Financial
Statements
2020
Benesse Holdings, Inc.
and Subsidiaries
Consolidated Financial Statements
for the Year Ended March 31, 2020,and Independent Auditor’s ReportConsolidated Balance Sheet
Benesse Holdings, Inc. and Subsidiaries
March 31, 2020

Millions of Yen
2020
2019

ASSETS
CURRENT ASSETS:
Cash and time deposits (Notes 3 and 4)
Marketable securities (Notes 3, 4 and 5)
Trade receivables (Note 4):
Accounts
Other
Due from affiliates
Inventories (Note 6)
Other current assets
Allowance for doubtful receivables (Note 4)

Thousands of
U.S. Dollars(Note 1)2020

¥ 152,508
2,905¥ 109,682
34,467$ 1,399,156
26,651

30,21048,758930,085
9,978(1,099 )33,24545,305
10
30,94912,407(1,755 )277,156
447,32183
276,009
91,542(10,083 )273,354264,3102,507,835

LIABILITIES AND EQUITYCURRENT LIABILITIES:Current portion of long-term debt (Notes 4 and 10)
Trade payables (Note 4):
Accounts
Other
Due to affiliates
Advances received
Income taxes payable (Note 4)
Other current liabilities
Total current liabilities

Total current assets
PROPERTY AND EQUIPMENT:Land
Buildings and leasehold improvements (Note 7)
Equipment, fixtures and other
Lease assets (Note 7)
Total
Accumulated depreciation

35,12091,617
34,201
99,587
260,525(110,136 )

35,146
92,63933,38989,567250,741(103,388 )

322,202840,523
313,771913,6422,390,138(1,010,422 )

150,389

147,353

1,379,716

LONG-TERM LIABILITIES:Long-term debt, less current portion (Notes 4 and 10)
Lease obligations (Notes 4 and 8)
Guarantee deposits received from nursing home residents
Liability for retirement benefits (Note 11)
Deferred tax liabilities (Note 17)
Other long-term liabilities
Total long-term liabilities

Net property and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4 and 5)
Investments in associated companies (Note 4)
Goodwill and other intangible assets (Notes 7 and 9)
Software (Note 7)
Asset for retirement benefits (Note 11)
Deferred tax assets (Note 17)
Other assets

Millions of Yen
2020
2019

Thousands of
U.S. Dollars(Note 1)2020

¥ 13,943¥ 19,186$ 127,917

15,68524,761872
95,701
6,017
20,554

15,67925,017852
91,294
3,076
19,131

143,899
227,165
8,000
877,991
55,202
188,569

177,533

174,235

1,628,743

20,15686,424
38,668
7,914
641
10,75019,09979,96736,077
7,833
1,262
11,110184,917792,881354,752
72,606
5,881
98,624

164,553

155,348

1,509,661

13,70029,593
105
153,130

13,662
29,555
105
152,165

125,688271,495
963
1,404,862(21,362 )(21,360 )(195,982 )467(6,456 )(34 )169,143
6,197

1,372
(5,748 )(267 )
169,484
5,616

4,285
(59,228 )(312 )
1,551,771
56,853

175,340

175,100

1,608,624¥ 517,426¥ 504,683$ 4,747,028

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 4, 8 and 16)
14,342
2,070
12,022
23,812
3,238
4,106
34,093

11,0232,050
16,45722,7102,806
4,405
33,569131,578
18,991
110,294
218,459
29,70637,670312,779

Total investments and other assets

93,68393,020859,477

TOTAL
See notes to consolidated financial statements.

¥ 517,426¥ 504,683$ 4,747,028

EQUITY (Notes 12 and 18):
Common stock—authorized, 405,282,040 shares in 2020
and 2019; issued, 102,513,199 shares in 2020 and
102,483,603 shares in 2019
Capital surplus
Stock acquisition rights
Retained earnings
Treasury stock—at cost—6,157,838 shares in 2020 and
6,156,644 shares in 2019
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans (Note 11)
Total
Noncontrolling interests
Total equity
TOTAL

-1-

Consolidated Statement of Income
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020

Millions of Yen
2020
2019
NET SALES

Thousands of
U.S. Dollars(Note 1)2020

¥ 448,577¥ 439,432$ 4,115,385

COST OF SALES (Notes 11 and 15)

249,980

249,050

2,293,394

Gross profit

198,597

190,382

1,821,991

177,331

174,136

1,626,890

21,266

16,246

195,101

OTHER INCOME (EXPENSES):
Dividend income
Rent income
Interest expense—net (Note 10)
Foreign exchange gain (loss)
Gain on investments—net
Equity in net earnings of associated companies
Gain on sale of investment in subsidiaries and an affiliate—net
Loss on impairment of long-lived assets (Note 7)
Other—net

146
340(4,925 )
213
184
132
3,302
(3,572 )(857 )

143
341(4,275 )(758 )
350
324(467 )
180

1,339
3,119
(45,183 )
1,954
1,688
1,211
30,294(32,771 )(7,862 )INCOME BEFORE INCOME TAXES

16,22912,084

148,890

INCOME TAXES (Note 17):
Current
Deferred

9,024(187 )

5,723
597

82,789(1,716 )

8,837

6,320

81,073NET INCOME

7,392

5,764

67,817NET INCOME ATTRIBUTABLE TO NONCONTROLLINGINTERESTS

1,103

862

10,120SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 11, 14 and 15)
Operating income

Total income taxes

NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT

¥

6,289

¥

4,902

Yen
PER SHARE OF COMMON STOCK (Notes 2.t and 21):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

-2-

2020

2019

¥ 65.28
65.27
50.00

¥ 50.89
50.88
72.50

$

57,697

U.S. Dollars
2020
$

0.60
0.60
0.46

Consolidated Statement of Comprehensive Income
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020

Millions of Yen
2020
2019
NET INCOME

Thousands of
U.S. Dollars(Note 1)2020

¥ 7,392¥ 5,764$ 67,817

OTHER COMPREHENSIVE (LOSS) INCOME (Notes 11 and 19):
Unrealized loss on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive (loss) income in associates(918 )(708 )
233(2 )(333 )(340 )
940
3(8,422 )(6,496 )
2,138
(18 )

Total other comprehensive (loss) income(1,395 )270(12,798 )COMPREHENSIVE INCOME¥ 5,997¥ 6,034$ 55,019

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests
See notes to consolidated financial statements.

¥ 4,908
1,089¥ 5,162872$ 45,028
9,991

-3-

Consolidated Statement of Changes in Equity
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020
Thousands

BALANCE, APRIL 1, 2018
Issuance of new shares (Note 12)
Net income attributable to owners of the parent
Cash dividends, ¥72.5 per share
Purchases of treasury stock
Change in the parent’s ownership interest due totransactions with noncontrolling interests
Net change in the year

Number of
Shares ofCommonStock
Outstanding

CommonStockCapitalSurplus

Stock
Acquisition
RightsRetained
Earnings

Treasury
Stock96,308¥ 13,624¥ 29,556¥ 99¥ 154,246¥ (21,358 )

20

38

38

Millions of Yen
Accumulated Other
Comprehensive Income (Loss)
Unrealized
Gain onForeignDefinedAvailableCurrency
Retirement
for-SaleTranslation
BenefitSecurities
Adjustments
Plans¥ 1,719¥ (5,404 )¥ (1,218 )

(2 )
(39 )
6

BALANCE, MARCH 31, 2019
Cumulative effects of changes in accounting policies
Restated balance
Issuance of new shares (Note 12)
Net income attributable to owners of the parent
Cash dividends, ¥50.0 per share
Purchases of treasury stock
Net change in the year

96,327

13,662

29,555105

13,662
38

29,55538

105

30

BALANCE, MARCH 31, 2020

96,355

152,165(507 )
151,658¥ 29,593¥ 105

CommonStockCapitalSurplus

Stock
Acquisition
RightsBALANCE, MARCH 31, 2019
Cumulative effects of changes in accounting policies
Restated balance
Issuance of new shares (Note 12)
Net income attributable to owners of the parent
Cash dividends, $0.46 per share
Purchases of treasury stock
Net change in the year

$ 125,339$ 271,146$ 963

125,339349

271,146
349

963

BALANCE, MARCH 31, 2020
See notes to consolidated financial statements.

$ 125,688(5,748 )(267 )(21,360 )

1,372(5,748 )(267 )(905 )(708 )

233

169,484(507 )
168,977
76
6,289(4,817 )(2 )(1,380 )¥ 467¥ (6,456 )(34 )¥ (21,362 )Retained
Earnings

Thousands of U.S. Dollars (Note 1)
Accumulated Other
Comprehensive Income (Loss)
Unrealized
Gain onForeignDefinedAvailableCurrency
Retirement
for-SaleTranslation
Benefit
Treasury
Securities
Adjustments
Plans
Stock

$ 1,404,862

-4-

(39 )
266

1,372

¥

¥ 6,197¥ 175,340

Total

Noncontrolling
Interests

Total
Equity$ 51,523

5,330$ 1,606,422(4,651 )
1,601,771
698
57,697(44,193 )(19 )(7,330 )$ 56,853$ 1,608,624$ (2,450 )(195,963 )

12,588(52,733 )(2,450 )(8,303 )(6,495 )2,138$ 1,554,899(4,651 )
1,550,248
698
57,697(44,193 )(19 )(12,660 )$ 4,285$ (59,228 )(312 )$ 1,551,771

5,616

(39 )
2,023

¥ 169,143$ (52,733 )

$

1,757

581

$ 12,588$ (195,982 )

76
4,902
(6,983 )(2 )175,100(507 )
174,593
76
6,289(4,817 )(2 )(799 )$ (195,963 )

(19 )
$ 963

¥ 175,123(21,360 )

57,697(44,193 )$ 271,495¥ 3,859951¥ 153,130$ 1,396,009(4,651 )
1,391,358¥ 171,264(344 )(2 )¥ 13,700

Total
Equity(347 )

6,289(4,817 )(2 )Noncontrolling
Interests

76
4,902(6,983 )
(2 )

4,902
(6,983 )
(1 )

Total

5,616

51,523

Consolidated Statement of Cash Flows
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020

OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Depreciation and amortization
Loss on impairment of long-lived assets
Other noncash income and expenses—net
Gain on sale of investment in subsidiaries and an affiliate
Changes in assets and liabilities, net of effects:
Increase (decrease) in allowance for doubtful receivables
and other reserves
Decrease (increase) in trade accounts receivable
Decrease (increase) in inventories
Increase (decrease) in trade accounts payable
Increase in advances received
Increase in asset for retirement benefits
Other—net
Subtotal¥

Millions of Yen
2020
2019

Thousands of
U.S. Dollars(Note 1)
2020

16,229$¥12,084

148,890

19,9953,572
5,536(3,302 )20,014467
5,375

183,440
32,77150,789(30,294 )

165
2,252
775
438
5,170
(539 )
220
50,511(242 )(2,626 )(1,455 )(2,955 )2,413(1,240 )(3,874 )27,961

1,514
20,661
7,110
4,018
47,431(4,945 )2,019
463,404

695(5,437 )(6,556 )
2,766

665(4,759 )(11,370 )
1,451

6,376
(49,881 )(60,147 )
25,376

Net cash provided by operating activities

41,97913,948385,128

INVESTING ACTIVITIES:(Increase) decrease in time deposits—net
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property and equipment
Purchases of software
Purchases of investment securities
Proceeds from sales of investment securities
Proceeds from sale of interests in subsidiaries previously consolidated
Cash decrease due to acquisition of controlling interests in a company
Other—net(498 )(2,008 )21,883(5,956 )(8,442 )(5,980 )737
3,866(268 )(1,909 )296(60,313 )49,520(6,783 )(6,192 )(1,560 )754(3,879 )(2,334 )(4,569 )(18,422 )
200,761(54,642 )(77,450 )(54,862 )
6,761
35,468(2,459 )(17,513 )

1,425(30,491 )13,07315,000(19,186 )(4,820 )(3,084 )(572 )

5,000(5,046 )(6,987 )(2,316 )(736 )

137,615(176,018 )(44,220 )(28,294 )(5,248 )(12,662 )(10,085 )(116,165 )(519 )(1,127 )(4,761 )30,223(27,755 )277,275

Interest and dividends received
Interest paid
Income taxes—paid
Income taxes—refund

Net cash provided by (used in) investing activities
FINANCING ACTIVITIES:
Proceeds from long-term debt
Repayments of long-term debt
Dividends paid
Repayments of lease obligations
Other—net
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF A NEWLYCONSOLIDATED SUBSIDIARY

2,108

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

112,658

CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3)¥-5-

142,881

138,305¥

112,658

1,033,560$

1,310,835(Continued)

Consolidated Statement of Cash Flows
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020

Millions of Yen
2020
2019
ADDITIONAL CASH FLOW INFORMATION:
Proceeds from sale of interests in subsidiaries previously consolidated:
Current assets
Long-term assets
Current liabilities
Long-term liabilities
Accumulated other comprehensive income (loss)
Transfer expenses
Gain on sale of investment in subsidiaries and an affiliate
Selling priceTransfer expenses
Cash and cash equivalents of subsidiaries
Proceeds from sale of interests in subsidiaries previously consolidated

¥

1,739
603
(688 )(146 )
(3 )
109
3,332
4,946
(109 )(971 )$

15,954
5,532(6,312 )(1,339 )
(28 )
1,000
30,56945,376(1,000 )(8,908 )

¥

3,866

$

35,468$87,642
94,339Acquisition of controlling interests in a company:
Current assets
Long-term assets
Consolidation goodwill
Current liabilities
Long-term liabilities
Noncontrolling interest
Acquisition cost
Cash and cash equivalents of a newly consolidated subsidiary
Cash decrease due to acquisition of controlling interests in a company
NONCASH INVESTING AND FINANCING ACTIVITIES:Assets and obligations from finance lease transactions
recognized in the consolidated balance sheet:
Lease assets
Lease obligations

Thousands of
U.S. Dollars(Note 1)
2020

¥

9,553
10,283

¥

2,205
3,999
3,989
(3,280 )(880 )(712 )
5,321(1,442 )

¥

3,879

¥

10,53911,376On January 8, 2019, Classi Corporation, previously accounted for by applying the equity method, became a consolidated
subsidiary of the Company, applying the control criteria. Increases in assets and liabilities as a result of the consolidation
are as follows:
Millions of Yen¥ 2,162332

Current assets*Long-term assets
Total assets¥ 2,494

Current liabilities
Long-term liabilities

¥

750
19

Total liabilities¥

769* Cash and cash equivalents amount of ¥2,108 million are included in cash and cash equivalents of a newly
consolidated subsidiary for the year ended March 31, 2019.
See notes to consolidated financial statements.

-6-(Concluded)

Notes to Consolidated Financial Statements
Benesse Holdings, Inc. and Subsidiaries
Year Ended March 31, 2020
Note 1.

BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements of Benesse Holdings, Inc. (the “Company”) have been
prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act andits related accounting regulations, and in accordance with accounting principles generally accepted in Japan, which
are different in certain respects as to the application and disclosure requirements of International Financial
Reporting Standards (“IFRS”). The foreign subsidiaries prepare their financial statements in accordance with either
IFRS or accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been
made to the consolidated financial statements issued domestically in order to present them in a form which is morefamiliar to readers outside Japan. In addition, certain reclassifications have been made in the 2019 consolidated
financial statements to conform to the classifications used in 2020.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which theCompany is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥109 to $1, theapproximate rate of exchange at March 31, 2020. Such translations should not be construed as representations that
the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
Note 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation—The consolidated financial statements include the accounts of the Company and its 37 (40 in2019) subsidiaries (collectively, the “Companies”). Berlitz Corporation, a wholly owned subsidiary of the Company
located in the United States of America, consolidates all of its subsidiaries, and is counted as one company, thefinancial statements of which are prepared in accordance with U.S. GAAP.
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able toexercise control over operations are fully consolidated, and those companies over which the Companies have theability to exercise significant influence are accounted for by the equity method.
Investments in nine associated companies are accounted for by applying the equity method.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profits included in assets resulting from transactions within the Companies are also eliminated.
b. Business Combinations—Business combinations are accounted for using the purchase method.
Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses in the periods
in which the costs are incurred. If the initial accounting for a business combination is incomplete by the end of thereporting period in which the business combination occurs, an acquirer shall report in its financial statements
provisional amounts for the items for which the accounting is incomplete. During the measurement period, whichshall not exceed one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts
recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed asof the acquisition date and that would have affected the measurement of the amounts recognized as of that date.
Such adjustments shall be recognized as if the accounting for the business combination had been completed at theacquisition date. The acquirer recognizes any bargain purchase gain in profit or loss immediately on the acquisition
date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been
identified after a review of the procedures used in the purchase price allocation. A parent’s ownership interest in a
subsidiary might change if the parent purchases or sells ownership interests in its subsidiary. The carrying amountof noncontrolling interest is adjusted to reflect the change in the parent’s ownership interest in its subsidiary while
the parent retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration
received or paid and the amount by which the noncontrolling interest is adjusted is accounted for as capital surplus
as long as the parent retains control over its subsidiary.
c. Cash Equivalents—Cash equivalents in the consolidated statement of cash flows are defined as low-risk,
highly liquid, short-term (maturity within three months of acquisition date) investments that are readily convertible tocash.
d. Inventories—Inventories are primarily stated at the lower of cost, determined by the average cost method, or
net selling value. Inventories of foreign subsidiaries are primarily stated at the lower of cost or market, or net selling
value.
e. Marketable and Investment Securities—Marketable and investment securities are classified and accounted
for, depending on management’s intent, as follows: (1) trading securities, which are held for the purpose of earning
capital gains in the near term are reported at fair value, and the related unrealized gains and losses are included inearnings; (2) held-to-maturity debt securities, for which there is a positive intent and ability to hold to maturity arereported at amortized cost; and (3) available-for-sale securities, which are not classified as either of the-7-

aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes,
reported in a separate component of equity.
Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For
other-than-temporary declines in fair value, investment securities are reduced to net realizable value by a charge toincome.
f. Property and Equipment—Property and equipment are stated at cost. Depreciation of property and equipmentof the Company and its domestic subsidiaries is computed by the declining-balance method over the estimateduseful lives of the assets, while the straight-line method is applied to buildings acquired on or after April 1, 1998,
building improvements and structures acquired on or after April 1, 2016, lease assets of the Company and its
domestic subsidiaries, and all property and equipment of foreign subsidiaries. The range of useful lives in the
Company and its domestic subsidiaries is principally from 2 to 50 years for buildings. The useful lives for leaseassets of the Company and its domestic subsidiaries are the terms of the respective leases.
Under certain conditions such as exchanges of fixed assets of similar kinds and sales and purchases resulting
from expropriation, Japanese tax laws permit companies to defer the profit arising from such transactions by
reducing the cost of the assets acquired. As of March 31, 2020 and 2019, such deferred profit amounted to¥2,176 million ($19,963 thousand) and ¥1,959 million, respectively.
g. Long-Lived Assets—Long-lived assets of the Company and its domestic subsidiaries are reviewed for
impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group
may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset groupexceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual
disposition of the asset or asset group. The impairment loss would be measured as the amount by which thecarrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows fromthe continued use and eventual disposition of the asset or the net selling price at disposition.
h. Goodwill and Other Intangible Assets—The differences between the cost and net equity at acquisition(“consolidation goodwill”) and customer-related intangible assets in domestic subsidiaries are amortized on astraight-line basis over 5 to 20 years for goodwill and 20 years for customer-related intangible assets. Immaterial
consolidation goodwill that was incurred in the current period was charged to income.
Prior to April 1, 2008, in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets,” goodwill and other intangible assets of Berlitz Corporation that were determined to havean indefinite life were not amortized, but rather tested for impairment on an annual basis and between annual tests if
an event occurred or circumstances arose that would more likely than not reduce the fair value below its carrying
amount, which were reflected in the Company’s consolidated financial statements without any adjustments.
Effective April 1, 2008, goodwill and other intangible assets are adjusted to be amortized on a straight-line basis
primarily over 20 years due to the adoption of Accounting Standards Board of Japan (“ASBJ”) Practical Issues Task
Force (“PITF”) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
the Consolidated Financial Statements.” See Note 9 for details on goodwill and other intangible assets.
i. Software—Software used internally is amortized by the straight-line method over its estimated useful life
(primarily 5 years and 10 years) within the Company.
j. Leases—Finance lease transactions are capitalized to recognize lease assets and lease obligations in thebalance sheet. Lease obligations relating to finance leases are primarily used for capital expenditures.
On January 13, 2016, the International Accounting Standards Board (IASB) issued IFRS 16, “Leases,” requiring
recognition of substantially all lease assets and leases liabilities on the balance sheet. Certain foreign subsidiaries
that apply IFRS applied this accounting standard effective April 1, 2019. These subsidiaries recognized thecumulative effect of applying IFRS 16 as an adjustment to the beginning balance of retained earnings as of April 1,
2019 in accordance with the transitional measure.
As a result, lease assets under property and equipment increased by ¥1,027 million ($9,422 thousand), othercurrent liabilities increased by ¥511 million ($4,688 thousand) and lease obligations under long-term liabilities
increased by ¥577 million ($5,294 thousand), in the consolidated balance sheet as of March 31, 2020.
The impact of applying this standard on the consolidated statement of income and per share information for theyear ended March 31, 2020 was immaterial.
The beginning balance of retained earnings in the consolidated statement of changes in equity for the year ended
March 31, 2020 decreased by ¥68 million ($624 thousand) as the cumulative effect was reflected in net assets as ofApril 1, 2019.
In the consolidated statement of cash flows for the year ended March 31, 2020, cash flows from operating activities
increased by ¥523 million ($4,798 thousand) and cash flows from financing activities decreased by the sameamount.
Right-of-use assets newly recognized in accordance with the application of this standard are included in leaseassets.
k. Retirement and Pension Plans—The Company and certain of its domestic subsidiaries have severance
lump-sum payment plans for employees. The Company and its certain domestic subsidiaries have a contributory
funded defined benefit pension plan and lump-sum payment plans for employees, directors, Audit & Supervisory-8-

Board members and Company officers. The pension plans, which were established under the Japanese Welfare
Pension Insurance Law, cover a substitutional portion of the governmental pension program by the Company onbehalf of the government and a corporate portion established at the discretion of the Company. The pension fund isadministered by a board of trustees composed of management and employee representatives as required bygovernment regulations.
Effective April 1, 2004, the Company and its certain domestic subsidiaries introduced a cash-balance plan as partof the former pension plan to reduce the Company’s future risk due to unexpected low returns from the pension
fund.
A certain foreign subsidiary (Berlitz Corporation) has a Supplemental Executive Retirement Plan (“SERP”) for the
benefit of its Chairman of the Board, certain designated executives and their designated beneficiaries.
In addition, certain subsidiaries have defined contribution plans.
The Company accounted for the liability for retirement benefits based on the projected benefit obligations and plan
assets at the balance sheet date. The projected benefit obligations of certain domestic subsidiaries are attributed toperiods on a benefit formula basis, and those of foreign subsidiaries are attributed to periods using the projected
unit credit method. Actuarial gains and losses of certain domestic subsidiaries that are yet to be recognized in profit
or loss are recognized within equity (accumulated other comprehensive income) after adjusting for tax effects, andare recognized in profit or loss over eight years no longer than the expected average remaining service period of theemployees. Foreign subsidiaries only recognize actuarial gains and losses that are greater than 10% of the larger ofthe beginning balances of the projected benefit obligation or the market-related value (which may equal fair value) of
the plan assets and they are amortized on a straight-line basis primarily over five years within the averageremaining service period. Past service costs are amortized on a straight-line basis primarily over eight years within
the average remaining service period.
Retirement benefits to directors, Audit & Supervisory Board members and Company officers of certain domestic
subsidiaries are recorded as a liability at the amount that would be required if all directors, Audit & Supervisory
Board members and Company officers retired at each consolidated balance sheet date.
l. Asset Retirement Obligations—An asset retirement obligation is recorded for a legal obligation imposed
either by law or contract that results from the acquisition, construction, development and normal operation of atangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement
obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and isrecorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonableestimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred,
the liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon
initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing
the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is
subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, theliability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of theoriginal estimate of undiscounted cash flows are reflected as an adjustment to the carrying amount of the liability
and the capitalized amount of the related asset retirement cost.
m. Stock Options—Compensation expense for employee stock options are recognized based on the fair value atthe date of grant and over the vesting period as consideration for receiving goods or services in accordance withASBJ Statement No. 8, “Accounting Standard for Share-based Payment.” Stock options granted to nonemployees
are accounted for based on the fair value of either the stock option or the goods or services received. In the balance
sheet, the stock option is presented as a stock acquisition right as a separate component of equity until exercised.
n.

Research and Development Costs—Research and development costs are charged to income as incurred.

o. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidatedbalance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated
statement of income to the extent that they are not hedged by forward exchange contracts.
p. Foreign Currency Financial Statements—The consolidated balance sheet accounts of the foreignsubsidiaries are translated into Japanese yen at the current exchange rate as of the consolidated balance sheet
date except for equity, which is translated at the historical rate. Differences arising from such translation are shown
as “Foreign currency translation adjustments” in a separate component of equity. Revenue and expense accounts offoreign subsidiaries are translated into yen at the average exchange rate.
q. Derivative Financial Instruments and Hedge Activities—The Company uses derivative financial instruments
to manage its exposures to fluctuations in foreign currency exchange and interest rates. Foreign exchange forward
contracts, and interest rates and currency swaps are utilized by the Company to reduce foreign currency exchange
and interest rate risks. The Company does not enter into derivatives for trading or speculative purposes.
The Company records foreign exchange forward contracts at fair value, and the unrealized gains/losses arerecognized in the consolidated statement of income.
The interest rate and currency swaps used to hedge long-term debt denominated in a foreign currency with avariable interest rate, which qualifies for hedge accounting and meets specific matching criteria, is not measured at-9-market value. Rather, the long-term debt is recorded at a yen amount under the swap agreement and interest
expense is calculated and recorded using a fixed interest rate.
r. Bonuses to Directors, Audit & Supervisory Board Members and Company Officers—Bonuses to directors,
Audit & Supervisory Board members and Company officers are accrued at the end of the year to which suchbonuses are attributable.
s. Revenue Recognition—The accounting standards for primary revenue in a certain domestic subsidiary(Benesse Corporation) are as follows.
Correspondence course business:
Completed-contract method (Revenue is recorded in the month of course completion.)
Scholastic ability, etc. testing business:
Completed-contract method (Revenue is recorded when the test results are sent out.)
A certain foreign subsidiary (Berlitz Corporation) that applies U.S. GAAP applied the following new accounting
standard, effective April 1, 2019.
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue fromContracts with Customers” (ASC606).
The core principal of the standard is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitledin exchange for those goods or services.
Berlitz Corporation recognized the cumulative effect of applying ASC 606 as an adjustment to the beginningbalance of retained earnings as of April 1, 2019 in accordance with the transitional measure.
The impact of applying this standard on the consolidated statement of income and per share information for theyear ended March 31, 2020 was immaterial.
The beginning balance of retained earnings in the consolidated statement of changes in equity for the year ended
March 31, 2020 decreased by ¥439 million ($4,028 thousand) as the cumulative effect was reflected in net assets
as of April 1, 2019.
t. Income Taxes—The provision for income taxes is computed based on the pretax income included in the
consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences between the carrying amounts and thetax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates tothe temporary differences.
The Company and certain domestic subsidiaries file a tax return under the consolidated taxation system, whichallows companies to base tax payments on the combined profits or losses of the parent company and its wholly
owned domestic subsidiaries.
With regard to differences under the group tax sharing system established by “Act on Partial Revision of the
Income Tax Act (Act No. 8, 2020)” and differences under the single tax return filing system reexamined together
with transition to the group tax sharing system, the Company calculates the amounts of deferred tax assets anddeferred tax liabilities based on the Income Tax Act before the revision, not applying ASBJ Guidance No. 28,“Implementation Guidance on Tax Effect Accounting,” issued on February 16, 2018, as permitted by the PITF
No. 39, “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated
Taxation System to the Group Tax Sharing System,” issued on March 31, 2020.
On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, “Partial Amendments to Accounting Standard forTax Effect Accounting,” which requires deferred tax assets and deferred tax liabilities to be classified as investments
and other assets and long-term liabilities, respectively. Deferred tax assets were previously classified as current
assets and investments and other assets, and deferred tax liabilities were previously classified as current liabilities
and long-term liabilities under the previous accounting standard. The revised accounting standard is effective forannual periods beginning on or after April 1, 2018.
u. Per Share Information—Basic net income per share is computed by dividing net income attributable tocommon shareholders by the weighted-average number of common shares outstanding for the period.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised orconverted into common stock.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends
applicable to the respective fiscal years, including dividends to be paid after the end of the year.
v. New Accounting Pronouncements
Accounting Standard for Revenue Recognition—On March 30, 2018, the ASBJ issued ASBJ Statement No. 29,“Accounting Standard for Revenue Recognition” and ASBJ Guidance No. 30, “Implementation Guidance on
Accounting Standard for Revenue Recognition,” and revised the standard and guidance on March 31, 2020. The
core principle of the standard and guidance is that an entity should recognize revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects tobe entitled in exchange for those goods or services. An entity should recognize revenue in accordance with thatcore principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract- 10 -

Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The accounting standard and guidance are effective for annual periods beginning on or after April 1, 2021. Earlier
application is permitted for annual periods beginning on or after April 1, 2018.
The Company expects to apply the accounting standard and guidance for annual periods beginning on or after
April 1, 2021, and is in the process of measuring the effects of applying the accounting standard and guidance infuture applicable periods.
Accounting Standard for Fair Value Measurement
Implementation Guidance on Accounting Standard for Fair Value Measurement
Accounting Standard for Measurement of Inventories
Accounting Standard for Financial Instruments
Implementation Guidance on Disclosures about Fair Value of Financial Instruments—On July 4, 2019, the
ASBJ issued ASBJ Statement No. 30, “Accounting Standard for Fair Value Measurement” and ASBJ Guidance
No. 31, “Implementation Guidance on Accounting Standard for Fair Value Measurement,” and revised related ASBJ
Statements and ASBJ Guidance (the “New Accounting Standards”). Under the New Accounting Standards,
nonmarketable available-for-sale equity securities are stated at cost, while under the current accounting standards,
nonmarketable available-for-sale securities are stated at cost. The New Accounting Standards are effective for theannual periods beginning on or after April 1, 2021. Earlier application is permitted for annual periods beginning on orafter April 1, 2020, or annual periods ending on or after March 31, 2020. The New Accounting Standards shall beapplied prospectively, however, under certain circumstances, it is permitted to be applied retrospectively.
The Company expects to apply the New Accounting Standards for annual periods beginning on or after April 1,
2021, and is in the process of measuring the effects of applying the New Accounting Standards in future applicable
periods.
ASU 2016-02 “Leases”—On February 25, 2016, the FASB issued ASU 2016-02, “Leases,” requiring recognition ofsubstantially all lease assets and leases liabilities on the balance sheet.
Certain foreign subsidiaries that apply U.S. GAAP expect to apply this accounting standard from the beginning ofannual periods beginning on April 1, 2021, and are in the process of measuring the effects of applying theaccounting standard in future applicable periods.
Note 3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents at March 31, 2020 and 2019 consisted of the following:

Cash and time deposits
Marketable securities
Time deposits and short-term investments
which mature or become due after morethan three months from acquisition date
Investment fund and otherCash and cash equivalents- 11 -

Millions of Yen
2020
2019
¥ 152,508¥ 109,682
2,905
34,467

Thousands of
U.S. Dollars
2020$ 1,399,156
26,651(12,521 )(11 )¥ 142,881(114,871 )(101 )$ 1,310,835(18,075 )(13,416 )¥ 112,658

Note 4.

FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1)Group Policy for Financial Instruments
The Companies focus on liquidity and safety in regards to investments of surplus funds, after considering theirapplication and timing. Particularly, derivative transactions are utilized mainly to hedge various risks andefficiently invest in funds. The Companies consider derivative transactions with high leverage to be high-risk
transactions, and do not enter into such transactions. In addition, the Companies have set overdraft limits inorder to finance operating capital with efficiency and stability in case of an unexpected contingency.

(2)

Nature and Extent of Risks Arising from Financial Instruments
Trade receivables are exposed to credit risks of counterparties. Trade receivables in foreign currencies are
exposed to the market risk of fluctuation in foreign currency exchange rates. The Companies enter into foreignexchange forward contracts and interest rate and currency swaps in order to earn returns and manage
exposure to market risk from changes in foreign currency exchange rates of dividend income from foreignsubsidiaries and long-term debt denominated in foreign currencies. Foreign exchange forward contracts andinterest rate and currency swaps are exposed to credit risks of counterparties and the market risk of fluctuation
in foreign currency exchange rates and interest rates. Marketable and investment securities mainly compriseequity securities, investment partnerships and trust fund investments with certain holding limits, andgovernment and corporate bonds. These securities are exposed to issuer credit risk and fluctuation risks offoreign exchange, interest rates and market price.
Trade payables and income taxes payable are payable within one year. Short-term bank loans and long-term
debt are primarily used for future business investments in the Company. Long-term debt with variable interestis exposed to fluctuation risk of interest rates. Long-term debt denominated in a foreign currency with a variableinterest rate is exposed to fluctuation risks of the foreign currency exchange and interest rates.

(3)

Risk Management for Financial Instruments
Credit risk management
The Companies manage credit risks of trade receivables as defined in the “Management Regulations for
Receivables,” based on which the general manager of each department manages each receivable by type withregard to the counterparty, due date, the amount and the balance in order to recognize or mitigate any
concerns over their collection at an early stage. “Management Regulations for Receivables” of subsidiaries are
established pursuant to the “Management Regulations for Receivables” of Benesse Corporation, a subsidiaryof the Company.
The Finance Department of the Companies manages the credit risk of security issuers by regularly monitoring
the fair values, rating and credit standing in accordance with “Fund Management Regulations.”
Because the counterparties to these derivatives are limited to major international financial institutions, theCompany and its foreign subsidiaries do not anticipate any losses arising from credit risk.
Market risk management
For fluctuation risks of foreign currency exchange rates, interest rates and market prices relating to marketable
and investment securities, the Companies’ Finance Department obtains and monitors the price information ofmarketable and investment securities from financial institutions on a steady basis for securities with market
prices, and periodically for those without market prices. With respect to securities transactions, the Companies’
Finance Department executes transactions in accordance with the provisions of the “Fund Management
Regulations,” which regulate the authorization and transaction limit amounts, in order to monitor operating
status on a regular basis. The results of the monitoring by the Companies’ Finance Department are reported to
the CEO weekly and to the Board of Directors each time significant circumstances occur.
Fluctuation risks of foreign currency exchange rates relating to receivables in foreign currencies are hedged
by foreign exchange forward contracts and the risks relating to long-term debt denominated in a foreign
currency with a variable interest rate is hedged by an interest and currency swap. In addition, a portion ofshort-term bank loans and long-term debt is financed by fixed interest to prevent fluctuation risk of thecorresponding interest rates.
For fluctuation risks of foreign currency exchange rates and risks resulting from changes in interest rates
relating to derivative transactions that are foreign exchange forward contracts and interest and currency swaps,
the authorization and credit limits amount are defined in “Derivative Transaction Regulations.” The Companies’
Finance Department also monitors foreign exchange forward contracts in terms of the balance and gain or loss
on valuation, and reports to the CEO weekly and to the Board of Directors quarterly. The results of themonitoring by the Companies’ Finance Department are also reported to the Board of Directors each time
significant circumstances occur.
Liquidity risk management
The Companies’ Finance Department monitors liquidity risk by preparing an annual cash management plan
based on reports from each department, and a monthly cash management plan through confirmation of daily
cash receipts and payments. Subsidiaries perform similar procedures in accordance with the Company’s
procedures.

- 12 -

(4)Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are notavailable, other rational valuation techniques are used instead. Such techniques include variable factors andthe results of valuation may differ depending on prerequisites. The contract amounts of derivatives, which are
shown in the following table, do not represent the amounts exchanged by the parties and do not measure theCompanies’ exposure to market risk.
The table below shows the carrying amounts of financial instruments recorded in the consolidated balance
sheets as of March 31, 2020 and 2019, and their fair values, as well as the differences between the carrying
amounts and the fair values. Financial instruments whose fair values are deemed extremely difficult to assess
are not included.
(a)Fair value of financial instruments
Millions of Yen
Carrying
AmountFair Value

Unrealized
Gain (Loss)

March 31, 2020
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities¥ 152,508
78,977(1,099 )77,8788,421¥ 152,508

Total¥ 238,807¥ 238,807

Trade payables
Income taxes payable
Long-term debt
Lease obligations

¥

¥

Total

¥ 170,946¥ 176,087

Derivatives¥¥

March 31, 2019
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities¥ 109,682
78,560(1,754 )76,80642,487¥ 109,682
76,80642,486

¥

(1 )

Total

¥ 228,975¥ 228,974¥(1 )Trade payables
Income taxes payable
Long-term debt
Lease obligations

¥

¥

¥

70
5,682

Total

¥ 165,250¥ 171,002

Derivatives¥¥- 13 -

41,318
6,017
34,09989,512(6 )41,5483,076
38,28582,341(16 )

77,878
8,421

41,318
6,017
34,117
94,635

¥

18
5,123

¥ 5,141(6 )

41,5483,076
38,35588,023(16 )¥ 5,752

CarryingAmountThousands of U.S. Dollars
Unrealized
Fair Value
Gain (Loss)

March 31, 2020
Cash and time deposits
Trade receivables
Allowance for doubtful receivables
Net trade receivables
Marketable and investment securities$ 1,399,156
724,560(10,083 )
714,477
77,257$ 1,399,156

Total$ 2,190,890$ 2,190,890

Trade payables
Income taxes payable
Long-term debt
Lease obligations

$

$

Total

$ 1,568,312

379,064
55,202
312,834
821,212714,477
77,257379,064
55,202313,000
868,211$ 1,615,477$

166
46,999$ 47,165

Derivatives
$
(55 )
$
(55 )
Notes: 1. Trade receivables are stated net of each allowance for doubtful receivables.
2. Long-term debt and lease obligations are stated at the carrying amount, including current
portion. The fair value of the interest rate and currency swap, which qualify for hedge
accounting and meet specific matching criteria, is included in the fair value of the long-term
debt as the related hedged-items.
3. Derivatives are stated net of assets and liabilities. The figures in parentheses indicate net
liabilities.
Cash and Time Deposits and Trade Receivables
The carrying values of cash and time deposits and trade receivables approximate fair value because of
their short maturities.
Marketable and Investment Securities
While the fair values of equity securities are measured at the quoted market price of the stock exchange,
the fair values of government and corporate bonds and trust fund investments and others are measured at
the quoted market price of the stock exchange and also by the prices obtained from financial institutions.
Fair value information for marketable and investment securities by classification is included in Note 5.
Trade Payables and Income Taxes Payable
The carrying values of trade payables and income taxes payable approximate fair value because of theirshort maturities.
Long-Term Debt and Lease Obligations
The fair values of long-term debt and lease obligations are determined by discounting the cash flows
related to the debt at the Companies’ assumed corporate borrowing rate.
Certain long-term debt denominated in a foreign currency with a variable interest rate is hedged by aninterest and currency swap. Since the swap qualifies for hedge accounting and meets specific matching
criteria, it is not measured at market value. Rather, the long-term debt is recorded at a yen amount under
the swap agreement and interest expense is calculated and recorded using a fixed interest rate.
The fair value of the long-term debt is determined based on the assumption that the long-term debt isdebt denominated in Japanese yen with a fixed rate.
Derivatives
Fair value information for derivatives is included in Note 16.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Millions of Yen
2020
2019

Thousands of
U.S. Dollars
2020

Investments in equity instruments that do nothave a quoted market price in an active market
Investments in partnerships
Investments in associated companies¥ 6,725
2,101
2,070

¥ 1,135
1,868
2,050

$ 61,697
19,27518,991

Total¥ 10,896¥ 5,053$ 99,963- 14 -

(5)Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Due in1 Yearor Less
March 31, 2020
Time deposits
Trade receivables
Marketable and investment securities—
Available-for-sale securities with fundinvestments and other:Government and corporate bonds
Trust fund investments and other

Millions of Yen
Due after
Due after
1 Year
5 Years
throughthrough
5 Years
10 Years

Due after
10 Years¥ 150,789
78,977¥2,900¥ 1,417939¥ 100

Total marketable and investment securities

¥

2,900

¥ 2,356¥ 100

March 31, 2019
Time deposits
Trade receivables¥ 107,611
78,560Marketable and investment securities—
Available-for-sale securities with fundinvestments and other:Government and corporate bonds
Trust fund investments and other¥Total marketable and investment securities

¥

3,555
30,900¥ 2,335
987

¥ 101

¥ 100

34,455¥ 3,322

¥ 101

¥ 100

Due in1 Yearor Less
March 31, 2020
Time deposits
Trade receivables

Thousands of U.S. Dollars
Due after
Due after
1 Year
5 Years
throughthrough
5 Years
10 Years

Due after
10 Years$ 1,383,385
724,560

Marketable and investment securities—
Available-for-sale securities with fundinvestments and other:Government and corporate bonds
Trust fund investments and otherTotal marketable and investment securities$

26,606$ 13,000
8,615

$ 917

$

26,606$ 21,615$ 917

Please see Note 10 for annual maturities of long-term debt and Note 8 for obligations under finance leases.

- 15 -

Note 5.

MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2020 and 2019, consisted of the following:
Millions of Yen
2020
2019

Thousands of
U.S. Dollars
2020

Current:
Government and corporate bonds
Trust fund investments and other

¥

2,905

¥

3,566
30,901$

26,651

Total

¥

2,905

¥ 34,467$

26,651

¥

3,020

¥

$

27,706

Non-current:
Marketable equity securities
Investments in equity instruments that do nothave a quoted market price in an active market
Investments in partnerships
Government and corporate bonds
Trust fund investments and other
Total

4,437

6,726
2,101
1,510
985

1,135
1,868
2,446
1,137

61,706
19,275
13,854
9,037¥ 14,342¥ 11,023$ 131,578

The costs and aggregate fair values of marketable and investment securities at March 31, 2020 and 2019, were as
follows:

Cost
March 31, 2020
Securities classified as:
Available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other

¥

¥

¥

469
29

¥ (195 )
(28 )
(70 )

Millions of Yen
Unrealized
Unrealized
Gains
Losses

3,020
4,415
985

Fair
Value
¥

¥

3,024
5,894
32,055

Cost
March 31, 2020
Securities classified as:
Available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other

Fair
Value

2,746
4,414
1,055

Cost
March 31, 2019
Securities classified as:
Trading
Available-for-sale:
Equity securities
Government and corporate bonds
Trust fund investments and other

Millions of Yen
Unrealized
Unrealized
Gains
Losses$25,19240,496
9,679- 16 -¥ 1,477
136
1

¥ 64
18
18

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
Losses

$

4,303
266

$ (1,789)
(257)
(642)

1
4,437
6,012
32,038
Fair
Value$ 27,706
40,505
9,037

The proceeds and realized gains and losses of the available-for-sale securities that were sold during the years
ended March 31, 2020 and 2019, were as follows:
Thousands of
U.S. Dollars
2020$ 2,899

Proceeds from sales

Millions of Yen
2020
2019
¥ 316
¥ 165

Gross realized gains
Gross realized losses

¥ 45
(62 )

¥ 16
(15 )

$

Net realized (loss) gain

¥ (17 )¥$ (156 )1413(569 )The impairment losses on available-for-sale equity securities for the year ended March 31, 2020 were ¥29 million($266 thousand).
Note 6.

INVENTORIESInventories at March 31, 2020 and 2019, consisted of the following:

Finished products
Work in process
Raw materials and supplies

Millions of Yen
2020
2019
¥ 23,773¥ 26,229
4,427
2,889
1,885
1,831

Thousands of
U.S. Dollars
2020$ 218,101
40,615
17,293

Total¥ 30,085$ 276,009- 17 -¥ 30,949

Note 7.

LONG-LIVED ASSETSThe Company and its subsidiaries reviewed their long-lived assets for impairment as of March 31, 2020 and 2019. As a result, the Company recognized impairment losses, which were as follows:
Millions of Yen

Thousands of
U.S. Dollars¥ 1,586$ 14,551

1,561
317
52
48
8

14,321
2,908
477
440
74

Total

¥ 3,572$ 32,771

Land, software and others
Buildings and structures and others
Buildings and structures and others
Buildings and structures and others
Software
Buildings and structures and others
Buildings and structures and others
Lease assets, buildings and structuresand others

¥

175
61
55
54
41
17
41
23

Total

¥

467

Use
Year ended March 31, 2020

Type

Language training business

GoodwillEnglish language classes for children business

Buildings and structures, goodwill,
software and others
Buildings and structures and others
Software
Buildings and structures and others
Buildings and structures and others

Cram and prep school businessCorrespondence course business in Indonesia
Photo studio business
Cram school businessYear ended March 31, 2019

Note 8.

UnusedLanguage training business
English language classes for children business
Cram and prep school business
Management system
Cram school businessPhoto studio businessResidential care services business

Recoverable Amounts
Nil (The estimated amount based on discounting
anticipated future cash flows)
Nil (The estimated amount based on discounting
anticipated future cash flows )The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets

The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets
The assessed value of fixed assets

LEASES

LesseeA foreign subsidiary leases certain equipment, office space and other assets under noncancelable operating leases. The Company and a domestic subsidiary have lease contracts for certain land, buildings and other assets under noncancelable operating leases.
Obligations under finance leases and future minimum payments under noncancelable operating leases were as follows:
Thousands of
U.S. Dollars
2020
Finance
Operating
LeasesLeasesMillions of Yen
2020
Finance
Operating
LeasesLeasesDue within one year
Due after one year

¥

3,088
86,424¥ 11,953
55,053$28,331
792,881$ 109,661
505,073

Total¥ 89,512¥ 67,006$ 821,212$ 614,734- 18 -

Note 9.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets at March 31, 2020 and 2019, consisted of the following:
Millions of Yen
2020
2019
¥ 8,274¥ 10,355

Consolidation goodwill
Goodwill associated with domestic consolidated
subsidiaries
Goodwill associated with a foreign consolidated
subsidiary
Others
Total

Thousands of
U.S. Dollars
2020$ 75,908

356

410

3,266

3,392

1,939
3,753

31,120¥ 12,022¥ 16,457$ 110,294

Millions of Yen
2020
2019

Thousands of
U.S. Dollars
2020

Note 10. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Long-term debt at March 31, 2020 and 2019, consisted of the following:

Loans from banks with interest rates
ranging from 0.030% to 0.300% in 2020
and 0.030% to 0.230% in 2019:
Collateralized
Unsecured
Total
Less current portion¥Long-term debt, less current portion¥ 20,156200
33,89934,099(13,943 )¥278
38,00738,285(19,186 )¥ 19,099$

1,835
310,999
312,834(127,917 )$ 184,917

Annual maturities of long-term debt, excluding finances leases (see Note 8), at March 31, 2020, were as follows:Year Ending
Thousands ofMarch 31
Millions of Yen
U.S. Dollars
2021¥ 13,943$ 127,917
2022
41
376
2023
5,021
46,0642024
5,021
46,0642025
21
1932026 and thereafter
10,052
92,220Total¥ 34,099$ 312,834

The carrying amounts of assets pledged as collateral for above collateralized long-term debt at March 31, 2020,
were as follows:
Thousands ofMillions of Yen
U.S. Dollars
Buildings, and leasehold improvements¥ 113$ 1,037
Land
334
3,064
Total

¥ 447

$ 4,101

Note 11. RETIREMENT AND PENSION PLANS
Under most circumstances, employees terminating their employment are entitled to retirement benefits determinedbased on the rate of pay at the time of termination, years of service and certain other factors. Such retirement
benefits are made in the form of a lump-sum severance payment from certain domestic subsidiaries and annuity
payments from a welfare annuity fund. Employees are entitled to larger payments if the termination is involuntary or
by retirement at the mandatory retirement age.

- 19 -

(1)The changes in defined benefit obligation for the years ended March 31, 2020 and 2019, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2020
2019
2020
Balance at beginning of year
¥ 24,256¥ 24,557$ 222,532
Current service cost
1,435
1,511
13,165Interest cost
141
170
1,294
Actuarial gains(564 )(1,366 )(5,174 )Benefits paid
(1,115 )(884 )(10,229 )Past service cost82
Foreign currency translation difference
for a foreign subsidiary
(65 )
188
(597 )
Decrease resulting from exclusion ofsubsidiaries from consolidation(662 )(6,073 )OtherBalance at end of year

(2)

(2 )

(19 )

¥ 23,424¥ 24,256$ 214,899

The changes in plan assets for the years ended March 31, 2020 and 2019, were as follows:
Millions of Yen
2020
2019
¥ 19,110¥ 18,524384
501(376 )(232 )
731
726(579 )(409 )

Balance at beginning of year
Expected return on plan assets
Actuarial gains
Contributions from the employer
Benefits paid
Decrease resulting from exclusion ofsubsidiaries from consolidation
OthersThousands of
U.S. Dollars
2020$ 175,321
3,523(3,450 )
6,706(5,312 )(627 )(1 )Balance at end of year
(3)

(2 )

¥ 18,642(5,752 )(8 )¥ 19,110$ 171,028

Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets was as follows:
Thousands ofMillions of Yen
U.S. Dollars
2020
2019
2020
Funded defined benefit obligation¥ 15,404¥ 16,304$ 141,322
Plan assets(18,642 )(19,110 )(171,028 )Total(3,238 )(2,806 )(29,706 )Unfunded defined benefit obligation
8,020
7,952
73,577Net liability arising from defined benefit obligation

¥

4,782

¥

5,146

Millions of Yen
2020
2019
¥ 8,020¥ 7,952(3,238 )(2,806 )Liability for retirement benefits
Asset for retirement benefits$

43,871Thousands of
U.S. Dollars
2020$ 73,577(29,706 )Net liability arising from defined benefit obligation¥ 4,782¥ 5,146$ 43,871
Berlitz Corporation has a SERP for the benefit of its Chairman of the Board, certain designated executives andtheir designated beneficiaries. Liability for retirement benefits above includes ¥184 million ($1,687 thousand)and ¥186 million for SERP for the years ended March 31, 2020 and 2019, respectively, which is disclosed inother current liabilities in the consolidated balance sheets.

- 20 -

(4)The components of net periodic benefit costs for the years ended March 31, 2020 and 2019, were as follows:
Thousands ofMillions of Yen
U.S. Dollars
2020
2019
2020
Service cost
¥ 2,076¥ 2,146$ 19,046
Interest cost
141
170
1,294
Expected return on plan assets(384 )(501 )(3,523 )Recognized actuarial losses
110
246
1,008
Amortization of prior service cost
38
25
349
Net periodic benefit costs¥ 1,981¥ 2,086$ 18,174
Service cost includes ¥641 million ($5,881 thousand) and ¥635 million of estimated prepaid retirement
payment for employees in accordance with the prepaid retirement allowance plan of Benesse Corporation forthe years ended March 31, 2020 and 2019, respectively.
The Companies have also paid additional retirement benefits to employees for the year ended March 31,
2020. These payments, which are not included in net periodic benefit costs above, are included in ¥134 million($1,229 thousand) of other expenses for the year ended March 31, 2020.

(5)

Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans for the years ended March 31, 2020 and 2019, were as follows:
Millions of Yen
2020
2019

(6)

Prior service cost
Actuarial gains (amount before income tax effect)

¥

38
293

¥

(57)
1,380

$

349
2,688

Total

¥

331

¥ 1,323$

3,037

Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of March 31, 2020 and 2019, were as follows:
Millions of Yen
2020
2019
Unrecognized prior service cost(amount before income tax effect)
Unrecognized actuarial gains (losses)(amount before income tax effect)¥ (185 )

b.

¥

150

Total
(7)
a.

Thousands of
U.S. Dollars
2020

¥

(35 )

¥

Thousands of
U.S. Dollars
2020(222 )$ (1,697 )(144 )

1,376(366 )$(321 )

Plan assets
Components of plan assets
Plan assets as of March 31, 2020 and 2019, consisted of the following:
Debt investments
Equity investments
General accountCash and cash equivalents
Others

2020
33%
8
18
11
30

2019
31 %
20
18
8
23

Total

100 %

100 %

Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return, which are
expected currently and in the future from the various components of the plan assets.

- 21 -

(8)Assumptions used for the years ended March 31, 2020 and 2019, were set forth as follows:
2020
2019
Discount rate
The Company and domestic
Primarily 0.3%
Primarily 0.3%
consolidated subsidiaries
Foreign consolidated
Primarily 2.8%
Primarily 4.0%
subsidiaries
Expected rate of return
The Company and domestic
Primarily 2.0%
Primarily 2.0%
on plan assets
consolidated subsidiaries
Expected rate of salary
The Company and domestic
Primarily 6.4%
Primarily 6.4%
increases
consolidated subsidiaries
Foreign consolidated
Primarily 2.0%
Primarily 2.0%
subsidiaries

Retirement Benefits for Directors, Audit & Supervisory Board Members and Company Officers
The liability for retirement benefits at March 31, 2020 and 2019, for directors, Audit & Supervisory Board members
and Company officers at certain domestic subsidiaries was ¥78 million ($716 thousand) and ¥67 million,
respectively. The retirement benefits for directors and Audit & Supervisory Board members are paid subject to theapproval of the shareholders.
12.

EQUITYJapanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions
in the Companies Act that affect financial and accounting matters are summarized below:
a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders’ meeting. Additionally, for companies that meet certain
criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory
Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two-year
term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at
any time during the fiscal year if the Company has prescribed so in its articles of incorporation. The Company meets
all the above criteria, and accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at
any time during the fiscal year.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the Company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available
for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than
¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (acomponent of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on theequity account charged upon the payment of such dividends until the aggregate amount of legal reserve andadditional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional
paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common
stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among
the accounts within equity under certain conditions upon resolution of the shareholders.
With the issuance of shares under the restricted stock compensation plan, common stock and capital surplus eachincreased by ¥38 million ($349 thousand) and ¥38 million as of March 31, 2020 and 2019, respectively.
c. Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available
for distribution to the shareholders which is determined by a specific formula. Under the Companies Act, stockacquisition rights are presented as a separate component of equity. The Companies Act also provides thatcompanies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisitionrights are presented as a separate component of equity or deducted directly from stock acquisition rights.

- 22 -

13.

SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Disclosures about Segments of an Enterprise and RelatedInformation,” and ASBJ Guidance No. 20, “Guidance on Accounting Standard for Disclosures about Segments of anEnterprise and Related Information,” an entity is required to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of operating segments thatmeet specified criteria. Operating segments are components of an entity about which separate financial information
is available and for which such information is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. Generally, segment information is required to be reported
on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate
resources to operating segments.
(1) Description of Reportable Segments
The reportable segments of the Benesse Group (the “Group”) are subject to regular review in order for the Board of
Directors to decide on the allocation of management resources and evaluate results, and to obtain financial data
separated from the constituents of each company.
The Group concentrates investment of management resources in the four fields of Domestic Education, Global
Kodomo Challenge, Nursing Care and Childcare and Berlitz in order to achieve long-term growth for the Group as awhole.
Accordingly, the Group is made up of segments grouped by products and services based on these fourbusinesses, and has designated the Domestic Education, Global Kodomo Challenge, Nursing Care and Childcare
and Berlitz as its reportable segments.
In the Domestic Education Business, the Group engages in the correspondence course business, school andteacher support business, cram and prep school business, English language classes for children business and otherbusinesses for primary school students to high school students.
In the Global Kodomo Challenge Business, the Group engages in the correspondence course business in Japan,
China, Taiwan and Indonesia, targeting mainly infants.
In the Nursing Care and Childcare Business, the Group engages in the residential care services business(operation of nursing homes and elderly homes), home helper services business, training courses for nursing carepersonnel, a staff placement and personnel dispatch company specializing in medical and nursing care personnel,
the daycare and afterschool childcare operations business and other businesses.

- 23 -

In the Berlitz business, the Group engages in the language instruction business; the ELS business, which provides educational services including language training to those who want to study abroad; the global leadership training business and other businesses.
(2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets and Other Items for Each Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant Accounting Policies.”(3)

Information about Sales, Profit (Loss), Assets and Other Items
Millions of Yen
2020
Domestic
Education
Business

Global Kodomo
Challenge
Business

Reportable Segment
Nursing Careand Childcare
Business

Berlitz
Business

Reportable
Segment
Total

Others

Total

Reconciliations

Sales:
Sales to external customers
Intersegment sales or transfers¥ 200,394
97¥ 56,555
33¥ 122,868
46¥ 45,020
2,196¥ 424,837
2,372¥ 23,740
18,813¥ 448,577
21,185¥ (21,185 )Total¥ 200,491¥ 56,588¥ 122,914¥ 47,216¥ 427,209¥ 42,553¥ 469,762¥ (21,185 )¥ 448,577

Segment profit (loss)
Segment assets
Other:
Increase in property and equipment andintangible assets
Depreciation
Amortization of goodwill
Loss on impairment of long-lived assets
Goodwill at March 31, 2020
Investment in equity method affiliates

¥

¥

¥

11,375
182,944¥ (3,153 )
22,906

¥

¥

¥

¥

¥

9,465
5,158
534

959
1,594
252
1,586

14,042
181,048
10,443
8,776
1,177
1,886
5,276
123

2,654
45,691
1,191
1,593
52

3,354
73

- 24 -

24,918432,589
22,05817,121
1,963
3,524
8,630
196

864
18,989
759
814
48
1,946

25,782
451,578
22,817
17,935
1,963
3,572
8,630
2,142

Consolidated¥ 448,577(4,516 )65,848(157 )(13 )21,266
517,426
22,66017,922
1,963
3,572
8,630
2,142

Millions of Yen
2019
Domestic
Education
Business

Global Kodomo
Challenge
Business

Reportable Segment
Nursing Careand Childcare
Business

Berlitz
Business

Reportable
Segment
Total

Others

Total

Reconciliations

Sales:
Sales to external customers
Intersegment sales or transfers¥ 192,064
113¥ 56,44421¥ 117,000
56¥ 49,276
1,833¥ 414,784
2,023¥ 24,648
19,847¥ 439,432
21,870¥ (21,870 )Total¥ 192,177¥ 56,465¥ 117,056¥ 51,109¥ 416,807¥ 44,495¥ 461,302¥ (21,870 )¥ 439,432

Segment profit (loss)
Segment assets
Other:
Increase in property and equipment andintangible assets
Depreciation
Amortization of goodwill
Loss on impairment of long-lived assets
Goodwill at March 31, 2019
Investment in equity method affiliates

¥

¥

¥

11,396
174,164¥ (4,748 )
28,826

¥

¥

¥

¥

¥

11,975
4,675
534
22
3,887

1,210
1,903
295
61
1,939

10,056172,205
16,451
9,294
989
209
6,878
231

3,258
42,9371,196
1,202

19,962
418,132
30,832
17,074
1,818
292
12,704301

70

554
22,049907
1,006¥ 439,432

20,516440,181
31,73918,0801,818
292
12,704
2,120

1,819

Consolidated(4,270 )64,502(157 )(13 )

16,246504,683
31,582
18,0671,818
467
12,7042,120

175

Thousands of U.S. Dollars
2020
Domestic
Education
Business

Global Kodomo
Challenge
Business

Reportable Segment
Nursing Careand Childcare
Business

Berlitz
Business

Reportable
Segment
Total

Others

Total

Reconciliations

Sales:
Sales to external customers
Intersegment sales or transfers$ 1,838,477
890$ 518,853
303$ 1,127,229
422$ 413,028
20,146$ 3,897,587
21,761$ 217,798
172,596$ 4,115,385
194,357$ (194,357 )Total$ 1,839,367$ 519,156$ 1,127,651$ 433,174$ 3,919,348$ 390,394$ 4,309,742$ (194,357 )$ 4,115,385

Segment profit (loss)
Segment assets
Other:
Increase in property and equipment andintangible assets
Depreciation
Amortization of goodwill
Loss on impairment of long-lived assets
Goodwill at March 31, 2020
Investment in equity method affiliates

$

$

$

104,358
1,678,385$ (28,927 )
210,147

$

$

$

$

$

86,83547,321
4,899

8,798
14,624
2,312
14,551

128,826
1,660,991
95,80780,514
10,79817,303
48,404
1,128

24,349419,183
10,927
14,614477

30,770670- 25 -

228,606
3,968,706
202,367
157,073
18,00932,331
79,174
1,798

7,926
174,211
6,963
7,468
440
17,853

236,532
4,142,917
209,330
164,541
18,00932,771
79,174
19,651

Consolidated$ 4,115,385(41,431 )604,111(1,440 )(119 )

195,101
4,747,028
207,890
164,42218,00932,771
79,174
19,651

Note: The details of reconciliations are as follows:

Sales
Intersegment eliminations
Total¥ (21,185 )¥ (21,870 )$ (194,357 )Profit (Loss)
Intersegment eliminations
Corporate expenses

Millions of Yen
2020
2019
¥ (126 )¥ (135 )(4,390 )(4,135 )Thousands of
U.S. Dollars
2020$ (1,156 )(40,275 )Total
Notes:1.
2.

¥ (4,516 )¥ (4,270 )$ (41,431 )Corporate expenses are mainly expenses of the Company that are not attributable to thereportable segments.
Segment profit (loss) is adjusted with operating income in the consolidated statement ofincome.
Millions of Yen
2020
2019
¥ (12,139 )¥ (14,057 )
77,98778,559AssetsIntersegment eliminations
Corporate assets
Total
Note:

Millions of Yen
2020
2019
¥ (304 )¥ (322 )
147
165

Total

¥ (157 )Thousands of
U.S. Dollars
2020$ (2,789 )
1,349¥ (157 )$ (1,440 )Capital investment in the Company is not attributable to reportable segments.
Millions of Yen
2020
2019
¥ (259 )¥ (253 )246
240

Depreciation
Intersegment eliminations
Corporate expenses
Total
Note:

Thousands of
U.S. Dollars
2020$ (111,367 )
715,478¥ 65,848¥ 64,502$ 604,111
Corporate assets consist mainly of marketable securities of the Company that are not attributable
to the reportable segments.

Increase in Property and Equipment andIntangible Assets
Intersegment eliminations
Corporate assets

Note:

(5)

Thousands of
U.S. Dollars
2020$ (194,357 )Millions of Yen
2020
2019
¥ (21,185 )¥ (21,870 )Thousands of
U.S. Dollars
2020$ (2,376 )
2,257¥ (13 )¥ (13 )$ (119 )Corporate expenses are expenses related to the Company that are not attributable to thereportable segments.

Information about Geographical Areas
Sales

Japan
¥ 380,782

Millions of Yen
2020
Others¥ 67,795

Total¥ 448,577

Japan¥ 367,040

Millions of Yen
2019
Others¥ 72,392

Total¥ 439,432- 26 -

Thousands of U.S. Dollars
2020
Japan
OthersTotal$ 3,493,413$ 621,972$ 4,115,385
Note: Sales are classified by country or region based on the location of customers.
Note 14. ADVERTISING COSTS
Advertising costs charged to income were ¥34,039 million ($312,284 thousand) and ¥33,130 million for the years
ended March 31, 2020 and 2019, respectively.
Note 15. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥1,566 million ($14,367 thousand) and ¥1,312 million forthe years ended March 31, 2020 and 2019, respectively.
Note 16. DERIVATIVESThe Company enters into foreign currency exchange contracts to hedge foreign currency exchange risk associatedwith certain assets denominated in foreign currencies.
It is the Company’s policy to use derivatives only for the purpose of reducing market risks associated with assets.
The Company does not hold or issue derivatives for trading purposes.
Derivatives are subject to market risk and credit risk. Market risk is the exposure created by potential fluctuations
in market conditions, including foreign currency exchange rates. Credit risk is the possibility that a loss may result
from a counterparty’s failure to perform according to the terms and conditions of the contract.
Because the counterparties to these derivatives are limited to major international financial institutions, theCompany does not anticipate any losses arising from credit risk.
The execution and control of derivatives are managed by the Companies’ Finance Department applying internal
control policies that regulate the authorization and credit limit amounts. Each derivative transaction is reported to the
CEO weekly and reported to the Board of Directors quarterly, and is also reported to the Board of Directors eachtime significant circumstances occur. Prior to entering into derivative contracts, foreign subsidiaries confer withindependent advisers to assess the reasonableness of the contracts and obtain the Board of Directors’ approval,
and each derivative transaction is periodically reported to the Board of Directors.
Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2020 and 2019

Foreign currency forward contracts—
Selling—U.S. dollars

Foreign currency forward contracts—
Selling—U.S. dollars

Foreign currency forward contracts—
Selling—U.S. dollars

Contract
AmountMillions of Yen
2020
Contract
Amount Due
Fair
after One YearValue

¥ 5,375¥ (6 )

Contract
AmountMillions of Yen
2019
Contract
Amount Due
Fair
after One YearValue

¥ 2,735¥ (16 )

Contract
AmountThousands of U.S. Dollars
2020
Contract
Amount Due
Fair
after One YearValue

$ 49,312- 27 -$(55 )Unrealized
Gain (Loss)¥ (6 )

Unrealized
Gain (Loss)¥ (16 )

Unrealized
Gain (Loss)
$

(55 )

Derivative Transactions to Which Hedge Accounting Is Applied at March 31, 2020 and 2019

Interest rate and currency swap

Interest rate and currency swap

Interest rate and currency swap

Hedged Item
Long-term debt

Millions of Yen
2020
Contract
Contract
Amount Due
Amountafter One Year¥ 9,806¥ 9,806

Hedged Item
Long-term debt

Millions of Yen
2019
Contract
Contract
Amount Due
Amountafter One Year¥ 9,806¥ 9,806

Hedged Item
Long-term debt

Thousands of U.S. Dollars
2020
Contract
Contract
Amount Due
Amountafter One Year$ 89,963$ 89,963

The above interest rate and currency swap used to hedge long-term debt denominated in a foreign currency with avariable interest rate, which qualifies for hedge accounting and meets specific matching criteria, is not measured atmarket value. Rather, the long-term debt is recorded at a yen amount under the swap agreement and interest
expense is calculated and recorded using a fixed interest rate.
The fair value of these interest rates and currency swaps is included in long-term debt as described in Note 4.

- 28 -

Note 17. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in theaggregate, resulted in a normal effective statutory tax rate of approximately 30.6% for the years ended March 31,
2020 and 2019.
The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at March
31, 2020 and 2019, are as follows:
Thousands ofMillions of Yen
U.S. Dollars
2020
2019
2020
Deferred tax assets:
Tax loss carryforwards¥ 8,302¥ 11,469$ 76,165
Depreciation
5,056
4,565
46,385
Provision for employees’ bonuses
2,274
2,005
20,862
Liability for retirement benefits
1,636
1,540
15,009Accrued expenses
1,575
1,664
14,450Long-term payables—other
877
880
8,046
Loss on valuation of investment securities
767
167
7,037
Loss on impairment of long-lived assets
687
338
6,303
Foreign tax credit carryforwards
645
443
5,917
Asset retirement obligations
496
440
4,550
Enterprise tax
477
363
4,376
Deferred consumption taxes
406
371
3,725
Inventories
371
369
3,404
Deferred revenue
361
257
3,312
Trade receivables—accounts
360
1,199
3,303
Social insurance premium
353
326
3,239
Advances received
320
425
2,936
Prepaid expenses
270
186
2,477
Payables—other
264
274
2,422
Unrealized profit on fixed assets
259
242
2,376
510
6,110
Other
666
Total of tax loss carryforwards and temporary differences
26,422
28,033
242,404
Less valuation allowance for tax loss carryforwards(8,209 )(10,158 )(75,312 )Less valuation allowance for temporary differences(11,063 )(8,876 )(101,495 )Total valuation allowance(19,272 )(19,034 )(176,807 )
Total
7,150
8,999
65,597
Offset with deferred tax liabilities
3,044
4,594
27,927
Net deferred tax assets¥ 4,106¥ 4,405$ 37,670
Deferred tax liabilities:
Inventories¥
270¥ 1,973$
2,477
Unrealized gain on available-for-sale securities
298
612
2,734
Intangible assets
1,019
1,146
9,349
Undistributed earnings of foreign subsidiaries
and associated companies
750
755
6,881
Prepaid pension expenses
983
858
9,018
Other
365
512
3,349
Total
3,685
5,856
33,808
Offset with deferred tax assets
3,044
4,594
27,927
Net deferred tax liabilities¥641¥ 1,262$
5,881- 29 -

The expiration of tax loss carryforwards, the related valuation allowances and the resulting net deferred tax assets
as of March 31, 2020 and 2019, were as follows:
Millions of Yen
After
After
After
After
1 Year
2 Years
3 Years
4 Years
1 Yearthroughthroughthroughthrough
After
March 31, 2020or Less
2 Years
3 Years
4 Years
5 Years
5 Years
Total
Deferred tax assets
relating to tax loss
carryforwards
¥ 63
¥ 196
¥ 83
¥ 971
¥ 296
¥ 6,693¥ 8,302
Less valuation
allowances for tax
loss carryforwards
43
196
83
971
275
6,641
8,209
Net deferred tax assets
relating to tax loss
carryforwards
20
21
52
93

March 31, 2019
Deferred tax assets
relating to tax loss
carryforwards
Less valuation
allowances for tax
loss carryforwards
Net deferred tax assets
relating to tax loss
carryforwards

March 31, 2020
Deferred tax assets
relating to tax loss
carryforwards
Less valuation
allowances for tax
loss carryforwards
Net deferred tax assets
relating to tax loss
carryforwards

Millions of Yen
After
After
3 Years
4 Years
throughthrough
4 Years
5 Years

After
5 Years

Total

¥ 71

¥ 264

¥ 1,046¥ 9,788¥ 11,469

71

264

1,046

8,488

10,158

1,300

1,311

1 Yearor LessAfter
1 Yearthrough
2 YearsAfter
2 Years
through
3 Years

¥ 60

¥ 240

49

240

11

1 Yearor LessAfter
1 Yearthrough
2 Years

Thousands of U.S. Dollars
After
After
After
2 Years
3 Years
4 Years
throughthroughthrough
3 Years
4 Years
5 Years

After
5 Years$ 578$ 1,798$ 761$ 8,908$ 2,716$ 61,404

395

1,798

761

8,908

2,523

60,92775,312

193

477

853

183

Total
$

76,165For the tax loss carryforwards of ¥8,302 million ($76,165 thousand) and ¥11,469 million (amount multiplied byeffective statutory tax rate), deferred tax assets of ¥93 million ($853 thousand) and ¥1,311 million have beenrecorded as of March 31, 2020 and 2019, respectively. Net deferred tax assets relating to tax loss carryforwards
were determined to be recoverable as future taxable income is anticipated, and therefore valuation allowance has
not been recognized.

- 30 -

A reconciliation between the normal effective statutory tax rate for the years ended March 31, 2020 and 2019, andthe actual effective tax rate reflected in the accompanying consolidated statement of income was as follows:
Normal effective statutory tax rate
Change in the valuation allowance
Impairment loss on goodwill
Amortization of goodwill
Expense not deductible for income tax purposes
Per capita inhabitants’ taxes
Difference in burden of income taxes with the foreign consolidated
subsidiaries
Foreign withholdings tax
Adjustment of gain on sales of investments in subsidiaries and an affiliate
Revenue exempt from income tax purposesTax credit under tax package incentivizing wage increases andproductivity enhancements
Foreign tax credit
Share of loss (profit) of entities accounted for using the equity method
Equity in net earnings of affiliated companies
Other
Actual effective tax rate

2020
30.6 %
6.6
4.3
3.6
3.3
2.9

2019
30.6 %
5.8

2.2
1.8
1.5
(1.5)

6.7
2.0
(1.9)

(0.6)
(0.2)
(0.0)
0.0

(1.9)
(1.0)
(0.8)
0.8
(1.3)

54.5 %

52.3 %

4.4
5.1
3.8

Note 18. STOCK OPTION PLAN
The stock options that existed as of March 31, 2020, are as follows:
Stock
Option2015 Stock
Option2016 Stock
OptionPersons
Granted3 directors
17 selected
employees
3 directors

Numberof Options
Granted
1,477
1,873
975

Date of Grant
August 3, 2015
September 12,
2016

ExercisePrice¥ 3,513¥ 2,639

Exercise Period
From August 4, 2017
to August 3, 2022
From September 13, 2018
to September 12, 2023

The stock option activity is as follows:
2015 Stock2016 Stock
OptionOption(Shares)Year Ended March 31, 2020
Non-vested
March 31, 2019—Outstanding
GrantedCanceled
VestedMarch 31, 2020—Outstanding
VestedMarch 31, 2019—Outstanding
VestedExercised
Canceled
March 31, 2020—Outstanding

2,079

975

2,079

975

Exercise price¥3,513($32 )¥2,639($24 )

¥377
($3 )

¥277
($3 )

Average stock price at exercise
Fair value price at grant date

- 31 -

Note 19. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the years ended March 31, 2020 and 2019, were as
follows:
Thousands of
U.S. Dollars
2020

Millions of Yen
2020
2019
Unrealized loss on available-for-sale securities:
Losses arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effectTotal
Foreign currency translation adjustments:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Total
Defined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Share of other comprehensive (loss) income in associates:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effectTotal
Total other comprehensive (loss) income¥ (1,133)(115)(1,248)
330

¥

(237)
(248)
(485)
152

$ (10,394)(1,055)(11,449)
3,027

¥

(918)

¥

(333)

$

(8,422)

¥

(300)
(408)
(708)

¥

(340)

$

(2,753)(3,743)(6,496)

¥

(708)

¥

(340)

$

(6,496)

¥

187
144
331
(98)

¥ 1,057
266
1,323
(383)

$

1,716
1,321
3,037
(899)

¥

233

¥

940

$

2,138

¥

2
(4)
(2)
(0)

¥

9
(2)
7
(4)

$

18
(36)
(18)
(0)

¥

(2)

¥

3

$

(18)

¥ (1,395)

¥

270

(340)

$ (12,798)

Note 20. BUSINESS COMBINATIONS
Finalization of Provisional Accounting Treatment for Business Combination
On January 8, 2019, Classi Corporation, a consolidated subsidiary of the Company, acquired EDUCOM
Corporation. The purchase price allocation accounted for on a provisional basis for the year ended March 31, 2019was completed in the year ended March 31, 2020. There is no significant revision to the initial allocation of thepurchase price.
Business Divestiture
The Company transferred all the shares of consolidated subsidiary Simul International, Inc. (head office: Chuo-ku,
Tokyo; “Simul”) to TAKARA & COMPANY LTD. (head office: Toshima-ku, Tokyo; “TAKARA”) on March 31, 2020.
a.

Outline of the business divestiture(1) Name of the party who succeeded divested business
TAKARA & COMPANY LTD.
(2) Details of the transferred businesses
The businesses operated by Simul and its two subsidiaries are as follows:- Interpreting services, translation services- Operation of an academy to train interpreters and translators- Staffing and referral of interpreting and translation personnel- Provision and operation of equipment for interpreting and conferences(3) Major reason for the business divestiture
Currently, while following a profit growth-focused strategy in the Shinkenzemi business, one of its- 32 -

mainstay operations, the Company is pursuing transformation of its business portfolio to a more wellbalanced earnings structure, including by realizing stable growth in the Nursing Care and Childcare
Business. The Company positions the proactive implementation of M&As as a core strategy for achieving
this transformation, and is working on a process of concentrating on core businesses at the same time asactively considering M&As to build a third earnings pillar and M&As to create discontinuous growth inexisting businesses.
Under these conditions, the Company has carefully considered the strategic role of Simul within the
Benesse Group and Simul’s future business strategies. As a result, the Company has reached at theconclusion that accelerating Simul’s business growth with the support of TAKARA would be the mosteffective way of driving Simul’s development further.
(4) Date of the business divestiture
March 31, 2020
Operating results of Simul and its two subsidiaries from April 1, 2019 to March 31, 2020 are included in the
consolidated financial statements for the year ended March 31, 2020.
(5) Other items of the transaction (including the legal form)
Legal form of the business divestiture:
Share transfer with cash as the only consideration for thesharesNumber of shares transferred:
1,420,000 shares (shareholding ratio: 100.0%)
Transfer price:¥4,946 million ($45,376 thousand)b. Outline of accounting treatment applied(1) Amount of transfer profit or loss
Gain on sale of investment in subsidiaries and an affiliate(2)¥3,332 million ($30,569 thousand)Appropriate book value of the assets and liabilities of transferred businesses and breakdown
Thousands ofMillions of Yen
U.S. Dollars

Current assets
Long-term assets¥ 1,739603$ 15,954
5,532

Total assets¥ 2,342$ 21,486

Current liabilities
Long-term liabilities

¥

688
146

$

6,312
1,339

Total liabilities

¥

834

$

7,651

(3)

Accounting treatment
The difference between the carrying amount of the transferred shares on the consolidated balance sheet
and the proceeds from the sale of shares is recognized as “gain on sale of investment in subsidiaries andan affiliate” included in other income.

c. Name of reportable segment of divested businesses
They are not included in the specific reportable segments, but in “Others.”
d. Amount of profit regarding divested businesses, which was recorded in the consolidated statement of income forthe year ended March 31, 2020
Thousands ofMillions of Yen
U.S. Dollars
Sales¥ 6,240$ 57,248
Operating income
292
2,679

- 33 -

Note 21. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March
31, 2020 and 2019, is as follows:
Millionsof YenNet Income
Attributableto Owners of
the Parent
Year Ended March 31, 2020
Basic EPS—Net income available tocommon shareholders
Effect of dilutive securities—Warrants
Diluted EPS—Net income forcomputation
Year Ended March 31, 2019
Basic EPS—Net income available tocommon shareholders
Effect of dilutive securities—Warrants
Diluted EPS—Net income forcomputation

Thousandsof Shares

Yen

WeightedAverage
SharesU.S. Dollars

EPS

¥

6,289

96,346
5¥ 65.28$ 0.60¥6,289

96,351¥ 65.27$ 0.60¥

4,902

96,32123¥ 50.89¥

4,902

96,344¥ 50.88

Note 22. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2020, was approved at the Company’s shareholders’meeting held on June 27, 2020:

Year-end cash dividends, ¥25 ($0.23) per share- 34 -

Millions of Yen

Thousands of
U.S. Dollars¥ 2,409$ 22,101

Independent Auditor’s Report
To the Board of Directors of Benesse Holdings, Inc.: