)$21,877

The following table sets forth the funded status of the plans and the amounts recognized in
the consolidated balance sheet as of March 31, 2017 and 2016 for the Company’s defined
benefit plans:
March 31,2017
2016
(Thousands of yen)
Funded retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Net asset for retirement benefits in thebalance sheet
Liability for retirement benefits
Asset for retirement benefits
Net asset for retirement benefits in thebalance sheet

2017(Thousands of
U.S. dollars)¥2,386,806(2,450,249)(63,443)–¥2,368,683(2,389,267)(20,584)–$ 21,310(21,877)(566)–(63,443)–(63,443)(20,584)–(20,584)

(566)
–
(566)

¥ (63,443)¥ (20,584)$ (566)14

8.

Retirement Benefit Plan (continued)

The components of retirement benefit expenses for the years ended March 31, 2017 and 2016
are as follows:
March 31,2017
2016
(Thousands of yen)
Service cost
Interest cost
Expected return on plan assets
Amortization of adjustment for actuarial
assumptions
Retirement benefit expense

2017(Thousands of
U.S. dollars)¥116,369
19,423(59,731)¥117,328
18,694(61,600)$1,039173(533)

29,778¥105,839(3,369)¥71,052265$ 944

The components of retirement benefits liability adjustments included in other comprehensive
income (before tax effect) for the years ended March 31, 2017 and 2016 are as follows:
March 31,2017
2016
(Thousands of yen)
Adjustment for actuarial assumptions
Total¥(52,429)¥(52,429)

2017(Thousands of
U.S. dollars)¥177,647¥177,647$(468)$(468)

The components of retirement benefits liability adjustments included in accumulated othercomprehensive income (before tax effect) for the years ended March 31, 2017 and 2016 are
as follows:
March 31,2017
2016
(Thousands of yen)
Unrecognized adjustment for actuarial
assumptions
Total¥87,757¥87,757

2017(Thousands of
U.S. dollars)¥140,187¥140,187

$783
$783

The fair value of plan assets, by major category, as a percentage of total plan assets as ofMarch 31, 2017 and 2016 are as follows:
March 31,
Bonds
StocksGeneral account assets
Other
Total

2017

2016

17.3%
24.8
56.0
1.9
100.0%

16.1%
24.3
57.2
2.4
100.0%
15

8.

Retirement Benefit Plan (continued)

The expected return on assets has been estimated based on the anticipated allocation to each
asset class and the expected long-term returns on assets held in each category.
The assumption used in accounting for the above plans were as follows:
March 31,
Discount rate
Expected rates of return on plan assets
Salary increase rate

2017

2016

0.8%
2.5%
1.0%～4.7%

0.8%
2.5%
1.0%～4.7%

Plan calculated by the simplified method
The changes in the retirement benefit obligation for consolidated subsidiaries adopting thesimplified method during the year ended March 31, 2017 and 2016 are as follows:
March 31,2017
2016
(Thousands of yen)
Balance at the beginning of the year
Retirement benefit expense
Retirement benefit paid
Contribution to pension plans
Translation adjustment
Change in scope of consolidation
Loss on revision of retirement benefit
plan
Change in pension plan
Balance at the end of the year

2017
(Thousands of
U.S. dollars)¥ 134,965
17,610(1,210)(13,130)(633)-¥ 61,516
35,517(15,125)(22,549)(1,273)
5,200$ 1,205
157
(1)
(117)
(5)
-

(102,172)¥ 35,429

71,678¥ 134,965

(912)
$ 316

The following table sets forth the funded status of the plans and the amounts recognized in
the consolidated balance sheet as of March 31, 2017 and 2016 for consolidated subsidiaries
adopting the simplified method:

16

8.

Retirement Benefit Plan (continued)
March 31,2017
2016
(Thousands of yen)

Funded retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Net liability for retirement benefits in thebalance sheet
Liability for retirement benefits
Net liability for retirement benefits in thebalance sheet

2017(Thousands of
U.S. dollars)¥ 122,803(112,262)
10,54024,888¥ 352,415(240,171)
112,244
22,720$ 1,096(1,002)
94
222

35,42935,429134,965
134,965316
316¥ 35,429¥ 134,965$

316

Retirement benefit expenses for the simplified method of ¥17,610 thousand ($157thousand)and ¥35,517 thousand were accounted for the years ended March 31, 2017 and 2016.
Defined contribution plans
Contribution made to defined contribution plans for the years ended March 31, 2017 and2016 were ¥123,913 thousand ($1,106 thousand) and ¥93,524 thousand, respectively.

9.

Net Assets

Under Japanese laws and regulations, the entire amount of the issue price of shares is required
to be accounted for as common stock, although a company may, by resolution of its Boardof Directors, account for an amount not exceeding one-half of the issue price of the newshares as additional paid-in capital.
Under the Japanese Corporate Law, in cases where dividend distribution of surplus is made,the smaller of an amount equal to 10% of the dividend and excess, if any, of 25% of common
stock over the total of additional paid-in capital and legal earnings reserve must be set aside
as additional paid-in capital or legal earnings reserve. Additional paid-in capital is included
in capital surplus and legal earnings reserve is included in retained earnings in theaccompanying consolidated balance sheets.
Legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a
deficit or may be capitalized by a resolution of the shareholders’ meeting. All additional
paid-in capital and all legal earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available for dividends. The maximum
amount that the Company can distribute as dividends is calculated based on theunconsolidated financial statements of the Company in accordance with Japanese laws andregulations.
The total number and periodic changes in the number of shares of stock in issue and the total
number and periodic changes in the number of shares of common stock in treasury for theyears ended March 31, 2017 and 2016 were as follows:
17

9.

Net Assets (continued)
Year ended March 31, 2017
At
March 31,
2016

Number of shares of stock in issue:
Common stock
Number of shares of common stock
in treasury:
Common stock

Increase
Decrease(Thousands of shares)

At
March 31,2017

12,775––

12,775

136

–

5

131

The decrease in common stock in treasury of 5 thousand shares resulted from exercise ofsubscription rights as stock options.
Year ended March 31, 2016
At
March 31,
2015
Number of shares of stock in issue:
Common stock
Number of shares of common stock
in treasury:
Common stock

Increase
Decrease(Thousands of shares)

At
March 31,2016

12,775––

12,775

136

0

–

136

The increase in common stock in treasury of 0 thousand shares resulted from the Company’spurchase of 0 thousand odd-lot shares of less than one unit at the request of the stockholders.
Dividends
Dividends paid
Resolution

Type ofsharesGeneral meeting of Common
stockholders heldstock
on June 17, 2016

Total dividends(Thousands of (Thousands ofyen)
U.S. dollars)¥505,853$4,477

Dividends per share(Yen) (U.S. dollars)
¥40.0

$0.35

Cut-off
date

Effective
date

March 31, June 20,
2016
2016

Dividends with the cut-off date in the year ended March 31, 2017 and effective date in theyear ended March 31, 2017
Resolution

Type ofsharesGeneral meeting of Common
stockholders heldstock
on June 16, 2017

Total dividends(Thousands of (Thousands ofyen)
U.S. dollars)¥632,576$5,648Dividends per share(Yen) (U.S. dollars)
¥50.0

$0.44

Cut-off
date

Effective
date

March 31, June 19,
2017
2017

18

10. Stock Options
The Company adopted the stock option plan under which share subscription rights are
granted to directors and operating officers of the Company in accordance with the
Corporation Law.
The descriptions of stock options for the year ended March 31, 2017 are as follows:

Individuals covered by the plan2010 Stock Option Plan

2009 Stock Option Plan

4 directors of theCompany

7 directors of theCompany
6 operating officers of
the Company

Type and number of shares to be issued
15,000 shares ofupon the exercise of the share subscription common stockrights23,600 shares ofcommon stock

Granted date

September 24, 2010

October 29, 2009

Vesting conditions

No provisions

No provisions

Vesting period

No provisions

No provisions

Exercise period

September 25, 2010 –September 24, 2040

October 30, 2009 –October 29, 2039

19

10. Stock Options (continued)
The changes in the size of stock options for the year ended March 31, 2017 are as follows:2010 Stock Option Plan

2009 Stock Option Plan

Share subscription rights which are not yet
vested (Number of shares)
Outstanding as of March 31, 2016
GrantedForfeited
VestedOutstanding as of March 31, 2017

–
–
–
–
–

–
–
–
–
–

Share subscription rights which havealready been vested (Number of shares)
Outstanding as of March 31, 2016
VestedExercised
Forfeited
Outstanding as of March 31, 2017

3,700
–
3,700
–
–

1,500
–
1,500
–
–

Exercise price (yen)Weighted average fair value per stock at
the exercising date (yen)Fair value per stock option at the granted
date (yen)¥¥Exercise price (U.S. dollars)
Weighted average fair value per stock at
the exercising date (U.S. dollars)
Fair value per stock option at the granted
date (U.S. dollars)

1

1

1,729

1,729

654

1,208

$ 0.01$ 0.01

15.43

15.43

5.83

10.78

20

11.

Other Income (Expenses)

The components of “Other, net” in “Non-operating income (expenses)” in the period ended
March 31, 2017 and 2016 were as follows:Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Dividends received
Exchange gain (loss), net
Gain on sales of property and equipment
Gain on sales of investments in securities
Gain on sales of golf-club membership
Gain on bargain purchaseCommission paid
Amortization of business commencement expenses
Loss on sales and disposal of property and equipment
Loss on sales of securities
Impairment losses on fixed assets
Loss on revaluation of investments in securities
Loss on revision of retirement benefit plan
Loss on liquidation of a company
Other, net

12.

¥ 25,644(37,617)
1,946
–
8,477
–
(10,369)(16,172)(24,797)(500)(3,076)(23,417)–(27,311)54,279¥ (52,915)¥ 41,032(109,021)
2,846
9,639
–
10,889(14,504)(16,272)(67,957)–(145,172)–(71,678)–
122,856¥ (237,343)

$ 228
(335)
17
–
75
–
(92)
(145)
(221)
(4)
(27)
209
–
(243)
476
$ (472)

Impairment of Fixed Assets

For the year ended March 31, 2017, the Company and a consolidated subsidiary recognizedimpairment losses on fixed assets of ¥3,076 thousand ($27 thousand), and for the year ended
March 31, 2016 the Company recognized impairment losses on fixed asset of ¥145,172
thousand which consisted of the following:
Location

Use

Hakodate-shi, Hokkaido Airport shops
Komatsu-shi, Ishikawa Airport shops
Miyazaki-shi, Miyazaki
Shinagawa-ku, Tokyo
Bangkok, Thailand
Shinagawa-ku, Tokyo

Classification

Furniture
Buildings, furnitureand other
Airport shops
Furniture andsoftware–
Goodwill
Business assets Furniture
Business assets Furniture

Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)¥1,518
¥ –
$14
1,083

1,928

10

475
–
–
–

–
126,942
16,231
69

4–––

The Company and its consolidated subsidiaries base its grouping for assessing theimpairment loss on fixed assets on the smallest identifiable groups of assets which generatecash inflows and which are largely independent of the cash inflows from other assets orgroups of assets.

21

12.

Impairment of Fixed Assets (continued)

Impairment losses on Business assets including airport shops were recognized due tosignificant decrease in expected future cash flows on the strategy plan for the years ended
March 31, 2017 and 2016.
The recoverable amount of each group of assets was measured by their usage value andestimated at non-recoverable by the minus of future cash flows for the years ended March
31 2017.
The recoverable amount of each group of assets was measured by their usage value and future
cash flows at discount rates of 2.7% for the years ended March 31 2016.
13.

Income Taxes

The significant components of deferred tax assets and liabilities at March 31, 2017 and 2016
were as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Deferred tax assets:
Accrued bonuses
Allowance for doubtful accounts
Liability for retirement benefits
Impairment losses on fixed assets
Accrued enterprise tax
Elimination of unrecognized gain on
intercompany accounts and transactions
Loss on revaluation of inventories
Loss on revaluation of investments insecurities
Tax loss carryforwards
Deferred losses on hedges
Asset retirement obligation
Other¥ 160,790
17,106
5,952
13,882
46,029¥ 157,006
17,656
84,01018,30662,517$ 1,436
153
53
124
411

83,14521,924

84,041
20,190

742
196

7,809
481,674
50,46919,425
183,329
1,186,438(442,842)
743,596

197
4,159

Valuation allowance
Total deferred tax assets

22,103465,842－
28,315
237,471
1,102,563(442,366)
660,196

Deferred tax liabilities:
Accumulated retained earnings ofconsolidated subsidiaries
Asset for retirement benefits
Cost of asset retirement obligation
Deferred gains on hedges
Other
Total deferred tax liabilities
Net deferred tax assets(244,220)(19,449)(23,514)(10,225)(48,520)(345,930)¥ 314,266(234,475)(49,416)(26,291)–(37,703)(347,886)¥ 395,710

–

253
2,120
9,844
(3,950)5,895(2,181)
(174)
(210)
(91)
(433)
(3,089)$ 2,806

The difference between the statutory tax rate and the effective tax rate for the year ended
March 31, 2016 represented less than 5% of the statutory tax rate. As a result, a reconciliation
22

13.

Income Taxes (continued)

is not required to be disclosed. A reconciliation between the statutory tax rates and theeffective tax rates for the year ended March 31, 2017 were presented as follows:2017
Statutory tax rate
Disallowed expenses, including entertainment expenses
Inhabitants’ per capita taxes
Equity in earnings of affiliates
Different tax rates applied to consolidated subsidiaries
Other
Effective tax rate
14.

30.86%
0.78
0.50(1.52)
1.54
0.55
32.71%

Other Comprehensive Income

The following table presents reclassifications adjustments and tax effects allocated to eachcomponent of other comprehensive income for the years ended March 31, 2017 and 2016:
March 31,2017
2016
(Thousands of yen)
Net unrealized gain on other securities:
Amount arising during the year
Reclassification adjustments for gains and losses
included in profit attributable to owners of thecompany
Amount before tax effectTax effectNet unrealized gain (loss) on hedging instruments:
Amount arising during the year
Tax effectTranslation adjustments:
Amount arising during the year
Retirement benefits liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses
included in profit attributable to owners of thecompany
Amount before tax effectTax effect
Share of other comprehensive income ofcompanies accounted for by the equity method:Amount arising during the year
Reclassification adjustments for gains and losses
included in profit attributable to owners of thecompany
Total other comprehensive income

2017(Thousands of
U.S. dollars)¥ 14,391¥ (12,934)

$

128

–

(9,639)–14,391(4,404)
9,986(22,573)
6,997(15,575)

128
(39)
89

196,676(60,694)
135,982(280,278)
89,108(191,169)

1,756
(542)
1,214

(121,379)

50,817(1,084)22,651(174,277)

202

29,778(3,369)266

52,429(16,054)
36,375(177,647)
55,039(122,607)

468
(143)
325

(26,365)(55,725)

(235)

–

–

–

(26,365)¥34,600(55,725)¥(334,260)

$

(235)
309

23

15.

LeasesAs lessee under operating leases
Future rental expenses under operating leases outstanding at March 31, 2017 and 2016 aresummarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥1,408,157
2,900,984¥4,309,142¥1,624,931
2,810,792¥4,435,724$12,573
25,902$38,474

As lessor under financing leases
As the impact of financing leases is immaterial, the note is not required to be disclosed.
As lessor under operating leases
Future rental revenues under operating leases outstanding at March 31, 2017 and 2016 aresummarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

16.

¥928,413
878,251¥1,806,664¥1,190,962
961,179¥2,152,142$8,289
7,842$16,131

Amounts Per Share

Net income per share is computed based on the weighted average number of shares ofcommon stock outstanding during each year. Diluted net income per share is computed basedon the weighted average number of shares of common stock outstanding during each year
after giving effect to the potentially dilutive securities to be issued upon the exercise ofsubscription rights as stock options.
Year ended March 31,
2017
2016
2017
(Yen)
(U.S. dollars)
Net income per share of common stock:
Basic
Diluted¥203.48¥203.46¥159.41¥159.34$1.817$1.817

The following table sets forth the basis of the computation of net income per share and diluted
net income per share of common stock for the years ended March 31, 2017 and 2016:
24

16.

Amounts Per Share (continued)
Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)

Net income
Net income available to stockholders ofshares of common stock¥2,572,550¥2,014,684$22,969¥2,572,550¥2,014,684$22,969

Year ended March 31,
2017
2016
(Thousands of shares)
Weighted-average number of shares ofcommon stock outstanding
Effect of dilutive securities:
Subscription rights to shares

12,642

12,6381

5

Net assets per share are computed based on the number of shares of common stock
outstanding at each balance sheet date.
March 31,
2016

2017
(Yen)
Net assets per share
17.

¥1,583.80¥1,418.98

2017(U.S. dollars)$14,141

Financial Instruments

Policy for financial instruments
The Company and its consolidated subsidiaries (the “Group”) manage temporary cash
surpluses mainly through short-term deposits. Further, the Group raises short-term capitalthrough bank borrowings.
Types of financial instruments and related risk
Notes and accounts receivable are exposed to credit risk in relation to customers. In addition,
the Company is exposed to foreign currency exchange risk arising from receivables
denominated in foreign currencies. In principle, the foreign currency exchange risks derivingfrom the trade receivables denominated in foreign currencies are hedged by forward foreignexchange contracts.
Marketable securities and investment securities are composed of mainly stocks. Those
securities are exposed to market risk.
Deposits for business space are composed of mainly deposits for rental spaces of the airport
buildings. Those deposits are exposed to credit risk in relation to counterparties.

25

17.

Financial Instruments (continued)

All notes and accounts payable have payment due dates within one year. Although theCompany is exposed to foreign currency exchange risk arising from those payables
denominated in foreign currencies, foreign exchange contracts are arranged to reduce therisk.
Short-term borrowings are raised mainly in connection with business activities, and longterm debt is taken out principally for the purpose of making capital investments. Long-term
debt with variable interest rates is exposed to interest rate fluctuation risk. However, toreduce such risk and fix interest expense for long-term debt bearing interest at variable rates,
the Company utilizes interest rate swap transactions as a hedging instrument.
Risk management for financial instrumentsa.

Monitoring of credit risk (the risk that customers or counterparties may default)
In accordance with the internal policies of the Group for managing credit risk arisingfrom receivables and deposits for business space, each related division monitors credit
worthiness of their main customers periodically, and monitors due dates andoutstanding balances by individual customer. In addition, the Group is making efforts
to identify and mitigate risks of bad debts from customers who are having financial
difficulties.
The Group believes that the credit risk of derivatives is insignificant as it enters into
derivative transactions only with financial institutions which have the high credit-rating.

b.

Monitoring of market risks (the risks arising from fluctuations in foreign exchange rates,interest rates and others)
For accounts receivables and payables denominated in foreign currencies, the Company
enters into forward foreign exchange contracts to hedge such risk. In order to mitigate
the interest rate risk for loans payable bearing interest at variable rates, the Company
may also enter into interest rate swap transactions if certain conditions are met.
For marketable securities and investment securities, the Group periodically reviews thefair values of such financial instruments and the financial position of the issuers. In
addition, the Group continuously evaluates whether securities should be maintained
taking into account their fair values and relationships with the issuers.
In conducting derivative transactions, the division in charge of each derivativetransaction follows the internal policies, which set forth delegation of authority andmaximum upper limit on positions.

c.

Monitoring of liquidity risk (the risk that the Group may not be able to meet its
obligations on scheduled due dates)
Based on the report from each division, the Group prepares and updates its cash flowplans on a timely basis to manage liquidity risk.

26

17.

Financial Instruments (continued)

Estimated Fair Value of Financial Instruments
Carrying value of financial instruments and estimated fair value on the consolidated balance
sheet as of March 31, 2017 and 2016 are shown in the following table. The following table
does not include financial instruments for which it is extremely difficult to determine the fairvalue.
The fair value of financial instruments is based on their quoted market price, if available.
When there is no quoted market price available, fair value is reasonably estimated. Sincevarious assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in different fair value.
March 31, 2017
Carrying
Estimatedvalue
fair value
Difference(Thousands of yen)
AssetsCash and time deposits¥ 6,258,404 ¥ 6,258,404¥–
Trade notes and accounts receivable
13,604,220
13,604,220–
Accounts receivable - other2,062,307
2,062,307–
Investment securities
257,223
257,223–
Total assets¥22,182,156 ¥22,182,156¥–
Liabilities
Trade notes and accounts payable
Short-term borrowings
Accrued expenses
Long-term debt (*1)
Total liabilities
Derivatives (*2)

¥9,746,049
2,525,014
3,011,991
3,137,840¥18,420,894¥ (22,055)¥9,746,049
2,525,014
3,011,991
3,139,017¥18,422,071¥ (22,055)

¥

–
–
–
1,177
¥1,177¥–

March 31, 2017
Carrying
Estimatedvalue
fair value
Difference(Thousands of U.S. dollars)
AssetsCash and time deposits
Trade notes and accounts receivable
Accounts receivable- other
Investment securities
Total assets$ 55,879
121,466
18,413
2,297$198,055$ 55,879
121,466
18,413
2,297$198,055

$ –
–
–
–
$ –

Liabilities
Trade notes and accounts payable
Short-term borrowings
Accrued expenses
Long-term debt (*1)
Total liabilities
Derivatives (*2)

$ 87,018
22,54526,89328,016$164,472$ ( 197)$ 87,018
22,54526,89328,027$164,483$ ( 197)

$ –
–
–
11
$11
$ –

27

17.

Financial Instruments (continued)
March 31, 2016
Carrying
Estimatedvalue
fair value
Difference(Thousands of yen)

AssetsCash and time deposits
Trade notes and accounts receivable
Investment securities
Total assets
Liabilities
Trade notes and accounts payable
Short-term borrowings
Accrued expenses
Long-term debt (*1)
Total liabilities
Derivatives (*2)

¥ 7,285,729
13,247,697
2,598,839
236,312¥23,368,579¥ 7,285,729
13,247,697
2,598,839
236,312¥23,368,579¥¥10,051,744
1,249,532
3,298,178
3,390,202¥17,989,658¥10,051,744
1,249,532
3,298,178
3,397,659¥17,997,114

¥

¥

–
–
–
–
–

–
–
–
7,456
¥7,456*1. Long-term debt includes current portion of long-term debt.
*2. The value of assets and liabilities arising from derivatives is shown at net value, andwith the amount in parentheses representing net liability position.
Methods to determine the estimated fair value of financial instruments and other mattersrelated to securities and derivative transactionsa.

Cash and time deposits, Trade notes and accounts receivable and Other notes andaccounts receivable
Since these items are settled in a short period of time, their carrying value approximatesfair value.

b.

Investment securities
The fair value of stocks is based on quoted market prices. The fair value of investment
trusts and debt securities is based on either quoted market prices or prices provided by
the financial institutions making markets in these securities.

c.

Trade notes and accounts payable, short-term borrowings and accrued expenses
Since these items are settled in a short period of time, their carrying value approximatesfair value.

d.

Long-term debt
The fair value of long-term debt is based on the present value of the total of principal
and interest discounted by the interest rate to be applied if similar new debt agreements
were entered into.

28

17.
e.

Financial Instruments (continued)
Derivative transactions
Refer to Note 19 Derivative Transactions of the notes to the consolidated financial
statements.

Financial instruments for which it is extremely difficult to determine the fair value
March 31,2017
2016
(Thousands of yen)
Unlisted stocks
Guarantee deposits¥1,791,014
1,914,373¥1,701,076
1,856,994

2017(Thousands of
U.S. dollars)$15,991
17,093

Because no quoted market price is available and it is extremely difficult to determine the fairvalue, the above financial instruments are not included in the above table.
Redemption schedule for receivables and marketable securities with maturities
March 31, 2017
Due after
Due after
Due inone yearfive years
one yearthroughthroughDue afteror less
five years
ten yearsten years(Thousands of yen)
Cash and time deposits
Trade notes and accounts
receivable
Accounts receivable-other
Investment securities withmaturities:
Bonds
Other
Total

¥ 6,258,404

¥ –

¥ –

¥

13,604,220
2,062,307

–

–

–

–
–
¥21,924,933

–
–
¥ –

–
–
¥ –

–
–
–

¥

–

29

17.

Financial Instruments (continued)

Due inone yearor less
Cash and time deposits
Trade notes and accounts
receivable
Accounts receivable-other
Investment securities withmaturities:
Bonds
Other
Total

18.

Due after
ten years$ 55,879$ –$ –121,466
18,413

–
–

–
–

–
–

–
–
$204,331

–
–
$ –

–
–
$ –

–
–
–

Due inone yearor less
Cash and time deposits
Trade notes and accounts
receivable
Accounts receivable-other
Investment securities withmaturities:
Bonds
Other
Total

March 31, 2017
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Thousands of U.S. dollars)

March 31, 2016
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Thousands of yen)

$

$

–

Due after
ten years¥ 7,285,729

¥ –

¥ –

¥

13,247,697
2,598,839

–

–

–

–
–
¥23,132,266

–
–
¥ –

–
–
¥ –

–
–
–

¥

–

Securities

The components of unrealized gain or loss on marketable securities classified as othersecurities at March 31, 2017 and 2016 are summarized as follows:
March 31, 2017
Carrying
Acquisition
Unrealized
value
costs
gain (loss)(Thousands of yen)
Unrealized gain:
StocksBonds:
Other
Other
Total

¥ 257,223¥ 254,792¥ 2,431––¥257,223––¥254,792––¥2,43130

18.

Securities (continued)
March 31, 2017
Carrying
Acquisition
Unrealized
value
costs
gain (loss)(Thousands of U.S. dollars)
Unrealized gain:
StocksBonds:
Other
Other
Total

$2,297$2,275$22––$2,297––$2,275––$22

March 31, 2016
Carrying
Acquisition
Unrealized
value
costs
gain (loss)(Thousands of yen)
Unrealized gain:
StocksBonds:
Other
Other
Unrealized loss
StocksBonds:
Other
Other
Total

¥ 3,359¥ 2,212–¥ 1,147

–

–

–

–

–

¥ 232,953¥ 246,240¥ (13,287)

–

–

–

–
¥236,312–¥248,452–¥(12,139)

Non-marketable securities classified as other securities at March 31, 2017 and 2016
amounted to ¥200,888 thousand ($1,794thousand) and ¥225,286 thousand, respectively.

31

18.

Securities (continued)

Proceeds from sales of securities classified as other securities and the aggregate gain and loss
for the year ended March 31, 2017 and 2016 were as follows.
March 31,2017
2016
(Thousands of yen)
Sales proceeds:
StocksOther¥¥

Aggregate gain:
StocksOther¥¥

Aggregate loss:
Stocks
Other

¥
¥

19.

300
–
300

¥

–
–
–

¥

500
–
500

2017
(Thousands of
U.S. dollars)

19,845–
19,845$

9,639–¥ 9,639

$

¥

$

¥

¥

–
–
–

$

$

$

3
–
3
–
–
–
4
–
4

Derivative Transactions

The Company utilizes forward foreign exchange contracts to reduce the foreign currency
exchange risk arising from the receivables and payables denominated in foreign currencies.
The notional amounts and the estimated fair value of the forward foreign exchange contracts
outstanding at March 31, 2017 for which hedged accounting has not been applied, aresummarized as follows:
March 31, 2017
Maturing within one year
Notional amount
Fair value(Thousands of yen)
Sell:
USD
¥ 1,222,332¥ (55,189)
Total¥ 1,222,332¥ (55,189)
As of March 31 2016, there were no derivative transactions outstanding for which hedged
accounting has not been applied.

32

19.

Derivative Transactions (continued)

The notional amounts and the estimated fair value of the forward foreign exchange contracts
outstanding at March 31, 2017 and 2016, for which hedged accounting has been applied, aresummarized as follows:

Maturing within one year
Sell:
USD
EUR
Buy:
USD
EUR
THB
Others
Total

Maturing within one year
Sell:
USD
EUR
Buy:
USD
EUR
THB
Others
Total

Maturing within one year
Sell:
USD
EUR
Buy:
USD
EUR
THB
OthersTotal

March 31, 2017
Notional amount
Fair value(Thousands of yen)
¥ 454,964
65,778¥ (803)(216)

3,937,399
255,786
63,03954,183¥4,831,149

29,880
1,408
(784)
3,649
¥33,134

March 31, 2017
Notional amount
Fair value(Thousands of U.S. dollars)$ 4,062
587

$(7)
(2)

35,155
2,284
563
484
$43,135

268
13
(7)
33
$296

March 31, 2016
Notional amount
Fair value(Thousands of yen)
¥ 1,140,393
106,132¥ 44,995
3,556

4,008,642
220,019
126,163
31,870¥5,633,221(207,655)(771)(2,490)(1,176)¥(163,543)

33

19.

Derivative Transactions (continued)

Foreign receivables and payables are translated at the applicable forward foreign exchange
rates if certain conditions are met. The notional amounts of the forward foreign exchange
contracts accounted for as part of accounts receivable or payable outstanding at March 31,2017 and 2016, are summarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Sell:
USD
EUR
Others
Buy:
USD
EUR
THB
OthersTotal¥ 188,127
85,283–¥ 17,020
46,037
5,101$ 1,680761–

502,894
29,22630,5904,032¥840,152

419,854
19,59323,8662,674¥534,148

4,490
261
273
36
$7,501The Company also utilizes interest rate swap transactions to reduce fluctuation risk derivingfrom interest payable for long-term debt bearing interest at variable rates. The related interest
differential paid or received under interest-rate swaps utilized as hedging instruments is
recognized over the terms of the swap agreements as an adjustment of interest expense on
the hedged items if certain conditions are met. The notional amounts of the interest-rate
swaps hedging long-term debt outstanding at March 31, 2017 and 2016, are summarized asfollows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Maturing within one year
Maturing after one year
Total

¥ 60,000–¥60,000¥ 60,000
60,000¥120,000

$ 536
–
$ 536

The notional amounts of derivatives are not necessarily indicative of the actual market risk
involved in derivative transactions.

34

20.

Investment and Rental Properties

The Company and a certain consolidated subsidiary own buildings and lands for lease mainlyin Tokyo and other areas.
The carrying value in the consolidated balance sheet and corresponding fair value of those
properties for the year ended March 31, 2017 are as follows:

March 31, 2017
¥1,088,353

March 31, 2017
$9,717

Carrying ValueNet change
March 31, 2016
(Thousands of yen)
¥28,434¥1,059,919

Carrying ValueNet change
March 31, 2016
(Thousands of U.S. dollars)$254$9,464

Fair Value
March 31, 2017
¥304,456
Fair Value
March 31, 2017
$2,718The components of net change in carrying value include increases mainly due to acquisitionsof real estate in the amount of ¥1,321,573 thousand ($11,798thousand) and decreases mainly
due to transfer to real estate held for sale in the amount of ¥1,290,535 thousand ($11,523
thousand).
Because it is difficult to determine the fair value, the properties under development in theamount of ¥784,507 thousand ($7,005thousand) are not included in the above table.
The carrying value in the consolidated balance sheet and corresponding fair value of those
properties for the year ended March 31, 2016 were as follows:

March 31, 2016
¥1,059,919

Carrying ValueNet change
March 31, 2015
(Thousands of yen)¥(749,834)¥1,809,753

Fair Value
March 31, 2016
¥1,097,907

The components of net change in carrying value include increases mainly due to acquisitionsof real estate in the amount of ¥397,607 thousand and decreases mainly due to transfer toreal estate held for sale in the amount of ¥1,124,622 thousand.
The carrying value represents the acquisition cost less accumulated depreciation andcumulative impairment loss. The fair value is mainly estimated in accordance with appraisal
standards for valuing real estate. However, if no material change has occurred in certain
values or indices, the fair values are determined by adjusting such appraised values andindices.

35

21.

Cash Flow Information

The components of cash and cash equivalents are summarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Cash and time deposits
Time deposits with maturities of more than
three months
Bank overdraft¥6,258,404¥7,285,729$55,879(4,919)(39,609)¥6,213,875(34,168)–¥7,251,560

(44)
(354)
$55,481

The significant noncash transactions are summarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Transfer from Tangible Asset to Real estate
held for sale22.

¥1,290,535¥1,124,622$11,523

Segment Information

The reportable segments of the Company and its consolidated subsidiaries are components
for which discrete financial information is available and whose operating results are regularly
reviewed by the Board of Directors to make decisions about resource allocation and to assess
performance.
Aviation & airport-related business segment includes aircraft components, aviation-related
business and printing. Life service business segment includes insurance and real estatebusiness. Retail business segment includes cabin service supply, mail-order sales, airport
shops. Food & beverage business segment includes agriculture & marine products, processed
foods, wine sales business and gift item business.
The accounting policies of the segments are substantially the same as those described in thesignificant accounting policies in Note 1. Segment performance is evaluated based on
operating income or loss. Intersegment sales are recorded at the same price used intransactions with third parties.
The reportable segments information of the Company and its consolidated subsidiaries forthe years ended March 31, 2017 and 2016 are summarized as follows:

36

22.

Segment Information (continued)
Year ended March 31, 2017
Reportable segments
Aviation &airportrelated
business

Sales, profits and assets
by reportable segments:
Sales to outside parties ¥57,165,328
Inter-segment sales
and transfers
110,471
Total
57,275,799
Segment profits¥ 1,136,583
Segment assets¥14,252,932
Other items:
Depreciation andamortization
Amortization of
goodwill
Investment in affiliates
accounted for by theequity method
Capital expenditures

Adjustments
andeliminations

Consolidated¥143,217,913¥¥143,217,913

936,023
32,843,268¥ 1,545,058¥10,378,961

1,119,116
144,337,030¥ 5,985,110¥ 44,378,957(1,119,116)–(1,119,116) 143,217,913¥ (1,928,597) ¥ 4,056,513¥ (444,039) ¥ 43,934,917

Life service
business

Retailbusiness

Food &
beveragebusiness(Thousands of yen)

¥ 7,797,490¥46,347,849¥31,907,244

12,3007,809,791¥ 933,702¥ 5,485,045

60,321
46,408,170¥ 2,369,765¥14,262,017

Total

–

¥

55,231¥

39,957¥

263,373¥

105,558¥

464,120¥

95,919¥560,039

¥

–

¥

–

¥

–

¥

–

¥

–

¥

–

¥

–

¥
¥

349,276
920,695¥ 328,232¥ 1,331,870¥¥

461,448
632,775¥¥–
105,119¥ 1,138,958¥ 2,990,461¥¥

407,72255,126¥¥

1,546,680
3,045,587

Year ended March 31, 2017
Reportable segments

Sales, profits and assets
by reportable segments:
Sales to outside parties
Inter-segment sales
and transfers
Total
Segment profits
Segment assets
Other items:
Depreciation andamortization
Amortization of
goodwill
Investment in affiliates
accounted for by theequity method
Capital expenditures

Aviation &airportrelated
business

Life service
business

Food &
beverage
Retailbusinessbusiness
Total(Thousands of U.S. dollars)

Adjustments
andeliminations$510,405$ 69,620$413,820$284,886$1,278,731$–$1,278,731

986
511,391$ 10,148$127,258

110
69,730$ 8,337$ 48,974

539
414,359$ 21,159$ 127,339

8,357
293,243$ 13,795$ 92,669

9,992
1,288,723$ 53,438$ 396,241(9,992)(9,992)$ (17,220)$ (3,965)–
1,278,731$ 36,219$ 392,276

$

493

$

358

$

2,352

$

942

$

4,144

$

856

$

5,000

$

–

$

–

$

–

$

–

$

–

$

–

$

–

$
$

3,119
8,220

$ 2,931$ 11,892

$
$

4,120
5,650

$
$

–
939

$ 10,169$ 26,701$ 3,640$492

Consolidated$ 13,810$ 27,193

Adjustments and eliminations for segment profits and losses include ¥ 9,407 thousand($84thousand) of elimination of inter-segment profit and minus ¥1,919,190 thousand($17,136thousand) of corporate general administration expenses which are not allocable to
the reportable segments.
Adjustments and eliminations for segment assets include minus ¥1,410,527 thousand($12,594 thousand) of elimination of accounts inter-segment receivable and ¥966,487
thousand ($8,629 thousand) of corporate assets which are not allocable to the reportablesegments. Corporate assets consist primarily of investments in securities and assets
belonging to the administrative part of the Company.
Adjustments and eliminations for capital expenditures consist primarily of investments in thesubsidiary’s head office software.
37

22.

Segment Information (continued)

Segment profits are adjusted with operating income reported in the consolidated statements
of income.
Year ended March 31, 2016
Reportable segments
Aviation &airportrelated
business
Sales, profits and assets
by reportable segments:
Sales to outside parties ¥58,539,045
Inter-segment sales
and transfers
212,037
Total
58,751,082
Segment profits¥ 1,258,690
Segment assets¥12,795,888
Other items:
Depreciation andamortization
Amortization of
goodwill
Investment in affiliates
accounted for by theequity method
Capital expenditures

Adjustments
andeliminations

Consolidated¥141,502,643¥¥141,502,643

724,944
30,514,883¥ 668,412¥11,706,651

986,496
142,489,140¥ 5,723,266¥ 41,893,133(986,496)–(986,496) 141,502,643¥ (1,933,682) ¥ 3,789,583¥ 1,529,031 ¥ 43,422,165

Life service
business

Retailbusiness

Food &
beveragebusiness(Thousands of yen)

¥7,012,155¥46,161,504¥29,789,938

23,9737,036,128¥ 817,398¥ 3,996,774

25,541
46,187,046¥ 2,978,765¥13,393,819

Total

–

¥

7,478

¥

54,917,¥

208,664¥

93,634¥

364,694¥

71,411¥

436,105

¥

–

¥

–

¥

–

¥

38,976¥38,976¥–¥38,976¥¥

308,011
1,604¥¥

304,479
432,957¥¥

442,907420,300¥¥–
103,702¥ 1,055,398¥
958,565¥¥

386,591
277,816¥¥

1,441,989
1,236,381

Adjustments and eliminations for segment profits and losses include ¥1,098 thousand ofelimination of inter-segment profit and minus ¥1,932,584 thousand of corporate generaladministration expenses which are not allocable to the reportable segments.
Adjustments and eliminations for segment assets include minus ¥612,646 thousand ofelimination of accounts inter-segment receivable and ¥2,141,678 thousand of corporate
assets which are not allocable to the reportable segments. Corporate assets consist primarilyof investments in securities and assets belonging to the administrative part of the Company.
Adjustments and eliminations for capital expenditures consist primarily of investments in thehead office building.
Segment profits are adjusted with operating income reported in the consolidated statements
of income.
For the years ended March 31, 2017 and 2016, net sales to outside parties in Japan represent
more than 90% of consolidated operating revenues. As a result, net sales to outside parties
by countries or areas grouped according to geographical classification are not required to bedisclosed.

38

22.

Segment Information (continued)

Property, plant and equipment by geographical countries or areas at March 31, 2017 and2016 are summarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)Japan¥1,716,298¥2,299,982$15,324

Thailand

1,211,365

450,773

10,816Singapore
Other foreign countries

912,252
375,494¥4,215,411－
277,693¥3,028,450

8,145
3,353
$37,638

Net sales to major customers for the fiscal year ended March 31, 2017 and 2016 were as
follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
IHI Corporation¥ 35,969,978 ¥ 40,939,054$ 321,161

Impairment loss on fixed assets by reportable segments for the years ended March 31, 2017and 2016 are summarized as follows:
March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Aviation & airport-related businessLife service business
Retail business
Food & beverage business
Reportable segments total
Adjustments and eliminations

¥

–
–
3,076
–
3,076
–
¥3,076

¥

69
–
1,928
143,173
145,172–¥145,172

$

–
–
27
–
27
–
$27

39

22.

Segment Information (continued)

The following table presents the amortization and balance of goodwill as of and for the year
ended March 31 2016 by reportable segment:
Year ended March 31, 2016
Reportable segments

Amortization
Balance as ofMarch 31, 2016

23.

Aviation &airportrelated
business

Life service
business

Retailbusiness

Food &
beveragebusiness(Thousands of yen)

¥ –

¥ –

¥ –

¥ 38,976¥ 38,976¥ –¥ 38,976

¥ –

¥ –

¥ –

¥ –

¥ –

¥ –

¥ –

Total

Adjustments
andeliminations Consolidated

Related Party Transactions

The significant transactions between the Company and Japan Airline Co., Ltd., for the years
ended March 31, 2017 and 2016 are summarized as follows:Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Sales of flight equipment
Purchases of merchandise¥5,435,984
309,511¥5,999,432
316,019

March 31,2017
2016
(Thousands of yen)Accounts receivable
Accounts payable¥597,178
56,873¥867,483
66,710$48,5362,763

2017(Thousands of
U.S. dollars)$5,332508

The significant transactions between certain consolidated subsidiaries of the Company andJapan Airlines Co., Ltd. for the years ended March 31, 2017 and 2016 are summarized asfollows:
Year ended March 31,
2017
2016
2017
(Thousands of yen)(Thousands of
U.S. dollars)
Sales of flight equipment¥245,897¥269,083

March 31,2017
2016
(Thousands of yen)Accounts receivable¥25,608¥43,502$2,196

2017(Thousands of
U.S. dollars)$22940